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United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-KSB
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended December 31, 2007
 or
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 Commission file number: 002-41703
 THE X-CHANGE CORPORATION
  Nevada
(State of Incorporation or Organization)
    
    90-0156146
(I.R.S. Employer Identification No.)710 Century ParkwayAllen, TX
(Address of principal executive offices)
    
    75013
(Zip Code)(972) 747-0051
(Issuers telephone number)
 None
  Common Stock, $.001 par value
 31,589,501
 þ o
 o
 o þ
    o þ




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##### 



THE X-CHANGE CORPORATION
INDEX
 PART IITEM 1 Description of Business
    
    
    3ITEM 1A Risk Factors
    
    
    6ITEM 1B Unresolved Staff Comments
    
    
    12ITEM 2 Description of Property
    
    
    12ITEM 3 Legal Proceedings
    
    
    13ITEM 4 Submission of Matters to a Vote of Security Holders
    
    
    13PART IIITEM 5 Market for Common Equity and Related Stockholder Matters
    
    
    13ITEM 6 Managements Discussion and Analysis or Plan of Operation
    
    
    15ITEM 7 Financial Statements
    
    
    17ITEM 8 Changes in and Disagreements with Accountants on Accounting
And Financial Disclosure
    
    
    18ITEM 8A(T) Controls and Procedures
    
    
    18ITEM 8B Other Information
    
    
    20PART IIIITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act
    
    
    20ITEM 10. Executive Compensation
    
    
    22ITEM 11. Security Ownership of Certain Beneficial Owners and Management
    
    
    25ITEM 12. Certain Relationships and Related Transactions
    
    
    26ITEM 13. Exhibits and Reports on Form 8-K
    
    
    26ITEM 14. Principal Accountant Fees and Services
    
    
    29Signatures
    
    
    30Exhibit 10.18Exhibit 10.19Exhibit 10.20Exhibit 10.21Exhibit 21.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
   
 ITEM 1 DESCRIPTION OF BUSINESS
 Organization and History:
   Business Model:
  Market Overview:
      3




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st
  th
   4




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Strategic Initiatives
   Intellectual Property
     5




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Employees
  Competition and Competitive Advantage
   Manufacturing
  Regulatory
  
 ITEM 1A RISK FACTORS
  We need capital to avoid insolvency, sustain our operations and grow our business.
   6




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The loss of one or more members of management or key personnel could adversely affect our
operations and could lead to loss of clients and proprietary information.
  We may face substantial competition in attracting and retaining qualified personnel, and may be
unable to grow our business if we cannot attract and retain qualified people.
  If all holders of our derivative securities exercised simultaneously, we may not have enough shares
of our common stock authorized but unissued to satisfy all outstanding commitments.
  We expect that almost all of our projected 2008 revenue will relate to products under development
that we have not yet sold in volume to customers. As a result, we have limited visibility
regarding the length of our sales cycle, which makes projecting revenue difficult and could
otherwise adversely affect our business.
  We will not be successful unless there is widespread acceptance of RFID and other wireless
technologies in the vertical markets we are targeting.
  Oil and Gas Industry
 SAW Technologies
  7




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Law Enforcement
 Safety Applications
 Our success depends on our ability to generate recurring revenue streams, which depends in large
part on our ability to scale our sales and marketing efforts.
  We do not own several key technologies that we are developing for third parties such as Hexion
Specialty Chemicals, Inc., which may make us a less attractive acquisition candidate.
  You may not be able to resell your common stock at a price you would like or at all.
  We have a significant amount of stock options and warrants outstanding and may issue
additional equity securities in the future. Exercise of the outstanding options and warrants, and
future issuances of other securities will dilute the ownership interests of existing shareholders.
  Financing activities may be dilutive to shareholders and may adversely affect the price of stock.
   8




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Our stock is not listed on a major stock market.
  The costs being a public company can be significant.
  Complying with the Sarbanes-Oxley Act will entail substantial cost, expense, effort and management
distraction and may present risks in terms of evaluation requirements.
   The volatility of our stock price could subject us to an increased risk of securities litigation.
  The application of complex accounting rules may make it difficult for investors to evaluate our
company.
  Our current financial position may deter potential customers and strategic relationships.
  We have a history of losses, expect to incur additional losses in the future and may not be able to
achieve or sustain profitability.
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To meet our financial objectives, we must grow rapidly. If we are unable to manage this growth, we
could incur costs that could adversely affect our operating results and financial condition.
   If we overestimate customer demand, we may increase our cost structure unnecessarily.
  Although we are not targeting the supply chain RFID market, public perceptions of the viability of
RFID applications in the supply chain could adversely affect acceptance of RFID in the vertical
markets we are targeting.
  Many of our products are part of larger solutions that are offered to end customers, and we must
work with third parties to ensure that our products inter-operate correctly.
  We rely on patents, trademarks, copyrights and trade secrets to protect our proprietary rights,
which may not be sufficient to protect all of our intellectual property.
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We may need to license RFID-related patents from third parties, and we may not be able to obtain
these licenses on acceptable terms, or at all.
  We may become subject to intellectual property infringement claims and other litigation that might
be costly to resolve and, if resolved adversely, may harm our business.
  Complying with applicable governmental regulations could adversely affect our ability to sell our
products and impair operating results.
  We expect to depend on a limited number of suppliers and assemblers of our products.
  Privacy concerns relating to elements of RFID technology could damage our reputation and deter
current and potential customers from using our products and systems.
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If we fail to maintain proper and effective internal controls, our ability to produce accurate
financial statements could be impaired.
  Until recently, no members of our board of directors were independent within the meaning of federal
securities laws.
  We have an outstanding registration rights filing obligation with respect to our 2007 private
placement.
  If securities or industry analysts do not publish research or reports about us, we may not be able
to generate significant trading volume in our stock.
  Future sales of shares by existing stockholders, or perceptions of these sales, could cause
the stock price to decline.
  
 ITEM 1B UNRESOLVED STAFF COMMENTS
  
 ITEM 2 DESCRIPTION OF PROPERTY
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ITEM 3 LEGAL PROCEEDINGS
   
 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  2007
    
    
    2006Quarter Ended
    
    High
    
    
    Low
    
    
    High
    
    
    LowMarch 31
    
    $
    1.38
    
    
    $
    0.53
    
    
    $
    0.75
    
    
    $
    0.40June 30
    
    $
    0.65
    
    
    $
    0.17
    
    
    $
    1.85
    
    
    $
    0.34September 30
    
    $
    0.40
    
    
    $
    0.21
    
    
    $
    2.80
    
    
    $
    1.55December 31
    
    $
    0.35
    
    
    $
    0.18
    
    
    $
    2.42
    
    
    $
    0.72
 Dividends:
 Stock Compensation Plans:
 Number of Common Shares
    
    
    
    
    
    
    Number of shares ofto be issued upon exercise
    
    
    Weighted average exercise
    
    
    Common Stock available forof outstanding options
    
    
    price of outstanding options
    
    
    future issuanceEquity compensation plans not approved by security holders
    
    
    4,475,000
    
    
    $
    0.21
    
    
    
    1,525,000
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##### Table of Contents



Recent Sales of Unregistered Securities:
  
    
    On January 5, 2006, the Company issued 500,000 shares of common stock to Hexion
Specialty Chemical, Inc. in connection with and as part of our development contract with
Hexion. In return for the 500,000 shares $290,000 was capitalized as a deferred asset and
amortized during 2006 to operations expense. As part of the negotiation, the royalty
period for the contract was extended from 5 to 7 years.
    
    During 2006, 652,500 shares of common stock were issued to consultants to the Company as
consideration for services rendered.
    
    During 2007, 100,000 shares of common stock were issued to consultants to the Company as
consideration for services rendered in connection with the private placement.
    
    During 2007, the Company entered into a number of debt financing transactions which
allow for conversion rights into its common stock. Refer to the Consolidated Financial
Statements and accompanying notes included in Item 7 herein for details on these
transactions.
    
    During the 2007, the Company issued 3,725,001 shares of common stock to outside
investors under a private placement memorandum for proceeds in the amount of $1,117,500.
Warrants were also issued in connection with this financing as detailed below.
    
    During 2007, the Company issued 16,780,002 warrants for the purchase of shares of the
Companys stock as follows:
 Term in
    
    
    ExerciseShares
    
    
    
    
    Years
    
    
    Price630,000
    
    
    
    
    
    4
    
    
    $
    0.20200,000
    
    
    
    
    
    3
    
    
    
    0.404,500,000
    
    
    
    
    
    4
    
    
    
    0.503,725,001
    
    
    
    
    
    5
    
    
    
    0.603,725,001
    
    
    
    
    
    5
    
    
    
    0.844,000,000
    
    
    
    
    
    4
    
    
    
    1.0016,780,002
 Repurchases of Equity Securities
  Equity Compensation
    14




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ITEM 6 MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 Overview
    Going Concern and Liquidity Problems
    Critical Accounting Policies and Estimates
  Convertible Debt
 Stock Compensation Share-Based Payment
  15




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Concentration of Credit Risk
 Revenue Recognition
     Results of Operations
      Liquidity and Capital Resources
   16




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Off-Balance Sheet Arrangements and Company Commitments:
   Recently Issued Accounting Standards:
 Fair Value Measurements
 Effective Date of FASB Statement No. 157 Accounting for the Impairment or Disposal of
Long-Lived Assets.
  
 ITEM 7 FINANCIAL STATEMENTS
   17




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ITEM 8

    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
      (i)
    
    the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on our
financial statements, nor did KBA Group, LLP provide written or oral advice to us that
was an important factor considered by us in reaching a decision as to the accounting,
auditing or financial reporting issue; or(ii)
    
    any matter that was either the subject of a disagreement, or a reportable event.
 
 ITEM 8A (T) CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
  (1)
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of our assets;
  18




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(2)
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. GAAP, and that our receipts and
expenditures are being made only in accordance with the authorization of our management and
directors; and(3)
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the
financial statements.
  Internal ControlIntegrated Framework
  Identified Material Weaknesses
  1.
    
    We did not have effective comprehensive entity-level internal controls specific to the
structure of our board of directors;2.
    
    We did not have formal policies governing certain accounting transactions and financial
reporting processes;3.
    
    We did not obtain attestations by all employees regarding their understanding of and
compliance with policies related to their employment;4.
    
    We had not adopted a formal Code of Ethics and accordingly did not obtain attestations
by all members of our board of directors, our executive officers and our senior financial
officers regarding their compliance with a Code of Ethics and a Code of Ethics did not
formally apply to our other employees. However we do maintain an employee handbook which is
executed by all employees and is intended to fulfill this purpose.5.
    
    We did not perform adequate oversight of certain accounting functions and maintained
inadequate documentation of management review and approval of accounting transactions and
financial reporting processes.6.
    
    Due to the limited size of the Companys staff, there is inherently a lack of
segregation of duties related to the authorization, recording, processing, and reporting of
transactions.7.
    
    We had not fully implemented certain control activities and capabilities included in
the design of our financial system.8.
    
    We had not identified certain accounting issues which resulted in the need to restate
the financial statements for 2006 and 2005.
   19




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Managements Remediation Initiatives
   1.
    
    Identify and retain at least two new directors for our board of directors including a
member who is appropriately credentialed as a financial expert with a goal of having
sufficient independent board of directors oversight;2.
    
    Enhance entity level controls by instituting more formal documentation of management
and board meetings.3.
    
    Establish comprehensive formal general accounting policies and procedures and require
employees to sign off such policies and procedures as documentation of their understanding
of and compliance with Company policies;4.
    
    Develop and insure all employees are subject to our Code of Ethics and require all
employees and directors to sign our Code of Ethics on an annual basis and retain the
related documentation;5.
    
    Supplement appropriate management oversight and approval activities in the areas of
vendor bill payments, employee expense reimbursements, customer invoicing, and period-end
closing processes.
  Conclusion
  Changes in Internal Control over Financial Reporting
  
 ITEM 8B OTHER INFORMATION
  
 PART III
 
 ITEM 9

    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
  Name
    
    Age
    
    Positions HeldMichael L. Sheriff
    
    
    62
    
    
    President, Chief Executive Officer and
Chairman of the BoardKathleen Hanafan
    
    
    47
    
    
    President, Chief Operating Officer, DirectorGeorge DeCourcy
    
    
    55
    
    
    Chief Financial Officer, Secretary, Director
  20




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Executive Officers and Directors
 Michael Sheriff, Chairman, CEO and Director
  Kathleen Hanafan, President, COO and Director
  George DeCourcy, CFO and Director
   21




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Other Significant Employees
  Ivan Chow, Chief Technical Officer and Sr. Vice President of Software Solutions
  Terry Roberts, Chief Information Officer
  Compliance with Section 16(a) of the Exchange Act
   Audit Committee Financial Expert
  Code of Ethics
  
 ITEM 10 EXECUTIVE COMPENSATION
   22




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Summary Compensation Table
 Stock

    
    
    Option
    
    
    OptionName
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Awards
    
    
    Awards
    
    
    Awards
    
    
    All OtherPrinicpal Positions
    
    Ended
    
    
    ($)
    
    
    ($)
    
    
    (A)
    
    
    ($) (B)
    
    
    No. shares
    
    
    CompensationMike Sheriff
    
    
    2007
    
    
    
    155,625
    
    
    
    22,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    CEO
    
    
    2006
    
    
    
    125,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    109,167
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kathleen Hanafan
    
    
    2007
    (1)
    
    
    147,667
    
    
    
    22,000
    
    
    
    
    
    
    
    362,900
    
    
    
    2,000,000
    
    
    
    President and COOGeorge DeCourcy
    
    
    2007
    (2)
    
    
    64,164
    
    
    
    10,000
    
    
    
    
    
    
    
    291,975
    
    
    
    1,500,000
    
    
    
    CFOKarey Daniels
    
    
    2007
    (3)
    
    
    64,164
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prior CFO
    
    
    2006
    
    
    
    120,000
    
    
    
    
    
    
    
    8,200
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    48,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Robert Barbee
    
    
    2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prior VP Operations
    
    
    2006
    
    
    
    120,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2005
    
    
    
    48,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 A.
    
    Direct stock grant was made of 50,000 shares to Karey Daniels, the former CFO of the
company. These shares were valued at $8,200.B.
    
    The stock option awards are valued using the grant date value calculated in accordance
with FAS 123(R) and are not discounted for factors such as trading restrictions, vesting
limitations and other traditional discounts. See Notes to the Financial Statements for a
discussion of the relevant assumptions used in calculating these values.1.
    
    Represents compensation earned from January 15, 2007 date of hire by Company. Ms.
Hanafan was awarded an additional 100,000 shares prior to employment for work as a
consultant on a financing matter.2.
    
    Represents compensation earned from July 17, 2007 date of hire.3.
    
    Represents compensation through June 11, 2007 date of departure.  23




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Stock Option Grants in 2007 to Named Executives
 Number of Shares
    
    
    % or total options
    
    
    Exercise
    
    
    ExpirationName
    
    Underlying Options
    
    
    granted employees
    
    
    Price
    
    
    DateKathleen Hanafan
    
    
    2,000,000
    
    
    
    41.7
    %
    
    $
    0.20
    
    
    
    6/20/2017George DeCourcy
    
    
    1,500,000
    
    
    
    31.3
    %
    
    $
    0.22
    
    
    
    6/20/2017
 Aggregate Option Exercises in 2007 and Year End Option Values
  Number of securities
    
    
    Value of UnexercisedShares
    
    
    Value
    
    
    Underlying Unexercised
    
    
    In-the-Money OptionsAquired On
    
    
    Realized
    
    
    Options at December 31, 2007
    
    
    at December 31, 2007Name
    
    Exercise
    
    
    ($)
    
    
    Excercisable
    
    
    Unexercisable
    
    
    Excercisable
    
    
    UnexercisableKathleen Hanafan
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    1,500,000
    
    
    $
    20,000
    
    
    $
    60,000George DeCourcy
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    1,000,000
    
    
    $
    10,000
    
    
    $
    20,000
 Compensation of Directors
  Employment Contracts
    24




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ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
    
    each person who, to our knowledge, is the beneficial owner of more than five percent of
our common stock;
    
    each director and executive officer of the X-Change Corporation; and
    
    all of our directors and officers as a group.
  Amount and Nature
    
    
    TotalName and Address of
    
    Amount of
    
    
    of Indirect
    
    
    Beneficial
    
    
    Percent ofTitle of Class
    
    Beneficial Owner
    
    Direct Ownership
    
    
    Beneficial Ownership
    
    
    Ownership
    
    
    Class (1)Voting Common
    
    Ironman Energy Partners II, L.P.
    
    
    
    
    
    
    5,812,500
    (2)
    
    
    5,812,500
    
    
    
    15.54
    %2211 Norfolk, Suite 611Houston, TX 77098Voting Common
    
    Samson Investment Company
    
    
    
    
    
    
    5,812,500
    (2)
    
    
    5,812,500
    
    
    
    15.54
    %2 West Second St., Tulsa OK 74103Voting Common
    
    John Thomas Bridge & Opportunity Fund LP
    
    
    
    
    
    
    1,875,000
    (3)
    
    
    1,875,000
    
    
    
    5.60
    %3 Riverway #1800 Houston TX 77056Voting Common
    
    Philip A Carpenter
    
    
    1,187,501
    
    
    
    2,375,002
    (4)
    
    
    3,562,503
    
    
    
    10.13
    %777 S. Figueroa St., 50th FloorLos Angeles, CA 90017Voting Common
    
    Sarah Palmer1125 East Mass. Ave
    
    
    1,020,834
    
    
    
    2,041,668
    (5)
    
    
    3,062,502
    
    
    
    8.84
    %Southern Pines, NC 28387Voting Common
    
    South Beach Live, Inc.
    
    
    1,170,000
    
    
    
    967,023
    (6)
    
    
    2,137,023
    
    
    
    6.34
    %416 CR 364Melissa, TX 75054Voting Common
    
    Michael Sheriff
    
    
    5,450,000
    
    
    
    1,200,000
    (7)
    
    
    6,650,000
    
    
    
    17.39
    %710 Century ParkwayAllen, TX 77013Voting Common
    
    Kathleen Hanafan
    
    
    100,000
    
    
    
    1,000,000
    
    
    
    1,100,000
    
    
    
    3.36
    %710 Century ParkwayAllen, TX 77013Voting Common
    
    George DeCourcy
    
    
    
    
    
    
    500,000
    
    
    
    500,000
    
    
    
    1.56
    %710 Century ParkwayAllen, TX 77013Voting Common
    
    David Friedman (Director)
    
    
    
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    0.63
    %10015 Glen Canyon Dr.Dallas, TX 75243Voting Common
    
    All directors & officers as a group
    
    
    5,550,000
    
    
    
    2,900,000
    (8)
    
    
    8,450,000
    
    
    
    21.10
    %Voting Common
    
    LaJolla Cove Investors Inc.
    
    
    
    
    
    
    1,416,666
    (9)
    
    
    1,416,666
    
    
    
    4.29
    %7817 Herschel AvenueLaJolla, CA 92037
 (1)
    
    Applicable percentages of ownership for each stockholder are based on 31,589,501
outstanding shares of common stock on December 31, 2007. Beneficial ownership is determined
in accordance with the rules of the SEC and generally includes voting or investment power
with respect to the securities. Securities exercisable or convertible into shares of common
stock that are currently exercisable or exercisable within sixty (60) days of December 31,
2007 are deemed to be beneficially owned by the person holding such derivative securities
for the purpose of computing the percentage of ownership of such persons, but are not
treated as outstanding for the purpose of computing the percentage ownership of any other
person.  25




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(2)
    
    Consists of conversion rights for 3,875,000 shares and warrant rights for 1,937,500
shares.(3)
    
    Consists of conversion rights for 1,250,000 shares and warrant rights for 625,000
shares.(4)
    
    Indirect rights consist of warrant rights for 2,375,002 shares.(5)
    
    Indirect rights consist of warrant rights for 2,041,668 shares.(6)
    
    Indirect rights consist of conversion rights on note payable.(7)
    
    Indirect ownership via beneficial ownership rules.(8)
    
    Indirect ownership is in the form of vested or to be vested (within 60 days) stock
options in addition to the amount shown in note 7 which is included herein.(9)
    
    Amounts indicated are estimated based on reasonable application of beneficial ownership
rules given variable conversion rights and expected exercise provisions. Though estimate
indicates a beneficial value below 5%, this item is being disclosed because actual exercise
rights are not easily determined and could vary substantially. 
 ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 13 EXHIBITS
 (a)
    
    Consolidated Financial Statements.  The following consolidated financial statements of
X-Change Corporation and subsidiaries, are submitted as a separate section of this report (See
F-pages), and are incorporated by reference in Item 7:
 Report of Independent Registered Public Accounting Firm
    
    
    F-1Report of Prior Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets at December 31, 2007 and 2006
    
    
    F-3Consolidated Statements of Operations for the years ended December 31,
2007, and 2006
    
    
    F-4Consolidated Statements of Stockholders Equity (Deficit) for the
years ended December 31, 2007 and 2006
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31,
2007 and 2006
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
  26




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(b)
    
    The following Exhibits are filed herewith pursuant to Item 601 of Regulation S-B or
incorporated herein by reference to previous filings as noted:
 Exhibit No.
    
    Exhibit Name3.1
    
    
    Articles of Incorporation. Incorporated herein by reference to
Exhibit 3.01(i) on Form 8-K filed on January 23,2008.3.2
    
    
    Amended and Restated Bylaws of The X-Change Corporation.
Incorporated herein by reference to Exhibit 3.01(ii) on Form 8-K
filed on January 23, 2008.10.1
    
    
    Promissory Note, dated August 15, 2006, between the X-Change
Corporation and Melissa CR 364 Ltd. Incorporated herein by
reference to Exhibit 10.01 included with our Current Report on Form
8-K filed with the SEC on August 21, 2006.10.2
    
    
    Form of Subscription Agreement, Private Placement. Incorporated
herein by reference to Exhibit 10.1 included with our Current
Report on Form 8-K filed with the SEC on February 23, 2007.10.3
    
    
    Form of Registration Rights Agreement, Private Placement.
Incorporated herein by reference to Exhibit 10.2 included with our
Current Report on Form 8-K filed with the SEC on February 23, 2007.10.4
    
    
    Form of $0.60 Warrant Agreement, Private Placement. Incorporated
herein by reference to Exhibit 10.3 included with our Current
Report on Form 8-K filed with the SEC on February 23, 2007 and
altered only as to price which was originally stated at $1.50.10.5
    
    
    Form of $0.84 Warrant Agreement, Private Placement. Incorporated
herein by reference to Exhibit 10.4 included with our Current
Report on Form 8-K filed with the SEC on February 23, 2007 and
altered only as to price which was originally stated at $2.00.10.6
    
    
    Memorandum of Understanding, dated December 3, 2004, between
AirGATE Technologies and Hexion Specialty Chemicals (formerly
Borden Chemical Inc.) Incorporated herein by reference to Exhibit
10.6 on Form 10-KSB for the year ended December 31, 2006 filed
April 6, 2007. (Certain portions of this exhibit have been omitted
pursuant to a confidential treatment request filed with the
Securities and Exchange Commission.)10.7
    
    
    Phase II of Memorandum of Understanding, effective January 3 2006,
between AirGATE Technologies and Hexion Specialty Chemicals.
Incorporated herein by reference to Exhibit 10.7 on Form 10-KSB for
the year ended December 31, 2006 filed April 6, 2007. (Certain
portions of this exhibit have been omitted pursuant to a
confidential treatment request filed with the Securities and
Exchange Commission.)10.8
    
    
    First Amendment to Memorandum of Understanding, dated September 12,
2006, between AirGATE Technologies and Hexion Specialty Chemicals.
Incorporated herein by reference to Exhibit 10.8 on Form 10-KSB for
the year ended December 31, 2006 filed April 6, 2007. (Certain
portions of this exhibit have been omitted pursuant to a
confidential treatment request filed with the Securities and
Exchange Commission.)10.9
    
    
    Development Agreement, dated October 26, 2006, between AirGATE
Technologies and Graco Childrens Products, Inc. (a unit of Newell
Rubbermaid, Inc.) Incorporated herein by reference to Exhibit 10.9
on Form 10-KSB for the year ended December 31, 2006 filed April 6,
2007. (Certain portions of this exhibit have been omitted pursuant
to a confidential treatment request filed with the Securities and
Exchange Commission.)10.10
    
    
    Securities Purchase Agreement between X-Change Corporation and La
Jolla Cove Investors, Inc. effective August 30, 2007. Incorporated
herein by reference to Exhibit 99(ii) on Form 8-K filed on
September 7, 2007.
  27




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##### Table of Contents



Exhibit No.
    
    Exhibit Name10.11
    
    
    6.25% Convertible Debenture between X-Change Corporation and La
Jolla Cove Investors, Inc. effective August 30, 2007. Incorporated
herein by reference to Exhibit 99(iii) on Form 8-K filed on
September 7, 2007.10.12
    
    
    Warrant to purchase common stock between X-Change Corporation and
La Jolla Cove Investors, Inc. effective August 30, 2007.
Incorporated herein by reference to Exhibit 99(iv) on Form 8-K
filed on September 7, 2007.10.13
    
    
    Securities Purchase Agreement, dated December 4, 2007, by and among
X-Change, AirGATE, and Samson Investment Company, Ironman PI Fund
(QP), LP, and John Thomas Bridge & Opportunity Fund, LP.
Incorporated herein by reference to Exhibit 4.1 on Form 8-K filed
on December 10, 2007.10.14
    
    
    Form of Senior Secured Convertible Term NoteTranche A, dated
December 4, 2007, by and among X-Change and Samson Investment
Company, Ironman PI Fund (QP), LP, and John Thomas Bridge &
Opportunity Fund, LP. Incorporated herein by reference to Exhibit
4.2 on Form 8-K filed on December 10, 2007.10.15
    
    
    Form of Tranche A Warrant dated December 4, 2007, by and among
X-Change and Samson Investment Company, Ironman PI Fund (QP), LP,
and John Thomas Bridge & Opportunity Fund, LP. Incorporated herein
by reference to Exhibit 10.1 on Form 8-K filed on December 10,
2007.10.16
    
    
    Registration Rights Agreement dated December 4, 2007, by and among
X-Change and Samson Investment Company, Ironman PI Fund (QP), LP,
and John Thomas Bridge & Opportunity Fund, LP, and Tejas Securities
Group, Inc. Incorporated herein by reference to Exhibit 10.2 on
Form 8-K filed on December 10, 2007.10.17
    
    
    Security and Guaranty Agreements dated December 4, 2007 by and
among X-Change, AirGATE and Samson Investment Company, Ironman PI
Fund (QP), LP, and John Thomas Bridge & Opportunity Fund, LP.
Incorporated herein by reference to Exhibits 10.3 and 10.4
respectively on Form 8-K filed on December 10, 2007.10.18
    *
    
    Employment Agreement dated October 1, 2007 by and between the
Company and Michael Sheriff, the Companys Chief Executive Officer.10.19
    *
    
    Employment Agreement dated October 1, 2007 by and between the
Company and Kathleen Hanafan, the Companys President and Chief
Operating Officer.10.20
    *
    
    Employment Agreement dated October 1, 2007 by and between the
Company and George DeCourcy, the Companys Chief Financial Officer.10.21
    *
    
    X-Change Corporation 2007 Stock Incentive Plan16.1
    
    
    Letter on change in certifying accountant signed by Robison Hill &
Company. Incorporated herein by reference to Exhibit 99.1 on Form
10-K filed April, 19, 200721.1
    *
    
    List of subsidiaries31.1
    *
    
    Certification of Principal Executive Officer Pursuant to 18 U.S.C
Section 1350 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    *
    
    Certification of Principal Financial Officer Pursuant to 18 U.S.C
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.1
    *
    
    Certification of Principal Executive Officer Pursuant to 18 U.S.C
Section 1350 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.2
    *
    
    Certification of Principal Financial Officer Pursuant to 18 U.S.C
Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    Filed herewith.  28




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##### Table of Contents



ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2007
    
    
    2006Service
    
    KBA
    
    
    RHC
    
    
    KBA
    
    
    RHCAudit Fees
    
    $
    37,219
    
    
    $
    26,400
    
    
    $
    
    
    
    $
    14,340Audit Related Services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    All other Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 Audit Fees
 Audit Related Services
 Tax Fees
 Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors:
  29




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##### Table of Contents



SIGNATURES
  THE X-CHANGE CORPORATION
(Registrant)Dated: April 11, 2008
    By:
    /s/ Michael L. SheriffMichael L. Sheriff, Chief Executive Officer th
 Signature
    
    Date
    
    Capacity/s/ Michael L. Sheriff
Michael L. Sheriff
    
    April 11, 2008
    
    Chairman of the Board/s/ Kathleen Hanafan
Kathleen Hanafan
    
    April 11, 2008
    
    Director, President and Chief Operating Officer/s/ George DeCourcy
George DeCourcy
    
    April 11, 2008
    
    Director, Chief Financial Officer
  30




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
  F-1




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##### Table of Contents



Report of Prior Independent Registered Public Accounting Firm
 ROBISON, HILL & CO.
    
    CERTIFIED PUBLIC ACCOUNTANTSA PROFESSIONAL CORPORATIONBRENT M. DAVIES, CPADAVID O. SEAL, CPAW. DALE WESTENSKOW, CPABARRY D. LOVELESS, CPASTEPHEN M. HALLEY, CPA
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
 
     /s/ Robison, Hill & Co.

Certified Public Accountants
 
  F-2




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##### Table of Contents



THE X-CHANGE CORPORATION
 
 CONSOLIDATED BALANCE SHEETS
 December 31, 2007
    
    
    December 31, 2006(Restated)ASSETSCurrent assets:Cash
    
    $
    739,869
    
    
    $
    1,955Accounts receivable, net of allowance for doubtful accounts of
$35,663 in 2007
    
    
    79,729
    
    
    
    119,053Prepaid expenses
    
    
    1,339
    
    
    
    61,000Deposits
    
    
    40,770
    
    
    
    15,886Total current assets
    
    
    861,707
    
    
    
    197,894Property and equipment, net
    
    
    51,976
    
    
    
    69,009Debt issuance costs, net
    
    
    608,648
    
    
    
    TOTAL ASSETS
    
    $
    1,522,331
    
    
    $
    266,903LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Convertible note payable
    
    $
    797,794
    
    
    $
    less unamortized discount on convertible debt
    
    
    (243,039
    )
    
    
    Related party loans payable
    
    
    
    
    
    
    120,000Accounts payable
    
    
    461,660
    
    
    
    297,557Accrued expenses
    
    
    38,413
    
    
    
    139,933Deferred revenue
    
    
    
    
    
    
    27,000Customer deposits
    
    
    30,000
    
    
    
    Total current liabilities
    
    
    1,084,828
    
    
    
    584,490Long-term liabilities:Convertible long-term notes payable
    
    
    2,221,600
    
    
    
    less unamortized discount on convertible debt
    
    
    (2,133,620
    )
    
    
    Convertible long-term related party note payable
    
    
    
    
    
    
    797,794less unamortized discount on related party convertible debt
    
    
    
    
    
    
    (629,331
    )TOTAL LIABILITIES
    
    
    1,172,808
    
    
    
    752,953Commitments and contingenciesStockholders equity (deficit):Preferred stock, par value $.001, authorized 10,000,000
shares,
none issued at December 31, 2007 and December 31,
2006
    
    
    
    
    
    
    Common stock, par value $.001, authorized 100,000,000
shares, issued 31,589,501 and 27,764,500 at
December 31, 2007 and
December 31, 2006 respectively
    
    
    31,590
    
    
    
    27,765Additional paid-in capital
    
    
    15,748,998
    
    
    
    11,717,497Accumulated deficit
    
    
    (15,431,065
    )
    
    
    (12,231,312
    )Total stockholders equity (deficit)
    
    
    349,523
    
    
    
    (486,050
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    1,522,331
    
    
    $
    266,903
   F-3




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##### Table of Contents



THE X-CHANGE CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year ended December 31,2007
    
    
    2006(Restated)Revenues
    
    $
    1,626,654
    
    
    $
    1,130,308ExpensesResearch & development
    
    
    1,892,242
    
    
    
    1,143,356Sales & marketing
    
    
    462,605
    
    
    
    315,568General & administrative
    
    
    1,892,412
    
    
    
    1,611,001Operating expenses
    
    
    4,247,259
    
    
    
    3,069,925Operating loss
    
    
    (2,620,605
    )
    
    
    (1,939,617
    )Other income (expense)Interest expense including $44,107 to a related party for the year
ended December 31, 2006 and including amortization of
note discounts of $454,832 and $127,619 (related party) for
the years ended December 31, 2007 and 2006, respectively
    
    
    (582,948
    )
    
    
    (171,861
    )Interest income
    
    
    3,800
    
    
    
    32Net loss from continuing operations
    
    
    (3,199,753
    )
    
    
    (2,111,446
    )Loss from discontinued operations
    
    
    
    
    
    
    (10,221
    )Net loss
    
    $
    (3,199,753
    )
    
    $
    (2,121,667
    )Loss per share, basic & diluted
    
    $
    (0.11
    )
    
    $
    (0.08
    )Weighted average shares outstanding, basic & diluted
    
    
    30,326,515
    
    
    
    27,399,500
   F-4




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##### Table of Contents



THE X-CHANGE CORPORATION
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
 Years ended December 31, 2007 and 2006
 TotalStockholdersCommon Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    EquityShares
    
    
    Par Value
    
    
    Capital
    
    
    Deficit
    
    
    (Deficit)Balance at December 31, 2005
    
    
    26,712,000
    
    
    $
    26,712
    
    
    $
    9,870,399
    
    
    $
    (10,109,645
    )
    
    $
    (212,534
    )Shares issued to Hexion (restated)
    
    
    500,000
    
    
    
    500
    
    
    
    289,500
    
    
    
    
    
    
    
    290,000Shares issued for services (restated)
    
    
    652,500
    
    
    
    653
    
    
    
    800,548
    
    
    
    
    
    
    
    801,201Shares issued for settlement
    
    
    (100,000
    )
    
    
    (100
    )
    
    
    100
    
    
    
    
    
    
    
    Debt discount on note payable (restated)
    
    
    
    
    
    
    
    
    
    
    756,950
    
    
    
    
    
    
    
    756,950Net loss (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,121,667
    )
    
    
    (2,121,667
    )Balance at December 31, 2006
    
    
    27,764,500
    
    
    
    27,765
    
    
    
    11,717,497
    
    
    
    (12,231,312
    )
    
    
    (486,050
    )Shares issued for cash
    
    
    3,725,001
    
    
    
    3,725
    
    
    
    1,113,775
    
    
    
    
    
    
    
    1,117,500Shares issued for services
    
    
    100,000
    
    
    
    100
    
    
    
    (100
    )
    
    
    
    
    
    
    Stock based compensation
    
    
    
    
    
    
    
    
    
    
    488,517
    
    
    
    
    
    
    
    488,517Debt discount on note payable
    
    
    
    
    
    
    
    
    
    
    2,202,160
    
    
    
    
    
    
    
    2,202,160Warrants issued for financing fees
    
    
    
    
    
    
    
    
    
    
    227,149
    
    
    
    
    
    
    
    227,149Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,199,753
    )
    
    
    (3,199,753
    )Balance at December 31, 2007
    
    
    31,589,501
    
    
    $
    31,590
    
    
    $
    15,748,998
    
    
    $
    (15,431,065
    )
    
    $
    349,523
   F-5




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##### Table of Contents



THE X-CHANGE CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended December 31,2007
    
    
    2006(Restated)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (3,199,753
    )
    
    $
    (2,121,667
    )Adjustments to reconcile net loss to net cash
used by operating activities:Depreciation
    
    
    22,671
    
    
    
    20,546Hexion related costs satisfied with stock
    
    
    
    
    
    
    290,000Stock issued for services
    
    
    
    
    
    
    801,201Stock based compensation expense
    
    
    488,517
    
    
    
    Amortization of financing fees
    
    
    11,489
    
    
    
    Amortization of debt discount (related party amounts of
$127,619 for 2006)
    
    
    454,832
    
    
    
    127,619Net cash used in discontinued operations
    
    
    
    
    
    
    10,222Change in operating assets and liabilities:Accounts receivable
    
    
    39,324
    
    
    
    (119,053
    )Deposits
    
    
    (24,885
    )
    
    
    (5,615
    )Prepaid expenses
    
    
    59,661
    
    
    
    (61,000
    )Accounts payable
    
    
    164,103
    
    
    
    194,304Accrued expenses
    
    
    (101,520
    )
    
    
    128,856Deferred revenue
    
    
    (27,000
    )
    
    
    27,000Customer deposits
    
    
    30,000
    
    
    
    Net cash used by operations
    
    
    (2,082,561
    )
    
    
    (707,587
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of fixed assets
    
    
    (5,637
    )
    
    
    (58,357
    )Net cash used in investing activities
    
    
    (5,637
    )
    
    
    (58,357
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from common stock issued
    
    
    1,117,500
    
    
    
    Proceeds from related party notes
    
    
    
    
    
    
    762,052Payments on related party note
    
    
    (120,000
    )
    
    
    Proceeds from other notes payable, net of fees
    
    
    1,828,612
    
    
    
    Net cash provided by financing activities
    
    
    2,826,112
    
    
    
    762,052Net increase (decrease) in cash
    
    
    737,914
    
    
    
    (3,892
    )Cash at beginning of year
    
    
    1,955
    
    
    
    5,847Cash at end of year
    
    $
    739,869
    
    
    $
    1,955
   F-6




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##### Table of Contents



THE X-CHANGE CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1 Background and Summary of Significant Accounting Policies
  Organization and History
   Nature of Business
  Principles of Consolidation
  Nature of Operations and Going Concern
      Convertible Debt Instruments
   F-7




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##### Table of Contents



Accounting for Stock Options
     Use of Estimates
  Revenue Recognition
      F-8




---



##### Table of Contents



Trade Receivables and Allowance for Doubtful Accounts
  Financing Fees
  Fair Market Value of Financial Instruments
  Impairment of Long-Lived Assets
  Concentrations of Credit Risk
  Depreciation
  Research and Development
  Loss per Share
   F-9




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##### Table of Contents



Income Taxes
   Recent Accounting Pronouncements
 Fair Value Measurements
 Effective Date of FASB Statement No. 157 Accounting for the Impairment or Disposal of
Long-Lived Assets.
   Note 2 Property and Equipment
  December 31,2007
    
    
    2006Equipment
    
    $
    36,982
    
    
    $
    36,082Furniture and Fixtures
    
    
    69,582
    
    
    
    64,845106,564
    
    
    
    100,927Accumulated depreciation
    
    
    (54,588
    )
    
    
    (31,918
    )$
    51,976
    
    
    $
    69,009
   F-10




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##### Table of Contents



Note 3 Deferred Costs
   Note 4 Commitments and Contingencies
   Year ending:
    
    Amount2008
    
    $
    96,9002009
    
    
    96,9002010
    
    
    96,9002011
    
    
    Thereafter
    
    
    Total
    
    $
    290,700
  Note 5 Debt Financing Arrangements
 Melissa Note
    F-11




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##### Table of Contents



LCII Debentures
 1 4
    SIJ Financing
     F-12




---



##### Table of Contents



Other Related party Notes
   Note 6 Preferred Stock
     Note 7 Common Stock
 
    
    On January 5, 2006, the Company issued 500,000 shares of common stock to Hexion
Specialty Chemical, Inc. in connection with and as part of the development contract with
Hexion. In return for the 500,000 shares, $290,000 was recorded as deferred costs and
amortized during 2006 to operations expense. As part of the negotiation, the royalty
period for the contract was extended from 5 to 7 years.
    
    During 2006, 652,500 shares of common stock were issued to consultants to the Company as
consideration for services rendered.
    
    During 2007, 100,000 shares of common stock were issued to consultants to the Company as
consideration for services rendered.
  F-13




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##### Table of Contents




    
    During the 2007, the Company issued 3,725,001 shares of common stock to outside
investors under a private placement memorandum for proceeds in the amount of $1,117,500.
Warrants were also issued in connection with this financing as detailed below.
    
    During 2007, in connection with stock issuances for cash and various debt transactions,
the Company issued 16,780,002 warrants for the purchase of shares of the Companys stock as
follows:
 Term in
    
    
    ExerciseShares
    
    
    
    
    Years
    
    
    Price630,000
    
    
    
    
    
    4
    
    
    $
    0.20200,000
    
    
    
    
    
    3
    
    
    
    0.404,500,000
    
    
    
    
    
    4
    
    
    
    0.503,725,001
    
    
    
    
    
    5
    
    
    
    0.603,725,001
    
    
    
    
    
    5
    
    
    
    0.844,000,000
    
    
    
    
    
    4
    
    
    
    1.0016,780,002
 Note 8 Stock Compensation
   Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Remaining
    
    
    IntrinsicOptions
    
    
    Price
    
    
    Term
    
    
    ValueOptions outstanding at Jan 1, 2007
    
    
    Options granted
    
    
    4,800,000
    
    
    $
    0.21Options exercised
    
    
    Options forfeited
    
    
    325,000
    
    
    
    0.20Options outstanding at December 31, 2007
    
    
    4,475,000
    
    
    
    0.21
    
    
    
    9.5
    
    
    $
    134,250Options exercisable at December 31, 2007
    
    
    1,212,500
    
    
    
    0.20
    
    
    
    9.5
    
    
    $
    48,500Options available for grants as of December 31, 2007
    
    
    1,525,000
  Options Outstanding
    
    
    Options ExercisableWeighted Average
    
    
    Weighted
    
    
    Number
    
    
    Weighted Average
    
    
    WeightedNumber
    
    
    Remaining
    
    
    Average
    
    
    Of
    
    
    Remaining
    
    
    AverageRange of
    
    of
    
    
    Contract Term
    
    
    Exercise
    
    
    Options
    
    
    Contract Term
    
    
    ExerciseExercise Price
    
    Options
    
    
    (in years)
    
    
    Price
    
    
    Exercisable
    
    
    (in years)
    
    
    Price$0.20 - $0.22
    
    
    4,475,000
    
    
    
    9.5
    
    
    $
    0.21
    
    
    
    1,212,500
    
    
    
    9.5
    
    
    $
    0.20
  F-14




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##### Table of Contents



2007Weighted average grant date fair value
    
    $
    0.18Total intrinsic value of options exercised during the year
    
    $
    Total fair value of options vested during the year
    
    $
    228,314
  Weighted Averagegrant-dateNon-vested Shares
    
    Shares
    
    
    fair valueNon-vested at January 1, 2007
    
    
    
    
    
    $
    Granted
    
    
    4,800,000
    
    
    
    0.18Vested
    
    
    (1,212,500
    )
    
    
    0.18Forfeited
    
    
    (325,000
    )
    
    
    0.18Non-vested at December 31, 2007
    
    
    3,262,500
    
    
    
    0.18
  Year endedDecember 31, 2007Research and development
    
    $
    12,380Sales and marketing
    
    
    52,150General and administrative
    
    
    423,987$
    488,517
  2007Weighted average assumptions usedVolatility
    
    
    157.77
    %Expected option term (years)
    
    6 yearsRisk-free interest rate
    
    
    4.60
    %Expected dividend yield
    
    
    
    F-15




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##### Table of Contents



Note 9 Legal Proceedings
  Note 10 Income Taxes
  December 31,2007
    
    
    2006Net operating loss carryforwards
    
    
    1,457,849
    
    
    
    714,000FAS123R option expense
    
    
    166,096
    
    
    
    Debt discount amortization
    
    
    155,801
    
    
    
    Other
    
    
    22,170
    
    
    
    Valuation allowance for deferred tax assets
    
    
    (1,801,916
    )
    
    
    (714,000
    )$
    
    
    
    $
    
  Note 11 Concentration of Risk
  Note 12 Discontinued Operations
   F-16




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##### Table of Contents



Note 13 Restatement  2006
  
    
    The 2005 acquisition of AirGATE Technologies, Inc. was revised to reflect a valuation
consistent with the market price of Companys common stock at the date of acquisition.
    
    All stock-based payments to non-employees for consulting services during 2005 and
2006 were revalued to reflect the market price of the Companys common stock at the time
of payment.
    
    Debt Discount  The Company established that its related party note payable
established in 2006 had an embedded beneficial conversion feature that had not been
recorded in accordance with generally accepted accounting principles. This beneficial
conversion feature was recorded and amortized over the term of the note.
    
    Deferred Costs Amortization  In connection with the issuance of 500,000 shares to
Hexion in January 2006, the estimated value of this transaction was previously recorded
as a long-term asset. The Company subsequently determined that the issuance of the
 shares should be accounted for as a deferred cost. The Company has amortized the fair
value of the revised value of these shares over the life of the related contract period
from January to July 2006.
    
    Revenue Recognition  The Company recognized revenue at the time of invoicing for
development contract scheduled payments, which should be recognized over the life of the
project.
  Statement of Operations Data
 Year endingDecember 31, 2006Restated
    
    
    Previously FiledRevenue
    
    $
    1,130,308
    
    
    $
    1,154,573Expenses
    
    
    3,069,925
    
    
    
    2,136,042Operating loss
    
    
    (1,939,617
    )
    
    
    (981,469
    )Other Income (Expense)
    
    
    (171,829
    )
    
    
    (44,210
    )Income (Loss) from discontinued operations
    
    
    (10,221
    )
    
    
    (10,221
    )Net Income (Loss)
    
    $
    (2,121,667
    )
    
    $
    (1,035,900
    )Earnings per Share from Continuing Operations
    
    $
    (0.08
    )
    
    $
    (0.04
    )
 Balance Sheet Data
 As of December 31, 2006Restated
    
    
    Previously FiledAssets
    
    $
    266,903
    
    
    $
    483,347Liabilities
    
    
    752,953
    
    
    
    1,359,030Stockholders Deficit
    
    $
    (486,050
    )
    
    $
    (875,683
    )
  F-17




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Exhibit Name10.18*
    
    Employment Agreement dated October 1, 2007 by and between the
Company and Michael Sheriff, the Companys Chief Executive
Officer.10.19*
    
    Employment Agreement dated October 1, 2007 by and between the
Company and Kathleen Hanafan, the Companys President and
Chief Operating Officer.10.20*
    
    Employment Agreement dated October 1, 2007 by and between the
Company and George DeCourcy, the Companys Chief Financial
Officer.10.21*
    
    X-Change Corporation 2007 Stock Incentive Plan21.1*
    
    List of subsidiaries31.1*
    
    Certification of Principal Executive Officer Pursuant to 18
U.S.C Section 1350 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Principal Financial Officer Pursuant to 18
U.S.C Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.1*
    
    Certification of Principal Executive Officer Pursuant to 18
U.S.C Section 1350 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of Principal Financial Officer Pursuant to 18
U.S.C Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    Filed herewith