**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-KSB**


(Mark
      One)





**[X]**
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**





For
      the
      fiscal year ended December 31, 2006





**[   ]**
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934**





For
      the
      transition period from ___________ to __________




Commission
      file number: 000-32885





**XA,
      INC.**


(Exact
      name of small business issuer as specified in its charter)





**NEVADA**
            **88-0471263**(State
                or other jurisdiction of
            (IRS
                Employer Identification No.)incorporation
                or organization)





**875
      NORTH MICHIGAN AVENUE, SUITE 2626**


**CHICAGO,
      ILLINOIS 60611**


(Address
      of principal executive offices)





**(312)
      397-9100**


(Registrant's
      telephone number)





Securities
      registered under Section 12(b) of the Exchange Act:





NONE





Securities
      registered under Section 12(g) of the Exchange Act:





COMMON
      STOCK, $.001 PAR VALUE PER SHARE





Check
      whether the registrant (1) has filed all reports required to be filed by Section
      13 or 15(d) of the Exchange Act during the past 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 [
 ]





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B not contained in this form, and no disclosure will be contained,
      to the best of the registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. [  ]












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
      issuer's revenues for the most recent fiscal year ended December 31, 2006 were
      $9,824,677.





The
      aggregate market value of the issuer's voting and non-voting common equity
      held
      by non-affiliates computed by reference to the average bid and ask price of
      such
      common equity as of March 8, 2007, was approximately $1,255,715.





As
      of
      March 26, 2007 the issuer had 3,952,250 shares of common stock, $.001 par value
      per share outstanding ("Common Stock"), which amount does not include 25,000
      shares of Form S-8 registered common stock which the issuer has agreed to issue
      to the issuer’s attorney, which shares have not been registered or issued to
      date.





Documents
      Incorporated by Reference: NONE





Transitional
      Small Business Disclosure Format: Yes [  ] No [X]















**XA,
      INC.**


**FORM
      10-KSB**





YEAR
      ENDED


December
      31, 2006


INDEX





**Part
      I**







Item
                1
            Description
                of Business
            4Item
                2.
            Description
                of Property
            18Item
                3.
            Legal
                Proceedings
            18Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            20





**Part
      II**





Item
                5.
            Market
                for Common Equity and Related Stockholder Matters
            21Item
                6.
            Management's
                Discussion and Analysis or Plan of Operation
            25Item
                7.
            Financial
                Statements
            F-1Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            44Item
                8A.
            Controls
              and
              Procedures
            44Item
                8B
            Other
                Information
            44





**Part
      III**





Item
                9.
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act
            45Item
                10.
            Executive
                Compensation
            50Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            57Item
                12.
            Certain
                Relationships and Related Transactions
            61Item
                13.
            Exhibits
                and Reports on Form 8-K
            65Item
                14.
            Principal
                Accountant Fees and Services Signatures
            70


















**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS





CERTAIN
      STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-KSB (THIS "FORM 10 KSB"), INCLUDING
      STATEMENTS UNDER "ITEM 1. DESCRIPTION OF BUSINESS," AND "ITEM 6. MANAGEMENT'S
      DISCUSSION AND ANALYSIS", CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE
      MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE
      PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM
      ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS
      CAN
      BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES",
      "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER
      VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY
      THAT
      INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
      AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
      RESULTS, PERFORMANCE OR ACHIEVEMENTS OF XA, INC., AND/OR ITS WHOLLY OWNED
      SUBSIDIARIES, THE EXPERIENTIAL AGENCY, INC., AN ILLINOIS CORPORATION AND FIORI
      XA, INC., XA SCENES, INC. AND XA INTERACTIVE, INC., NEVADA CORPORATIONS
      (COLLECTIVELY "XA", "THE COMPANY", "WE", "US" OR "OUR") TO BE MATERIALLY
      DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR
      IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-KSB,
      UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31, 2006.





**BUSINESS
      HISTORY**





XA,
      Inc.,
      was originally incorporated in Nevada as Synreal Services Corp. ("Synreal")
      on
      August 28, 2000. The Company's business plan was to engage in the business
      of
      providing due diligence and administrative services for real estate
      syndications. Prior to entering into an Exchange Agreement, discussed below,
      and
      the consummation of the transactions thereunder, the Company was considered
      a
      development stage enterprise, as defined in Financial Accounting Standards
      Board
      No. 7. Our principal executive offices are located at 875 North Michigan Avenue,
      Suite 2626, Chicago, Illinois 60611. Our telephone number is (312) 397-9100
      and
      our fax number is (312) 573-1515.





On
      December 4, 2003, Synreal, The Experiential Agency, Inc., formerly G/M
      Productions, Inc., an Illinois corporation ("Experiential") and the former
      Experiential shareholders entered into an Exchange Agreement (the "Exchange"
      or
      "Acquisition") whereby Experiential became a wholly-owned subsidiary of the
      Company and control of the Company shifted to the former Experiential
      shareholders. In addition, Frank Goldstin, the Company's former Chief Executive
      Officer and a former director of the Company, entered into a stock purchase
      agreement with the Company's former officers and directors, Brian Chelin and
      Jennifer Wallace. Synreal was considered a "shell" at the time of the
      Acquisition; therefore, the transaction was treated as a reverse
      merger.




-4-





Effective
      February 2, 2004, the Company declared a 13 to 1 forward stock split. Effective
      December 9, 2004, the Company declared a 1 for 20 reverse stock split. The
      effects of the stock splits have been retroactively reflected in this Form
      10-QSB unless otherwise stated.





In
      June
      2004, the Company entered into a Subscription Agreement with Alpha Capital
      Aktiengesellschaft, Stonestreet Limited Partnership, Whalehaven Funds Limited,
      Greenwich Growth Fund Limited and Genesis Microcap Inc. (collectively the "6%
      Note Purchasers") to purchase convertible promissory notes having an aggregate
      principal amount of $2,500,000, $1,250,000 of which was sold on June 30, 2006
      (the "First Tranche" and $1,250,000 which was sold in September 13, 2006 (the
      "Second Tranche"), which had a 6% annual interest rate, and a conversion price
      of $0.25 per share (the " 6% Notes"). Following the reverse stock split on
      December 9, 2004, the conversion price of the 6% Notes would have been $5.00
      per
      share, however, the Company agreed to change the conversion price of the 6%
      Notes to $2.00 per share. The Subscription Agreement also provided for the
      issuance of warrants to purchase up to an aggregate of 250,000 shares of Common
      Stock, with an exercise price of $9.60 per share (the "Class A Warrants"),
      and
      warrants to purchase up to an aggregate of 500,000 shares of Common Stock,
      with
      an exercise price of $5.00 per share (the "Class B Warrants"). The Company
      did
      not agree to change the exercise price of the Class A Warrants or the exercise
      price of the Class B Warrants. The Class A Warrants expire Four (4) years from
      the date they were issued. The Class B Warrants have expired and no Class B
      Warrants were ever exercised by the 6% Note Purchasers.





Of
      the
      $2,500,000 in Convertible 6% Notes issued to the Note Holders, $467,500 in
      principal and $4,555.67 in interest were converted into a total of 94,412 post
      split shares, leaving $2,032,500 (not including any accrued interest) of
      principal remaining under the 6% Notes as of June 30, 2006, when the First
      Tranche was due. We used $1,047,000 of the funds raised through the August
      2006
      Funding (as defined below) to repay the First Tranche and used $1,030,575 of
      the
      funds raised through the September and October 2006 Fundings (as defined below)
      to repay the amount we owed under the Second Tranche. As such, as of the date
      of
      this filing, we have repaid all of the amounts due the 6% Note Purchasers under
      the 6% Notes.





On
      August
      8, 2006 (the "Closing"), we entered into a Securities Purchase Agreement (the
      "Purchase Agreement") with Sands Brothers Venture Capital LLC, Sands Brothers
      Venture Capital II LLC, Sands Brothers Venture Capital III LLC, Sands Brothers
      Venture Capital IV LLC, and Katie & Adam Bridge Partners, L.P. (each a
      "Purchaser" and collectively the "Purchasers"), pursuant to which we sold the
      Purchasers 11% Senior Subordinated Secured Convertible Promissory Notes in
      the
      aggregate principal amount of $1,250,000 (collectively the "Senior Notes")
      and
      five (5) year warrants to purchase an aggregate of one hundred and seventy-five
      thousand (175,000) shares of our common stock at an exercise price of $1.10
      per
      share (the "Warrants" and collectively with the Senior Notes, the "Securities"
      and the entire transaction are defined herein as the "August 2006
      Funding").




-5-







On
      September 13, 2006, we entered into a Waiver of Rights Agreement (the "Second
      Waiver Agreement"), with the 6% Note Purchasers, whereby the 6% Note Purchasers
      agreed to extend the due date of the Second Tranche and agreed to waive all
      reset, anti-dilution and re-pricing rights they may have had in connection
      with
      the September and October Fundings (as defined below), as well as certain shares
      and warrants contained in the August 2006 Funding Waiver Agreement.





On
      September 26, 2006, we entered into Securities Purchase Agreements with G.
      Chris
      Andersen and Paul M. Higbee, two individuals ("Andersen" and "Higbee"). Pursuant
      to the Securities Purchase Agreements, we sold each of Andersen and Higbee
      $100,000 in fifteen month, 11% Senior Subordinated Secured Convertible
      Promissory Notes (the "Andersen and Higbee Notes"), and granted each of them
      fifteen thousand (15,000) five year warrants to purchase shares of our common
      stock at an exercise price of $1.10 per share (the "Andersen and Higbee
      Warrants," and collectively the entire September 26, 2006 funding transaction,
      the "September 2006 Funding").





On
      October 23, 2006, we entered into a Securities Purchase Agreement with Vision
      Opportunity Master Fund, Ltd. ("Vision," and collectively with Andersen and
      Higbee, the "Second Funding Purchasers"). Pursuant to the Securities Purchase
      Agreement with Vision (collectively with the Andersen and Higbee Securities
      Purchase Agreements, the "Second Funding Purchase Agreements"), we sold Vision
      $1,250,000 in fifteen month, 11% Senior Subordinated Secured Convertible
      Promissory Notes (the "Vision Notes," and collectively with the Andersen and
      Higbee Notes, the "Second Funding Notes" or the "Second Funding Senior Notes")
      and granted Vision one hundred thousand (100,000) five year warrants to purchase
      shares of our common stock at $0.30 per share, and one hundred and eighty seven
      thousand five hundred (187,500) five year warrants to purchase shares of our
      common stock at an exercise price of $1.10 per share (collectively the "Vision
      Warrants" and with the Andersen and Higbee Warrants, the "Second Funding
      Warrants"). Collectively referred to herein as the "October 2006 Funding,"
      and
      collectively with the September 2006 Funding, the "September and October 2006
      Fundings".





Although
      as originally executed, the Higbee and Andersen Notes had similar provisions
      to
      the August 2006 Funding Notes (which did not have an Optional Conversion Right
      as defined and described below, among other less material differences not
      discussed herein), we later agreed to conform both the Higbee and Andersen
      closing documents to the Vision Notes and documents described herein and may
      conform the closing documents for the August 2006 Funding Notes in the future.
      As such, the Higbee Notes and the Andersen Notes have substantially similar
      terms as those described below (other than the dates contained therein and
      the
      amount of each Purchaser's investment).





In
      addition to the Warrants we granted to Vision in connection with the funding,
      Mastodon Ventures, Inc. ("MVI"), which was issued 666,667 warrants to purchase
      shares of our common stock at $0.30 per share, assigned 100,000 of such warrants
      to Vision, and the August 2006 Second Funding Purchasers, who were granted
      an
      aggregate of 333,333 warrants to purchase shares of our common stock at $0.30
      per share, assigned 133,333 of such warrants to Vision.




-6-







The
      Senior Notes, Second Funding Senior Notes, Warrants and Second Funding Warrants
      (as well as the MVI and Venture Warrants) contain certain anti-dilution
      provisions in connection with the Underlying Shares, which provide that if
      we
      issue or sell any additional shares of common stock (including convertible
      shares of common stock and/or options or warrants to purchase shares of common
      stock) other than as a dividend or other distribution (a "Dilutive Issuance")
      at
      less than the Conversion Price or Exercise Price then in effect, the Conversion
      Price or Exercise Price shall be automatically reduced to the lower Effective
      Price (as defined in the Senior Notes, Second Funding Senior Notes, Warrants
      and
      Second Funding Warrants) of the issuance and/or sale. However, the August 2006
      and September and October 2006 Purchasers have agreed to waive such
      anti-dilution provision in connection with the issuance of up to 250,000 shares
      for professional services, of which we have agreed to issue an aggregate of
      125,000 shares of which 50,000 shares have been issued to date and 100,000
      warrants have been granted to date to purchase shares at $0.30 per share
      (collectively the "Excepted Issuances").





Our
      repayment of the Senior Notes and Second Funding Senior Notes and any accrued
      interest thereon is secured by a security interest in substantially all of
      our
      assets, which we granted to the Purchasers pursuant to a Security Agreement
      (the
      "Security Agreement"), which we entered into with the Purchasers and Second
      Funding Purchasers at the closings. Additionally in September 2006, the August
      2006 Purchasers entered into an Acknowledgment of Rights Agreement with us,
      whereby they agreed that their security interest rights in our assets would
      be
      pari passu with the September and October 2006 Purchasers' rights.





We
      also
      granted the Purchasers, Second Funding Purchasers, Venture and MVI (as defined
      below) registration rights in connection with the shares of common stock
      issuable in connection with the conversion of the Senior Notes, Second Funding
      Senior Notes and the exercise of the Warrants and Second Funding Warrants,
      the
      MVI Warrants and the Venture Warrants (as defined below), collectively the
      "Underlying Shares"), pursuant to our entry into Registration Rights Agreements
      (the "Registration Rights Agreements"), which we entered into at the
      closing





Furthermore,
      pursuant to the Purchase Agreement, we agreed to grant the Purchasers and the
      Second Funding Purchasers the right to appoint one Director to our Board of
      Directors (or a Board Advisory Seat to observe at all board meetings). In the
      event such purchasers desire to exercise such right to appoint a Director,
      our
      Board of Directors will be increased to five (5) members.





Prior
      to
      our entry into the Purchase Agreement and the Second Funding Purchase
      Agreements, and the consummation of the funding, we received waivers from
      LaSalle Bank National Association to approve the Funding, whom we currently
      owe
      $800,000 pursuant to a revolving line of credit. Additionally, we received
      the
      waiver of the 6% Note Purchasers, ,who purchased the 6% Convertible Notes in
      June and September 2004, to approve the funding and waive our previous default
      under the 6% Convertible Notes (described in greater detail below) pursuant
      to
      our entry into a Waiver of Rights Agreement with the 6% Note Purchasers on
      July
      17, 2006, with an effective date of June 30, 2006, which Waiver of Rights
      Agreement was later extended by the 6% Note Purchasers until
      August 9, 2006 in connection with the August 2006 Funding, and our entry into
      two additional Waiver of Rights Agreements with the 6% Note Purchasers, the
      Second Waiver Agreement and the Third Waiver Agreement (as described
      herein).





-7-










We
      also
      agreed to issue an aggregate of 333,333 warrants to purchase shares of our
      common stock at an exercise price of $0.30 per share to Sands Brothers Venture
      Capital Funds ("Venture" and the "Venture Warrants") and 666,667 warrants to
      purchase shares of our common stock at an exercise price of $0.30 per share
      to
      MVI Ventures, Inc. ("MVI" and the "MVI Warrants") in consulting fees in
      connection with the August 2006 Funding. Both the Venture Warrants and the
      MVI
      Warrants are exercisable for five (5) years from the date of the August 2006
      Closing.





The
      Senior Notes, warrants, closing and related agreements are described in greater
      detail in our Form 8-K filing, which we filed with the Commission on August
      15,
      2006, and the Second Funding Senior Notes, Second Funding Warrants and related
      agreements are described in greater detail in our Form 8-K filing, which we
      filed with the Commission on November 1, 2006.





**Registration
      Rights Agreement**





Pursuant
      to the Registration Rights Agreements, we agreed to register the Underlying
      Shares on a Form SB-2 registration statement with the Securities and Exchange
      Commission (the "Commission" and the "Registration Statement"). We agreed that
      in the event that the Private Offering has not occurred within six (6) months
      of
      the August 2006 Note funding date (February 8, 2006), we will file a
      Registration Statement with the Commission within forty-five (45) days of such
      six (6) month anniversary of the prior August 2006 closing (March 25, 2007,
      which filing date was met) and that we would obtain effectiveness of such
      Registration Statement no more than ninety (90) days after the date we are
      required to file such Registration Statement (June 23, 2007)(the "Mandatory
      Filing Deadlines"). Provided that the Private Offering does occur within six
      (6)
      months of the Closing, the Purchasers have demand registration rights pursuant
      to the Registration Rights Agreement, whereby the holders of 50.1% of the Senior
      Notes can demand that we file the Registration Statement at any time beginning
      on the nine (9) month anniversary date of the Closing, May 8, 2007. If the
      Purchasers demand that we file a Registration Statement, we are required to
      file
      the Registration Statement with the Commission within forty-five days of the
      date such demand is given, and we are required to obtain effectiveness of the
      Registration Statement no more than sixty (60) days after the date we are
      required to file such Registration Statement in connection with the August
      2006
      Purchasers and ninety (90) days after the date we are required to file such
      Registration Statement in connection with the September 2006 and October 2006
      Purchasers (collectively with the Mandatory Filing Deadlines the "Registration
      Deadlines").





If
      we
      fail to file or obtain effectiveness of the Registration Statement by the
      applicable Registration Deadlines or after such effectiveness the Purchasers
      are
      unable to sell the Underlying Shares, we are obligated, pursuant to the
      Registration Rights Agreement, to pay the Purchasers an amount in cash equal
      to
      two (2%) of the total principal amount of the Senior Notes, for each thirty
      (30)
      day period which the Registration Deadlines are not met or the Purchasers are
      unable to sell the Underlying Shares. If we fail to pay such damages within
      five
      (5) days of the date payable, we are required to pay interest on the amount
      payable at the rate of eighteen percent (18%) per annum, accruing daily until
      such amounts are paid in full.




-8-







We
      also
      agreed to provide the Purchasers piggy-back registration rights in connection
      with any registration agreement we may choose to file prior to the six (6)
      or
      nine (9) month anniversary of the Closing, when the Purchasers' mandatory and
      demand registration rights kick in, respectively.





--------------------------------------------------





We
      immediately used $1,047,000 of the funds received through the August 2006
      Funding along with approximately $40,000 in cash to repay the $1,086,486 amount
      owed to the First Tranche of our 6% Notes. The 6% Note Purchasers had originally
      purchased $2,500,000 in 6% Notes from us in two tranches of $1,250,000, however,
      the 6% Purchasers previously converted a portion of the 6% Notes into shares
      of
      our common stock, and as a result, only approximately $1,056,180 of principal
      remained due under the June 2004 tranche of the 6% Notes on June 30, 2006,
      which
      amount was not immediately paid when due. This amount would have accrued
      interest at the default rate equal to 15% until paid, however our default was
      waived by the 6% Note Purchasers pursuant to our entry into a Waiver of Rights
      Agreement with the 6% Note Purchasers on July 17, 2006, with an effective date
      of June 30, 2006, which Waiver of Rights Agreement was later extended by the
      6%
      Note Purchasers until August 9, 2006. As a result, the remaining balance under
      the June 2004 portion of the 6% Notes was equal to $1,056,180 as of August
      8,
      2006, which amount was increased to approximately $1,087,000 in connection
      with
      accrued and unpaid interest at 6% per annum on the outstanding amount of the
      June 2004 portion of the 6% Notes and the September 2004 portion of the 6%
      Notes.





The
      remaining amount of the August 2006 Funding that we received equal to
      approximately $203,000 was paid to Laidlaw (defined below), Venture and to
      Laidlaw's legal counsel in connection with attorney's fees and finder's fees
      in
      connection with the Funding.





As
      a
      result of the funds paid to the 6% Note Purchasers and the funds paid in
      finder's fees and attorney's fees, as well as the cash we paid to the 6% Note
      Purchasers, the August 2006 Funding cost us approximately $40,000 in cash;
      however, we were able to repay the June 2004 tranche of funds due to the 6%
      Note
      Purchasers, which funds we did not previously have, and which payment alleviated
      our being in default.





Additionally,
      we immediately used $1,030,575 of the funds received through the September
      and
      October fundings to repay the amount due under the Second Tranche of the 6%
      Notes and interest on such amount as of October 18, 2006. We owed approximately
      $1,012,434 in principal on the September 2004 portion of the 6% Notes, which
      notes were due and payable on September 13, 2006, but which due date was later
      extended to October 18, 2006, pursuant to a Waiver of Rights Agreement entered
      into in October 2006 (the "Third Waiver Agreement"), with the 6% Note
      Purchasers. The total amount of principal and interest at 6% per annum which
      was
      due under the 6% Notes as of October 18, 2006, was approximately $1,030,575.
      Due
      to our repayment of the Second Tranche of the 6% Notes, we no longer owe the
      6%
      Note Second Funding Purchasers any money, however, such 6% Note Second Funding
      Purchasers still hold 250,000 warrants to purchase shares of our common stock
      at
      an exercise price of $9.60 per share. The 6% Note Second Funding Purchasers
      have
      however, pursuant to the Third Waiver Agreement, agreed to waive their reset
      rights to their warrants in connection with the September and October 2006
      fundings as well as securities issued in a future private
      placement.




-9-







Additionally,
      $175,000 of the remaining amount of the amounts received through the September
      and October 2006 Fundings were used to pay various closing costs and legal
      fees,
      including $80,000 paid to Laidlaw & Company (UK) Ltd. ("Laidlaw") in
      connection with finders fees and consulting fees in connection with the October
      funding and amounts paid to Vision's legal counsel in attorney's fees and due
      diligence fees in connection with the October closing, as well as amounts paid
      to our legal counsel.





**Consulting
      Agreement**





Additionally
      in October 2006, we entered into a Consulting Agreement with Mastodon Ventures,
      Inc., a Texas corporation ("MVI"), whereby we engaged MVI to act as a
      non-exclusive strategic advisor in connection with our fundings, including
      our
      Private Offering. Pursuant to the Consulting Agreement, MVI agreed to assist
      us
      in all facets of the Private Offering; provided however that they are not
      required under the Consulting Agreement to render any services which involve
      the
      raising of capital for or on behalf of us, and agreed that any such capital
      raising activities will only be affected through registered broker dealers.
      We
      agreed to pay MVI's actual expenses in connection with the Consulting Agreement,
      provided such expenses are pre-approved in writing by us, and agreed to issue
      MVI warrants to purchase 666,667 shares of our common stock at an exercise
      price
      of $0.30 (which warrants were issued on or about August 8, 2006, and were
      previously reported in our Form 8-K filing, filed with the Commission on August
      15, 2006) (the "First MVI Warrant") and a warrant to purchase 1,000,000 shares
      of our common stock (the "Second MVI Warrant") during a five (5) year period
      as
      described below, which is only exercisable by MVI if within one year of the
      parties entry into the consulting agreement, we consummate the Offering or
      a
      Change in Control (as defined in the Consulting Agreement) occurs (each a
      "Vesting Event").





The
      five
      year exercise period of the Second MVI Warrant commences upon the occurrence
      of
      a Vesting Event. The Second MVI Warrant is exercisable at an exercise price
      equal to the lesser of $1.10 per share or 125% of the effective offering price
      of the Private Offering, or in the event of a Change in Control, such warrant
      shall be exercisable at an exercise price of $1.10 per share.





MVI
      has
      informed us that that it plans to transfer the right to purchase certain shares
      of common stock pursuant to the First MVI Warrant and Second MVI Warrants to
      various parties including, the right to purchase 82,400 shares under the First
      MVI Warrant and 150,000 shares under the Second MVI Warrant to Gusrae Kaplan
      Bruno & Nusbaum, PLLC, the attorney for the August 2006 Second Funding
      Purchasers and the right to purchase 54,933 shares under the First MVI Warrant
      and the right to purchase 100,000 shares under the Second MVI Warrant to our
      legal counsel, David M. Loev, Attorney at Law.




-10-







Furthermore,
      we agreed pursuant to the Consulting Agreement, that MVI has the right, to
      sell
      all or a portion of the shares of our common stock which are owned by MVI as
      a
      result of MVI's exercise of the First MVI Warrant to the future purchasers
      of
      the Private Offering, assuming that we have previously sold at least $3,000,000
      in securities pursuant to such Private Offering. For example, assuming that
      we
      have previously sold at least $3,000,000 of securities pursuant to the Private
      Offering, MVI will then have the ability to sell all of the shares of common
      stock which it then owns to the purchasers on the same terms and conditions
      as
      the Private Offering.





MVI
      agreed pursuant to the Consulting Agreement that it would not own 5% or more
      of
      our shares of common stock at any one time (except in the event of a Change
      of
      Control) in connection with the exercise of either of the Warrants.





The
      Second MVI Warrants and the rights provided thereunder will expire if a Vesting
      Event has not occurred within one (1) year from the date of the Consulting
      Agreement.





**Debt
      Conversion Agreements**





In
      August
      2006, we entered into a Debt Conversion Agreement with our legal counsel, David
      M. Loev, an individual, whereby Mr. Loev agreed to forgive $10,000 of certain
      legal fees which were owed to him in connection with the issuance of 50,000
      restricted shares of our common stock (one share for each $0.20 of debt owed).
      Additionally, Mr. Loev was previously granted 25,000 five year warrants to
      purchase shares of our common stock for $0.30 per share in connection with
      legal
      services rendered in connection with the August 2006 funding.





In
      November 2006, we entered into another Debt Conversion Agreement with Mr. Loev,
      whereby he agreed to convert an additional $15,000 in legal fees which he was
      owed into an aggregate of 75,000 shares of our common stock and five year
      warrants to purchase 75,000 shares of our common stock at $0.30 per share.
      We
      agreed to register the 75,000 shares of common stock and the shares underlying
      the exercise of the 75,000 warrants on a Form S-8 Registration Statement to
      be
      filed with the Commission within sixty (60) days of our entry into the Debt
      Conversion Agreement.





**Legal
      Services Agreement**





Effective
      January 1, 2007, we entered into an Agreement with David M. Loev, of The Loev
      Law Firm, PC, to be responsible for certain corporate/securities matters
      including the preparation of and/or review of Schedule 13ds, Form 3's, Form
      4's,
      Schedule 13g's, Schedule 14a's, Schedule 14c's, Form 10-QSB's, Form 10-KSB's
      and
      Form 8-K's to be filed by us with the Securities and Exchange Commission and
      the
      review of our press releases (the "Legal Services Agreement"). In connection
      with the Legal Services Agreement, we agreed to pay Mr. Loev $4,750 per month,
      reimburse him for out of pocket expenses and to issue him 25,000 S-8 shares
      of
      our common stock, which shares have not been issued to date and have not been
      included in the number of issued and outstanding shares used throughout this
      Report. The Legal Services Agreement is in effect until December 31, 2007 and
      services provided outside of the Legal Services Agreement are to be rendered
      on
      an hourly basis.




-11-







**Business
      Operations:**








We,
      referred to herein as “XA,” through our wholly-owned subsidiaries, The
      Experiential Agency, Inc., an Illinois corporation (“Experiential”), XA Scenes,
      Inc., Fiori XA, Inc. and XA Interactive, Inc., Nevada corporations are a
      comprehensive event marketing, design and production services agency. With
      full-service offices in Chicago and New York City as well as a sales office
      in
      Los Angeles, and a venue in New York City, XA is a leading provider of event
      services on an outsourced basis for corporations, associations and other
      organizations in the United States and abroad. XA provides its clients with
      a
      single source to their business communications and event planning
      needs.





In
      the
      third quarter of 2005, XA formed a wholly owned Nevada subsidiary, XA Scenes,
      Inc. ("XA Scenes"). XA Scenes was formed as a special events venue management
      firm. XA’s senior management team believes that there is a significant
      opportunity for XA Scenes to capitalize on the synergies that exist between
      XA’s
      event marketing agency, Experiential, and selected joint venture
      partners.





For
      seventeen (17) years, XA has worked with clients around the globe to design
      and
      produce strategic multidimensional, highly stylized and integrated event
      programs. During the year ended December 31, 2005, XA planned and executed
      over
      one hundred and fifty (150) events that were attended by more than an aggregate
      of approximately thirty thousand (30,000) people in the United States and
      foreign markets. XA's clients during the year ended December 31, 2005 included
      L'Oreal USA, Barnes & Noble (NYSE:BKS), Cargo Magazine, VH1, W Hotels, Walt
      Disney Co. (NYSE:DIS), ABN AMRO (NYSE:ABN), Finesse, Kenneth Cole (NYSE:KCP),
      McDonald's Corporation (NYSE:MCD), Starbucks Corp. (NASDQ:SBUX), UNICEF, Royal
      Caribbean (NYSE:RCL), discovery networks, British Telecom, Heineken Light and
      the Wella Corporation. Additionally, XA planned Lennox Louis' wedding in Jamaica
      during the year ended 2005.





During
      the year ended December 31, 2006, XA planned approximately one hundred and
      fifty
      (150) events, attended by over 100,000 people, for clients including McDonald's
      Corporation (NYSE:MCD), HBO, VH1, the Wella Corporation, the Ritz Carlton,
      Barnes and Noble, UNICEF, Discovery, Home & Garden Magazine, GLAAD,
      Universal Pictures, Goldman Sachs, Tag Heuer, Accenture Ltd. (NYSE:CAN) and
      Sports Illustrated.





In
      January 2007, XA was awarded Special Event Magazine’s Gala Award in the category
      of “Best Event Marketing Campaign” for Real Simple’s Holiday Solutions. The
      annual award competition recognizes achievement in all areas of special events
      and design. The winners are selected after 5 rounds of judging by members of
      Special Event Magazine's Advisory Board. The award winning event produced and
      designed by XA helped to recreate Real Simple magazine with a Holiday Solutions
      five-week mall tour that targeted female consumers. To implement the vision,
      the
      XA event team designed and constructed living rooms in high-traffic malls.
      The
      rooms created an experience, idea or amenity to guests, while allowing
      advertisers direct interaction with readers. Over 100,000 consumers visited
      the
      events in addition to 330,000 TV viewers.




-12-







During
      the nine months ended September 30, 2006, XA has seen several trends in the
      event marketing and promotion field, including the fact that many events and
      campaigns are using retail components, including wireless attendee tracking
      systems and retail "pop-ups," which XA hopes to take advantage of moving forward
      in its events and campaigns.





XA
      focuses on strategic growth that includes, among other things, the acquisition
      and development of targeted business communications and event management
      companies in key regions throughout the United States. XA has developed a
      vertically integrated infrastructure that it believes will enhance its ability
      to continue to provide event services on a national basis. In order to provide
      its clients with a single source solution to their event planning needs, XA
      offers a wide range of services that encompass the event planning process
      including general management, concept creation, content creation and execution.
      XA believes that its vertically integrated organization, creative talent,
      technological leadership and its willingness to commit capital to acquire or
      develop proprietary exhibitions and special events are competitive advantages
      in
      a fragmented industry in which most vendors provide a limited set of services
      on
      a local basis.





**Industry
      and Market Overview**





The
      events industry in the United States is highly fragmented with several local
      and
      regional vendors that provide a limited range of services in two main segments:
      1) business communications and event management; and 2) meeting, conferences
      and
      trade shows. The industry also consists of specialized vendors such as
      production companies, meeting planning companies, and destination logistics
      companies that may offer their services outside of the events
      industry.





According
      to an event marketing study conducted by PROMO Magazine ("PROMO") in 2005,
      and
      published in its April 1, 2006 edition, marketers spent $171 billion in event
      marketing in 2005, up 3% from the previous year. Additionally, according to
      The
      George P. Johnson Co.'s annual survey, EventView '05/'06, as reported by PROMO,
      96% of marketing executives use events in their marketing mix. Because of these
      trends, XA believes it is well positioned to gain a greater share of the market
      for event production services and grow its operations moving
      forward.





**Principal
      Products and Services**





XA
      offers
      a wide range of services that encompass the event planning process including
      general management, concept creation, content creation, and execution. XA earns
      most of its revenue from event services fees that it charges clients regarding
      the following general service areas:





*
      Event
      Marketing;


*
      Design
      and production;




-13-







*
      Meetings, Conferences and Trade Shows;


*
      Entertainment and Show Production;


*
      Business Theater & General Sessions;


*
      Mobile
      Marketing;


*
      Audio/Visual Production;


*
      Public
      Relations;


*
      Destination Management;


*
      XA
      Interactive (Digital Marking); and


*
      Venue
      Management.





XA
      earns
      a management fee when it provides general management services. XA earns fees
      on
      a fee-for-services basis when it undertakes event marketing and business
      communications projects.





**General
      Management Services**





XA
      offers
      general management services that provide its clients with centralized
      coordination and execution of the overall event. In connection with providing
      general management services, XA utilizes an executive producer responsible
      for
      overseeing the production of an event or exhibition. The executive producer
      coordinates the services that XA provides for the client. XA provides the
      following general management services:





*
      Project
      oversight;


*
      Budget
      oversight;


*
      Quality
      assurance and control;


*
      Project
      funding and sponsorship development;


*
      Project
      control and accountability;


*
      Event
      promotion and marketing creation;


*
      Schedule management; and


*
      Fulfillment provider management.





**Concept
      Creation**





XA
      works
      with a client to craft the client's message, identify the best means of
      communicating that message, and develop cost-effective creative solutions.
      XA
      provides the following concept creation services:





*
      Joint
      determination of client needs and goals;


*
      Market
      research to support message creation and communication;


*
      Message
      content design;


*
      Media
      selection; and


*
      Initial
      project pricing and budgeting.





-14-






**Content
        Creation**
 
 After
        the
        concept for an event is created, XA's professionals work to develop and produce
        the client's message. XA provides the following content creation
        services:


*
      Speech
      composition;


*
      Speaker
      support-graphics creation;


*
      Audio/Video production;


*
      Digital
      media creation;


*
      Collateral materials design and distribution;


*
      Entertainment and speaker scripting and booking; and


*
      Theme
      and staging design.





**Execution**





XA
      uses
      internal resources to execute an event. As the clients' needs dictate, however,
      XA can structure its role so that it is transparent to attendants at the event.
      XA provides the following execution services:





*
      On-site
      quality and logistics control;


*
      Hotel
      and venue coordination and buying;


*
      Transportation management;


*
      Security coordination;


*
      Telemarketing services for the sale of exhibition space;


*
      Hospitality management;


*
      Registration management;


*
      Cash
      and credit card payment management;


*
      Entertainment coordination;


*
      Tour
      program design;


*
      Permit
      and approval procurement; and


*
      Food
      and beverage management.





**Fulfillment**





Fulfillment
      is the last stage in the event process. It includes the actual provision of
      services such as catering, registration, transportation rental, audio and visual
      equipment rental, decoration rental and temporary on-site labor. XA offers
      fulfillment services using either internal resources or third-party vendors
      as
      determined on an event-by-event basis.





**Full
      Service Offices**





XA
      operates two full-service offices located in Chicago and New York City as well
      as a sales office in Los Angeles and a venue in New York City. Chicago is home
      to XA's headquarters, which serves as the centralized base for administration
      and purchasing. XA opened the Los Angeles and New York City offices during
      2003.
      XA chose to open offices in New York City and Los Angeles to better serve its
      national client base by providing existing clients with local offices and staff
      to coordinate and provide ongoing integrated communication services. In
      addition, by having local offices operating in New York City and Los Angeles,
      XA
      is better able to acquire new clients and business opportunities through
      aggressive local business development activities.







-15-






Creative Talent


A
      primary
      value that XA brings to its clients is the creative talent, energy and
      commitment of its employees. XA seeks to attract and retain the best personnel
      by developing attractive compensation, benefits and training programs and
      providing long-term career opportunities that its smaller competitors cannot
      duplicate. XA has approximately forty-three (43) employees, of whom
      approximately fifteen (15) are part-time employees and twenty-eight (28) are
      full-time employees.





XA
      compliments its staff with a pool of over 100 professionals hired on a
      project-by-project basis who have distinguished themselves through prior
      experience with XA. XA is not a party to any collective bargaining agreement
      with a union. From time to time, however, XA does independently contract with,
      or hire, union personnel during the production of a particular meeting or event.
      XA considers itself to have good relations with its employees and independent
      contractors.





Today,
      corporations are searching for new ways to motivate, excite and impart a message
      to their audience. XA is able to help them accomplish these goals by designing
      a
      creative platform from which to communicate. For instance, most companies do
      not
      realize they can afford to do a concert event with headline talent because
      it
      has never been presented to them as a marketing tool. Most of XA's programs
      are
      more in line with the standard format of events (i.e., meetings and business
      theater).





Breaking
      the traditional mold can be a hard sell to a conservative client, but when
      XA's
      team can demonstrate how hosting one large, memorable event can save $250,000
      from the marketing budget, and, most importantly, have a greater impact on
      attendees, the client understands the value of XA marketing.





To
      execute XA's expansion plans, XA has also recruited a number of senior
      executives with broad and diverse experience managing rapidly growing national
      and international businesses.





**Centralized
      Administration and Purchasing**





XA
      has
      centralized its administrative and purchasing functions to enhance cost
      efficiency and quality control. The corporate headquarters in Chicago are the
      center for administration, MIS, finance, accounting and human resources. XA
      has
      a national client base. XA oftentimes plans and executes multiple events for
      different national clients in a single geographic location. XA negotiates
      through the Chicago office with local vendors in these geographic locations
      for
      the provision of services to its national clients. XA repeatedly uses the same
      vendors in these local markets. XA believes that it enjoys purchasing power
      and
      economies of scale greater than that available to its local
      competitors.





**Technological
      Capabilities**





XA
      believes that it can invest more in technology than its local competitors and
      thereby become a leader in utilizing advanced technologies. XA is able to
      allocate its investment in technology over its large national event base,
      whereas a local competitor that does not have a national event base may not
      be
      willing to invest heavily in advanced technology.




-16-







XA
      currently uses advanced communications technologies such as digitized
      presentations and multimedia applications to provide high quality customer
      service. In addition, XA is creating business communication applications using
      media, such as DVD technology, plasma screens, interactive video and the
      satellite communications.





**Intellectual
      Property**





The
      Company is the owner of the proprietary trademark, "The Experiential Agency(R)"
      (US Serial No: 78241557). Additionally, the Company has filed for a trademark
      for "XA" and "XA Scenes," but has not as of the date of this filing received
      approval of such trademarks.





The
      Company also owns the rights to the internet domain names,
      including:





*
      www.gmproductions.com;


*
      www.gmproductions.net;


*
      www.expagency.com;


*
      www.experientialagency.com;


*
      www.theexperientialagency.com; and


*www.musters.com.





The
      Company does not own any patents or licenses related to its products or
      services.





**Competition**





Companies
      in the events industry compete based on service breadth and quality, creativity,
      responsiveness, geographic proximity to clients, and price. Most vendors of
      outsourced event services are small, local companies that cannot provide the
      wide range of services, international coverage, creative talent, purchasing
      power and technological capabilities required by large corporations and
      associations.





XA
      competes primarily with a large number of local and regional firms as well
      as
      specialized vendors such as production companies meeting planning companies
      (such as Carat Face-to-Face), entertainment & show production firms and
      destination logistics companies. Most of these competitors and specialized
      vendors provide a limited range of services relative to XA's service offerings.
      As a vertically integrated service provider, we believe XA offers a
      comprehensive solution to client organizations with the assurance of a high
      quality of service and the opportunity to form a long-term relationship. At
      the
      national level, XA faces larger competitors such as Jack Morton Worldwide -
      part
      of the Interpublic Group of Companies (IPG: NYSE), and George P.
      Johnson.





We
      believe that XA is positioning itself as the Event Marketing Partner with its
      unique selling point being the ability to act as a single source for the
      client's total event marketing needs. This would encompass the entire spectrum
      of services associated with event marketing, right from strategizing and
      defining an event portfolio, conceptualization of the event theme and content
      creation to the final implementation / management of the event itself and post
      event Return On Investment assessment.





-17-







**ITEM
      2. DESCRIPTION OF PROPERTY**





Our
      corporate headquarters are located in Chicago, Illinois. In July 2004, we
      entered into an eight-year lease for approximately 4,600 square feet of office
      space for our corporate headquarters. Our current lease commitment is $10,069
      per month.





In
      August
      2003, we opened an office in New York City. We lease this office space from
      Thom
      Filicia, Inc. pursuant to a five year sublease. Our lease commitment on our
      New
      York Office space is $1,300 per month plus the obligation to pay
      utilities.





We
      also
      have offices in Los Angeles, California. On January 15, 2004, we entered into
      a
      four-year and seven-month lease for this office space from Gilmore North Market,
      LLC. Our current lease commitment is $1,750 per month plus the obligation to
      pay
      utilities.





On
      December 23, 2005, XA Scenes, Inc., our wholly owned subsidiary, entered into
      a
      Lease, (the "Lease") on the ninth floor of 636-642 West 28th Street, New York,
      New York 10001, also known as the "Terminal Warehouse" (the "Property") with
      Waterfront NY Realty Corp. ("Landlord"). The Lease has a term of ten (10) years
      (the "Term"), and commenced on June 1, 2006. We agreed to pay initial annual
      rent under the Lease equal to $260,000 per year, which rent increases at the
      rate of 3% per year (with the rate of rent for the 10th year of the Lease being
      $350,000), payable monthly at the initial rate of $21,666.66 per
      month.





On
      March
      6, 2006, The Experiential Agency, Inc., our wholly owned subsidiary
      (“Experiential”), entered into a Lease on Unit No. 2B in Building No. 2 of 1435
      51st Street, in North Bergen, New Jersey. The lease commenced on April 1, 2006,
      and ends on March 31, 2009. The monthly rent on the lease is $4,037 from April
      1, 2006 until March 31, 2007, $4,238 for the period from April 1, 2007 until
      March 31, 2008, and $4,449 for the period from April 1, 2008 until March 31,
      2009. Upon the expiration of the lease, Experiential has the option to renew
      the
      lease for an additional three (3) year term. The monthly rental fees during
      the
      additional three year term, will be $4,671 from April 1, 2009 and March 31,
      2010, $4,904 from April 1, 2010 and March 31, 2011, and $5,149 from April 1,
      2011 to March 31, 2012. The landlord has the right to terminate the lease at
      any
      time after March 31, 2009, with six (6) months prior written notice to
      Experiential.





**ITEM
      3. LEGAL PROCEEDINGS**





Our
      wholly owned subsidiary, The Experiential Agency, Inc., formerly G/M!
      Productions, Inc., an Illinois corporation has a pending lawsuit, Erie West,
      L.L.C., v. G/M! Productions, Inc., No. 04 M1 137777, with one of our former
      landlords, in the Circuit Court of Cook County, Illinois. The lawsuit is in
      connection with office space we previously leased from Eire West, L.L.C. (the
      "Landlord"), at 308 West Erie Street, Chicago, Illinois. The Landlord in its
      First Amended Verified Complaint, alleged that we failed to provide the Landlord
      a cash deposit or new standby letter of credit when our previous letter of
      credit expired; and that the Landlord is owed money for unpaid rental fees,
      which it alleged we stopped paying under our lease with Landlord on July 1,
      2004, which lease was to run until March 31, 2008.




-18-







We
      filed
      an Answer and Affirmative Defenses to First Amended Verified Complaint to the
      Landlord's claims in the Circuit Court of Cook County, Illinois on May 31,
      2005
      (the "Answer"). In the Answer, we pleaded certain affirmative defenses,
      including that we have fully performed all conditions and covenants under the
      lease, and that we are therefore not in default; that we validly terminated
      the
      lease on June 30, 2004, after giving previous notice on several occasions to
      the
      Landlord, as a result of the fact that we were prevented the use and quiet
      enjoyment of the premises; and that the Landlord had the duty and obligation
      at
      all times to take reasonable steps to mitigate the damages sustained (the
      "Affirmative Defenses").





Since
      the
      filing of our Answer, the Landlord has filed Second and Third Amended Verified
      Complaints, and we have answered such complaints. The Landlord's Third Amended
      Verified Complaint alleged damages for our alleged breach of the lease and
      alleged damages for prospective rent. The total damages asked for by the
      Landlord in the Third Amended Verified Complaint total approximately $309,710
      plus interest. On February 28, 2006, we filed our Answer and Affirmative
      Defenses to Third Amended Verified Complaint, whereby we denied certain of
      the
      Landlord's claims and asserted our Affirmative Defenses. A status hearing on
      the
      case is scheduled for April 2007.





In
      March
      2006, we received notice of a lawsuit filed against XA, Inc., our wholly owned
      subsidiary, The Experiential Agency, Inc., and our Chief Executive Officer
      and
      Director, Joseph Wagner, Chief Operating Officer, Jean Wilson, and one of our
      employees, Marcy Manley, individually, by our former employee, Lara Shipp
      ("Shipp"). The lawsuit was filed in the Northern District of Illinois. The
      lawsuit alleged damages in connection with our discharge of Shipp, alleged
      that
      we failed to pay her certain commissions which she was due and that she was
      denied rights under the Family Medical Leave Act. Additionally, the lawsuit
      alleges breach of contract, declaratory relief regarding her interests in the
      Company, promissory estoppel, tortious interference with contract and fraudulent
      inducement. Shipp alleged that her employment contract with us entitled her
      to
      commissions of gross revenues on reoccurring business and that she was
      terminated in violation of Family and Medical Leave Act ("FMLA"). The lawsuit
      asked for all wages, benefits and other compensation that she lost as a result
      of her alleged termination in violation of FMLA, front pay and reasonable
      attorney's fees. Shipp also alleged that we violated the Illinois Wage Payment
      and Collection Act and alleges that she is due commissions and other amounts
      greater than $100,000 in unpaid commissions and automobile reimbursement,
      attorney's fees, pre and post judgment interest and punitive damages
      Furthermore, Shipp alleged that she was due an ownership interest in XA, Inc.,
      which is larger than her current stake. We are currently in settlement
      negotiations with Shipp, however we have not entered into any final settlement
      agreement to date, and can provide no assurances that any settlement agreement
      will be entered into in the future.





The
      Company is not aware of any pending legal proceeding other than the ones
      described above, to which it is a party which is material to its business
      operations.





-19-







**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**





The
      Company held an Annual Meeting of shareholders at its corporate offices on
      February 23, 2007, at which time, shareholders holding a majority of the
      Company’s outstanding shares of common stock as of the record date of the
      meeting, January 15, 2007, voted to re-elect Joseph Wagner, Jean Wilson and
      Christopher Spencer as Directors of the Company and to ratify the appointment
      of
      Pollard-Kelly Auditing Services, Inc. as the Company’s independent auditors for
      2006 and 2007 fiscal years.






























-20-


**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS**





"Bid"
      and
      "asked" offers for the common stock are listed on the NASDAQ OTC-Bulletin Board
      published by the National Quotation Bureau, Inc. The Company's common stock
      began regular trading during the third quarter of the fiscal year ended December
      31, 2003. The trading symbol for the Common Stock was originally "SYSC", and
      was
      changed to "EXAG" in connection with the Company's name change on December
      11,
      2003, and was later changed to "XAIN" in connection with the Company's name
      change on December 9, 2004.





The
      following table sets forth the high and low bid prices for the Company's common
      stock for the periods indicated as reported by the NASDAQ OTC-Bulletin Board.
      The quotations reflect inter-dealer prices, without retail mark-up, mark-down
      or
      commission and may not represent actual transactions.




**BID
                PRICES****Quarter
                Ended**
            **High**
            **Low**December
                31, 2006
            $0.35
            $0.21September
                30, 2006
            $0.40
            $0.15June
                30, 2006
            $0.75
            $0.30March
                31, 2006
            $0.51
            $0.40December 31, 2005
            $0.70
            $0.30September 30, 2005
            $0.55
            $0.33June 30, 2005
            $1.35
            $0.38March 31, 2005
            $2.50
            $1.15







There
      were approximately 37 holders of record of the common stock as of March 26,
      2007. The Company has never paid a cash dividend on its common stock and does
      not anticipate the payment of a cash dividend in the foreseeable future. The
      Company intends to reinvest in its business operations any funds that could
      be
      used to pay a cash dividend. The Company's common stock is considered a "penny
      stock" as defined in the Commission's rules promulgated under the Exchange
      Act.
      In general, a security which is not quoted on NASDAQ or has a market price
      of
      less than $5.00 per share where the issuer does not have in excess of $2,000,000
      in net tangible assets (none of which conditions the Company meets) is
      considered a penny stock. The Commission's rules regarding penny stocks impose
      additional sales practice requirements on broker-dealers who sell such
      securities to persons other than established customers and accredited investors
      (generally persons with net worth in excess of $1,000,000 or an annual income
      exceeding $200,000 or $300,000 jointly with their spouse). For transactions
      covered by the rules, the broker-dealer must make a special suitability
      determination for the purchaser and receive the purchaser's written agreement
      to
      the transaction prior to the sale. Thus, the Rules affect the ability of
      broker-dealers to sell the Company's shares should they wish to do so because
      of
      the adverse effect that the Rules have upon liquidity of penny stocks. Unless
      the transaction is exempt under the Rules, under the Securities Enforcement
      Remedies and Penny Stock Reform Act of 1990, broker-dealers effecting customer
      transactions in penny stocks are required to provide their customers with (i)
      a
      risk disclosure document; (ii) disclosure of current bid and ask quotations
      if
      any; (iii) disclosure of the compensation of the broker-dealer and its sales
      personnel in the transaction; and (iv) monthly account statements showing the
      market value of each penny stock held in the customer's account. As a result
      of
      the penny stock rules the market liquidity for the Company's securities may
      be
      severely adversely affected by limiting the ability of broker-dealers to sell
      the Company's securities and the ability of purchasers of the securities to
      resell them.




-21-







**Recent
      Sales of Unregistered Securities**





On
      July
      27, 2006, we issued 25,000 restricted shares of our Common Stock to our
      Director, Christopher Spencer, which shares we had agreed to issue on June
      30,
      2006, pursuant to the terms of Mr. Spencer's Consulting Agreement. The Company
      claims an exemption from registration afforded by Section 4(2) of the Act since
      the issuance did not involve a public offering, the recipient took the shares
      for investment and not resale and the Company took appropriate measures to
      restrict transfer. No underwriters or agents were involved in the issuance
      and
      no underwriting discounts or commissions were paid by the Company.





On
      August
      8, 2006, we entered into a Subscription Agreement with five (5) third-party
      Purchasers, whereby we sold the Purchasers (i) an aggregate of $1,250,000 in
      fifteen (15) month 11% Senor Secured Convertible Promissory Notes that can
      be
      converted into approximately 1,666,667 shares of common stock, not including
      any
      accrued and unpaid interest, and assuming a conversion price of $0.75 per share
      (which conversion price and therefore the number of shares the Notes are
      convertible into are subject to change pursuant to the Notes); and (ii) five
      year Warrants to purchase one hundred and seventy-five thousand (175,000) shares
      of our common stock at an exercise price of $1.10 per share. We claim an
      exemption from registration afforded by Section 4(2) of the Securities Act
      of
      1933 for the above, since the foregoing did not involve a public offering,
      the
      recipients took the securities for investment and not resale and we took
      appropriate measures to restrict transfer.





On
      August
      8, 2006, in connection with the Closing of the Funding (described above), and
      in
      consideration for finders fees in connection with the Funding, we granted the
      Purchasers 333,333 warrants to purchase shares of our common stock at an
      exercise price of $0.30 per share, which warrants expire five (5) years from
      the
      Closing. We claim an exemption from registration afforded by Section 4(2) of
      the
      Securities Act of 1933 for the above, since the foregoing did not involve a
      public offering, the recipients took the securities for investment and not
      resale and we took appropriate measures to restrict transfer.





Additionally,
      on August 8, 2006, in connection with the Closing of the Funding (described
      above), and in consideration for finders fees in connection with the Funding,
      we
      granted Mastodon Ventures, Inc. 666,667 warrants to purchase shares of our
      common stock at an exercise price of $0.30 per share, which warrants expire
      five
      (5) years from the Closing. We claim an exemption from registration afforded
      by
      Section 4(2) of the Securities Act of 1933 for the above, since the foregoing
      did not involve a public offering, the recipients took the securities for
      investment and not resale and we took appropriate measures to restrict
      transfer.




-22-







On
      August
      2, 2006 (the "Valuation Date"), the Directors granted 850,000 options to
      purchase shares of our common stock ("Options") to Joseph Wagner, the Company's
      Chief Executive Officer and Director of the Company and 650,000 Options to
      Jean
      Wilson, the Company's Chief Operating Officer and Director, who are both greater
      than 10% shareholders of the Company (the "JJ Options"). The exercise price
      of
      the JJ Options are $0.75 per share (which exercise price was greater than 110%
      of the mean of the highest ($0.31) and lowest ($0.31) quoted selling prices
      of
      the Company's common stock on the Valuation Date). The JJ Options shall expire
      if unexercised on the fifth anniversary of the Vesting Date, or as otherwise
      provided in the Option Agreements. We claim an exemption from registration
      afforded by Section 4(2) of the Securities Act of 1933 for the above, since
      the
      foregoing did not involve a public offering, the recipients took the securities
      for investment and not resale and we took appropriate measures to restrict
      transfer.





Mr.
      Wagner shall vest 283,333 of the Options upon the twelve (12) month anniversary
      of the date the United States Securities and Exchange Commission declares
      effective the registration statement covering the resale of the shares of common
      stock which the 11% Senior Secured Convertible Promissory Notes are convertible
      into and the shares of common stock which the Warrants are exercisable for
      (the
      "Effectiveness Date"); Mr. Wagner shall vest 283,333 of the Options upon the
      twenty-four (24) month anniversary of the Effectiveness Date; and Mr. Wagner
      shall vest the remaining 283,334 options upon the thirty-six (36) month
      anniversary of the Effectiveness Date, provided however that all of the options
      shall vest immediately upon a Change in Control of the Company (as defined
      below).





Ms.
      Wilson shall vest 216,667 of the Options upon the twelve (12) month anniversary
      of the Effectiveness Date; Ms. Wilson shall vest 216,666 of the Options upon
      the
      twenty-four (24) month anniversary of the Effectiveness Date; and Ms. Wilson
      shall vest the remaining 216,666 options upon the thirty-six (36) month
      anniversary of the Effectiveness Date, provided that all of the options shall
      vest immediately upon a Change in Control of the Company (as defined
      below).





A
      "Change
      in Control" includes the adoption of a plan of merger or consolidation of the
      Company with any other corporation or association as a result of which the
      holders of the voting capital stock of the Company as a group would receive
      less
      than 50% of the voting capital stock of the surviving or resulting corporation;
      the approval by the Board of Directors of the Company of an agreement providing
      for the sale or transfer of substantially all the assets of the Company; or
      in
      the absence of a prior expression of approval by the Board of Directors, the
      acquisition of more than 20% of the Company's voting capital stock by any person
      within the meaning of Rule 13d-3 under the Securities Act of 1933 (the "Act,"
      other than the Company or a person that directly or indirectly controls, is
      controlled by, or is under common control with, the Company).




-23-





In
      August
      2006, we entered into a Debt Conversion Agreement with our legal counsel, David
      M. Loev, whereby Mr. Loev agreed to convert $10,000 which he was owed in legal
      fees into 50,000 restricted shares of our common stock. We claim an exemption
      from registration afforded by Section 4(2) of the Securities Act of 1933 for
      the
      above, since the foregoing did not involve a public offering, the recipient
      took
      the securities for investment and not resale and we took appropriate measures
      to
      restrict transfer.





In
      August
      2006, we agreed to issue our legal counsel, David M. Loev, 25,000 warrants
      to
      purchase shares of our common stock at an exercise price of $0.30 per share,
      which warrants are exercisable for a period of five (5) years. We claim an
      exemption from registration afforded by Section 4(2) of the Securities Act
      of
      1933 for the above, since the foregoing did not involve a public offering,
      the
      recipient took the securities for investment and not resale and we took
      appropriate measures to restrict transfer.





On
      September 26, 2006, we entered into Subscription Agreements with two (2)
      individuals, whereby we sold each of the individuals (i) $100,000 in fifteen
      (15) month 11% Senor Secured Convertible Promissory Notes (for $200,000 in
      total
      Notes sold) which can be converted into approximately 133,333 shares of common
      stock each, not including any accrued and unpaid interest, and assuming a
      conversion price of $0.75 per share (which conversion price and therefore the
      number of shares the Notes are convertible into are subject to change pursuant
      to the Notes); and (ii) five year Warrants to purchase one hundred and fifteen
      thousand (15,000) shares of our common stock each (for the total issuance of
      30,000 warrants) at an exercise price of $1.10 per share. We claim an exemption
      from registration afforded by Section 4(2) of the Securities Act of 1933 for
      the
      above, since the foregoing did not involve a public offering, the recipients
      took the securities for investment and not resale and we took appropriate
      measures to restrict transfer.





On
      October 23, 2006, we entered into a Subscription Agreement with Vision
      Opportunity Master Fund, Ltd. ("Vision"), whereby we sold Vision (i) $1,250,000
      in fifteen (15) month 11% Senor Secured Convertible Promissory Notes which
      can
      be converted into approximately 1,666,667 shares of common stock, not including
      any accrued and unpaid interest, and assuming a conversion price of $0.75 per
      share (which conversion price and therefore the number of shares the Notes
      are
      convertible into are subject to change pursuant to the Notes); and (ii) five
      year Warrants to purchase 187,500 shares of our common stock at an exercise
      price of $1.10 per share and 100,000 shares of our common stock at an exercise
      price of $0.30 per share. We claim an exemption from registration afforded
      by
      Section 4(2) of the Securities Act of 1933 for the above, since the foregoing
      did not involve a public offering, the recipients took the securities for
      investment and not resale and we took appropriate measures to restrict
      transfer.





In
      October 2006, we entered into a Consulting Agreement with Mastodon Ventures,
      Inc., a Texas corporation ("MVI"), and agreed to issue MVI warrants to purchase
      666,667 shares of our common stock at an exercise price of $0.30 (which warrants
      were issued on or about August 8, 2006, the "First MVI Warrant") and a warrant
      to purchase 1,000,000 shares of our common stock during a five (5) year period
      (the "Second MVI Warrant"), which warrants are only exercisable by MVI if within
      one year of the parties entry into the consulting agreement, we consummate
      a
      private offering of at least $3,000,000 (the "Offering") or a Change in Control
      (as defined in the Consulting Agreement) occurs (each a "Vesting Event"). The
      five year exercise period of the Second MVI Warrant commences upon the
      occurrence of a Vesting Event. The Second MVI Warrant is exercisable at an
      exercise price equal to the lesser of $1.10 per share or 125% of the effective
      offering price of the Offering, or in the event of a Change in Control, such
      warrant shall be exercisable at an exercise price of $1.10 per share. We claim
      an exemption from registration afforded by Section 4(2) of the Securities Act
      of
      1933 for the above, since the foregoing did not involve a public offering,
      the
      recipient took the securities for investment and not resale and we took
      appropriate measures to restrict transfer.




-24-







In
      November 2006, we entered into a Debt Conversion Agreement with our legal
      counsel, David M. Loev, whereby Mr. Loev agree to convert $15,000 which he
      was
      owed into 75,000 shares of common stock and 75,000 five year warrants to
      purchase shares of our common stock at an exercise price of $0.30 per share.
      We
      agreed to register the shares and warrants on a Form S-8 registration statement
      to be filed within sixty (60) days of our entry into the Debt Conversion
      Agreement, which Form S-8 has not been filed to date. The 75,000 shares of
      common stock we agreed to issue to Mr. Loev pursuant to the November 2006 Debt
      Conversion Agreement have not been issued to date and have therefore not been
      included in the issued and outstanding share amounts disclosed throughout this
      filing. The Company claims an exemption from registration afforded by Section
      4(2) of the Act since the above issuance did not involve a public offering,
      the
      recipient took the shares for investment and not resale and the Company took
      appropriate measures to restrict transfer. No underwriters or agents were
      involved in the issuance and no underwriting discounts or commissions were
      paid
      by the Company.





On
      November 4, 2006, we issued 25,000 restricted shares of our Common Stock to
      our
      Director, Christopher Spencer, which shares we had agreed to issue on September
      30, 2006, pursuant to the terms of Mr. Spencer's Consulting Agreement. The
      Company claims an exemption from registration afforded by Section 4(2) of the
      Act since the issuance did not involve a public offering, the recipient took
      the
      shares for investment and not resale and the Company took appropriate measures
      to restrict transfer. No underwriters or agents were involved in the issuance
      and no underwriting discounts or commissions were paid by the
      Company.





Effective
      January 1, 2007, we entered into an Agreement with David M. Loev, of The Loev
      Law Firm, PC, to serve as our legal counsel and perform legal services for
      us
      until December 31, 2007. In connection with our entry into the Agreement, we
      agreed to issue Mr. Loev 25,000 Form S-8 registered shares of our common stock,
      which shares have not been issued to date.





**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





THIS
      REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
      OF
      THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
      1934. THESE FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
      UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
      HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER
      "RISK
      FACTORS" IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND
      RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. THE FOLLOWING DISCUSSION
      AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND
      THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN
      THIS
      REPORT.




-25-





**Marketing
      and Growth Strategy**





The
      major
      focus of our growth strategy over the next several years will be the acquisition
      and development of targeted business communications and event management
      companies in key regions throughout the United States. Our management has
      identified a number of targeted strategic acquisition opportunities in the
      form
      of business communications and event management companies in key regions
      throughout the United States. Our targeted acquisitions are intended to add
      geographic coverage to our existing businesses as well as broaden our service
      offerings. The initial acquisitions are planned to focus on business
      communications and event management companies which are specialized in the
      on-site logistical aspects of the business communications and event management
      industry, and are located in the Chicago, New York City and Los Angeles areas.
      We have not entered into any preliminary negotiations or discussions with any
      acquisition targets, nor do we have any definitive agreements with any
      acquisition targets, however we plan to take steps to acquire such acquisition
      targets in the future, of which there can be no assurance, funding permitting,
      of which there can be no assurance.





We
      also
      plan to fuel our growth through a broader, carefully designed growth strategy
      that includes extending relationships with existing clients, building new client
      relationships, expanding its international client base, making selected
      infrastructure acquisitions, and expanding its media services. We believe that
      substantial opportunities exist to expand relationships with existing clients
      by
      cross-selling the full range of our services, building out our national office
      network and expanding our service offerings, particularly with respect to our
      events, multimedia and corporate branding capabilities. We will seek to
      capitalize on the services provided to one division or operation of a client
      by
      selling our services to other divisions or operations, including their foreign
      operations. We have also initiated advertising and public relations programs
      to
      enhance our brand recognition in the marketplace.





We
      also
      believe that multinational organizations headquartered both inside and outside
      of the United States are increasingly interested in building relationships
      with
      business communications and event management firms and owners of events who
      can
      provide their services on a worldwide basis. Our international client base
      continues to grow and in order to better serve these organizations, we plan
      to
      aggressively expand our international client base over the next 12 to 24
      months.




-26-







The
      Company believes that there is an increasing trend on the part of associations,
      historically the largest owners and operators of exhibitions, to outsource
      the
      operational management and often the ownership of exhibitions as they focus
      on
      their core missions and seek to improve efficiencies.




We
      believe that the events industry revolves on a competitive axis based on service
      breadth and quality, creativity, responsiveness, geographic proximity to
      clients, and price. Most vendors of outsourced event services are small, local
      companies that cannot provide the wide range of services, international
      coverage, creative talent, purchasing power and technological capabilities
      required by large corporations and associations. As a vertically integrated
      service provider we believe that it will be able to offer a comprehensive
      solution to these organizations with the assurance of a high quality of service
      and the opportunity to form a long-term relationship.





We
      differentiates itself from its competitors by offering a single source solution
      to the market for business communication and event management services on a
      national basis, employing creative, energetic professionals, centralizing its
      administration and purchasing functions.





**COMPARISON
      OF OPERATING RESULTS**





**The
      Year Ended December 31, 2006 Compared To the Year Ended December 31,
      2005**





We
      had
      sales of $9,824,677 for the year ended December 31, 2006, compared to sales
      of
      $10,912,614 for the year ended December 31, 2005, a decrease in sales from
      the
      prior period of $1,087,937 or 10%. The decrease in sales was due to cancelled
      programs and events during the year ended December 31, 2006.





We
      had
      cost of goods sold relating to direct production costs of $5,782,391 for the
      year ended December 31, 2006, compared to cost of goods sold relating to direct
      production costs of $6,767,383 for the year ended December 31, 2005, a decrease
      in cost of goods sold from the prior period of $984,992 or 14.6%.





Cost
      of
      goods sold as a percentage of sales was 58.9% for the year ended December 31,
      2006, compared to 62.0% for the year ended December 31, 2005, a decrease in
      costs of goods sold as a percentage of sales of 3.1% from the prior period.
      The
      decrease in our cost of goods sold was directly attributable to our lower sales,
      thereby causing a lower cost of those sales and increased margins on the sales
      that we did have.




We
      had
      gross profit of $4,042,286 for the year ended December 31, 2006, compared to
      gross profit of $4,145,231 for the year ended December 31, 2005, a decrease
      in
      gross profit of $102,945 or 2.5% from the prior period. The decrease in gross
      profit was due to the 10% decrease in sales offset by the 14.6% decrease in
      direct production costs.





We
      had
      administrative expenses of $4,992,871 for the year ended December 31, 2006,
      compared to administrative expenses of $4,001,362 for the year ended December
      31, 2005, an increase in administrative expenses of $991,509 or 24.8% from
      the
      prior period.




-27-







The
      increase in administrative expenses was due to the increased expenses related
      to
      our launch of XA Scenes and our New York venue during the year ended December
      31, 2006, including expenses relating to construction and marketing, as well
      as
      increased expenses relating to the issuance of various options and warrants
      during the year ended December 31, 2006, as described in greater detail herein.
      Additionally attributing to higher expenses for the year ended December 31,
      2006, were increased legal fees in connection with the review and preparation
      of
      closing documents in connection with our funding activities during the year
      ended December 31, 2006.




We
      had a
      loss from operations of $950,585 for the year ended December 31, 2006, compared
      to income from operations of $143,869 for the year ended December 31, 2005,
      a
      decrease in income from operations of $1,094,454 or 760.7% from the prior
      period. The decrease in income from operations was mainly attributable to the
      24.8% increase in administrative expenses and the 10% decrease in sales, which
      was not sufficiently offset by the 14.6% decrease in cost of goods sold for
      the
      year ended December 31, 2006, compared to the prior period.





We
      had
      net other expenses for the year ended December 31, 2006, of $1,041,017, compared
      to net other expenses of $268,515 for the year ended December 31, 2005, an
      increase in net other expenses of $772,502 or 287.7% from the prior period.
      The
      main reasons for the increase in net other expenses were a $226,083 increase
      in
      other expenses, to $509,677 for the year ended December 31, 2006, compared
      to
      $283,594 for the year ended December 31, 2005 in connection with various
      expenses associated with our capital campaign and financing, and $540,000 of
      intangible impairment, which was not represented during the previous period
      in
      connection with reversing our federal and state tax accruals which were applied
      during the fiscal year ended 2005, as we have had net losses for the last
      several years and are not able to take advantage of such accruals unless we
      have
      net income, of which there can be no assurance due to our recent
      losses.





We
      had no
      tax provision adjustments for the year ended December 31, 2006, compared to
      $15,000 of income tax expense for the year ended December 31, 2005.





We
      had a
      net loss of $1,991,602 for the year ended December 31, 2006, compared to a
      net
      loss of $109,646 for the year ended December 31, 2005, an increase in net loss
      of $1,881,956 or 1,716% from the prior period. The increase in net loss was
      mainly attributable to the 24.8% increase in administrative expenses, the 287.7%
      increase in net other expenses and the 10% decrease in sales, which was not
      sufficiently offset by the 14.6% decrease in direct production costs for the
      year ended December 31, 2006, compared to the year ended December 31, 2005.
      Additionally attributing to the increase in administrative expenses associated
      with the increase in net loss was the increased legal expenditures in connection
      with the August 8, 2006 funding and related financings, and the significant
      costs associated with the construction and furnishing of our XA Scenes New
      York
      venue (described in greater detail above).





We
      had
      other comprehensive income for the year ended December 31, 2006 of $296,121,
      consisting of the decrease in the fair value of derivatives in connection with
      our August, September and October 2006, convertible notes, which income was
      not
      present during the year ended December 31, 2005.




-28-





We
      had
      net comprehensive loss of $1,695,481 for the year ended December 31, 2006,
      compared to net comprehensive loss of $109,646 for the year ended December
      31,
      2005, an increase in net comprehensive loss of $1,585,835 or 1,446% from the
      prior period.





**Liquidity
      and Capital Resources**





We
      had
      total current assets of $1,274,580 as of December 31, 2006, which included
      cash
      of $372,626; accounts receivable of $470,270; prepaid expenses of $180,981;
      and
      prepaid finance charges in connection with our August, September and October
      2006 fundings of $250,703. This represented a decrease in current assets of
      $1,407,338 or 52.5% from current assets of $2,681,918 as of December 31,
      2005.





The
      main
      factors leading to the decrease in current assets as of December 31, 2006,
      compared to current assets as of December 31, 2005, was a $770,562 or 100%
      decrease in work in process at cost and a $744,222 or 61.3% decrease in accounts
      receivable, which was offset by a $250,703 increase in prepaid finance charges
      of $250,703.





We
      had
      net total fixed assets of $1,103,796 as of December 31, 2006, which included
      equipment of $244,736; furniture and fixtures of $66,177; and leasehold
      improvements of $1,004,745; which was offset by $211,861 of accumulated
      deprecation. This represented an increase in fixed assets of $968,025 or 713%
      from total fixed assets of $135,772 as of December 31, 2005. The main reason
      for
      the increase in fixed assets from the prior year was a $964,000 or 2,366%
      increase in leasehold improvements, which increase was mainly due to the
      acquisition of and improvements on our XA Scenes office space and venue rental
      in New York and a $50,245 or 25.8% increase in equipment, which increase in
      equipment was in connection with the purchase of equipment in connection with
      the XA Scenes venue.





We
      had
      other assets of $1,151,801 as of December 31, 2006, which included $212,853
      of
      discount on convertible notes payable; $73,639 of deposits; and $865,309 of
      goodwill, which represented a decrease in other assets of $603,566 or 34.4%
      from
      other assets of $1,755,367 as of December 31, 2005. Other assets decreased
      because of changes of $540,000 in deferred taxes and $100,000 in prepaid
      employment bonus, which items were represented as of December 31, 2005, but
      not
      represented as of December 31, 2006.





We
      had
      total assets of $3,530,177 as of December 31, 2006, compared to total assets
      of
      $4,573,057 as of December 31, 2005, a decrease in total assets of $1,042,879
      or
      22.8% from the prior period, which decrease was mainly due to the $1,407,338
      or
      52.5% decrease in current assets, which was mainly due to the $770,562 decrease
      in work in process at cost.





We
      had
      total current liabilities of $3,037,634 as of December 31, 2006, which included
      $514,232 of accounts payable; $102,760 of interest payable, which represents
      accrued and unpaid interest on 11% Convertible Notes; $3,731 of withheld and
      accrued taxes; $166,911 of unearned revenues; $800,000 of line of credit; and
      $1,450,000 of current portion of long term debt in connection with amounts
      owed
      to the August and October 2006, 11% Convertible Note Purchasers. This
      represented a $729,028 or 19.4% decrease in current liabilities from current
      liabilities of $3,766,662 as of December 31, 2005. The main reasons for the
      decrease in current liabilities were the decrease of $1,055,318 in unearned
      revenues and the $582,500 increase in current portion of long term debt offset
      by an $800,000 increase in line of credit.




-29-





We
      had
      long-term debt of $1,250,000 as of December 31, 2006, due to the $1,250,000
      October 2006 11% Convertible Note, which is due in January 2007, which gave
      us
      total liabilities as of December 31, 2006 of $4,287,634.





We
      had
      negative working capital of $1,763,054 and a total retained deficit of
      $3,409,583 as of December 31, 2006.





We
      had
      net cash used by operating activities of $716,979 for the year ended December
      31, 2006, which was mainly due to $1,991,602 of net loss and $1,055,318 of
      decrease in unearned revenues, offset by $540,000 in connection with our
      intangibles impairment and a $744,222 decrease in accounts receivable and a
      $770,562 decrease in work in progress at cost.





We
      had
      $1,035,799 of net cash used by investing activities for the year ended December
      31, 2006, which was due to $1,027,372 of purchase of fixed assets and a $7,500
      purchase of preferred stock in connection wit the purchase of one (1) share
      of
      our Series A Preferred Stock from our former Chief Executive Officer and
      Director Frank Goldstin during the year ended December 31, 2006, offset by
      a
      $927 increase in deposits. Subsequent to the year ended December 31, 2006,
      we
      purchased the remaining two (2) shares of our Series A Preferred Stock from
      Joseph Wagner and Jean Wilson for aggregate consideration of $1 and subsequently
      cancelled such shares.





We
      had
      $1,529,931 of net cash used by financing activities during the year ended
      December 31, 2006, which included an increase in our line of credit of $800,000,
      a $62,431 increase in derivative liability and a $2,700,000 increase in notes
      payable in connection with the sale of the August, September and October 2006
      Notes offset by $2,032,500 of payments on notes payable in connection with
      the
      repayment of all of our previously outstanding 6% Notes. The Company has a
      line
      of credit agreement which it entered into on August 12, 2004, with LaSalle
      Bank
      National Association ("LaSalle") for $750,000 (the "Line of Credit"). The Line
      of Credit was due August 12, 2005, and the interest varies at 0.25% over the
      prime rate (currently 8.5%, with the prime rate at 8.25% as of March 8, 2007).
      The Company's assets secure the Line of Credit. Prior to the expiration of
      the
      Line of Credit, the line of credit was renewed for another year and increased
      to
      $800,000, which Line of Credit currently has a due date of December 1, 2007.
      The
      Company borrowed $800,000 pursuant to this Line of Credit during the year ended
      December 31, 2006, which had a balance as of December 31, 2006 of
      $800,000.





On
      June
      1, 2006, we entered into a business loan for a loan of up to $750,000 with
      LaSalle, which loan bears interest at the prime rate plus 0.25% until paid,
      currently equal to 8.5%, with the prime rate at 8.25% as of March 8, 2007.
      We
      have borrowed $0 in funds pursuant to the business loan with LaSalle to date.
      Any amounts borrowed under the business loan are due and payable on June 30,
      2007.






-30-







On
      August
      8, 2006, we entered into a Securities Purchase Agreement, with various
      purchasers, pursuant to which we sold the purchasers fifteen month, 11% Senior
      Subordinated Secured Convertible Promissory Notes in the aggregate principal
      amount of $1,250,000 (the "August 2006 Notes") and five (5) year warrants to
      purchase an aggregate of one hundred and seventy-five thousand (175,000) shares
      of our common stock at an exercise price of $1.10 per share (the
      "Warrants").





We
      immediately used $1,047,000 of the funds received through the sale of the August
      2006 Notes along with approximately $40,000 in cash on hand to repay the
      $1,086,486 amount owed under our outstanding 6% Convertible Notes, which we
      sold
      to certain purchasers in June and September 2004 (the "6% Notes" and the "6%
      Note Purchasers"). The 6% Note Purchasers had originally purchased $2,500,000
      in
      6% Notes from us in two tranches, one tranche of $1,250,000 on June 30, 2004
      (the "First Tranche") and $1,250,000 on September 13, 2004 (the "Second
      Tranche"), however, the 6% Note.





The
      6%
      Note Purchasers previously converted a portion of the 6% Notes into shares
      of
      our common stock, and as a result, only approximately $1,056,180 of principal
      remained due under the June 2004 tranche of the 6% Notes on June 30, 2006,
      which
      amount was not immediately paid when due. This amount would have accrued
      interest at the default rate equal to 15% until paid, however our default was
      waived by the 6% Note Purchasers pursuant to our entry into the Waiver of Rights
      Agreement with the 6% Note Purchasers. As a result, the remaining balance under
      the First Tranche of the 6% Notes was equal to $1,056,180 as of August 8, 2006,
      which amount was increased to $1,086,486 in connection with accrued and unpaid
      interest at 6% per annum on the outstanding amount of the First Tranche of
      the
      6% Notes and the Second Tranche of the 6% Notes. The remaining amount of the
      August 2006 funding equal to approximately $203,000 was paid to Laidlaw, Venture
      and to Laidlaw's legal counsel (all defined above) in connection with attorney's
      fees and finder's fees in connection with the August 2006 funding.





On
      September 26, 2006 and October 23, 2006, we sold an aggregate of $1,450,000
      in
      additional 11% Senior Subordinated Convertible Promissory Notes (the "Second
      Funding Notes") to three purchasers (the "Second Funding Purchasers"), who
      were
      also issued an aggregate of 217,500 five year warrants to purchase shares of
      our
      common stock at $1.10 per share and 100,000 five year warrants to purchase
      shares of our common stock at $0.30 per share (the "Second Funding Warrants,"
      and collectively the whole transaction, the "Second Funding").





Our
      repayment of the August 2006 Notes and Second Funding Notes and any accrued
      interest thereon is secured by a security interest in substantially all of
      our
      assets, which we granted to the Purchasers pursuant to a Security Agreements
      which we entered into with the Purchasers at the closings.





We
      used
      $1,030,575 of the funds received through the Second Funding to repay the amount
      due under the Second Tranche of the 6% Notes and interest on such amount as
      of
      October 18, 2006. We owed approximately $1,012,434 in principal on the September
      2004 portion of the 6% Notes, which notes were due and payable on September
      13,
      2006, but which due date was later extended to October 18, 2006, pursuant to
      the
      Third Waiver Agreement. The total amount of principal and interest at 6% per
      annum which was due under the 6% Notes as of October 18, 2006, was approximately
      $1,030,575. Due to our repayment of the Second Tranche of the 6% Notes, we
      no
      longer owe the 6% Note Purchasers any money, however, such 6% Note Purchasers
      still hold 250,000 warrants to purchase shares of our common stock at an
      exercise price of $9.60 per share, which expire if unexercised on June 30,
      2008.
      An additional amount of $165,000 of the remaining amount received through the
      Second Funding was used to pay various closing costs and legal fees, including
      $80,000 paid to Laidlaw & Company (UK) Ltd. ("Laidlaw") in connection with
      finders fees and consulting fees in connection with the October funding and
      amounts paid to Vision's legal counsel in attorney's fees and due diligence
      fees
      in connection with the October closing, leaving us with approximately $250,000
      from the amount raised through the Second Funding after repaying the 6% Note
      Purchasers and closing fees.







-31-





We
      will
      need to raise additional financing in the future to repay the $2,700,000 which
      we owe under the August, September and October 2006 Senior Notes, which notes
      are due and payable in November 2007 (in connection with $1,250,000), December
      2007 (in connection with $200,000) and January 2008 (in connection with
      $1,250,000), assuming such note holders do not convert such notes into shares
      of
      our common stock in connection with their Optional Conversion and Mandatory
      Conversion rights (described above) and will require approximately $800,000
      which we owe under the Line of Credit, which amount is due on December 1, 2007.
      Furthermore we anticipate the need for approximately $1 to $5 million of
      additional financing to support strategic acquisitions and our current expansion
      plan for the next 18 to 24 months.




We
      currently have plans to raise approximately $3,000,000 in private equity or
      debt
      financing within the next fifteen months, of which there can be no assurance
      (the "Private Offering"). If we are able to affect the Private Offering, the
      September and October 2006 Second Funding Purchasers will have thirty (30)
      days
      following the closing of the Private Offering to decide whether to convert
      their
      Notes into shares of our common stock (in connection with the conversion
      features of such Notes) and the August 2006 purchasers will be required to
      immediately convert their Notes into shares of our common stock. If those
      September and October 2006 purchases choose not to convert their Notes into
      shares of our common stock, we will then have ten (10) days to repay them the
      total outstanding amount of their Notes together with any accrued and unpaid
      interest thereon.





A
      substantial portion of our investment capital for the next 12 months, other
      than
      those amounts used to repay the Line of Credit (and/or which will need to be
      used to repay the Notes, assuming such Notes are not converted into shares
      of
      our common stock) will be used to finance the expansion of our business in
      accordance with our growth and acquisition strategy described above. To the
      extent that the proceeds are not used for acquisitions, such proceeds will
      be
      used for general corporate purposes and for working capital needs. The amount
      and timing of such uses will vary depending on the availability of acquisition
      opportunities. Pending such uses, the net proceeds will be invested in
      short-term investment grade securities.





Furthermore,
      we may receive up to $761,750 in connection with the exercise of the Warrants,
      which funds we plan to use, if such Warrants are exercised, of which there
      can
      be no assurance, for financing future acquisitions and/or working capital as
      described herein in greater detail under “Use of Proceeds.”







-32-










While
      we
      are not currently a party to any agreements with respect to any acquisitions,
      it
      is possible that an agreement in principle or a definitive agreement as to
      one
      or more acquisitions will be executed prior to the completion of the current
      capital raising efforts. It is likely that the closing of any acquisition would
      require us to raise additional funds, which there can be no assurance will
      be
      available on favorable terms, if at all.





At
      this
      time, no additional financing has been secured. We have no commitments from
      officers, directors or affiliates to provide funding. Our growth and continued
      operations could be impaired by limitations on our access to the capital markets
      as well as penalties we may be forced to pay to the Purchasers if we are unable
      to repay the Notes when due, if such Notes are not converted into shares of
      our
      common stock. Without additional financing, we believe we can continue our
      operations for at least the next twelve months with our current revenues;
      however, if we are unable to obtain additional financing upon terms that
      management deems sufficiently favorable, or at all, it would have a material
      adverse impact upon our ability to pursue our expansion strategy and/or repay
      the Notes when due, if such notes are not converted into shares of our common
      stock. There can be no assurance that capital from outside sources will be
      available, or if such financing is available, it may involve issuing securities
      senior to our common stock or equity financings which are dilutive to holders
      of
      our common stock. In addition, in the event we do not raise additional capital
      from conventional sources, it is likely that our growth will be restricted
      and
      we may need to scale back or curtail implementing our business
      plan.

















-33-







**RISK
      FACTORS**





**WE
      HAVE A PRESENT NEED FOR CAPITAL IN ADDITION TO $2.7 MILLION ALREADY RAISED
      IN
      AUGUST THROUGH OCTOBER 2006.**





We
      intend
      to seek additional acquisitions which acquisitions will likely require
      additional capital ranging from $1 to $5 million, which is in addition to $2.7
      million already raised in August through October 2006. Furthermore, the
      currently outstanding $1,250,000 August 2006 Senior Notes are due on November
      8,
      2007, and the $1,450,000 in Second Funding Senior Notes are due on September
      26,
      2007 (in respect to $200,000) and October 23, 2006 (in respect to $1,250,000),
      if such Notes are not converted into shares of our common stock prior to such
      due dates. Finally, we have approximately $800,000 which is due on December
      1,
      2007, pursuant to our Line of Credit with LaSalle (described in greater detail
      below under “Liquidity and Capital Resources”). At this time, no additional
      financing has been secured. Our growth and continued operations could be
      impaired by limitations on our access to the capital markets. There can be
      no
      assurance that capital from outside sources will be available, or if such
      financing is available, that it will be on terms that management deems
      sufficiently favorable. If we are unable to obtain additional financing upon
      terms that management deems sufficiently favorable, or at all, it would have
      a
      material adverse impact upon our ability to continue our business operations
      and
      pursue our expansion strategy. We need to raise additional capital to repay
      the
      August, September and October 2006 Note holders and the Line of Credit, and
      as a
      result, we may seek to enter into acquisitions or mergers in the future, of
      which we currently have no immediate plans, but which if undertaken, could
      result in a restructuring, change of control and/or a change in our business
      focus, as well as potential dilution to then current shareholders. In the event
      we do not raise additional capital from conventional sources, there is every
      likelihood that we may need to scale back or curtail implementing our business
      plan.





**WE
      HEAVILY DEPEND ON JOSEPH WAGNER AND JEAN WILSON.**





The
      success of the Company depends heavily upon the personal efforts and abilities
      of Joseph Wagner and Jean Wilson. Joseph Wagner entered into a sixty (60) month
      Consulting Agreement with the Company effective August 1, 2006, pursuant to
      which Mr. Wagner serves as the Company's, Chief Executive Officer, President
      and
      Secretary. Mr. Wagner is also the Chairman of the Board of Directors of the
      Company. Mr. Wagner may engage in business activities or interests outside
      of
      the Company which are not adverse or competitive to the Company. Jean Wilson
      serves as the Company's Chief Operating Officer, Treasurer and as a director
      of
      the Company pursuant to a sixty (60) month Employment Agreement she entered
      into
      with the Company, with an effective date of August 1, 2006. Mr. Wagner and
      Ms.
      Wilson may voluntarily terminate their employment at any time. The loss of
      Mr.
      Wagner, Ms. Wilson or other key employees could have a material adverse effect
      on our business, results of operations or financial condition. In addition,
      the
      absence of Mr. Wagner or Ms. Wilson may force us to seek a replacement who
      may
      have less experience or who may not understand our business as well, or we
      may
      not be able to find a suitable replacement.







-34-







**OUR
      ABILITY TO OPERATE SUCCESSFULLY AND MANAGE OUR POTENTIAL GROWTH DEPENDS ON
      OUR
      ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED TECHNICAL, MANAGERIAL, SALES,
      MARKETING AND FINANCIAL PERSONNEL.**





The
      Company's success heavily depends upon its ability to attract and retain highly
      qualified technical, managerial, sales, marketing and financial personnel.
      The
      Company faces competition for qualified personnel in these areas. The Company
      cannot be certain that it will be able to attract and retain qualified
      personnel. The Company's inability to hire and retain additional qualified
      personnel in the future could have a material adverse effect on our business,
      results of operations or financial condition.




**OUR
      AUDITOR HAS RAISED DOUBT AS TO WHETHER WE CAN CONTINUE AS A GOING
      CONCERN.**





We
      had a
      comprehensive net loss of $1,695,481 for the year ended December 31, 2006 which
      includes an adjustment to net loss of $296,121 due to the decrease in the fair
      value of our derivatives, other expenses of $509,677 and intangible impairment
      of $540,000, and a net comprehensive loss of $109,646 for the year ended
      December 31, 2005. We had a $1,763,054 working capital deficiency and a total
      retained deficit of $3,409,583 as of December 31, 2006. These factors among
      others indicate that we may be unable to continue as a going concern,
      particularly in the event that we cannot obtain additional financing and/or
      attain profitable operations. The accompanying financial statements do not
      include any adjustments that might result from the outcome of this uncertainty
      and if we cannot continue as a going concern, your investment in us could become
      devalued or even worthless.





**THE
      SENIOR NOTES ARE SECURED BY A SECURITY INTEREST IN SUBSTANTIALLY ALL OF OUR
      ASSETS.**





In
      August
      2006, we sold $1,250,000 in 11% Senior Secured Convertible Notes to certain
      purchasers and in September and October we sold an additional $1,450,000 in
      11%
      Senior Secured Convertible Notes to three purchasers. All of our currently
      outstanding Notes and interest on such Notes are convertible into shares of
      our
      common stock; however, if we fail to register the shares which the Notes are
      convertible into, such registration statement ceases to be effective or if
      the
      Purchasers fail to convert the outstanding amount of the Senior Notes into
      shares of our common stock, we will be obligated to repay up to $2,700,000,
      not
      including any accrued interest, on the due date of such Notes, November 8,
      2007
      in connection with the $1,250,000 August 2006 funding, December 26, 2007 in
      connection with $200,000 of the Notes and January 23, 2008, in connection with
      the $1,250,000 October 2006 funding. If we default in our repayment of the
      Notes
      when due, the Purchasers can take control of substantially all of our assets
      due
      to the fact that the repayment of the Notes are secured by a Security Agreement,
      pursuant to which we granted the Purchasers a security interests in
      substantially all of our assets. As a result, if we default in the repayment
      of
      the Notes, the Purchasers may take control of substantially all of our assets,
      which could force us to curtail or abandon our business operations, and any
      investment in us could become worthless.







-35-







**OUR
      INDUSTRY IS HIGHLY COMPETITIVE.**





The
      event
      production industry is highly competitive and fragmented. The Company expects
      competition to intensify in the future. The Company competes in each of its
      markets with numerous national, regional and local event production companies,
      many of which have substantially greater financial, managerial and other
      resources than those presently available to the Company. Numerous
      well-established companies are focusing significant resources on providing
      event
      marketing, design and production services that will compete with the Company's
      services. No assurance can be given that the Company will be able to effectively
      compete with these other companies or that competitive pressures, including
      possible downward pressure on the prices it charges for its products and
      services, will not arise. In the event that the Company cannot effectively
      compete on a continuing basis or competitive pressures arise, such inability
      to
      compete or competitive pressures will have a material adverse effect on the
      companies business, results of operations and financial condition.





**IF
      WE FAIL TO TIMELY FILE AND/OR OBTAIN EFFECTIVENESS OF A REGISTRATION STATEMENT
      REGISTERING THE SHARES OF COMMON STOCK UNDERLYING THE AUGUST, SEPTEMBER AND
      OCTOBER 2006 PURCHASERS NOTES AND WARRANTS, WE WILL FACE SIGNIFICANT PENALTIES,
      WHICH COULD DECREASE THE AMOUNT OF OUR CASH ON HAND AND CAUSE THE VALUE OF
      OUR
      STOCK TO DECLINE IN VALUE.**





Pursuant
      to the Registration Rights Agreements, we agreed to register the shares of
      common stock which the Notes are convertible into and the shares of common
      stock
      underlying the Warrants (the “Underlying Shares”). We agreed that in the event
      that the planned private offering of our securities in which we receive gross
      proceeds of not less than $3,000,000 and the effective purchase price of the
      common stock sold is $1.50 or more per share (the “Private Offering”), has not
      occurred within six (6) months of the August 2006 Closing (February 8, 2007),
      which deadline was not met, we would file this Registration Statement within
      forty-five days of the six (6) month anniversary of the August 2006 Closing,
      March 25, 2007, which date was met, and that we would obtain effectiveness
      of
      this Registration Statement no more than sixty (60) days after the date we
      are
      required to file such Registration Statement, or May 24, 2007 (the "Mandatory
      Filing Deadlines"). Provided that if the Private Offering does occur within
      six
      (6) months of the Closing, the Purchasers have demand registration rights
      pursuant to the Registration Rights Agreement, whereby the holders of 50.1%
      of
      the Notes can demand that we file the Registration Statement at any time
      beginning on the nine (9) month anniversary date of the August 2006 Closing,
      May
      8, 2007. If the Purchasers demand that we file a Registration Statement, we
      are
      required to file the Registration Statement with the Commission within
      forty-five days of the date such demand is given, and we are required to obtain
      effectiveness of the Registration Statement no more than sixty (60) days after
      the date we are required to file such Registration Statement (collectively
      with
      the Mandatory Filing Deadlines the "Registration Deadlines").





If
      we
      fail to obtain effectiveness of this Registration Statement by the applicable
      Registration Deadlines or after such effectiveness the Purchasers are unable
      to
      sell the Underlying Shares, we are obligated, pursuant to the Registration
      Rights Agreement, to pay the Purchasers an amount in cash equal to two (2%)
      of
      the total principal amount of the Notes (equal to $54,000), for each thirty
      (30)
      day period which the Registration Deadlines are not met or the Purchasers are
      unable to sell the Underlying Shares. If we fail to pay such damages within
      five
      (5) days of the date payable, we are required to pay interest on the amount
      payable at the rate of eighteen percent (18%) per annum, accruing daily until
      such amounts are paid in full. As a result, if we fail to timely file the
      Registration Statement and/or are prevented from timely receiving effectiveness
      of such filing, we could be forced to pay the Purchasers substantial penalties,
      which would reduce our cash on hand, and could cause us to curtail our current
      business plans, which would likely cause the value of our common stock to
      decline in value.







-36-






**WE
      CURRENTLY HAVE A PENDING LAWSUIT WITH ONE OF OUR FORMER LANDLORDS, WHICH
      LANDLORD ALLEGED APPROXIMATELY $309,710 IN DAMAGES.**





Our
      former landlord, Erie West, L.L.C. (the "Landlord"), filed a lawsuit against
      us **** (described
      in greater detail under "Legal Proceedings," below) claiming approximately
      $309,710 in damages and alleging that the Landlord is owed money for unpaid
      rental fees, which it alleged we stopped paying rent under on July 1, 2004,
      which lease was to run until March 31, 2008. We filed answers to the Landlord's
      allegations, denying certain allegations and asserting affirmative defenses
      to
      others. If we are forced to pay the approximately $309,710 in alleged damages
      and/or additional amounts in attorney's fees and interest owed to our former
      landlord, our cash on hand would be severely impacted and our business could
      be
      adversely affected.





**OUR
      GROWTH WILL PLACE SIGNIFICANT STRAINS ON OUR RESOURCES.**





The
      Company's growth is expected to place a significant strain on the Company's
      managerial, operational and financial resources as Joseph Wagner and Jean Wilson
      are our only officers. The Company has limited employees in addition to its
      small number of officers. Furthermore, as the Company receives contracts, the
      Company will be required to manage multiple relationships with various customers
      and other third parties. These requirements will be exacerbated in the event
      of
      further growth of the Company or in the number of its contracts. There can
      be no
      assurance that the Company's systems, procedures or controls will be adequate
      to
      support the Company's operations or that the Company will be able to achieve
      the
      rapid execution necessary to successfully offer its services and implement
      its
      business plan. The Company's future operating results will also depend on its
      ability to add additional personnel commensurate with the growth of its
      business. If the Company is unable to manage growth effectively, the Company's
      business, results of operations and financial condition will be adversely
      affected.





**RISKS
      RELATING TO OUR COMMON STOCK**





**THE
      MARKET PRICE OF OUR COMMON STOCK HISTORICALLY HAS BEEN
      VOLATILE.**







-37-







The
      market price of our common stock historically has fluctuated significantly
      based
      on, but not limited to, such factors as general stock market trends,
      announcements of developments related to our business, actual or anticipated
      variations in our operating results, our ability or inability to generate new
      revenues, conditions and trends in the event production industry and in the
      industries in which our customers are engaged.





Our
      common stock is traded on the OTCBB under the symbol “XAIN.” In recent years,
      the stock market in general has experienced extreme price fluctuations that
      have
      oftentimes been unrelated to the operating performance of the affected
      companies. Similarly, the market price of our common stock may fluctuate
      significantly based upon factors unrelated or disproportionate to our operating
      performance. These market fluctuations, as well as general economic, political
      and market conditions, such as recessions, interest rates or international
      currency fluctuations may adversely affect the market price of our common
      stock.





**THE
      COMPANY HAS ESTABLISHED PREFERRED STOCK WHICH CAN BE DESIGNATED BY THE COMPANY'S
      BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL AND HAS ESTABLISHED SERIES
      A
      PREFERRED STOCK, WHICH GIVES THE HOLDERS MAJORITY VOTING POWER OVER THE
      COMPANY.**





The
      Company has 500,000 shares of preferred stock authorized. The shares of
      preferred stock of the Company may be issued from time to time in one or more
      series, each of which shall have distinctive designation or title as shall
      be
      determined by the Board of Directors of the Company ("Board of Directors")
      prior
      to the issuance of any shares thereof. The preferred stock shall have such
      voting powers, full or limited, or no voting powers, and such preferences and
      relative, participating, optional or other special rights and such
      qualifications, limitations or restrictions thereof as adopted by the Board
      of
      Directors. Because the Board of Directors is able to designate the powers and
      preferences of the preferred stock without the vote of a majority of the
      Company's shareholders, shareholders of the Company will have no control over
      what designations and preferences the Company's preferred stock will have.
      As a
      result of this, the Company's shareholders may have less control over the
      designations and preferences of the preferred stock and as a result the
      operations of the Company.





**THE
      CONVERSION OF THE NOTES AND THE EXERCISE OF THE WARRANTS, MVI WARRANTS AND
      VENTURE WARRANTS WILL CAUSE SUBSTANTIAL DILUTION TO OUR EXISTING
      SHAREHOLDERS.**





We
      had
      3,952,250 shares of common stock outstanding as of March 26, 2007. Assuming
      a
      conversion price of $0.75 per share (which conversion price and therefore the
      number of shares issuable in connection with the conversion of the Notes is
      subject to adjustment as provided in the Notes, subject to a $0.30 floor),
      the
      principal amount of the August 2006 Senior Notes will convert into 1,666,667
      shares of common stock, the principal amount of the September and October 2006
      Notes will convert into 1,933,333 shares of common stock and the outstanding
      Warrants, MVI Warrants and Venture Warrants can be exercised for 1,522,500
      shares of common stock. As such, the conversion of the August, September and
      October 2006 Notes and exercise of the Warrants, Venture Warrants and MVI
      Warrants will cause substantial dilution to our existing
      shareholders.







-38-









**INVESTORS
      MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO
      FEDERAL REGULATIONS OF PENNY STOCKS.**





Our
      common stock will be subject to the requirements of Rule 15(g)9, promulgated
      under the Securities Exchange Act as long as the price of our common stock
      is
      below $4.00 per share. Under such rule, broker-dealers who recommend low-priced
      securities to persons other than established customers and accredited investors
      must satisfy special sales practice requirements, including a requirement that
      they make an individualized written suitability determination for the purchaser
      and receive the purchaser's consent prior to the transaction. The Securities
      Enforcement Remedies and Penny Stock Reform Act of 1990, also requires
      additional disclosure in connection with any trades involving a stock defined
      as
      a penny stock. Generally, the Commission defines a penny stock as any equity
      security not traded on an exchange or quoted on NASDAQ that has a market price
      of less than $4.00 per share. The required penny stock disclosures include
      the
      delivery, prior to any transaction, of a disclosure schedule explaining the
      penny stock market and the risks associated with it. Such requirements could
      severely limit the market liquidity of the securities and the ability of
      purchasers to sell their securities in the secondary market.





In
      addition, various state securities laws impose restrictions on transferring
      "penny stocks" and as a result, investors in the common stock may have their
      ability to sell their shares of the common stock impaired.





**THE
      COMPANY HAS NOT PAID ANY CASH DIVIDENDS.**





The
      Company has paid no cash dividends on its common stock to date and it is not
      anticipated that any cash dividends will be paid to holders of the Company's
      common stock in the foreseeable future. While the Company's dividend policy
      will
      be based on the operating results and capital needs of the business, it is
      anticipated that any earnings will be retained to finance the future expansion
      of the Company.





**THE
      NOTES AND WARRANTS ISSUED TO THE AUGUST, SEPTEMBER AND OCTOBER 2006 PURCHASERS,
      THE 6% NOTE PURCHASERS, AND CERTAIN CONSULTANTS IN CONNECTION WITH THOSE
      FUNDINGS HAVE ANTI-DILUTION PROVISIONS, WHICH IF TRIGGERED COULD CAUSE
      SUBSTANTIAL DILUTION TO OUR THEN SHAREHOLDERS.**





The
      $2,700,000 in Notes which have a conversion price equal to the lesser of $0.75
      or 50% of the effective price of a planned subsequent private offering of our
      securities in which we receive gross proceeds of not less than $3,000,000 and
      the effective purchase price of the common stock sold is $1.50 or more per
      share
      (the “Private Offering”), the 392,500 five (5) year warrants to purchase shares
      of our common stock at $1.10 per share; the 1,100,000 five (5) year warrants
      to
      purchase shares of our common stock at $0.30 per share which we issued to the
      August, September and October 2006 purchasers and certain consultants in
      connection with the August, September and October 2006 fundings; and the 250,000
      Class A Warrants which have an exercise price of $9.60 per share and are held
      by
      the 6% Note Purchasers, who previously purchased 6% Convertible Term Notes
      from
      us in June and September 2004, which notes have been repaid to date, but which
      Class A Warrants remain outstanding, contain anti-dilution provisions. Pursuant
      to those anti-dilution provisions, if we issue any shares of common stock or
      warrants to purchase any shares of common stock (or convertible securities)
      with
      an effective price per share of less than the conversion price of the Notes
      then
      in effect or the exercise price of the warrants then in effect, the conversion
      price of such Notes shall automatically reset to such effective price and/or
      the
      exercise price of such warrants shall reset to such lower effective
      price.







-39-







While
      the
      August, September and October 2006 purchasers have waived these anti-dilution
      provisions in connection with any securities issued in connection with the
      Private Offering, and up to 250,000 shares of common stock for professional
      services, of which we have issued 225,000 shares to date and a total of 25,000
      shares of common stock issued to Christopher Spencer, our Director pursuant
      to
      the terms of his Consulting Agreement, if we issue any other securities at
      an
      effective price less than the conversion price of the Notes or the exercise
      price of the Warrants, the Purchasers could be able to convert such Notes and/or
      exercise such Warrants into a much greater number of shares of common stock
      then
      they are currently able to. If this were to happen, the Purchasers could take
      voting control of the Company (subject to the Second Funding Purchaser’s
      agreement to not hold more than 9.99% of our outstanding common stock unless
      they give us sixty-one days prior written notice) or choose to sell such shares
      in the open market, which would cause the trading value of our common stock
      to
      decline precipitously and could cause our common stock to become
      worthless.





**WE
      FACE A RISK OF A CHANGE IN CONTROL DUE TO THE FACT THAT OUR CURRENT OFFICERS
      AND
      DIRECTORS DO NOT OWN A MAJORITY OF OUR OUTSTANDING COMMON
      STOCK.**





Our
      current officers and Directors can vote an amount of common stock equal to
      approximately thirty-six (36%) of our outstanding common stock. As a result,
      our
      officers and Directors may not exercise majority voting control over us and
      our
      shareholders who are not officers and Directors of us may be able to obtain
      a
      sufficient number of votes to choose who serves as our Directors. Because of
      this, the current composition of our Board of Directors may change in the
      future, which could in turn have an effect on those individuals who currently
      serve in management positions with us. If that were to happen, our new
      management could affect a change in our business focus and/or curtail or abandon
      our business operations, which in turn could cause the value of our securities,
      if any, to decline.





**OUR
      ARTICLES OF INCORPORATION, AS AMENDED, AND BYLAWS LIMIT THE LIABILITY OF, AND
      PROVIDE INDEMNIFICATION FOR, OUR OFFICERS AND DIRECTORS.**





Our
      Articles of Incorporation, as amended, generally limit our officers' and
      directors' personal liability to the Company and its stockholders for breach
      of
      fiduciary duty as an officer or director except for breach of the duty of
      loyalty or acts or omissions not made in good faith or which involve intentional
      misconduct or a knowing violation of law. Our Articles of Incorporation, as
      amended, and Bylaws provide indemnification for our officers and directors
      to
      the fullest extent authorized by the Nevada General Corporation Law against
      all
      expense, liability, and loss, including attorney's fees, judgments, fines excise
      taxes or penalties and amounts to be paid in settlement reasonably incurred
      or
      suffered by an officer or director in connection with any action, suit or
      proceeding, whether civil or criminal, administrative or investigative
      (hereinafter a "Proceeding") to which the officer or director is made a party
      or
      is threatened to be made a party, or in which the officer or director is
      involved by reason of the fact that he or she is or was an officer or director
      of the Company, or is or was serving at the request of the Company as an officer
      or director of another corporation or of a partnership, joint venture, trust
      or
      other enterprise whether the basis of the Proceeding is alleged action in an
      official capacity as an officer or director, or in any other capacity while
      serving as an officer or director. Thus, the Company may be prevented from
      recovering damages for certain alleged errors or omissions by the officers
      and
      directors for liabilities incurred in connection with their good faith acts
      for
      the Company. Such an indemnification payment might deplete the Company's assets.
      Stockholders who have questions respecting the fiduciary obligations of the
      officers and directors of the Company should consult with independent legal
      counsel. It is the position of the Securities and Exchange Commission that
      exculpation from and indemnification for liabilities arising under the 1933
      Act
      and the rules and regulations thereunder is against public policy and therefore
      unenforceable.







-40-





**IF
      WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SEC, WE MAY
      BE
      DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.**





Pursuant
      to new Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely
      filing of periodic reports with the SEC, any OTCBB issuer which fails to file
      a
      periodic report (Form 10-QSB's or 10-KSB's) by the due date of such report
      (not
      withstanding any extension granted to the issuer by the filing of a Form
      12b-25), three (3) times during any twenty-four (24) month period is
      automatically de-listed from the OTCBB. Such removed issuer would not be
      re-eligible to be listed on the OTCBB for a period of one-year, during which
      time any subsequent late filing would reset the one-year period of de-listing.
      If we are late in our filings three times in any twenty-four (24) month period
      and are de-listed from the OTCBB, our securities may become worthless and we
      may
      be forced to curtail or abandon our business plan.





**IF
      THERE IS A MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY BE
      VOLATILE.**





If
      there
      is a market for our common stock, we anticipate that such market will be subject
      to wide fluctuations in response to several factors, including, but not limited
      to:





(1)
      actual or anticipated variations in our results of operations;


(2)
      our
      ability or inability to generate new revenues;


(3)
      the
      number of shares in our public float;


(4)
      increased competition; and


(5)
      conditions and trends in the market for event planning services and event
      venues.







-41-








Furthermore,
      because our common stock is traded on the over the counter bulletin board,
      our
      stock price may be impacted by factors that are unrelated or disproportionate
      to
      our operating performance. These market fluctuations, as well as general
      economic, political and market conditions, such as recessions, interest rates
      or
      international currency fluctuations may adversely affect the market price of
      our
      common stock. Additionally, at present, we have a very limited number of shares
      in our public float, and as a result, there could be extreme fluctuations in
      the
      price of our common stock. Further, due to the limited volume of our shares
      which trade and our limited public float, we believe that our stock prices
      (bid,
      asked and closing prices) are entirely arbitrary, are not related to the actual
      value of the Company, and do not reflect the actual value of our common stock
      (and in fact reflect a value that is much higher than the actual value of our
      common stock). Shareholders and potential investors in our common stock should
      exercise caution before making an investment in the Company, and should not
      rely
      on the publicly quoted or traded stock prices in determining our common stock
      value, but should instead determine value of our common stock based on the
      information contained in the Company's public reports, industry information,
      and
      those business valuation methods commonly used to value private
      companies.





**ITEM
      7. FINANCIAL STATEMENTS**





The
      Financial Statements required by Item 310 of Regulation S-B are stated in U.S.
      dollars and are prepared in accordance with U.S. Generally Accepted Accounting
      Principles.
















-42-




TABLE
          OF CONTENTS TO FINANCIAL STATEMENTS
  Report
          of Independent Registered Accouting
          Firm                                                                                                           F-1
  Consolidated
          Balance Sheets as
          of                                                                                                                                       F-2
 December
          31, 2005 and
          2006
  Consolidated
          Income Statements for
          the                                                                                                                             F-3
 Years
          Ended December
          31, 2006 and 2005
  Consolidated
          Statement of Stockholders' Equity for
          the                                                                                                   F-4
 Period
          from January 1,
          2005 through December 31, 2006
  Consolidated
          Statement of Cash Flows for
          the                                                                                                                   F-5
 Years
          Ended December
          31, 2006 and 2005
  Notes
          to Consolidated Financial
          Statements                                                                                                                       F-6
                 -43-
  *Pollard-Kelley
            Auditing Services, Inc......................................................................*
 *Auditing
            Services 4500 Rockside Road #450, Independence OH 44131
            330-836-2558*
 
 
 
 
 Report
            of Independent Registered Public Accounting Firm
 
 Board
            of
            Directors
 XA,
            Inc.
            and Subsidiary
 
 We
            have
            audited the Balance sheet of XA, Inc. and Subsidiary as of December 31,
            2006 and
            the related statements of operations, stockholders equity and cash flows
            for the
            years ending December 31, 2006. These statements are responsibility of
            Company’s
            Management. Our responsibility is to express an opinion on these financial
            statements based on our audit.
 
 We
            conducted our audit in accordance with standards of the Public Company
            Accounting Oversight Board (Unites States). Those standards require that
            we plan
            and perform the audit to obtain reasonable assurance about whether the
            financial
            statements are free of material misstatements. An audit includes examining
            on a
            test basis, evidence supporting the amounts and disclosures in the financial
            statements. An audit also includes assessing the accounting principles
            used and
            significant estimates made by management, as well as evaluating the overall
            financial statement presentation. We believe that our audit provides
            a
            reasonable basis for our opinion.
 
 In
            our
            opinion, the financial statements referred to above present fairly, in
            all
            material respects, the financial position of XA, Inc. and Subsidiary
            as of
            December 31, 2006 and the related statements of operations, stockholders
            equity
            and cash flows for the years ending December 31, 2006 in conformity with
            generally accepted accounting principles.
 
 The
            accompanying financial statements have been prepared assuming that the
            Company
            will continue as a going concern. As discussed in Note 6 to the financial
            statements, the Company has suffered losses the last two years. This
            factor,
            among others including the Notes payable due in 2007, raises substantial
            doubt
            about the Company’s ability to continue as a going concern. Management feels the
            Company’s continuation as a going concern depends upon its ability to obtain
            additional sources of capital and financing. Management’s plan in regard to this
            matter is also described in Note 6 . The
            accompanying consolidated financial statements do not include any adjustments
            that may result from the outcome of this uncertainty.
 
 Pollard-Kelley
            Auditing Services, Inc.
 
 /S/
            Pollard-Kelley Auditing Services, Inc.
 
 Fairlawn,
            Ohio
 March
            5,
            2007
    F-1
   
 XA,
                      Inc. and SubsidiaryCONSOLIDATED
                      BALANCE SHEETSDecember
                      31, 2006 and 20052006
                  
                  2005ASSETSCurrent
                      AssetsCash
                  
                  
                  $
                  372,626
                  
                  $
                  595,472Accounts
                      receivable
                  
                  
                  
                  470,270
                  
                  
                  1,214,492Work
                      in process at cost
                  
                  
                  
                  -
                  
                  
                  770,562Prepaid
                      expenses
                  
                  
                  
                  180,981
                  
                  
                  36,925Prepaid
                      finance charges
                  
                  
                  
                  250,703
                  
                  
                  -Prepaid
                      employment contract
                  
                  
                  
                  -
                  
                  
                  64,467Total
                      Current Assets
                  
                  
                  
                  1,274,580
                  
                  
                  2,681,918Fixed
                      AssetsEquipment
                  
                  
                  
                  244,736
                  
                  
                  194,491Furniture
                      and fixtures
                  
                  
                  
                  66,177
                  
                  
                  53,059Leasehold
                      improvements
                  
                  
                  
                  1,004,745
                  
                  
                  40,7351,315,657
                  
                  
                  288,285Less
                      accumulated depreciation
                  
                  
                  
                  (211,861
                  )
                  
                  (152,513
                  )1,103,796
                  
                  
                  135,772Other
                      AssetsDiscount
                      on Convertible Notes Payable
                  
                  
                  
                  212,853
                  
                  
                  177,346Deferred
                      taxes
                  
                  
                  
                  -
                  
                  
                  540,000Prepaid
                      employment bonus
                  
                  
                  
                  -
                  
                  
                  100,000Deposits
                  
                  
                  
                  73,639
                  
                  
                  72,712Goodwill
                  
                  
                  
                  865,309
                  
                  
                  865,3091,151,801
                  
                  
                  1,755,367$
                  3,530,177
                  
                  $
                  4,573,057LIABILITIES
                      AND STOCKHOLDERS' EQUITYCurrent
                      LiabilitiesAccounts
                      payable
                  
                  
                  $
                  514,232
                  
                  $
                  445,986Accrued
                      payroll
                  
                  
                  
                  -
                  
                  
                  -Interest
                      Payable
                  
                  
                  
                  102,760
                  
                  
                  61,476Withheld
                      and accrued taxes
                  
                  
                  
                  3,731
                  
                  
                  4,471Unearned
                      revenues
                  
                  
                  
                  166,911
                  
                  
                  1,222,229Line
                      of credit
                  
                  
                  
                  800,000
                  
                  
                  -Current
                      portion of long term debt
                  
                  
                  
                  1,450,000
                  
                  
                  2,032,500Total
                      Current Liabilities
                  
                  
                  
                  3,037,634
                  
                  
                  3,766,662Long-term
                      DebtNote
                      payable
                  
                  
                  
                  1,250,000
                  
                  
                  -Derivative
                      Liability
                  
                  
                  
                  62,431
                  
                  
                  -Stockholders'
                      EquitySeries
                      A preferred stock
                  
                  
                  
                  -
                  
                  
                  -Common
                      stock
                  
                  
                  
                  3,952
                  
                  
                  3,719Additional
                      paid in capital
                  
                  
                  
                  2,289,621
                  
                  
                  2,213,157Accumulated
                      other comprehensive income
                  
                  
                  
                  296,121
                  
                  
                  -Retained
                      deficit
                  
                  
                  
                  (3,409,583
                  )
                  
                  (1,410,481
                  )(819,889
                  )
                  
                  806,395$
                  3,530,177
                  
                  $
                  4,573,057
  See
            accompanying notes to financial statements.
    F-2
   XA,
                        Inc. and SubsidiaryCONSOLIDATED
                        INCOME STATEMENTFor
                        the Year  Ended December 31, 2006 and 2005Year-to-date
                    
                    Year-to-date2006
                    
                    2005RevenuesSales
                    
                    $
                    9,824,677
                    
                    $
                    10,912,614Cost
                        of goods soldDirect
                        production costs
                    
                    
                    5,782,391
                    
                    
                    6,767,383Gross
                        profit
                    
                    
                    4,042,286
                    
                    
                    4,145,231Administrative
                        expenseAdministrative
                    
                    
                    4,992,871
                    
                    
                    4,001,362Income
                        (Loss) from operations
                    
                    
                    (950,585
                    )
                    
                    143,869Other
                        income and expensesOther
                        income
                    
                    
                    8,660
                    
                    
                    15,079Other
                        expenses
                    
                    
                    (509,677
                    )
                    
                    (283,594
                    )Intangible
                        impairment
                    
                    
                    (540,000
                    )
                    
                    -(1,041,017
                    )
                    
                    (268,515
                    )Income
                        (Loss) before taxes
                    
                    
                    (1,991,602
                    )
                    
                    (124,646
                    )Tax
                        provisionsTax
                        provisions
                    
                    
                    -
                    
                    
                    (15,000
                    )Net
                        (Loss)
                    
                    
                    (1,991,602
                    )
                    
                    (109,646
                    )Other
                        Comprehensive IncomeDecrease
                        in fair value ofderivatives
                    
                    
                    296,121
                    
                    
                    -Net
                        Comprehensive Income (Loss)
                    
                    $
                    (1,695,481
                    )
                    $
                    (109,646
                    )Loss
                        per ShareAverage
                        shares outstanding
                    
                    
                    3,952,250Net
                        Loss
                    
                    $
                    (0.50
                    )Other
                        Comprehensive Income
                    
                    $
                    0.07Net
                        Other Comprehensive Income
                    
                    $
                    (0.43
                    )
 See
              accompanying notes to financial statements.
    F-3
 XA,
                        Inc. and SubsidiaryCONSOLIDATED
                        STATEMENT OF STOCKHOLDERS' EQUITYFor
                        the Period from January 1, 2005 through December 31, 2006Series
                        A Preferred Stock
                    
                    
                    
                    Common
                      Stock
                        ----------
                    
                    
                    
                    AdditionalPaid-in
                    
                    AccumulatedOtherComprehensive
                    
                    RetainedShares
                    
                    Amount
                    
                    Shares
                    
                    Amount
                    
                    Capital
                    
                    Income
                    
                    Deficit
                    
                    TotalBalance
                        December 31, 2004
                    
                    
                    3
                    
                    $
                    -
                    
                    
                    3,516,250
                    
                    $
                    3,516
                    
                    $
                    2,170,532
                    
                    $
                    -
                    
                    $
                    (1,300,835
                    )
                    $
                    873,213Shares
                        issued for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    202,500
                    
                    
                    203
                    
                    
                    42,625
                    
                    
                    -
                    
                    
                    
                    
                    
                    42,828Net
                        Loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (109,646
                    )
                    
                    (109,646
                    )Balance
                        December 31, 2005
                    
                    
                    3
                    
                    
                    -
                    
                    
                    3,718,750
                    
                    
                    3,719
                    
                    
                    2,213,157
                    
                    
                    
                    
                    
                    (1,410,481
                    )
                    
                    806,395Shares
                        issued for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    108,500
                    
                    
                    108
                    
                    
                    51,589
                    
                    
                    -
                    
                    
                    -
                    
                    
                    51,697Shares
                        issued for debt
                    
                    
                    -
                    
                    
                    -
                    
                    
                    125,000
                    
                    
                    125
                    
                    
                    24,875
                    
                    
                    -
                    
                    
                    -
                    
                    
                    25,000Purchase
                        and retirement ofPreferred
                        shares
                    
                    
                    (1
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (7,500
                    )
                    
                    (7,500
                    )Net
                        Other Comprehensive Loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    296,121
                    
                    
                    (1,991,602
                    )
                    
                    (1,695,481
                    )Balance
                        December 31, 2006
                    
                    
                    2
                    
                    $
                    -
                    
                    
                    3,952,250
                    
                    $
                    3,952
                    
                    $
                    2,289,621
                    
                    $
                    296,121
                    
                    $
                    (3,409,583
                    )
                    $
                    (819,889
                    )
  See
            accompanying notes to financial
            statements.
    F-4
  XA,
                        Inc. and SubsidiaryCONSOLIDATED
                        STATEMENT OF CASH FLOWSFor
                        the Year Ended December 31, 2006 and 2005Year
                        to date
                    
                    Year
                        to date2006
                    
                    2005CASH
                        FLOWS FROM OPERATING ACTIVITIESNet
                        income/(loss)
                    
                    $
                    (1,991,602
                    )
                    $
                    (109,646
                    )Adjustments
                        to reconcile net earnings to netcash
                        provided (used) by operating activities:Intangibles
                        impairment
                    
                    
                    540,000
                    
                    
                    (15,000
                    )Depreciation
                    
                    
                    59,348
                    
                    
                    27,580Amortization
                        of Discounts on Notes Payable
                    
                    
                    260,614
                    
                    
                    133,228Stock
                        for services and debt
                    
                    
                    76,697
                    
                    
                    42,828Changes
                        in Current assets and liabilities:(Increase)
                        Decrease in Accounts receivable
                    
                    
                    744,222
                    
                    
                    (755,463
                    )(Increase)
                        Decrease in Work in process
                    
                    
                    770,562
                    
                    
                    (583,956
                    )(Increase)
                        Decrease in Prepaid expenses
                    
                    
                    (144,056
                    )
                    
                    (34,191
                    )(Increase)
                        Decrease in Prepaid finance charges
                    
                    
                    (250,703
                    )
                    
                    -(Increase)
                        Decrease Prepaid employment contracts
                    
                    
                    164,467
                    
                    
                    87,148(Decrease)
                        Increase in Accounts payable
                    
                    
                    68,246
                    
                    
                    199,860(Decrease)
                        Increase in Accrued payroll
                    
                    
                    -
                    
                    
                    (17,798
                    )(Decrease)
                        Increase in Accrued interest
                    
                    
                    41,284
                    
                    
                    61,476(Decrease)
                        in Withheld and accrued taxes
                    
                    
                    (740
                    )
                    
                    265Increase
                        (Decrease) in Unearned revenue
                    
                    
                    (1,055,318
                    )
                    
                    652,543NET
                        CASH PROVIDED (USED) BYOPERATING
                        ACTIVITIES
                    
                    
                    (716,979
                    )
                    
                    (311,126
                    )CASH
                        FLOWS FROM INVESTING ACTIVITIESPurchase
                        of Fixed assets
                    
                    
                    (1,027,372
                    )
                    
                    (38,912
                    )Purchase
                        of Preferred stock
                    
                    
                    (7,500
                    )
                    
                    -Increase
                        in Goodwill
                    
                    
                    -
                    
                    
                    (57,075
                    )(Increase)
                        Decrease in Deposits
                    
                    
                    (927
                    )
                    
                    (34,532
                    )NET
                        CASH (USED) BY INVESTINGACTIVITIES
                    
                    
                    (1,035,799
                    )
                    
                    (130,519
                    )CASH
                        FLOWS FROM FINANCING ACTIVITIESSale
                        of common stock
                    
                    
                    -
                    
                    
                    -Increase
                        in Derivative Liability
                    
                    
                    62,431
                    
                    
                    -Payments
                        on Notes Payable
                    
                    
                    (2,032,500
                    )
                    
                    -Increase
                        in Notes Payable
                    
                    
                    2,700,000
                    
                    
                    -Increase
                        in Line of credit
                    
                    
                    800,000
                    
                    
                    -NET
                        CASH USED BYFINANCING
                        ACTIVITIES
                    
                    
                    1,529,931
                    
                    
                    -NET
                        INCREASE (DECREASE) IN CASH
                    
                    
                    (222,847
                    )
                    
                    (441,645
                    )CASH
                        ACQUIRED IN ACQUISITION
                    
                    
                    -
                    
                    
                    -CASH
                        AT BEGINNING OF PERIOD
                    
                    
                    595,472
                    
                    
                    1,037,117CASH
                        AT END OF PERIOD
                    
                    $
                    372,625
                    
                    $
                    595,472
 See
              accompanying notes to financial statements.
    F-5
   
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            1 -
            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 -------------------------------------------------------------------------------------------
 
 HISTORY
 -------------
 
 The
            Company was incorporated on August 29, 1991 as Goldstin/Mercola Productions,
            Inc. in Illinois. On January 4, 1993 the name was changed to G/M Productions,
            Inc. On December 4, 2003 the Company entered into an exchange agreement
            with
            Synreal Services Corp a publicly traded Nevada corporation. The exchange
            agreement resulted in the exchange of 1,769,231 newly issued shares of
            Synreal
            common stock for all the outstanding shares of G/M Productions, Inc.
            In addition
            the shareholder of G/M Productions entered into a stock purchase agreement
            with
            the former officers and directors of Synreal whereby the shareholder
            acquired
            1,000,000 shares of Synreal common stock. Synreal was a shell at the
            time of the
            acquisition and therefore the acquisition was treated as a reverse merger
            whereby the acquired company is treated as the acquiring company for
            accounting
            purposes. On December 9, 2003, the stockholders and directors of the
            Company
            passed two resolutions changing the Company's name to The Experiential
            Agency,
            Inc., and authorizing a 13:1 forward stock split.
 
 On
            May
            26, 2005, the Company issued 52,500 shares of common stock for services.
            The
            shares were valued at $18,428.
 
 On
            September 15, 2005, the Company issued 115,000 shares of common stock
            for
            services. The shares were valued at $14,950.
 
 On
            November 9, 2005, the Company issued 10,000 shares of common stock for
            services.
            The shares were valued at $2,700.
 
 On
            December 31, 2005, the Company issued 25,000 shares of common stock for
            services. The shares were valued at $6,750.
 
 On
            February 6, 2006, the Company issued 33,500 shares of common stock for
            services.
            The shares were valued at $9,497.
 
 On
            April
            14, 2006, the Company issued 25,000 shares of common stock for services.
            The
            shares were valued at $14,067.
 
 On
            July
            31, 2006, the Company issued 25,000 shares of common stock for services.
            The
            shares were valued at $14,067.
   
 F-6
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            1 -
            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
 --------------------------------------------------------------------------------------------------------------
 
 On
            September 1, 2006, the Company issued 50,000 shares of common stock for
            services
            and debt reduction. The shares were valued at $10,000.
 
 On
            November 6, 2006, the Company issued 25,000 shares of common stock for
            services.
            The shares were valued at $14,066.
 
 On
            December 29, 2006, the Company issued 75,000 shares of Common stock for
            services
            and debt reduction. The shares were valued at $15,000.
 
 The
            consolidated financial statements include the accounts of XA, Inc., The
            Experiential Agency, Inc., Fiori XA, Inc. and XA Scenes, Inc. All significant
            inter-company accounts and transactions have been eliminated in consolidation.
            The Company is a comprehensive event marketing, design and production
            firm with
            full service offices in Chicago, and New York and a sales office in Los
            Angeles.
 
 CASH
            AND
            CASH EQUIVALENTS
 ------------------------------------------------
 
 For
            purposes of the statement of cash flows, the Company considers all short-term
            debt securities three months or less to be cash equivalents.
 
 Cash
            paid
            during the year for:
 2006 2005
 Interest  $113,862  $
            -0-
 Income taxes  $ 
-0- $
            -0-
 
 PROPERTY
            AND EQUIPMENT
 ------------------------------------------
 
 Property
            and equipment are carried at cost. Maintenance, repairs and renewals
            are
            expensed as incurred. Depreciation of property and equipment is provided
            for on
            the straight line and 200% declining balance basis over their estimated
            useful
            lives as follows:
 
 Equipment 5
            years
 Furniture
            and fixtures  
7
            years
 Leaseholds                                          
            39 years
  
 F-7
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            1 -
            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
 --------------------------------------------------------------------------------------------------------------
 
 Depreciation
            expense for the quarter and year to date ended December 31, 2006 and
            2005 was
            $59,348 and $27,580, respectively.
 
 INCOME
            TAXES
 -----------------------
 
 Before
            December 4, 2003, the date of the share exchange with Synreal, the Company
            had
            elected to be taxed under the provisions of Sub-chapter S of the Internal
            Revenue Code. Under these provisions, the Company does not pay federal
            or state
            corporation taxes on its taxable income. Instead, the shareholders are
            liable
            for individual federal and state income taxes on the Company's taxable
            income.
            There are no differences in accounting for tax and book. After December
            4, 2003,
            the Company is taxed as a Sub-chapter C corporation under the Internal
            Revenue
            Code.
 
 The
            estimated tax provision at December 31, 2006 and 2005 consists of the
            following:
 
 2006                      2005
 
 Federal                        
$ -0-                           
$ -0-
 State                               
-0-                               -0-
 -------                          
------
 $
            -0-                           
$ -0-
 =====                        
====
 
 The
            Company has net loss carry forwards of approximately $1,979,000 that
            begin to
            expire in 2020 for federal taxes and 2017 for state taxes.
 
 USE
            OF
            ESTIMATES
 -----------------------------
 
 The
            preparation of consolidated financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and
            assumptions that affect certain reported amounts and disclosures. Accordingly,
            actual results could differ from those estimates.
  
 
 F-8
 
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            1 -
            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
 --------------------------------------------------------------------------------------------------------------
 
 CONCENTRATION
            OF CREDIT RISKS
 -----------------------------------------------------
 
 During
            2005 and 2004 and at December 31, 2006 and 2005, the Company had deposits
            in
            banks in excess of the FDIC insurance limit.
 
 INTANGIBLE
            IMPAIRMENT
 ----------------------------------------
 
 In
            the
            forth quarter of 2006, management reviewed the value of its intangible
            assets.
            This review resulted in the write down of the intangible asset Deferred
            Taxes.
            The balance in this account represented an estimate of the cash value
            of the
            Company’s net operating loss carry forward.
 
 NOTE
            2 -
            DISCOUNT ON CONVERTIBLE NOTES PAYABLE
 ---------------------------------------------------------------------------------
 
 Discount
            on Convertible Notes Payable represents costs the Company incurred in
            connection
            with the convertible promissory notes. These costs will be amortized
            over the
            life of the notes (24 months) on a straight-line basis.
 
 In
            connection with the August 8, September 26 and October 23, 2006, notes,
            the
            Discount on Convertible Notes Payable represents costs the Company incurred
            in
            connection with the new convertible promissory notes. These costs will
            be
            amortized over the life of the notes (15 months) on a straight-line basis.
 
 Amortization
            of these items for December 31, 2006 and 2005 was $260,614 and $133,228,
            respectively.
 
 NOTE
            3 -
            NOTES PAYABLE
 --------------------------
 
 LINE
            OF
            CREDIT - On August 12, 2004, the Company entered into a Line of Credit
            agreement
            with a bank for $750,000. The note was due September 30, 2006. Interest
            varies
            at 0.25% over the Bank's prime rate. The Company's assets secure the
            note. The
            draws are based on a borrowing base formula at 75% of eligible accounts
            receivable less 90 days past due accounts.
  
 F-9
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            3 -
            NOTES PAYABLE - CONTINUED
 -----------------------------------------------------------
 
 The
            agreement required the payment of a $5,000 commitment fee. The balance
            outstanding under this agreement at December 31, 2006 and 2005 was $0
            and $0,
            respectively.
 
 On
            June
            1, 2006, the Company converted $800,000 of its line of credit to a construction
            loan. The line of credit agreement was amended to $750,000. The Company
            is in
            violation of one of the negative covenants of this loan concerning
            profitability. The lender is aware of the violation and has taken no
            action to
            date. The loan is due December 1, 2007. The balance outstanding on the
            construction loan was $800,000 and $0 at December 31 2006 and 2005,
            respectively.
 
 On
            June
            29, 2004, the Company entered into a Convertible Promissory Note agreement
            with
            5 unrelated entities. The terms of the 5 notes are identical. The interest
            rate
            is 6%. The notes are convertible into the Company's common stock at a
            conversion
            rate of $2.00 per share. Conversion is at the Company's option. However,
            if the
            Company requests conversion it must convert with registered stock. The
            holder
            also received Class A and Class B Warrants (Note4) and purchased an additional
            $1,250,000 of convertible promissory notes on September 13, 2004. The
            June 29,
            2004 note was paid in full on August 8, 2006. The balance of the notes
            were paid
            in 2006.
 
 On
            September 13, 2004, note holders with $267,500 due converted these notes
            into
            1,076,693 pre-reverse split shares of the Company's common stock in accordance
            with the note agreement. On November 1, 2004, note holders with $200,000
            due
            converted these notes into 811,533 pre-reverse split shares of the Company's
            common stock in accordance with the note agreement. The September 13,
            2004 note
            was paid in 2006.
 
 On
            June
            26, 2006, the Company entered into a Securities Purchase Agreement with
            a group
            of venture capital lenders and sold 11% Senior Subordinated Secured Convertible
            Promissory Notes in the amount of $1,250,000, five year warrants at an
            exercise
            price of $1.10 per share and a conversion feature. In accordance with
            EITF 00-27
            the estimated value of the conversion feature is $193,483. The value
            was
            determined using the Black-Scholes pricing model under the following
            assumptions: life of 15 months, risk free interest rate of 5.0%, a dividend
            yield of 0% and volatility of 11%. The face amount of these notes of
            $1,443,483
            was allocated between notes payable of $1,250,000 and the conversion
            feature of
            $193,483. The conversion feature is being amortized over the term of
            the notes.
            The notes are secured by all the assets of the Company and are due November
            8,
            2007. The balance outstanding at December 31, 2006 and 2005 was $1,250,000
            and
            $0, respectively.
 
 
 F-10
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            3 -
            NOTES PAYABLE - CONTINUED
 ----------------------------------------------------------
 
 On
            September 26, 2006, the Company entered into a Securities Purchase Agreement
            with a group of venture capital lenders and sold 11% Senior Subordinated
            Secured
            Convertible Promissory Notes in the amount of $1,450,000, five year warrants
            at
            an exercise price of $1.10 per share and a conversion feature. In accordance
            with EITF 00-27 the estimated value of the conversion feature is $16,155.
            The
            value was determined using the Black-Scholes pricing model under the
            following
            assumptions: life of 15 months, risk free interest rate of 5.0%, a dividend
            yield of 0% and volatility of 11%. The face amount of these notes of
            $216,155
            was allocated between notes payable of $200,000 and the conversion feature
            of
            $16,155. The conversion feature is being amortized over the term of the
            notes.
            The notes are secured by all the assets of the Company with $200,000
            due
            December 26, 2007. The balance outstanding at December 31, 2006 and 2005
            was
            $200,000 and $0, respectively.
 
 On
            October 23, 2006, the Company entered into a Securities Purchase Agreement
            with
            a group of venture capital lenders and sold 11% Senior Subordinated Secured
            Convertible Promissory Notes in the amount of $1,250,000, five year warrants
            at
            an exercise price of $1.10 per share and a conversion feature. In accordance
            with EITF 00-27 the estimated value of the conversion feature is $100,967.
            The
            value was determined using the Black-Scholes pricing model under the
            following
            assumptions: life of 15 months, risk free interest rate of 5.0%, a dividend
            yield of 0% and volatility of 0.1%. The face amount of these notes of
            $1,350,967
            was allocated between notes payable of $1,250,000 and the conversion
            feature of
            $100,967. The conversion feature is being amortized over the term of
            the notes.
            The notes are secured by all the assets of the Company with $1,250,000
            due
            January 23, 2008. The balance outstanding at December 31, 2006 and 2005
            was
            $1,250,000 and $0, respectively.
 
 The
            notes
            will automatically convert to shares of common stock at the conversion
            price
            when the Company completes a private offering of its equity securities
            and
            receives gross proceeds of no less than $3,000,000, with a effective
            purchase
            price of $1.50 per share and the Company has completed an effective registration
            statement covering the resale of the conversion shares.
 
 Total
            Long-Term debt at December 31, 2006, is as follows:
 2006
 
 Total term
            debt  $2,700,000
 Less Current
            portion                       
 (1,450,000)
 --- ----------
 Long-term
            debt                                
 $1,250,000
 =======
  
 F-11
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 
 NOTE
            4 -
            EQUITY
 -------------------------
 
 PREFERRED
            STOCK
 -----------------------------
 
 On
            December 27, 2004, the Board of Directors, with shareholder approval,
            issued 3
            shares, of the authorized 10,000,000 shares of "blank check" preferred,
            as
            Series A Preferred Shares. The Series A Preferred Shares have a par value
            of
            $.001 per share, have no rights to dividends, no liquidation preference,
            no
            conversion rights and no redemption rights. The holders thereof, voting
            as a
            class, shall have the right to vote on all shareholder matters equal
            to
            fifty-one percent of the total vote. On May 22, 2006, the Company purchased
            and
            retired one share of preferred stock for $7,500. There were 2 shares
            outstanding
            at December 31, 2006. The October 23, 2006, note agreement requires the
            Company
            to retire these remaining two outstanding shares. In January 2007, the
            Company
            formally retired the remaining two shares.
 
 COMMON
            STOCK
 ---------------------------
 
 On
            December 19, 2005, the shareholders of the Company increased the total
            authorized shares of common stock to 20,000,000 with a par value of $.001
            per
            share. The Company had 3,952,250 and 3,718,750 shares outstanding at
            December
            31, 2006 and 2005, respectively.
 
 STOCK
            WARRANTS
 ------------------------------
 
 The
            Company has issued warrants to the now retired 6% note holders for 250,000
            shares of common stock. The purchase price of the shares is $9.60. The
            warrants
            expire June 30, 2008. These warrants remain outstanding at December 31,
            2006.
 
 The
            Company has issued warrants to its employees for 490,000 shares of common
            stock.
            The purchase price of the shares is $0.34. The warrants expire June 19,
            2009.
            These warrants remain outstanding at December 31, 2006.
 
 The
            Company has issued warrants to the June 26, September 26, and October
            23, 2006
            Convertible securities for 433,333 shares of common stock at $0.30 and
            for
            392,500 shares of common stock at $1.10. The warrants expire in August
            and
            November 2011. These warrants remain outstanding at December 31,
            2006.
  
 F-12
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 STOCK
            WARRANTS - CONTINUED
 --------------------------------------------------
 
 The
            Company has issued warrants during 2006 in connection with services rendered
            for
            766,667 shares of common stock at $0.30. The warrants expire in August
            and
            November 2011. These warrants remain outstanding at December 31,
            2006.
 
 The
            Company has issued warrants during 2006 to two of its executives for
            1,500,000
            shares of common stock at $0.75 per share. These warrants have a vesting
            schedule and start vesting 12 months after the filing of an effective
            registration statement covering the resale of the common stock the 11%
            notes are
            convertible into. These warrants remain outstanding at December 31,
            2006.
 
 NOTE
            5 -
            COMMITMENTS
 ------------------------------------
 
 On
            February 1, 2001, the Company entered into a seven-year lease agreement
            for
            office space in Chicago. The lease terminates March 31, 2008. Lease payments
            are
            on a sliding scale as follows:
 
 Period                              
Monthly Rent
 Year
            1                              
$11,032
 Year
            2                             
 $11,319
 Year
            3                             
 $11,614
 Year
            4                              
$11,918
 Years 5 &
6                     
$12,231
 Year
            7                              
$12,886
 
 The
            lease
            was terminated by the Company in July of 2004.
 
 On
            August
            20, 2003, the Company entered into a five-year lease agreement for shared
            office
            space in New York. The lease terminates August 1, 2008. The lease calls
            for
            monthly payments of $1,250 per month.
 
 On
            March
            31, 2003, the Company entered into an equipment lease with a finance
            company.
            The lease is for 36 months with monthly payments of $145.
 
 On
            April
            1, 2003, the Company entered into an equipment lease with a finance company.
            The
            lease is for 60 months with monthly payments of $1,383.
  
 F-13
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            5-
            COMMITMENTS - CONTINUED
 --------------------------------------------------------
 
 On
            September 18, 2003, the Company entered into an equipment lease with
            a finance
            company. The lease is for 36 months with monthly payments of $117.
 
 On
            October 1, 2003, the Company entered into an equipment lease with a finance
            company. The lease is for 36 months with monthly payments of $83.
 
 On
            November 20, 2001, the Company entered into a vehicle lease with a finance
            company. The lease is for 39 months with monthly payments of
            $1,099.
 
 On
            May
            30, 2002, the Company entered into a vehicle lease with a finance company.
            The
            lease is for 36 months with monthly payments of $2,483.
  On
            January 1, 2004, the Company entered into a sublease agreement for a
            portion of
            its space in Chicago. The sublease lasts for one year with monthly income
            of
            $1,250 a month.
 
 On
            January 14, 2004, the Company entered into a vehicle lease with a finance
            company. The lease is for 24 months with monthly payments of
            $1,965.
 
 On
            January 15, 2004, the Company entered into a four year and seven month
            shared
            office space agreement in Los Angeles. The lease begins May 1, 2004 and
            has an
            option for one 60-month extension. The Company's portion of the monthly
            rent is
            $1,820 per month.
 
 On
            February 10, 2004, the Company entered into a vehicle lease with a finance
            company. The lease is for 36 months with a monthly payment of
            $1,956.
 
 On
            February 17, 2004, the Company entered into an equipment lease with a
            finance
            company. The lease is for 60 months with monthly payments of $239.
 
 On
            June
            14, 2004, the Company entered into an equipment lease with a finance
            company.
            The lease is for 60 months with monthly payments of $389.
 
 On
            June
            30, 2004, the Company entered into an eight-year lease for office space
            in
            Chicago. The lease terminates June 30, 2012. Lease payments are on a
            sliding
            scale as follows:
 
 
 F-14
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            5-
            COMMITMENTS - CONTINUED
 --------------------------------------------------------
 
 Period                    
             Monthly
            Rent                   
Period                         
Monthly Rent
 Year
            1                    
 $
            9,590                                
Year
            5                          
$11,508
 Year
            2                     
$10,069                               
Year
            6                           $11,987
 Year
            3                    
 $10,549                                Year
            7                         
 $12,466
 Year
            4                     
$11,028                               
Year
            8                           
$12,946
 
 On
            June
            30, 2004, the Company entered into a five-year lease for retail/office
            space in
            Chicago. The lease terminates August 31, 2008. Lease payments are on
            a sliding
            scale as follows:
 
 Period                     
             Monthly Rent
 Year
            1                      
$5,250
 Year
            2                      
$5,408
 Year
            3                      
$5,570
 Year
            4                      
$5,736
 Year
            5                       $5,909
  On
            August
            1, 2004, the Company entered into an equipment lease with a finance company.
            The
            lease is for 60 months with monthly payments of $613.
 
 On
            December 23, 2005, the Company entered into a ten-year lease for office,
            event
            and production space in New York City. The lease payments are $21,667
            per month
            and increase 3% per year each year after the first year.
 
 On
            August
            7, 2006, the Company entered into a 60 month lease for equipment. The
            lease
            payments are $704 per month.
 
 On
            August
            7, 2006, the Company entered into a 60 month lease for equipment. The
            lease
            payments are $168 per month.
 
 On
            August
            7, 2006, the Company entered into a 12 month lease for an apartment in
            New York
            City. The lease payments are $3,025 per month.
 
 On
            August
            30, 2006, the Company entered into a 36 month lease for warehouse space
            in
            Chicago. The lease payments are $4,750 per month.
 
 
 
 
 F-15
  
 XA,
            INC.
            AND SUBSIDIARY
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS
 
 December
            31, 2006
 
 NOTE
            5-
            COMMITMENTS - CONTINUED
 ---------------------------------------------------------
 
 Future
            minimum payments due under these lease agreements are as follows:
 
 2007                   
             $618,789
 2008                     $558,594
 2009                    
            $531,717
 2010                    
            $502,240
 2011 $450,321
 
 NOTE
            6 -
            GOING CONCERN
 -------------------------------------
 
 The
            Company has suffered significant losses in 2006. This combined with the
            secured
            and subordinated notes payable that are due in 2007 and January 2008
            raise
            substantial doubts concerning its ability to continue as a going
            concern.  The
            Company’s continuation as a going concern depends upon its ability to generate
            sufficient cash flow to conduct its operations and its ability to obtain
            additional sources of capital and financing. Management has plans to
            increase
            revenues over the next year which should increase cash flows form operations.
            It
            also feels it can raise additional capital, and meet the conditions that
            will
            allow the 11% notes to be converted into common stock. The accompanying
            financial statements do not include any adjustments that might result
            from the
            outcome of this uncertainty.
     F-16







**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE**





None.





**ITEM
      8A. CONTROLS AND PROCEDURES**





(a)
      Evaluation of disclosure controls and procedures. Our Chief Executive Officer
      and Principal Financial Officer, after evaluating the effectiveness of our
      "disclosure controls and procedures" (as defined in the Securities Exchange
      Act
      of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
      by
      this Annual Report on Form 10-KSB (the "Evaluation Date"), have concluded that
      as of the Evaluation Date, our disclosure controls and procedures are effective
      to provide reasonable assurance that information we are required to disclose
      in
      reports that we file or submit under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission rules and forms, and that such information is accumulated
      and communicated to our management, including our Chief Executive Officer and
      Chief Accounting Officer, as appropriate, to allow timely decisions regarding
      required disclosure.





(b)
      Changes in internal control over financial reporting. There were no changes
      in
      the Company's internal control over financial reporting during the fourth fiscal
      quarter that materially affected, or is reasonably likely to materially affect,
      the Company's internal control over financial reporting.





**ITEM
      8B. OTHER INFORMATION.**





None.








-44-





**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
      PERSONS COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
      ACT**





**DIRECTORS
      AND OFFICERS**





The
      Directors and Officers of the Company are as follows:





**Name**
            ****Age****
            **Position**
            **Since**Joseph
                Wagner
            41
            President,
            August
                2004Chief
                Executive Officer,Secretary
                and ChairmanJean
                Wilson
            46
            Chief
                Operating Officer,
            August
                2004Chief
                Accounting Officer,Treasurer
                and DirectorChristopher
                Spencer
            38
            Director
            December
                2005





**Joseph
      Wagner**





Joseph
      Wagner was appointed Chief Executive Officer of the Company on February 17,
      2005. Mr. Wagner has served as a consultant to the Company performing the
      functions of President and Secretary and as a Director of the Company since
      August 2004. Since February 23, 2007, Mr. Wagner has served as Chairman of
      our
      Board of Directors. Mr. Wagner has worked for the Company since February 2003.
      Mr. Wagner may engage in business activities or interests outside of the Company
      which are not adverse or competitive to the Company. Mr. Wagner concurrently
      serves as President of LSC Capital Advisers ("LSC Capital"). Mr. Wagner has
      worked for LSC Capital since October 1997. From March of 2000 to October 2004,
      Mr. Wagner served as Managing Director of LSC Associates, LLC. Mr. Wagner has
      advised public and private companies in the areas of strategic planning,
      international project development, international finance, project management,
      logistics, and business development. Mr. Wagner has served as an officer and/or
      director of emerging growth companies and has been responsible for operational
      oversight in the areas of mergers and acquisitions, corporate governance,
      business development, strategic financial planning and SEC audits. Mr. Wagner
      earned a Bachelor of Arts in Law & Society from Purdue University, highest
      distinction, Phi Beta Kappa; and he earned a Master of Arts from Northern
      Illinois University.





**Jean
      Wilson**





Jean
      Wilson was appointed Chief Operating Officer of the Company on February 17,
      2005. Ms. Wilson has served as the Company's Treasurer and as a Director of
      the
      Company since August 2004. Ms. Wilson has worked for XA since July 2002. From
      January 1999 to July 2002, Ms. Wilson held a management position with ESM
      Association. From September 1982 to January 1999, Ms. Wilson worked in
      operations for The Meetinghouse Companies. Ms. Wilson brings more than twenty
      years of full time experience in event and meeting planning to the Company.
      During her career, Ms. Wilson has been responsible for every facet of producing,
      selling and coordinating corporate special events, trade shows, conventions
      and
      seasonal decorating programs for a host of clients. Ms. Wilson earned a
      Bachelors degree with honors in Recreation/Leisure Studies from Eastern Illinois
      University.







-45-





**Christopher
      Spencer**





Christopher
      Spencer has served as a Director of the Company since December 19, 2005. He
      has
      not previously and does not currently serve as an officer or employee of the
      Company. Since approximately February 1996, Mr. Spencer has served as the Chief
      Executive Officer, President, Treasurer and as a Director of Wizzard Software
      Corp. a company which is publicly traded on the OTC Bulletin Board under the
      symbol [WIZD] and which specializes in speech recognition software and
      text-to-speech technology. From approximately May 1994 to approximately February
      1996, Mr. Spencer served as the Chief Executive Officer of Chinawire, Inc.
      which
      provided money transfer services between high population Chinese areas in the
      United States and mainland China. From approximately July 1992 to approximately
      April 1994, he served as Chief Executive Officer of Lotto USA, which provided
      lottery ticket brokerage services that allowed persons in one state to purchase
      a different state's lottery tickets through Lotto USA. Mr. Spencer has his
      IBM
      certification in speech recognition.





All
      directors of the Company will hold office until the next annual meeting of
      the
      shareholders, and until their successors have been elected and qualified.
      Officers of the Company are elected by the Board of Directors and hold office
      at
      the pleasure of the Board.
















-46-







**EMPLOYMENT
      AND**


**CONSULTING
      AGREEMENTS**





**Joseph
      Wagner**





In
      August
      2006, Joseph Wagner, our Chief Executive Officer, President and Director entered
      into a Consulting Agreement with us effective August 1, 2006, which Consulting
      Agreement replaced a prior Consulting Agreement entered into between the parties
      with an effective date of August 1, 2004.





Pursuant
      to the Consulting Agreement, Mr. Wagner is to serve as our Chief Executive
      Officer, President and Secretary for a period of sixty (60) months from the
      effective date of the Consulting Agreement, August 1, 2006. Upon the expiration
      of the initial term of the Consulting Agreement, the Consulting Agreement shall
      automatically renew for successive one (1) year terms unless either party
      provides the other of its intent not to renew, at least thirty (30) days, but
      not more than sixty (60) days prior to the end of the term. Additionally,
      pursuant to the Consulting Agreement, Mr. Wagner will devote such time as the
      Company may reasonably deem to be necessary and beneficial to the efficient
      and
      effective operation of the Company's business. Mr. Wagner may engage in business
      activities or interests outside of the Company which are not adverse or
      competitive to the Company. Mr. Wagner will receive $200,000 per year as
      compensation as well as thirty (30) days of paid time off ("PTO") pursuant
      to
      the Consulting Agreement. Additionally, pursuant to the Consulting Agreement,
      Mr. Wagner was granted an aggregate of 850,000 stock options, which options
      shall vest to Mr. Wagner as provided in the Option Agreement which evidences
      the
      options and expire on the fifth anniversary of their grant date August 2, 2006,
      if unexercised, or as otherwise provided in the option agreement, which Options
      are described in greater detail. The Company is obligated to maintain a director
      and officer insurance policy of at least $1,000,000 during the term of Mr.
      Wagner's Consulting Agreement. The Company may terminate the Consulting
      Agreement; however, in the event of termination for good reason by Mr. Wagner
      or
      without cause, the Company is obligated to pay Mr. Wagner a severance payment
      of
      $250,000 in addition to all unpaid payments of salary through the end of the
      term of the Consulting Agreement in one lump sum payment and all unvested
      options shall vest to Mr. Wagner immediately.





**Jean
      Wilson**





In
      August
      2006, Jean Wilson, our Chief Operating Officer, Treasurer and Director entered
      into an Employment Agreement with us effective August 1, 2006, which Employment
      Agreement replaced a prior Employment Agreement entered into between the parties
      with an effective date of August 1, 2004.





Pursuant
      to the Employment Agreement, Ms. Wilson is to serve as our Chief Operating
      Officer and Treasurer for a period of sixty (60) months from the effective
      date
      of the Employment Agreement, August 1, 2006. Upon the expiration of the initial
      term of the Employment Agreement, the Employment Agreement shall automatically
      renew for successive one (1) year terms unless either party provides the other
      of its intent not to renew, at least thirty (30) days, but not more than sixty
      (60) days prior to the end of the term. Additionally, pursuant to the Employment
      Agreement, Ms. Wilson will devote such time as the Company may reasonably deem
      to be necessary and beneficial to the efficient and effective operation of
      the
      Company's business. Ms. Wilson will receive $150,000 per year as compensation
      as
      well as thirty (30) days of PTO pursuant to the Employment Agreement. Pursuant
      to the Employment Agreement, Ms. Wilson was granted an aggregate of 650,000
      stock options, which options shall vest to Ms. Wilson as provided in the Option
      Agreement which evidences the options and expire on the fifth anniversary of
      their grant date August 2, 2006, if unexercised, or as otherwise provided in
      the
      option agreement, which Options are described in greater detail below. The
      Company is obligated to maintain a director and officer insurance policy of
      at
      least $1,000,000 during the term of Ms. Wilson's Employment Agreement. The
      Company may terminate the Employment Agreement; however, in the event of
      termination for good reason by Ms. Wilson or without cause, the Company is
      obligated to pay Ms. Wilson a severance payment of $250,000 in addition to
      all
      payments of salary earned through the end of the term of the Employment
      Agreement in one lump sum payment and all unvested options shall vest to Ms.
      Wilson immediately.







-47-










**Christopher
      Spencer**





Christopher
      Spencer entered into a one year, renewable consulting agreement with us to
      serve
      as our Director on December 19, 2005. The consulting agreement was for a period
      of twelve (12) months. Pursuant to the consulting agreement, Mr. Spencer was
      paid $2,000 per month and received an aggregate of 100,000 restricted shares
      of
      our common stock while employed under the consulting agreement, one for each
      quarter he is employed under the consulting agreement, which shares have been
      issued to date. The Company is obligated to maintain a director and officer
      policy of at least $1,000,000 during the term of Mr. Spencer's consulting
      agreement. The consulting agreement is terminated by Mr. Spencer's disability
      or
      his death. Mr. Spencer can terminate the consulting agreement for good reason
      and the Company can terminate the consulting agreement with cause (as described
      in the consulting). Additionally, Mr. Spencer's consulting agreement is
      terminated if the Company's voting shareholders vote to remove him as a Director
      or if he fails to be re-elected upon the termination of his current term as
      Director. Also the consulting agreement may be terminated by the mutual
      agreement of the parties. Upon Mr. Spencer's termination for any reason, he
      is
      entitled to receive only the compensation earned by him (including shares of
      stock) up to the date of the termination. The Consulting Agreement was renewed
      for the year ending December 31, 2007, with Mr. Spencer receiving $1,000 per
      month for his services as Director instead of $2,000 per month as was his
      consideration for the initial one year term of the agreement.





**Joseph
      Wagner and Jean Wilson Options**





On
      June
      19, 2006, the Company's Board of Directors approved the issuance of 650,000
      Incentive Stock Options to the Company's Chief Executive Officer, President,
      Secretary and Director, Joseph Wagner and 550,000 Incentive Stock Options to
      Jean Wilson, the Company's Chief Operating Officer, Treasurer and Director,
      who
      both also own more than 10% of the Company's outstanding voting shares (the
      "10%
      Shareholder Options") pursuant to the Plan. The 10% Shareholder Options had
      an
      exercise price of $0.38 per share, which was equal to 110% of the mean of the
      highest and lowest quoted selling


prices of the Company's common stock on the Over-The-Counter
      Bulletin Board on the Valuation Date. The 10% Shareholder Options were evidenced
      by Option Agreements, pursuant to the Plan. The 10% Shareholder Options shall
      vest three (3) years from the Valuation Date (June 19, 2009), and terminated
      if
      unexercised on June 19, 2011, unless terminated earlier pursuant to the terms
      of
      the Option Agreements; provided however, that the 10% Shareholder Options shall
      vest immediately upon the occurrence of a Change in Control of the Company.
      The
      10% Shareholder Options were later rescinded by the Company in connection with
      the Funding and the grant of the JJ Options, as described in greater detail
      below.





-48-





On
      August
      2, 2006 (the "Valuation Date"), the Directors granted 850,000 options to
      purchase shares of our common stock ("Options") to Joseph Wagner, the Company's
      Chief Executive Officer and Director of the Company and 650,000 Options to
      Jean
      Wilson, the Company's Chief Operating Officer and Director, who are both greater
      than 10% shareholders of the Company (the "JJ Options"). The exercise price
      of
      the JJ Options is $0.75 per share (which exercise price was greater than 110%
      of
      the mean of the highest ($0.31) and lowest ($0.31) quoted selling prices of
      the
      Company's common stock on the Valuation Date). The JJ Options expire if
      unexercised on the fifth anniversary of the Vesting Date, or as otherwise
      provided in the Option Agreements.





Mr.
      Wagner shall vest 283,333 of the Options upon the twelve (12) month anniversary
      of the date the United States Securities and Exchange Commission declares
      effective a registration statement covering the resale of the shares of common
      stock which the 11% Senior Secured Convertible Promissory Notes which we sold
      in
      August, September and October 2006 to certain third party purchasers (the
      "Purchasers") are convertible into (as described in greater detail in our most
      recent periodic filings) and the shares of common stock which the Warrants
      granted to such Purchasers are exercisable for (the "Effectiveness Date");
      Mr.
      Wagner shall vest 283,333 of the Options upon the twenty-four (24) month
      anniversary of the Effectiveness Date; and Mr. Wagner shall vest the remaining
      283,334 options upon the thirty-six (36) month anniversary of the Effectiveness
      Date, provided however that all of the options shall vest immediately upon
      a
      Change in Control of the Company (as defined below).





Ms.
      Wilson shall vest 216,667 of the Options upon the twelve (12) month anniversary
      of the Effectiveness Date; Ms. Wilson shall vest 216,666 of the Options upon
      the
      twenty-four (24) month anniversary of the Effectiveness Date; and Ms. Wilson
      shall vest the remaining 216,666 options upon the thirty-six (36) month
      anniversary of the Effectiveness Date, provided that all of the options shall
      vest immediately upon a Change in Control of the Company (as defined
      below).





A
      "Change
      in Control" includes the adoption of a plan of merger or consolidation of the
      Company with any other corporation or association as a result of which the
      holders of the voting capital stock of the Company as a group would receive
      less
      than 50% of the voting capital stock of the surviving or resulting corporation;
      the approval by the Board of Directors of the Company of an agreement providing
      for the sale or transfer of substantially all the assets of the Company; or
      in
      the absence of a prior expression of approval by the Board of Directors, the
      acquisition of more than 20% of the Company's voting capital stock by any person
      within the meaning of Rule 13d-3 under the Securities Act
      of
      1933 (the "Act," other than the Company or a person that directly or indirectly
      controls, is controlled by, or is under common control with, the
      Company).







-49-





**Section
      16 (A) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's
      directors, executive officers and persons who own more than 10% of a class
      of
      the Company's equity securities which are registered under the Exchange Act
      to
      file with the Commission initial reports of ownership and reports of changes
      of
      ownership of such registered securities. Such executive officers, directors
      and
      greater than 10% beneficial owners are required by the Commission to furnish
      the
      Company with copies of all Section 16(a) forms filed by such reporting
      persons.





To
      the
      Company's knowledge, based solely on a review of the copies of such reports
      furnished to the Company and on representations that no other reports were
      required, no person required to file such a report failed to file on a timely
      basis during the most recent fiscal year or prior fiscal years. Based on
      stockholder filings with the SEC, Frank Goldstin, Joseph Wagner, Jean Wilson,
      Vision Opportunity Master Fund, Ltd. and Christopher Spencer are subject to
      Section 16(a) filing requirements.





**Code
      Of Ethics**





The
      Board
      of Directors adopted a Code of Ethics in February 2004, meeting the requirements
      of Section 406 of the Sarbanes-Oxley Act of 2002. The Company will provide
      to
      any person without charge, upon request, a copy of such Code of Ethics. Persons
      wishing to make such a request should contact Joseph Wagner, President, 875
      North Michigan Avenue, Suite 2626, Chicago, Illinois 60611, telephone: (312)
      397-9100.





**Audit
      Committee**





As
      of the
      date of this filing, the Company has no Audit Committee in place nor any
      immediate plans to form one. However, if or when the Company is required to
      maintain an Audit Committee pursuant to the Sarbanes-Oxley act of 2002, the
      Company plans to comply with such requirement.





**ITEM
      10. EXECUTIVE COMPENSATION**





The
      table
      that follows presents the annual compensation of our Chief Executive Officer,
      and other executive officers who made more than $100,000 per year for the last
      three fiscal years ending December 31, 2006.








-50-






**SUMMARY
        COMPENSATION TABLE**
 **Annual
        Compensation***
   Other                                 All Other
                                                                Annual                                 Annual      Total
Name & Principal                                                Comp-     Restricted       Stock       Compen-     Compen-
  Position                       Year         Salary ($)       sation    Stock Awards     Options      sation      sation
-------------------------------------------------------------------------------------------------------------------------


Joseph Wagner (1)                2006         $200,000                     $49,167(3)        (5)                 $249,167
CEO, President,                  2005         $203,666                     $28,333(3)                            $231,999
Secretary,                       2004         $200,000                     $12,497(3)                            $212,497
and Chairman of
the Board of Directors

Jean Wilson (2)                  2006         $150,000                     $15,297(4)        (5)                 $165,297
Chief Operating                  2005         $143,699                     $ 8,815(4)                            $152,514
Officer,                         2004         $105,000                     $ 3,888(4)                            $108,888
Principal
Accounting Officer,
Treasurer,
and Director

Frank Goldstin(6)                2005         $189,246      $50,000(6)                                           $239,246
Former CEO                       2004         $360,000                                                           $360,000





*
      Does
      not include perquisites and other personal benefits in aggregate amounts less
      than 10% of the total annual salary and other compensation. No Executive Officer
      received any Bonuses, SARS, or LTIP Payouts during the three years ended
      December 31, 2006.


(1)
      Joseph Wagner, has served as our President Secretary and Treasurer since August
      1, 2004, and served as our Chief Operating Officer from August 1, 2004 until
      February 17, 2005, at which time he resigned as Chief Operating Officer and
      was
      appointed Chief Executive Officer entered into a thirty-six (36) month
      consulting agreement with the Company effective August 1, 2004, pursuant to
      which Mr. Wagner will receive compensation of $200,000 per year.




(2)
      Jean
      Wilson has served as our Chief Accounting Officer and Treasurer since August
      1,
      2004. Between August 1, 2004 and February 17, 2005, Mrs. Wilson served as our
      Vice President of operations and on February 17, 2005, was appointed Chief
      Operating Officer. Mrs. Wilson entered into a thirty-six (36) month employment
      agreement with the Company effective August 1, 2004, pursuant to which Ms.
      Wilson received compensation of $105,000 per year beginning on August 1, 2004,
      and $125,000 per year beginning January 1, 2005.




(3)
      In
      August 2004, Mr. Wagner also received as additional consideration 225,000
      restricted shares of the Company's common stock subject to a risk of forfeiture.
      On December 31, 2004, 75,000 shares became fully vested and on December 31,
      2005
      an additional 75,000 shares became fully vested. The risk of forfeiture covering
      the remaining 75,000 shares ceased to exist in August 2006, in connection with
      our entry into a sixty (60) month Consulting Agreement with Mr. Wagner pursuant
      to which he will continue to receive $200,000 per year for his services to
      us
      (described in greater detail below). Mr. Wagner may engage in business
      activities or interests outside of the Company which are not adverse or
      competitive to the Company. The values listed in the table above represent
      the
      amortized amounts of the vested shares for each year presented.









-51-







(4)
      In
      August 2004, Ms. Wilson also received as additional consideration 70,000
      restricted shares of the Company's common stock subject to a risk of forfeiture.
      On December 31, 2004, 25,000 shares became fully vested and on December 31,
      2005, 22,500 shares became fully vested. The risk of forfeiture covering the
      remaining 22,500 shares ceased to exist in August 2006, in connection with
      Ms.
      Wilson's entry into a sixty (60) month Executive Employment Agreement, pursuant
      to which she received a pro rata amount of her salary payable under the
      Executive Employment Agreement for the months between August and December 2006,
      and will receive $150,000 per year for her services to us, during the remaining
      years of the Executive Employment Agreement (described in greater detail below).
      The values listed in the table above represent the amortized amounts of the
      vested shares for each year presented.




(5)
      Joseph Wagner and Jean Wilson were granted 850,000 and 650,000 options to
      purchase shares of our common stock at an exercise price of $0.75 per share,
      respectively in August 2006. A Black - Scholes computation of those options
      indicated that neither grant had material value, due to the fact that they
      have
      not vested yet (the options are described in greater detail under "Employment
      and Consulting agreements above.")




(6)
      Frank
      Goldstin served as our Chief Executive Officer from December 2003 to February
      17, 2005, when Mr. Wagner was elected as our Chief Executive Officer. Effective
      August 1, 2004, Mr. Goldstin entered into a thirty-six (36) month employment
      agreement with the Company effective August 1, 2004, pursuant to which Mr.
      Goldstin would have received compensation of $360,000 per year. On or about
      February 17, 2005, Mr. Goldstin entered into a Twenty-Four (24) month employment
      agreement with the Company which superseded the previous agreement he had with
      the Company, and which would have paid him $100,000 per year as the Chairman
      of
      the Company's Board of Directors. Mr. Goldstin's employment agreement was
      terminated effective December 19, 2005, due to the fact that he was not elected
      a Director of the Company at our annual meeting of shareholders on the same
      day.
      In connection with the termination of Mr. Goldstin's employment, and pursuant
      to
      a "Severance Agreement and Release in Full" (the "Severance Agreement"), he
      was
      provided a lump sum payment in the amount of $50,000, less applicable tax
      withholding, and a payment of $5,538.43, less applicable tax withholding, in
      connection with amounts previously owed to Mr. Goldstin in connection with
      his
      employment (collectively the "Severance Pay").




Pursuant
      to the Severance Agreement, Mr. Goldstin agreed to release and forever discharge
      us, our former, present and future officers, directors, employees, agents,
      administrators, persons and corporations who may be liable for the conduct
      of
      any of the aforesaid parties, from any and all debts, demands, promises,
      actions, claims, liabilities, damages, and causes of action of any nature,
      known
      or unknown, both in law and equity, which have accrued or may ever accrue to
      Mr.
      Goldstin, his heirs, executors, legal administrator, successors, or assigns
      by
      reason of his employment with us. Mr. Goldstin's release included all claims
      whether arising in tort, contract or statute. Additionally, pursuant to the
      Severance Agreement, Mr. Goldstin agreed to repay us the Severance Pay if he
      violates the Severance Agreement in any material respect.




Additionally,
      we had three (3) other employees who made between $100,000 and $129,999 per
      year
      for the year ended December 31, 2006, and two (2) other employees who made
      more
      than $150,000 per year for the year ended December 31, 2006. While these
      individuals perform various tasks for us, we do not believe these individuals
      perform any functions as executive officers of the Company.







-52-










**Severance
      and Change in Control Payouts:**





We
      grant
      change in control and severance arrangements to our executive officers on a
      case-by-case basis. Currently Joseph Wagner, our Chief Executive Officer,
      Secretary and Chairman of the Board, and Jean Wilson, our Chief Financial
      Officer, Chief Operating Officer, and Treasurer are the only executive officers
      with whom we have any change in control and severance arrangements. We believe
      that granting these arrangements to certain key employees is an important
      element in the retention of such employees.





In
      Mr.
      Wagner’s case, his severance arrangement takes effect pursuant to his Consulting
      Agreement, if he is terminated without cause by us, or he terminates his
      employment by giving ten (10) days written notice for “good reason,” defined as
      if he is assigned, without his express written consent to any duties materially
      inconsistent with his positions, duties, responsibilities or status with us
      as
      of the date of his Consulting Agreement, or a change in his reporting
      responsibilities or titles as in effect as of the date of the Consulting
      Agreement; if his compensation is reduced; or if we do not pay him any material
      amount of compensation due under the Consulting Agreement within ten (10) days
      of the date he gives us notice that such amount has not been paid (each a
“Severance Event”). In the event of a Severance Event, Mr. Wagner shall be
      entitled to receive as severance pay, an amount equal to $250,000 in addition
      to
      all of the unpaid payments of salary that he would had earned assuming that
      he
      had provided services to us for the full term of the Consulting Agreement.
      For
      instance, if he terminated his service to us pursuant to a Severance Event
      on
      August 1, 2007 (the one year anniversary of his entry into the Consulting
      Agreement), he would receive as severance compensation, $250,000 plus the
      remaining amount of payments he would be due under the Consulting Agreement,
      $800,000 (four (4) years at $200,000 per year), so he would therefore be due
      a
      total of $1,050,000 in a lump sum payment. Additionally, all 850,000 of the
      options to purchase shares of our common stock which he was granted in August
      2006, would vest to him immediately.





In
      Ms.
      Wilson’s case, her severance arrangement takes effect pursuant to the same
      Severance Events as defined above for Mr. Wagner. In the event of a Severance
      Event, Ms. Wilson shall be entitled to receive as severance pay, an amount
      equal
      to $250,000 in addition to all of the unpaid payments of salary that she has
      earned as of her termination date pursuant to the Employment Agreement. For
      instance, if she terminated her service to us pursuant to a Severance Event
      on
      August 1, 2007 (the one year anniversary of her entry into the Employment
      Agreement), she would receive as severance compensation, $250,000 plus the
      remaining amount of payments she had earned prior to the termination of the
      Employment Agreement. Additionally, all 650,000 of the options to purchase
      shares of our common stock which she was granted in August 2006, would vest
      to
      her immediately.





Mr.
      Wagner’s and Ms. Wilson’s options also contain change of control provisions,
      whereby in the event of the adoption of a plan of merger or consolidation of
      the
      Company with any other corporation or association as a result of which the
      holders of the voting capital stock of the Company as a group would receive
      less
      than 50% of the voting capital stock of the surviving or resulting corporation;
      the approval by the Board of Directors of the Company of an agreement providing
      for the sale or transfer of substantially all the assets of the Company; or
      in
      the absence of a prior expression of approval by the Board of Directors, the
      acquisition of more than 20% of the Company's voting capital stock by any person
      within the meaning of Rule 13d-3 under the Securities Act of 1933 (the "Act,"
      other than the Company or a person that directly or indirectly controls, is
      controlled by, or is under common control with, the Company), all of the options
      which they currently hold shall vest to them immediately.







-53-






Additionally,
      all of the options granted to employees in June 2006, as described herein,
      shall
      immediately vest to those employees upon a Change in Control.







**COMPENSATION
      DISCUSSION AND ANALYSIS**





**Director
      Compensation**





Joseph
      Wagner, the Chairman of our Board of Directors and Jean Wilson a Director of
      the
      Company do not receive any separate consideration from the Company other than
      the compensation they are paid as the Company’s executives for their services on
      the Board of Directors. Christopher Spencer currently receives $1,000 per month
      for services rendered to the Company as a Director of the Company. The Board
      of
      Directors reserves the right in the future to award the members of the Board
      of
      Directors cash (or additional cash in the case of Mr. Spencer) or stock based
      consideration for their services to the Company, which awards, if granted shall
      be in the sole determination of the Board of Directors.





**Executive
      Compensation Philosophy**





Our
      Board
      of Directors, consisting of Joseph Wagner, who also serves as the Chairman
      of
      the Board of Directors, Jean Wilson and Christopher Spencer, determines the
      compensation provided to our executive officers in their sole determination.
      Our
      executive compensation program is designed to attract and retain talented
      executives to meet our short-term and long-term business objectives. In doing
      so, we attempt to align our executives’ interests with the interests of our
      shareholders by providing an adequate compensation package to such executives.
      This compensation package includes a base salary, which we believe is
      competitive with other companies of our relative size. In addition, we have
      previously granted certain options to our executive and non-executive employees
      as part of our compensation package, and our Board of Directors reserves the
      right to award incentive bonuses which are linked to our performance, as well
      as
      to the individual executive officer’s performance in the future. This package
      may also include long-term, stock based compensation to certain executives
      which
      is intended to align the performance of our executives with our long-term
      business strategies, which may be similar to our previous stock options granted
      during the year ended December 31, 2006.










-54-






Base Salary


The
      base
      salary of our executive officers, Joseph Wagner, our Chief Executive Officer,
      President, Secretary and Chairman of the Board of Directors, was established
      by
      our entry into a sixty month Consulting Agreement entered into with Mr. Wagner
      in August 2006, currently totals a base salary of $200,000 per year and Jean
      Wilson, our Chief Operating Officer, Principal Accounting Officer, Treasurer
      and
      Director, was established by our entry into a sixty month Employment Agreement
      with Ms. Wilson in August 2006, currently totals a base salary of $150,000
      per
      year, were established by evaluating the range of responsibilities of their
      positions, as well as the anticipated impact that Mr. Wagner and Ms. Wilson
      could have in meeting our strategic objectives. The established base salary
      of
      each individual was then benchmarked to comparable positions with that of our
      industry and similarly sized companies. Base salaries are adjusted to reflect
      the varying levels of position responsibilities and individual executive
      performance.





**Incentive
      Bonus**





Along
      with our executives’ base salaries, the Board of Directors reserves the right to
      give incentive bonuses to our executive officers, which bonuses the Board of
      Directors may grant in its sole discretion, if the Board of Directors believes
      such bonuses are in the Company’s best interest, after analyzing our current
      business objectives and growth, if any, and the amount of revenue we are able
      to
      generate each month, which revenue is a direct result of the actions and ability
      of such executives in the sole discretion of the Board of
      Directors.





As
      of the
      date of this filing, Joseph Wagner holds 850,000 incentive options to purchase
      shares of our common stock and Jean Wilson holds 650,000 incentive options
      to
      purchase shares of our common stock at an exercise price of $0.75 per share,
      which options vest to those individuals and are exercisable as provided above
      under “Certain Relationships and Related Transactions.”





**Long-term,
      Stock Based Compensation**





In
      order
      to attract, retain and motivate executive talent necessary to support the
      Company’s long-term business strategy we may award certain executives with
      long-term, stock based compensation in the future, in the sole discretion of
      our
      Board of Directors, which we do not currently have any immediate plans to
      award.





**Criteria
      for Compensation Levels**





The
      Company has always sought to attract and retain qualified executives and
      employees able to positively contribute to the success of the Company for the
      benefit of its various stakeholders, the most important of which is its
      shareholders, but also including its customers, its employees, and the
      communities in which the Company operates.





The
      Board
      of Directors (in establishing compensation levels for the Chief Executive
      Officer and Chief Operating Officer, as well as other executive positions)
      and
      the Company (in establishing compensation levels for all executives of the
      Company) consider many factors, including, but not limited to, the individual’s
      abilities and executed performance that results in: the advancement of corporate
      goals of the Company, execution of the Company’s business strategies,
      contributions to positive financial results, contributions to the Company’s
      overall image and reputation in the Company’s industry, and contributions to the
      development of the management team and other employees. An officer must
      demonstrate his or her ability to deliver results in his or her areas of
      responsibility, which can include, among other things: business development
      with
      new and existing customers, development of new products, efficient management
      of
      operations and systems, implementation of appropriate changes and improvements
      to operations and systems, personnel management, financial management, and
      strategic decision making. In determining compensation levels, the Board of
      Directors also considers: competitiveness of compensation packages relative
      to
      other comparable companies, both inside and outside of the event planning
      industry, and the experience level of each particular individual.







-55-





Compensation
      levels for executive officers are generally reviewed upon the expiration of
      such
      executive’s employment and/or consulting agreements (if any), or annually, but
      may be reviewed more often as deemed appropriate.





**Compensation
      Philosophy and Strategy**





In
      addition to the “Criteria for Compensation Levels” set forth above, the Company
      has a “Compensation Philosophy” for all employees of the Company (set forth
      below), and a “Compensation Strategy for Key Management Personnel” (set forth
      below), a substantial portion of which also applies to all employees of the
      Company.





**Compensation
      Philosophy**





The
      Company’s compensation philosophy is as follows:




·
            The
                Company believes that compensation is an integral component of its
                overall
                business and human resource strategies. The Company’s compensation plans
                will strive to promote the hiring and retention of personnel necessary
                to
                execute the Company’s business strategies and achieve its business
                objectives.





·
            The
                Company’s compensation plans will be strategy-focused, competitive, and
                recognize and reward individual and group contributions and results.
                The
                Company’s compensation plans will strive to promote an alignment of the
                interests of employees with the interests of the shareholders by
                having a
                portion of compensation based on financial results and actions that
                will
                generate future shareholder value.





·
            In
                order to reward financial performance over time, the Company’s
                compensation programs generally will consist of: base compensation,
                and
                may also consist of short-term variable incentives and long-term
                variable
                incentives, as appropriate.





·
            The
                Company’s compensation plans will be administered consistently and fairly
                to promote equal opportunities for the Company’s
                employees.










-56-







Compensation
      Strategy for Key Management
      Personnel





The
      Company’s compensation strategy for its key management personnel is as
      follows:





·
            Total
                compensation may include base salary and short-term and long-term
                variable
                incentives based on annual and long term performance, and long-term
                variable incentives, in each case, where
                appropriate.





·
            Compensation
                will be comparable to general and industry-specific compensation
                practices.








·
            Generally,
                base compensation, and targeted short and long-term variable compensation,
                if any, will be established within the range of compensation of similarly
                situated companies in the Company’s industry. The Company’s organization
                size and complexity will be taken into account, and therefore similarly
                situated companies include companies of similar size and complexity
                whether or not such companies are in the Company’s industry or
                not.





·
            When
                determining compensation for officers, managers and consultants,
                the
                Company takes into account the employee’s (and/or consultant’s) knowledge,
                experience, past employment history and connections in the industry,
                including industry specific knowledge and experience, to the extent
                such
                knowledge and experience contributes to the Company’s ability to achieve
                its business objectives.





·
            The
                Company reserves the right to adjust annual base salaries of employees
                and/or to award performance based bonuses if individual performance
                is at
                or above pre-established performance
                expectations.








**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS**





The
      following table sets forth information as of March 26, 2007, with respect to
      the
      beneficial ownership of the Common Stock by (i) each director and officer of
      the
      Company, (ii) all directors and officers as a group and (iii) each person known
      by the Company to own beneficially 5% or more of the Common Stock:







**Name
                and Address******
            **Shares
                Beneficially Owned (1)******
            **Percent
                (2)****Joe
                Wagner**
            809,342(3)(4)(5)
            20.4%875
                North Michigan AvenueSuite
                2626Chicago,
                Illinois 60611**Jean
                Wilson**
            520,141(5)
            13.2%875
                North Michigan AvenueSuite
                2626


Chicago, Illinois 60611





-57-










**Chris
                Spencer**
            100,000
            2.5%875
                North Michigan AvenueSuite
                2626Chicago,
                Illinois 60611**David****M.
                Loev**
            405,000*(6)
            9.9%(7)6300
                West Loop SouthSuite
                280Bellaire,
                Texas 77401**Frank
                Goldstin**
            848,282(3)
            21.5%3800
                N. Lake Shore DriveChicago,
                IL 60613**Vision
                Opportunity**
            438,000*(9)
            9.9%(10)(8)**Master
                Fund, Ltd**.20
                West 55th Street5th
                FloorNew
                York, New York 10019**Sands
                Brothers**
            1,265,834(12)
            24.3%(13)(11)**Venture
                Capital III LLC**90
                Park Ave.31st
                FloorNew
                York, New York 10016**Sands
                Brothers**
            408,333(15)
            9.4%(16)(14)**Venture
                Capital IV LLC**90
                Park Ave.31st
                FloorNew
                York, New York 10016**Mastodon**
            208,000*(18)
            4.9%(19)(17)**Ventures,
                Inc.**600
                Congress AvenueSuite
                1220Austin,
                Texas 78701===============
            =================
            =================**ALL
                OFFICERS**
            **1,429,483(3)(4)(5)**
            **36.2%****AND
                DIRECTORS****AS
                A GROUP****(3
                PEOPLE)**




*
      Approximate.





-58-










(1)
      The
      number of shares of common stock owned are those "beneficially owned" as
      determined under the rules of the Securities and Exchange Commission, including
      any shares of common stock as to which a person has sole or shared voting or
      investment power and any shares of common stock which the person has the right
      to acquire within 60 days through the exercise of any option, warrant or right.
      Shares of common stock subject to a Convertible Note or Warrant currently
      convertible or exercisable, or convertible or exercisable within 60 days are
      deemed outstanding for computing the percentage of the person holding such
      Convertible Note or Warrant, but are not deemed outstanding for computing the
      percentage of any other person.





(2)
      Using
      3,952,250 shares of common stock outstanding as of March 26, 2007, unless
      otherwise stated.





(3)
      Includes the effects of Voting Agreements. Frank Goldstin entered into a voting
      agreement with Joseph Wagner regarding 544,240 shares of common stock, and
      a
      voting agreement with Jean Wilson regarding 544,240 shares of common stock,
      owned by Mr. Goldstin (collectively referred to herein as the "Voting
      Agreements"). Mr. Goldstin subsequently sold a portion of his shares of common
      stock, leaving him the beneficial owner of less than 1,088,480 shares of common
      stock (the previous total amount of shares covered by the Voting Agreements),
      and as such, the Voting Agreements only allow Mr. Wagner and Ms. Wilson to
      vote
      424,141 shares of common stock each as of the filing of this Registration
      Statement. The Voting Agreements began on July 28, 2004, and end on December
      31,
      2009. There are no voting trustees. The Voting Agreements provide that Mr.
      Wagner and Ms. Wilson are the true and lawful agents or proxies of Mr. Goldstin
      with full power of substitution for and in the name of Mr. Goldstin to vote
      424,141 and 424,121 shares of common stock, respectively, or give a written
      consent, in person or by proxy, at all meetings of the Company's shareholders,
      and in all proceedings in which the vote or written consent of shareholders
      may
      be required or authorized by law.





(4)
      Includes 350,000 shares of common stock held by Sandra M. Wagner, the wife
      of
      Joseph Wagner.





(5)
      Does
      not include an aggregate of 850,000 options to purchase shares of our common
      stock held by Joe Wagner and 650,000 options to purchase shares of our common
      stock at $0.75 per share, held by Jean Wilson, which shares vest at the rate
      of
      1/3 per year, beginning one year from the date the Registration Statement we
      are
      contractually obligated to file to register the shares of common stock issuable
      in connection with the conversion of the August, September and October 2006
      purchaser's 11% Senior Secured Convertible Notes is declared effective with
      the
      Commission (the "Effectiveness Date") and/or upon a Change in Control (as
      defined in the options), as such options do not vest to Mr. Wager and Ms. Wilson
      until one year from such Effectiveness Date and/or upon a Change of
      Control.





(6)
      Includes 270,000 shares of common stock and 135,000 warrants to purchase shares
      of our common stock at an exercise price of $0.30 per share. Mr. Loev
      beneficially owns an aggregate of 154,933 warrants to purchase shares of our
      common stock at an exercise price of $0.30 per share and an aggregate of 270,000
      shares of common stock held in the name of Loev Family Partnership, Ltd., which
      Mr. Loev is deemed to beneficially own. Although Mr. Loev has agreed not to
      hold
      more than 9.9% of our common stock at any one time, Mr. Loev has the ability
      to
      exercise his outstanding warrants for 154,933 shares of common stock, which
      along with his ownership of 270,000 shares of our common stock, would result
      in
      beneficial ownership of 424,933 shares of common stock, representing 10.3%
      of
      our then outstanding common stock based on 4,107,183 shares of common stock
      outstanding assuming the full exercise of the warrants. The amount represented
      above does not include 25,000 shares of common stock which we agreed to issue
      Mr. Loev pursuant to a Legal Services Agreement described herein, whereby Mr.
      Loev agreed to provide legal services on our behalf for a period of one (1)
      year
      for certain cash consideration (as described in greater detail herein) and
      25,000 Form S-8 registered shares of common stock, which have not been issued
      to
      date, have not been included in the number of outstanding shares of common
      stock
      disclosed throughout this Report and have not been included in his ownership
      or
      percentage of ownership disclosed above.







-59-







(7)
      Based
      on 4,087,250 shares outstanding, assuming the exercise of 135,000 warrants
      beneficially owned by Mr. Loev, which would result in Mr. Loev owning
      approximately 9.9% of our common stock.





(8)
      The
      beneficial owner of Vision Master Fund, Ltd. ("Vision") is Adam Benowitz, its
      Portfolio manager.





(9)
      Although Vision has agreed to not hold more than 9.9% of our outstanding common
      stock at anyone time unless they provide us sixty-one (61) days prior notice,
      Vision has the ability to convert its outstanding 11% Senior Secured Convertible
      Notes ("Notes") into approximately 1,666,667 shares of common stock at a
      conversion price of $0.75 per share (which exercise price varies as provided
      in
      the Notes); can exercise its 187,500 warrants at an exercise price of $1.10
      per
      share for that same number of shares; and can exercise its 333,333 warrants
      at a
      minimum exercise price of $0.30 per share for that same number of shares,
      providing it the ability to own 2,187,500 shares of our common stock, which
      if
      Vision provides us notice of their intent to hold more than the 9.9% share
      limit
      and converts and exercises all of the shares in connection with the conversion
      of the Notes it holds and the shares underlying the warrants would represent
      35.6% of our outstanding common stock based on 6,139,750 shares then
      outstanding.





(10)
      Based on 4,390,250 shares then outstanding assuming the conversion and/or
      exercise of 438,000 shares, which would represent approximately 9.9% of our
      then
      outstanding shares of outstanding common stock.





(11)
      The
      manager of Sands Brothers Venture Capital III LLC is Sands Brothers Venture
      Capital Management LLC, which is managed by Scott Baily. Scott Baily, Steven
      Sands and Martin Sands have voting and/or investment control over shares held
      by
      Sands Brothers Venture Capital III LLC.







-60-







(12)
      Includes $775,000 in 11% Senior Secured Convertible Notes, which are convertible
      into 1,033,334 shares of our common stock at a conversion price of $0.75 per
      share (which conversion price varies as provided in the Notes), warrants to
      purchase 108,500 shares of our common stock at an exercise price of $1.10 per
      share, and warrants to purchase 124,000 shares at $0.30 per share.





(13)
      Based on 5,218,084 shares then outstanding assuming the conversion of all the
      shares convertible in connection with the Notes and exercise of all shares
      underlying the shareholder’s warrants.





(14)
      The
      manager of Sands Brothers Venture Capital IV LLC is Sands Brothers Venture
      Capital Management LLC, which is managed by Scott Baily. Scott Baily, Steven
      Sands and Martin Sands have voting and/or investment control over shares held
      by
      Sands Brothers Venture Capital IV LLC.





(15)
      Includes $250,000 in 11% Senior Secured Convertible Notes, which are convertible
      into 333,334 shares of our common stock at a conversion price of $0.75 per
      share
      (which conversion price varies as provided in the Notes), warrants to purchase
      35,000 shares of our common stock at an exercise price of $1.10 per share,
      and
      warrants to purchase 39,999 shares at $0.30 per share.





(16)
      Based on 4,360,583 shares then outstanding assuming the conversion of all the
      shares convertible in connection with the Notes and exercise of all shares
      underlying the shareholder’s warrants.





(17)
      The
      beneficial owner of Mastodon Ventures, Inc. (“MVI”) is Robert S. Hersch, its
      President.





(18)
      Although MVI can exercise its 429,334 warrants to purchase shares of common
      stock which it beneficially owns for that same number of shares, which shares
      if
      exercised would represent 10% of our then outstanding common stock based on
      4,381,584 shares of common stock then outstanding, MVI has contractually agreed
      not to own 5% or more of our common stock at any one time.





(19)
      Based on 4,160,250 shares of common stock outstanding assuming the exercise
      of
      208,000 warrants (equal to approximately 4.9% of our common stock) to purchase
      shares of our common stock by MVI.





**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS**





On
      February 17, 2005, Frank Goldstin resigned as the Company's Chief Executive
      Officer. Also on February 17, 2005, Joseph Wagner the Company's President
      resigned as Chief Operating Officer and was appointed as the Company's Chief
      Executive Officer by the Company's Board of Directors to fill the vacancy left
      by Mr. Goldstin and Jean Wilson, the Company's VP of Operations was appointed
      as
      the Company's Chief Operating Officer to fill the vacancy left by Mr.
      Wagner.







-61-







The
      Company designated three (3) shares of Preferred Stock, $.001 par value per
      share on December 28, 2004 (the "Series A Preferred Stock"). The Series A
      Preferred Stock has no dividend rights, no liquidation preference, and no
      conversion or redemption rights. However, the three (3) shares of Series A
      Preferred Stock had the right, voting in aggregate, to vote on all shareholder
      matters equal to fifty-one percent (51%) of the total vote. For example, if
      there are 10,000,000 shares of the Company's common stock issued and outstanding
      at the time of a shareholder vote, the holders of Series A Preferred Stock,
      voting separately as a class, will have the right to vote an aggregate of
      10,400,000 shares, out of a total number of 20,400,000 shares voting.
      Additionally, the Company shall not adopt any amendments to the Company's
      Bylaws, Articles of Incorporation, as amended, make any changes to the
      Certificate of Designations establishing the Series A Preferred Stock, or effect
      any reclassification of the Series A Preferred Stock, without the affirmative
      vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock.
      However, the Company may, by any means authorized by law and without any vote
      of
      the holders of shares of Series A Preferred Stock, make technical, corrective,
      administrative or similar changes to such Certificate of Designations that
      do
      not, individually or in the aggregate, adversely affect the rights or
      preferences of the holders of shares of Series A Preferred Stock. Frank
      Goldstin, Joseph Wagner and Jean Wilson, who each serve as executive officers
      of
      the Company, were each issued one (1) share of Series A Preferred Stock. Mr.
      Goldstin agreed to sell his share of Series A Preferred stock to us in May
      2006
      for $7,500 which share was subsequently cancelled by us. Mr. Wagner and Ms.
      Wilson agreed to cancel their shares of Series A Preferred stock for aggregate
      consideration of $1.00 pursuant to the August, September and October 2006
      Fundings, which shares have been cancelled to date.





In
      December 2005, we entered into a "Severance Agreement and Release in Full"
      (the
      "Severance Agreement") with Frank Goldstin, our former Chief Executive Officer
      and a former Director of us until December 19, 2005, at which time Mr. Goldstin
      failed to be re-elected to our Board of Directors at our annual meeting of
      shareholders, in connection with the termination of Mr. Goldstin's employment.
      Pursuant to the Severance Agreement, he was provided a lump sum payment in
      the
      amount of $50,000, less applicable tax withholding, a payment of $5,538.43,
      less
      applicable tax withholding, in connection with amounts previously owed to Mr.
      Goldstin in connection with his employment, and Mr. Goldstin was given an IBM
      Thinkpad laptop which he had used during his employment (collectively the
      "Severance Pay").





Pursuant
      to the Severance Agreement, Mr. Goldstin agreed to release and forever discharge
      us, our former, present and future officers, directors, employees, agents,
      administrators, persons and corporations who may be liable for the conduct
      of
      any of the aforesaid parties, from any and all debts, demands, promises,
      actions, claims, liabilities, damages, and causes of action of any nature,
      known
      or unknown, both in law and equity, which have accrued or may ever accrue to
      Mr.
      Goldstin, his heirs, executors, legal administrator, successors, or assigns
      by
      reason of his employment with us. Mr. Goldstin's release included all claims
      whether arising in tort, contract or statute. Additionally, pursuant to the
      Severance Agreement, Mr. Goldstin agreed to repay us the Severance Pay if he
      violates the Severance Agreement in any material respect.







-62-







On
      December 19, 2005, Christopher Spencer was elected as a Director of the Company
      at the Company's annual meeting of shareholders. Frank Goldstin failed to be
      re-elected as a Director of the Company at the same meeting. Also on December
      19, 2005, we entered into a twelve (12) month, renewable consulting agreement
      with Christopher Spencer, to serve as our Director, pursuant to which Mr.
      Spencer received $2,000 per month and an aggregate of 100,000 shares of our
      restricted common stock. The Consulting Agreement was extended for an additional
      one year term in December 2006, whereby Mr. Spencer is to receive $1,000 per
      month for his services to the Company as a Director. Mr. Spencer's consulting
      agreement is described in greater detail above under "Employment and Consulting
      Agreements."




Joseph
      Wagner, our Chief Executive Officer, President and Director entered into a
      Consulting Agreement with us effective August 1, 2006, which Consulting
      Agreement replaced a prior Consulting Agreement entered into between the parties
      with an effective date of August 1, 2004. All 225,000 post 1:20 reverse stock
      shares which were subject to a risk of forfeiture pursuant to the prior
      Consulting Agreement immediately vested to Mr. Wagner upon his entry into the
      Consulting Agreement. Pursuant to the Consulting Agreement, Mr. Wagner is to
      serve as our Chief Executive Officer, President and Secretary for a period
      of
      sixty (60) months from the effective date of the Consulting Agreement, August
      1,
      2006. Upon the expiration of the initial term of the Consulting Agreement,
      the
      Consulting Agreement shall automatically renew for successive one (1) year
      terms
      unless either party provides the other of its intent not to renew, at least
      thirty (30) days, but not more than sixty (60) days prior to the end of the
      term. The Consulting Agreement is described in greater detail under “Employment
      and Consulting Agreements.” On February 23, 2007, Mr. Wagner was appointed as
      Chairman of the Company’s Board of Directors.




Jean
      Wilson, our Chief Operating Officer, Treasurer and Director entered into an
      Employment Agreement with us effective August 1, 2006, which Employment
      Agreement replaced a prior Employment Agreement entered into between the parties
      with an effective date of August 1, 2004. All 70,000 post 1:20 reverse stock
      shares which were subject to a risk of forfeiture pursuant to the prior
      Employment Agreement immediately vested to Ms. Wilson upon her entry into the
      Employment Agreement. Pursuant to the Employment Agreement, Ms. Wilson is to
      serve as our Chief Operating Officer and Treasurer for a period of sixty (60)
      months from the effective date of the Employment Agreement, August 1, 2006.
      The
      Employment Agreement is described in greater detail under “Employment and
      Consulting Agreements.”




On
      June
      19, 2006, the Company's Board of Directors approved the issuance of 650,000
      Incentive Stock Options to the Company's Chief Executive Officer, President,
      Secretary and Director, Joseph Wagner and 550,000 Incentive Stock Options to
      Jean Wilson, the Company's Chief Operating Officer, Treasurer and Director,
      who
      both also own more than 10% of the Company's outstanding voting shares (the
      "10%
      Shareholder Options") pursuant to the Plan. The 10% Shareholder Options had
      an
      exercise price of $0.38 per share, which was equal to 110% of the mean of the
      highest and lowest quoted selling prices of the Company's common stock on the
      Over-The-Counter Bulletin Board on the Valuation Date. The 10% Shareholder
      Options were evidenced by Option Agreements, pursuant to the Plan. The 10%
      Shareholder Options shall vest three (3) years from the Valuation Date (June
      19,
      2009), and terminated if unexercised on June 19, 2011, unless terminated earlier
      pursuant to the terms of the Option Agreements; provided however, that the
      10%
      Shareholder Options shall vest immediately upon the occurrence of a Change
      in
      Control of the Company. The 10% Shareholder Options were later rescinded by
      the
      Company in connection with the Funding and the grant of the JJ Options, as
      described in greater detail below.







-63-










On
      August
      2, 2006 (the "Valuation Date"), the Directors granted 850,000 options to
      purchase shares of our common stock ("Options") to Joseph Wagner, the Company's
      Chief Executive Officer and Director of the Company and 650,000 Options to
      Jean
      Wilson, the Company's Chief Operating Officer and Director, who are both greater
      than 10% shareholders of the Company (the "JJ Options"). The exercise price
      of
      the JJ Options is $0.75 per share (which exercise price was greater than 110%
      of
      the mean of the highest ($0.31) and lowest ($0.31) quoted selling prices of
      the
      Company's common stock on the Valuation Date). The JJ Options expire if
      unexercised on the fifth anniversary of the Vesting Date, or as otherwise
      provided in the Option Agreements.




Mr.
      Wagner shall vest 283,333 of the Options upon the twelve (12) month anniversary
      of the date the United States Securities and Exchange Commission declares
      effective a registration statement covering the resale of the shares of common
      stock which the 11% Senior Secured Convertible Promissory Notes which we sold
      in
      August, September and October 2006 to certain third party purchasers (the
      "Purchasers") are convertible into (as described in greater detail in our most
      recent periodic filings) and the shares of common stock which the Warrants
      granted to such Purchasers are exercisable for (the "Effectiveness Date");
      Mr.
      Wagner shall vest 283,333 of the Options upon the twenty-four (24) month
      anniversary of the Effectiveness Date; and Mr. Wagner shall vest the remaining
      283,334 options upon the thirty-six (36) month anniversary of the Effectiveness
      Date, provided however that all of the options shall vest immediately upon
      a
      Change in Control of the Company (as defined below).





Ms.
      Wilson shall vest 216,667 of the Options upon the twelve (12) month anniversary
      of the Effectiveness Date; Ms. Wilson shall vest 216,666 of the Options upon
      the
      twenty-four (24) month anniversary of the Effectiveness Date; and Ms. Wilson
      shall vest the remaining 216,666 options upon the thirty-six (36) month
      anniversary of the Effectiveness Date, provided that all of the options shall
      vest immediately upon a Change in Control of the Company (as defined
      below).





A
      "Change
      in Control" includes the adoption of a plan of merger or consolidation of the
      Company with any other corporation or association as a result of which the
      holders of the voting capital stock of the Company as a group would receive
      less
      than 50% of the voting capital stock of the surviving or resulting corporation;
      the approval by the Board of Directors of the Company of an agreement providing
      for the sale or transfer of substantially all the assets of the Company; or
      in
      the absence of a prior expression of approval by the Board of Directors, the
      acquisition of more than 20% of the Company's voting capital stock by any person
      within the meaning of Rule 13d-3 under the Securities Act of 1933 (the "Act,"
      other than the Company or a person that directly or indirectly controls, is
      controlled by, or is under common control with, the Company).







-64-







In
      February 2007, pursuant to an “Agreement Regarding the Cancellation of the
      Series A Preferred Stock of XA, Inc.,” Joseph Wagner and Jean Wilson, our
      Directors agreed to cancel the two (2) shares of Series A Preferred Stock which
      they held for aggregate consideration of $1.00.





On
      February 23, 2007, at our 2007 Annual Meeting of Stockholders, Joseph Wagner,
      Jean Wilson and Christopher Spencer were re-elected as Directors of the Company
      and Joseph Wagner was additionally appointed as Chairman of the Company’s Board
      of Directors.


In
      March
      2007, XA Interactive Inc., one of our wholly owned subsidiaries, entered into
      a
      strategic alliance with Wizzard Media, which is part of Wizzard Software
      Corporation, to enhance the podcasting service offerings of Wizzard Media.
      Christopher Spencer, one of our directors, is the Chief Executive Officer,
      President and a director of Wizzard Software Corporation.





**ITEM
      13. EXHIBITS AND REPORTS ON FORM
      8-K**





(a)
      EXHIBITS








2.1(1)
            Exchange
                Agreement3.1(2)
            Articles
                of Incorporation3.2(3)
            Certificate
                of Amendment to Articles of Incorporation3.3(4)
            Certificate
                of Amendment to Articles of Incorporation3.4(5)
            Certificate
                of Designation of Series A Preferred Stock3.5
                (6)
            Certificate
                of Amendment to the Company's Articles of Incorporation3.6(3)
            Bylaws10.1(7)
            Subscription
                Agreement dated June 30, 200410.2(7)
            Convertible
                Note10.3(7)
            Common
                Stock Purchase Warrant A10.4(7)
            Common
                Stock Purchase Warrant B10.5(8)
            Voting
                Agreement between Joseph Wagner and Frank
                Goldstin







-65-








10.6(8)
            Voting
                Agreement between Jean Wilson and Frank Goldstin10.7(9)
            Fiori
                Asset Purchase Agreement10.8(10)
            Asset
                Acquisition Agreement with Musters & Company, Inc.10.9(10)
            Waiver
                Agreement10.10(11)
            Christopher
                Spencer Consulting Agreement10.11(12)
            Waiver
                of Rights Agreement10.12(13)
            Securities
                Purchase Agreement Dated August 8, 200610.13(13)
            11%
                Senior Secured Convertible Promissory Note with Sands Brothers Venture
                Capital LLC10.14(13)
            11%
                Senior Secured Convertible Promissory Note with Sands Brothers Venture
                Capital II LLC10.15(13)
            11%
                Senior Secured Convertible Promissory Note with Sands Brothers Venture
                Capital III LLC10.16(13)
            11%
                Senior Secured Convertible Promissory Note with Sands Brothers Venture
                Capital IV LLC10.17(13)
            11%
                Senior Secured Convertible Promissory Note with Katie & Adam Bridge
                Partners L.P.10.18(13)
            Warrant
                with Sands Brothers Venture Capital LLC ($1.10 initial exercise
                price)10.19(13)
            Warrant
                with Sands Brothers Venture Capital II LLC ($1.10 initial exercise
                price)10.20(13)
            Warrant
                with Sands Brothers Venture Capital III LLC ($1.10 initial exercise
                price)10.21(13)
            Warrant
                with Sands Brothers Venture Capital IV LLC ($1.10 initial exercise
                price)10.22(13)
            Warrant
                with Katie & Adam Bridge Partners L.P. ($1.10 initial exercise
                price)10.23(13)
            Warrant
                with Sands Brothers Venture Capital LLC ($0.30 initial exercise
                price)







-66-








10.24(13)
            Warrant
                with Sands Brothers Venture Capital II LLC ($0.30 initial exercise
                price)10.25(13)
            Warrant
                with Sands Brothers Venture Capital III LLC ($0.30 initial exercise
                price)10.26(13)
            Warrant
                with Sands Brothers Venture Capital IV LLC ($0.30 initial exercise
                price)10.27(13)
            Warrant
                with Katie & Adam Bridge Partners L.P. ($0.30 initial exercise
                price)10.28(13)
            Warrant
                with Mastodon Ventures, Inc. ($0.30 initial exercise
                price)10.29(13)
            Registration
                Rights Agreement10.30(13)
            Security
                Agreement10.31(13)
            Joseph
                Wagner 60 Month Consulting Agreement Effective August 1,
                200610.32(13)
            Jean
                Wilson 60 Month Employment Agreement Effective August 1,
                200610.33(13)
            Joseph
                Wagner Stock Option Agreement to Purchase 850,000 Shares at an Exercise
                Price of $0.75 Per Share10.34(13)
            Jean
                Wilson Stock Option Agreement to Purchase 650,000 Shares at an Exercise
                Price of $0.75 Per Share10.35(14)
            Second
                Funding Waiver of Rights Agreement10.36(15)#
            Securities
                Purchase Agreement Effective September 26, 2006 with G. Chris
                Andersen10.37(15)#
            11%
                Senior Secured Convertible Promissory Note with G. Chris
                Andersen10.38(15)#
            Warrant
                with G. Chris Andersen ($1.10 initial exercise price)10.39(15)#
            Registration
                Rights Agreement with G. Chris Andersen10.40(15)#
            Security
                Agreement with G. Chris Andersen10.41(15)
            Securities
                Purchase Agreement Dated October 23, 2006 with Vision Opportunity
                Master
                Fund, Ltd.10.42(15)
            11%
                Senior Secured Convertible Promissory Note with Vision Opportunity
                Master
                Fund, Ltd. (1)





-67-








10.43(15)
            Warrant
                with Vision Opportunity Master Fund, Ltd. ($1.10 initial exercise
                price)10.44(15)
            Warrant
                with Vision Opportunity Master Fund, Ltd. ($0.30 initial exercise
                price)10.45(15)
            Registration
                Rights Agreement with Vision Master Fund, Ltd.10.46(15)
            Security
                Agreement with Vision Master Fund, Ltd.10.47(15)
            Third
                Waiver of Rights Agreement with the 6% Purchasers10.48(15)
            Consulting
                Agreement with MVI10.49(16)
            Agreement
                Regarding the Cancellation of the Series A Preferred Stock of XA,
                Inc.10.50(16)
            Legal
                Services Agreement with David M. Loev21.1*
            List
                of the Subsidiaries of XA, INC.31.1*
            Certificate
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 *31.2*
            Certificate
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1*
            Certificate
                of the Chief Executive Officer to Section 906 of the Sarbanes-Oxley
                Act of
                2002 *32.2*
            Certificate
                of the Chief Financial Officer to Section 906 of the Sarbanes-Oxley
                Act of
                2002








(1)  Filed
      as
      Exhibit 2.1 to the Company's Form 8-K filed with the Securities and Exchange
      Commission on December 8, 2003, and incorporated herein by
      reference.





(2)  Filed
      as
      Exhibits 3(i) and 3(ii) to the Company's Form 10-SB12G filed with the Securities
      and Exchange Commission on June 15, 2001, and incorporated herein by
      reference.





(3)  Filed
      as
      Exhibit 3.1 to the Company's Form 8-K filed with the Securities and Exchange
      Commission on February 2, 2004, and incorporated herein by
      reference.





(4)  Filed
      as
      Exhibit 3.1 to the Company's Form 8-K filed with the Securities and Exchange
      Commission on December 9, 2004, and incorporated herein by
      reference.







-68-







(5)  Filed
      as
      Exhibit 3.1 to the Company's Form 8-K filed with the Securities and Exchange
      Commission on January 5, 2005, and incorporated herein by
      reference.





(6)  Filed
      as
      an Exhibit to the Company's Form 8-K filed with the Commission on December
      21,
      2005.





(7)  Filed
      as
      Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, and 10.7 to the Company's Form
      SB-2
      Registration Statement filed with the Securities and Exchange Commission on
      August 17, 2004, and incorporated herein by reference.





(8)  Filed
      as
      Exhibit 10.1 and 10.2 to our Form 8-K filed with the Securities and Exchange
      Commission on August 6, 2004, and incorporated herein by reference.





(9)  Filed
      as
      Exhibit 1.1 to the Company's Form 8-K filed with the Securities and Exchange
      Commission on August 9, 2004, and incorporated herein by reference.





(10)  Filed
      as
      Exhibits to our Form 8-K filed with the Commission on March 11, 2005, and
      incorporated herein by reference.





(11)  Filed
      as
      an Exhibit to our Report on Form 10-KSB for the year ended December 31, 2005,
      which was filed with the Commission on March 24, 2006, and incorporated herein
      by reference.





(12)  Filed
      as
      an Exhibit to our Form 8-K filed with the Commission on July 24, 2006, and
      incorporated by reference herein.





(13)  Filed
      as
      Exhibits to our Form 8-K filed with the Commission on August 15, 2006, and
      incorporated herein by reference.





(14)  Filed
      as
      an Exhibit to our Form 8-K filed with the Commission September 14, 2006 and
      incorporated herein by reference.





(15)  Filed
      as
      Exhibits to our Form 8-K filed with the Commission on November 1, 2006, and
      incorporated herein by reference.





(16)  Filed
      as
      Exhibits to our Form SB-2 Registration Statement filed with the Commission
      on
      March 26, 2007, and incorporated herein by reference.





*
      Filed
      Herein.





#
      The
      September 2006 closing documents including the Securities Purchase Agreement,
      11% Senior Secured Convertible Promissory Note, Registration Rights Agreement
      and Security Agreement with G. Chris Andersen and Paul M. Higbee are identical
      except for their respective names and addresses, and as such, we have only
      included those documents relating to Mr. Andersen. Both the closing documents
      with Mr. Andersen and Mr. Higbee, including the Securities Purchase Agreements,
      Registration Rights Agreements, Senior Notes and Warrants (but not the Security
      Agreement), were re-executed by Mr. Andersen and Mr. Higbee on or about October
      23, 2006, to be effective as of September 26, 2006, to conform to the Vision
      Opportunity Master Fund, Ltd. closing documents, which October 2006 closing
      documents replaced and superseded the prior executed September 2006
      documents.







-69-










**(B)
      Reports on Form 8-K**





The
      Company filed the following report on Form 8-K during the period covered by
      this
      report:





o
            The
                Company filed a report on Form 8-K on November 1, 2006 to report
                the
                closing of the sale of an additional $1,450,000 in Senior Convertible
                Notes to three unaffiliated purchasers and related agreements and
                transactions.








**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND
      SERVICES**





**Audit
      Fees**





The
      aggregate fees billed for each of the fiscal years ended December 31, 2006
      and
      2005 for professional services rendered by the principal accountant for the
      audit of the Company's annual financial statements and for review of the
      financial statements included in the registrant's Form 10-QSB or for services
      that are normally provided by the accountant in connection with statutory and
      regulatory filings or engagements for those fiscal years was approximately
      $34,000 and $41,961, respectively.





**Audit
      Related Fees**





None.





**Tax
      Fees**





None.





**All
      Other Fees**





The
      aggregate fees billed for each of the fiscal years ended December 31, 2006
      and
      2005 for products and services provided by the principal accountant, other
      than
      the services reported above was $0 and $38,950, respectively.








-70-







**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      Registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.





XA,
      INC.





DATED:
      March 30,
      2007  By:
      /s/ Joseph Wagner


Joseph
      Wagner


Chief
      Executive Officer





DATED:
      March 30,
      2007  By:
      /s/ Jean Wilson


Jean
      Wilson


Principal
      Financial Officer








In
      accordance with the Securities Exchange Act of 1934, this report has been signed
      below by the following persons on behalf of the Registrant and in the capacities
      and on the dates indicated.





**NAME**     **TITLE**    **DATE**





*/s/
      Joseph Wagner*


Joseph
      Wagner Chief
      Executive
      Officer,                                 March
      30 ,
      2007


President, Secretary and


Chairman of the Board of Directors





*/s/
      Jean Wilson*


Jean
      Wilson Principal
      Financial
      Officer,                           
March 30 ,
      2007


Treasurer, Chief Operating Officer


and Director






/s/
      Christopher
      Spencer                           
 Director                                                           
March 30, 2007


Christopher
      Spencer





-71-