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United States
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-QSB
 þ
    
    Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2007
 o
    
    Transition report under Section 13 or 15(d) of the Exchange Act
 For
the transition period from ___ to ___.
 Commission file number:
    
    002-41703
 THE X-CHANGE CORPORATION
 (Exact name of small business issuer as specified in its charter)
 Nevada
    
    90-0156146(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 710 Century Parkway, Allen, TX 75013
 (972) 747-0051
  þ o
  o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS
 August 11, 2007 30,922,834
 o þ




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##### 



THE X-CHANGE CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
 Item 1 Financial Statements
 Unaudited Consolidated Balance Sheets at June 30, 2007 and December 31, 2006
    
    
    3Unaudited Consolidated Statements of Operations for the three months and six months ended June 30, 2007 and 2006
    
    
    4Unaudited Consolidated Statement of Stockholders Deficit for the six months ended June 30, 2007
    
    
    5Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2007 and 2006
    
    
    6Notes to Unaudited Consolidated Financial Statements
    
    
    7-13Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14-21Item 3 Controls and Procedures
    
    
    22PART II OTHER INFORMATIONItem 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 6 Exhibits
    
    
    24Signatures
    
    
    25Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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THE X-CHANGE CORPORATION
 
 UNAUDITED CONSOLIDATED BALANCE SHEETS
 June 30, 2007
    
    
    December 31, 2006(Restated)ASSETSCurrent Assets:Cash
    
    $
    26,081
    
    
    $
    1,955Accounts Receivable
    
    
    188,544
    
    
    
    119,053Prepaid Expenses
    
    
    
    
    
    
    61,000Deposits
    
    
    10,770
    
    
    
    15,886Total Current Assets
    
    
    225,395
    
    
    
    197,894Fixed Assets:Computer Equipment
    
    
    36,082
    
    
    
    36,082Furniture and Fixtures
    
    
    65,685
    
    
    
    64,845Less Accumulated Depreciation
    
    
    (43,792
    )
    
    
    (31,918
    )Total Fixed Assets
    
    
    57,975
    
    
    
    69,009TOTAL ASSETS
    
    $
    283,370
    
    
    $
    266,903LIABILITIES AND STOCKHOLDERS DEFICITCurrent Liabilities:Related Party Loans Payable
    
    $
    
    
    
    $
    120,000Accounts Payable
    
    
    674,712
    
    
    
    297,557Accrued Expenses
    
    
    264,224
    
    
    
    139,933Deferred Revenue
    
    
    20,937
    
    
    
    27,000Customer Deposits
    
    
    30,000
    
    
    
    Total Current Liabilities
    
    
    989,873
    
    
    
    584,490Long-Term Liabilities:Long-Term Related Party Note Payable, net of unamortized debt
discount of $436,186 and $629,331 at June 30, 2007 and
December 31, 2006, respectively
    
    
    361,608
    
    
    
    168,463TOTAL LIABILITIES
    
    
    1,351,481
    
    
    
    752,953Commitments and ContingenciesStockholders Deficit:Preferred Stock, Par Value $.001, Authorized 10,000,000 Shares
none Issued at June 30, 2007 and December 31, 2006
    
    
    
    
    
    
    Common Stock, Par value $.001, Authorized 100,000,000 Shares,
Issued
30,197,833 and 27,764,500 at June 30, 2007 and December 31, 2006
    
    
    30,198
    
    
    
    27,765Additional Paid-In Capital
    
    
    2,715,054
    
    
    
    1,992,867Accumulated Deficit
    
    
    (3,813,363
    )
    
    
    (2,506,682
    )Total Stockholders Deficit
    
    
    (1,068,111
    )
    
    
    (486,050
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    283,370
    
    
    $
    266,903
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THE X-CHANGE CORPORATION
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended June 30
    
    
    Six Months Ended June 302007
    
    
    2006
    
    
    2007
    
    
    2006(Restated)
    
    
    
    
    
    
    (Restated)Revenues
    
    $
    698,448
    
    
    $
    341,675
    
    
    $
    1,014,501
    
    
    $
    649,598ExpensesResearch & Development
    
    
    597,543
    
    
    
    219,409
    
    
    
    851,039
    
    
    
    408,948Sales & Marketing
    
    
    39,055
    
    
    
    12,819
    
    
    
    102,460
    
    
    
    48,938General & Administrative
    
    
    513,337
    
    
    
    311,486
    
    
    
    1,130,372
    
    
    
    596,834Total Expenses
    
    
    1,149,935
    
    
    
    543,714
    
    
    
    2,083,871
    
    
    
    1,054,720Operating Loss
    
    
    (451,487
    )
    
    
    (202,039
    )
    
    
    (1,069,370
    )
    
    
    (405,122
    )Other Income (Expense)Interest Expense
    
    
    (123,258
    )
    
    
    (6,050
    )
    
    
    (241,086
    )
    
    
    (10,312
    )Interest Income
    
    
    2,798
    
    
    
    1
    
    
    
    3,775
    
    
    
    29Net Income (Loss) from Continuing
Operations
    
    
    (571,947
    )
    
    
    (208,088
    )
    
    
    (1,306,681
    )
    
    
    (415,405
    )Income (Loss) from Discontinued Operations
    
    
    
    
    
    
    (10,221
    )
    
    
    
    
    
    
    (10,221
    )Net Income (Loss)
    
    $
    (571,947
    )
    
    $
    (218,309
    )
    
    $
    (1,306,681
    )
    
    $
    (425,626
    )Loss per Share, Basic and Diluted
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.02
    )Weighted Average Shares Outstanding,
Basic and Diluted
    
    
    29,989,500
    
    
    
    27,275,125
    
    
    
    29,314,500
    
    
    
    27,179,500
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THE X-CHANGE CORPORATION
 
 UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS DEFICIT
 Common StockPaid-In
    
    
    AccumulatedShares
    
    
    Par Value
    
    
    Capital
    
    
    DeficitBalance at December 31, 2006 (Restated)
    
    
    27,764,500
    
    
    $
    27,765
    
    
    $
    1,992,867
    
    
    $
    (2,506,682
    )Shares issued for cash and related fees
    
    
    1,200,000
    
    
    
    1,200
    
    
    
    548,800
    
    
    
    Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (734,734
    )Balance at March 31, 2007
    
    
    28,964,500
    
    
    
    28,965
    
    
    
    2,541,667
    
    
    
    (3,241,416
    )Shares issued for cash
    
    
    1,233,333
    
    
    
    1,233
    
    
    
    148,767
    
    
    
    Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (571,947
    )Stock based compensation
    
    
    
    
    
    
    
    
    
    
    24,620Balance at June 30, 2007
    
    
    30,197,833
    
    
    $
    30,198
    
    
    $
    2,715,054
    
    
    $
    (3,813,363
    )
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THE X-CHANGE CORPORATION
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Six Months Ended June 30CASH FLOWS FROM OPERATING ACTIVITIES:
    
    2007
    
    
    2006(Restated)Net Loss
    
    $
    (1,306,681
    )
    
    $
    (425,626
    )Adjustments to reconcile net loss to net cash
used by operating activities:Depreciation
    
    
    11,874
    
    
    
    9,578Amortization of Deferred Cost
    
    
    
    
    
    
    248,571Stock Issued for Services
    
    
    
    
    
    
    20,951Stock Based Compensation Expense
    
    
    24,620
    
    
    
    Amortization of Debt Discount
    
    
    193,145
    
    
    
    Net Cash Used in Discontinued Operations
    
    
    
    
    
    
    (30,652
    )Change in Operating Assets and Liabilities:Accounts Receivable
    
    
    (69,490
    )
    
    
    (31,198
    )Deposits
    
    
    5,115
    
    
    
    (5,615
    )Prepaid Expenses
    
    
    61,000
    
    
    
    Accounts Payable
    
    
    377,155
    
    
    
    22,605Accrued Expenses
    
    
    124,291
    
    
    
    (33,102
    )Deferred Revenue
    
    
    (6,063
    )
    
    
    25,358Customer Deposits
    
    
    30,000
    
    
    
    Net Cash Used by Operations
    
    
    (555,034
    )
    
    
    (199,130
    )CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of Fixed Assets
    
    
    (840
    )
    
    
    (32,600
    )Net Cash Used in Investing Activities
    
    
    (840
    )
    
    
    (32,600
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from Common Stock Issued
    
    
    700,000
    
    
    
    Proceeds from Related Party Note
    
    
    
    
    
    
    251,186Payments on Related Party Notes
    
    
    (120,000
    )
    
    
    Net Cash Provided by Financing Activities
    
    
    580,000
    
    
    
    251,186Net (Decrease) Increase in Cash
    
    
    24,126
    
    
    
    19,456Cash at Beginning of Period
    
    
    1,955
    
    
    
    5,847Cash at End of Period
    
    $
    26,081
    
    
    $
    25,303
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THE X-CHANGE CORPORATION
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION
     Shares Outstanding and Loss Per Share
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Going Concern
      8




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Reclassifications
  NOTE 2  DEFERRED COSTS
  NOTE 3  RELATED PARTY PAYABLES
 Long-term related party payables
    9




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Short-term related party payables
   NOTE 4  PRIVATE PLACEMENT STOCK TRANSACTIONS
  NOTE 5  NEW PRONOUNCEMENTS
  NOTE 6  RESTATEMENT
  
    
    Revenue Recognition  The Company recognized revenue at the time of invoicing for
development contract scheduled payments, which should be recognized over the life of
the project.
    
    Deferred Costs Amortization  In connection with the issuance of 500,000 shares to
Hexion, $290,000 was previously recorded as a long-term asset. The Company
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subsequently determined that the issuance of the shares should be accounted for as a
deferred cost. The Company has amortized the fair value of the shares over the life of
the related contract period from January to July 2006.
    
    Debt Discount  The Company established that its related party note payable had an
embedded beneficial conversion feature that had not been recorded properly. This
beneficial conversion feature was recorded and amortized over the term of the note.
  Statement of Operations Data
 Six Months Ending
    
    
    Six Months EndingJune 30, 2006
    
    
    June 30, 2006Restated
    
    
    Previously FiledRevenue
    
    $
    649,598
    
    
    $
    675,256Expenses
    
    
    1,054,720
    
    
    
    820,479Net Loss
    
    $
    (405,122
    )
    
    $
    (145,223
    )
 Balance Sheet Data
 As of December 31,
    
    
    As of December 31,2006
    
    
    2006Restated
    
    
    Previously FiledAssets
    
    $
    266,903
    
    
    $
    483,347Liabilities
    
    
    752,953
    
    
    
    1,359,030Stockholders Deficit
    
    
    (486,050
    )
    
    
    (875,683
    )
 NOTE 7  STOCK-BASED COMPENSATION
 Stock Options as of the Six Month Period Ended June 30, 2007
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Outstanding OptionsWeighted
    
    
    Weighted AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contract Term
    
    
    IntrinsicShares
    
    
    Price
    
    
    (in years)
    
    
    ValueOptions outstanding at March 31, 2007
    
    
    Options granted
    
    
    3,300,000
    
    
    
    0.20Options exercised
    
    
    Options forfeited
    
    
    Options outstanding at June 30, 2007
    
    
    3,300,000
    
    
    
    
    
    
    
    9.97
    
    
    $
    330,000Options exercisable at June 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    Options available for grants as of June 30, 2007
    
    
    2,700,000
   Options Outstanding
    
    
    Options ExercisableWeighted Average
    
    
    Weighted
    
    
    Number
    
    
    WeightedNumber
    
    
    Remaining
    
    
    Average
    
    
    Of
    
    
    Averageof
    
    
    Contract Term
    
    
    Exercise
    
    
    Options
    
    
    ExerciseRange of Exercise Price
    
    Options
    
    
    (in years)
    
    
    Price
    
    
    Exercisable
    
    
    Price$0.20
    
    
    3,300,000
    
    
    
    9.97
    
    
    $
    0.20
    
    
    
    
    
    
    
    
 Application of SFAS 123R
 Share-Based Payment
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June 30,2007Volatility
    
    
    214.90
    %Expected option term
    
    6.25 yearsRisk-free interest rate
    
    
    4.60
    %Expected dividend yield
    
    
    
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Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
  Risk Factors
  
    
    We need capital to avoid insolvency, sustain our operations and grow our business.
    
    Our near-term financial performance depends on the success of our strategic relationships with a with a small
group of customers and customer prospects.
    
    We expect that almost all the recurring revenue we project for the second half of 2007 will relate to products
under development that we have not yet sold in volume to customers. As a result, we have limited visibility
regarding the length of our sales cycle, which makes projecting revenue difficult and could otherwise adversely
affect our business.
    
    Our success depends on our ability to generate recurring revenue streams, which depends in large part on our
customers ability to scale their sales and marketing efforts.
    
    The volatility of our stock price could subject us to an increased risk of securities litigation.
    
    The market in which we operate is highly competitive, which could adversely affect our ability to meet our
financial objectives.
    
    Our current financial position may deter potential customers and strategic relationships; may compromise our
ability to attract additional investment funds and may deter our vendors from continuing to provide commercial
terms of credit.
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
    
    We have a history of losses, expect to incur additional losses in the future and may not be able to achieve or
sustain profitability.
    
    We will likely need to enter into additional strategic relationships to meet our customer needs.
    
    To meet our financial objectives, we must grow rapidly. If we are unable to manage this growth, we could incur
costs that could adversely affect our operating results and financial condition.
    
    If we overestimate customer demand, we may increase our cost structure unnecessarily.
    
    Although we are not targeting the supply chain RFID market, public perceptions of the viability of RFID
applications in the supply chain could adversely affect acceptance of RFID in the vertical markets we are
targeting.
    
    Widespread adoption of our RFID solutions depends, in part, on declines in selling prices for RFID tags such as
Hitachis μ-Chip tag.
    
    Our products are new and evolving and our business model is unproven, which makes it difficult to evaluate our
current business and future prospects.
    
    Some of our products are part of larger solutions that are offered to end customers, and we must work with third
parties to ensure that our products inter-operate correctly.
    
    If our products and systems do not meet our customers needs or otherwise malfunction, our business will be
adversely affected.
    
    Fluctuations in quarterly and annual operating results may adversely affect our business, and these fluctuations
make evaluating our business difficult.
    
    If we are unsuccessful in developing and introducing new products and enhancements, we may be unable to meet our
financial goals.
    
    Our GenuDot System is a closed loop application for product authentication, meaning it intentionally does not
comply with the EPCglobal standards and is not intended to work with third party readers. This could adversely
affect market acceptance of the GenuDot System.
    
    We rely on patents, trademarks, copyrights and trade secrets to protect our proprietary rights, which may not be
sufficient to protect all of our intellectual property.
    
    We do not own several key technologies that we are developing for third parties such as Hexion Specialty
Chemicals, Inc., which may make us a less attractive acquisition candidate.
    
    We may need to license RFID-related patents from third parties, and we may not be able to obtain these licenses on
acceptable terms, or at all.
    
    We may become subject to intellectual property infringement claims and other litigation that might be costly to
resolve and, if resolved adversely, may harm our business.
    
    Complying with applicable governmental regulations could adversely affect our ability to sell our products and
impair operating results.
    
    We expect to depend on a limited number of suppliers and assemblers of our products.
    
    We expect to rely on third party manufacturers.
    
    If unauthorized access is obtained to our customers data as a result of our products, including through breach of
security measures or unauthorized encoding of RFID tags, we could be subject to related legal claims, and
customers may curtail or stop their use of our products, which would harm the business, operating results and
financial condition.
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
    
    Privacy concerns relating to elements of RFID technology could damage our reputation and deter current and
potential customers from using our products and systems.
    
    We depend on key personnel, including our chief executive officer, chief operations officer, and chief financial
officer to manage our business effectively. If we are unable to hire, retain or motivate qualified personnel, we
will have trouble meeting our financial goals.
    
    Complying with Section 404 of the Sarbanes-Oxley Act, which we must do in connection with our financial statements
for the year ending December 31, 2007, will entail substantial cost, expense, effort, and management distraction.
    
    If we fail to maintain proper and effective internal controls, our ability to produce accurate financial
statements could be impaired.
    
    Until recently, no members of our board of directors were independent within the meaning of federal securities
laws.
    
    The costs of being a public company can be significant given the size and resources of the Company.
    
    Our stock is not listed on a major stock market.
    
    If securities or industry analysts do not publish research or reports about us, we may not be able to generate
significant trading volume in our stock.
    
    Future sales of shares by existing stockholders, directors and employees or perceptions of these sales, could
cause the stock price to decline.
    
    Dilution aspects related to our current and future financing activities is likely to be substantial.
    
    Our continuing operations depend on obtaining commercial credit terms from our vendors.
 Recent Developments: Going Concern and Liquidity Problems
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Plan of Operation
     17




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Stock Incentive Plan
    Results of Operations
    18




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Liquidity and Capital Resources
  2007 PPM Financing
    19




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Debt Financing
  20




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Going Concern
  Off-Balance Sheet Arrangements
  21




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Item 3 Controls and Procedures
  Evaluation of Disclosure Controls and Procedures
     Changes in Internal Controls
  22




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PART II  OTHER INFORMATION
 
 Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
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Item 6 Exhibits
  Exhibits16.1
    
    April 12, 2007 Dismissal of
the Companys certifying
accountant Robison, Hill &
Company
    
    Incorporated by reference to
Form 8-K April 19, 2007 File
No.: 002-4170316.2
    
    April 19, 2007 Appointment of
KBA Group, LLP as the
Companys independent
registered public accounting
firm
    
    Incorporated by reference to
Form 8-K April 25, 2007 File
No.: 002-4170331.1
    
    Certification of Chief
Executive Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Included in this filing31.2
    
    Certification of Chief
Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley Act of 2002
    
    Included in this filing32.1
    
    Certification of Chief
Executive Officer pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Included in this filing32.2
    
    Certification of Chief
Financial Officer pursuant to
Section 906 of the
Sarbanes-Oxley Act of 2002
    
    Included in this filing
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SIGNATURES
  THE X-CHANGE CORPORATION
 DATE:
    
    August 13, 2007By:
    
    /s/ Michael L, SheriffMichael L. SheriffPresident, Chief Executive Officer, and Chairman(Principal Executive Officer)DATE:
    
    August 13, 2007By:
    
    /s/ George DeCourcyGeorge DeCourcyChief Financial Officer(Principal Financial Officer)
 25