UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549




FORM 10-Q





x
            Quarterly report under Section
      13 or 15(d) of the Securities Exchange Act of
  1934For the quarterly period ended
      September 30, 2008o
            Transition report under Section
      13 or 15(d) of the Exchange Act







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 incorporation
      or organization)
            
            (I.R.S. Employer
      Identification No.)






710 Century Parkway, Allen,
TX  75013


(Address
of principal executive offices)




(972)
747-0051


(Registrant’s
telephone number)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes xNo
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large Accelerated
      Filer o
            Accelerated Filer
      oNon-accelerated
      filer o
            Smaller reporting
      company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo x





As of
November 11, 2008 there were 49,673,613 shares of the registrant’s common stock
outstanding.







THE
X-CHANGE CORPORATION


FORM
10-Q


INDEX





Page
              NumberPART
      I - FINANCIAL INFORMATIONItem
      1. Financial StatementsConsolidated
      Balance Sheets as of September 30, 2008 (unaudited)and December
      31, 2007
            3Consolidated
      Statements of Operations for the three months and the nine months ended
      September 30, 2008 and 2007 (unaudited)
            4Consolidated
      Statement of Stockholders’ Equity as of September 30, 2008
      (unaudited)
            5Consolidated
      Statements of Cash Flows for the nine months ended September 30, 2008 and
      2007 (unaudited)
            6 –
      7Notes
      to Consolidated Financial Statements (unaudited)
            8 -
      13Item
      2. Management's Discussion and Analysis or Plan of
    Operation
            14
      – 18Item
      4T. Controls and Procedures
            19PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
            20Item
      1A. Risk Factors
            20Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
            20Item
      3. Defaults Upon Senior Securities
            20Item
      4. Submission of Matters to a Vote of Security Holders
            20Item
      5. Other Information
            20Item
      6. Exhibits
            20SIGNATURES
            21





2




THE
X-CHANGE CORPORATION


CONSOLIDATED
BALANCE SHEETS





September
      30,
              2008
              (unaudited)
            
            
            December
      31,
              2007ASSETSCurrent
      assets:Cash
            
            $
            497,896
            
            
            $
            739,869Accounts
      receivable, net of allowance for doubtfulaccounts
      of $22,064 at September 30, 2008and
      $35,663 at  December 31, 2007
            
            
            -
            
            
            
            79,729Prepaid
      expenses
            
            
            15,301
            
            
            
            1,339Total
      current assets
            
            
            513,197
            
            
            
            820,937Property
      and equipment, net
            
            
            35,623
            
            
            
            51,976Deposits
            
            
            47,000
            
            
            
            40,770Debt
      issuance costs, net
            
            
            974,632
            
            
            
            608,648TOTAL
      ASSETS
            
            $
            1,570,452
            
            
            $
            1,522,331LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Note
      payable, net of discount of $22,546 atSeptember
      30, 2008 and $243,039 atDecember 31, 2007
            
            $
            675,248
            
            
            $
            554,755Accounts
      payable
            
            
            62,733
            
            
            
            461,660Accrued
      expenses
            
            
            58,411
            
            
            
            38,413Customer
      deposits
            
            
            30,000
            
            
            
            30,000Total
      current liabilities
            
            
            826,392
            
            
            
            1,084,828Long-term
      liabilities:Convertible
      long-term notes payable, net of discountof
      $3,406,776 at September 30, 2008 and$2,133,620
      at December 31, 2007.
            
            
            681,010
            
            
            
            87,980TOTAL
      LIABILITIES
            
            
            1,507,402
            
            
            
            1,172,808Commitments
      and contingencies
            
            
            -
            
            
            
            -


Stockholders'
      equity:Preferred
      stock, par value $.001, 10,000,000 sharesauthorized,
      none issued and outstanding atSeptember
      30, 2008 and December 31, 2007
              
              
              -
              
              
              
              -Common
      stock, par value $.001, 100,000,000 shares authorized,49,091,640
      issued and outstanding at September 30, 2008and
      31,589,501 issued and outstanding at December 31,
2007
              
              
              49,092
              
              
              
              31,590Additional
      paid-in capital
              
              
              17,849,486
              
              
              
              15,748,998Accumulated
      deficit
              
              
              (17,835,528
              )
              
              
              (15,431,065
              )Total
      stockholders' equity
              
              
              63,050
              
              
              
              349,523TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              1,570,452
              
              
              $
              1,522,331




See
accompanying notes to the consolidated financial statements.
  3




THE
X-CHANGE CORPORATION
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)





Three
      Months Ended September 30,
            
            
            Nine
      Months Ended September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Revenues
            
            $
            7,657
            
            
            $
            345,514
            
            
            $
            386,755
            
            
            $
            1,360,422ExpensesResearch
      & development
            
            
            53,874
            
            
            
            303,702
            
            
            
            524,888
            
            
            
            1,155,148Sales
      & marketing
            
            
            83,695
            
            
            
            46,706
            
            
            
            203,894
            
            
            
            149,167General
      & administrative
            
            
            391,671
            
            
            
            719,074
            
            
            
            1,154,155
            
            
            
            1,849,398Total
      expenses
            
            
            529,240
            
            
            
            1,069,482
            
            
            
            1,882,937
            
            
            
            3,153,713Operating
      loss
            
            
            (521,583
            )
            
            
            (723,968
            )
            
            
            (1,496,182
            )
            
            
            (1,793,291
            )Other
      income (expense)Interest
      expense
            
            
            (352,069
            )
            
            
            (124,764
            )
            
            
            (912,547
            )
            
            
            (365,897
            )Interest
      income
            
            
            2,447
            
            
            
            247
            
            
            
            4,265
            
            
            
            4,022Net
      loss
            
            $
            (871,205
            )
            
            $
            (848,485
            )
            
            $
            (2,404,464
            )
            
            $
            (2,155,166
            )Loss
      per share, basic and diluted
            
            $
            (0.02
            )
            
            $
            (0.03
            )
            
            $
            (0.07
            )
            
            $
            (0.07
            )Weighted
      average shares outstanding, basic and diluted
            
            
            47,530,474
            
            
            
            30,949,917
            
            
            
            36,903,159
            
            
            
            29,880,333




See
accompanying notes to the consolidated financial statements.




4





THE
X-CHANGE CORPORATION


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY
 SEPTEMBER
30, 2008
 (Unaudited)


Common StockShares
            
            
            Par
      Value
            
            
            Paid-in
      Capital
            
            
            Accumulated
      Deficit
            
            
            TotalsBalance
      at December 31, 2007
            
            
            31,589,501
            
            
            $
            31,590
            
            
            $
            15,748,998
            
            
            $
            (15,431,065
            )
            
            $
            349,523Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            77,483
            
            
            
            -
            
            
            
            77,483Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (677,804
            )
            
            
            (677,804
            )Balance
      at March 31, 2008
            
            
            31,589,501
            
            
            
            31,590
            
            
            
            15,826,481
            
            
            
            (16,108,869
            )
            
            
            (250,798
            )Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            23,578
            
            
            
            -
            
            
            
            23,578Allocation
      to note discount on prepayment
            
            
            -
            
            
            
            -
            
            
            
            (16,978
            )
            
            
            -
            
            
            
            (16,978
            )Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (855,454
            )
            
            
            (855,454
            )Balance
      at June 30, 2008
            
            
            31,589,501
            
            
            
            31,590
            
            
            
            15,833,081
            
            
            
            (16,964,323
            )
            
            
            (1,099,652
            )Stock-based
      compensation
            
            
            -
            
            
            
            -
            
            
            
            29,238
            
            
            
            -
            
            
            
            29,238Shares
      issued for services
            
            
            300,000
            
            
            
            300
            
            
            
            17,700
            
            
            
            -
            
            
            
            18,000Allocation
      to note discount forprepayment
            
            
            -
            
            
            
            -
            
            
            
            (37,291
            )
            
            
            -
            
            
            
            (37,291
            )Debt
      discount on note payable
            
            
            16,714,286
            
            
            
            16,714
            
            
            
            1,776,166
            
            
            
            -
            
            
            
            1,792,880Shares
      and warrants issued for financingfees
            
            
            487,853
            
            
            
            488
            
            
            
            230,592
            
            
            
            -
            
            
            
            231,080Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (871,205
            )
            
            
            (871,205
            )Balance
      at September 30, 2008
            
            
            49,091,640
            
            
            $
            49,092
            
            
            $
            17,849,486
            
            
            $
            (17,835,528
            )
            
            $
            63,050




See
accompanying notes to the consolidated financial statements.
  5


THE
X-CHANGE CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)


Nine
      months ended September 30,2008
            
            
            2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (2,404,464
            )
            
            $
            (2,155,166
            )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Stock
      based compensation expense
            
            
            130,299
            
            
            
            307,935Gain
      on early extinguishment of debt
            
            
            (8,363
            )
            
            
            -Depreciation
            
            
            16,353
            
            
            
            17,272Stock
      issued for consulting services
            
            
            18,000
            
            
            
            -Amortization
      of financing fees
            
            
            123,897
            
            
            
            -Amortization
      of debt discount
            
            
            694,311
            
            
            
            296,662Change
      in operating assets and liabilities:Accounts
      receivable (net of allowance)
            
            
            79,729
            
            
            
            (7,061
            )Prepaid
      expenses
            
            
            (13,962
            )
            
            
            59,661Other
      current assets
            
            
            (6,230
            )
            
            
            5,115Accounts
      payable
            
            
            (398,927
            )
            
            
            364,439Accrued
      expenses
            
            
            152,034
            
            
            
            44,533Deferred
      revenue
            
            
            -
            
            
            
            23,838Customer
      deposits
            
            
            -
            
            
            
            30,000Net
      cash used by operations
            
            
            (1,617,323
            )
            
            
            (1,012,772
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of fixed assets
            
            
            -
            
            
            
            (4,737
            )Net
      cash used in investing activities
            
            
            -
            
            
            
            (4,737
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from common stock issued
            
            
            -
            
            
            
            1,117,500Payments
      on debt
            
            
            (165,850
            )
            
            
            (120,000
            )Proceeds
      from notes payable, net of fees
            
            
            1,541,200
            
            
            
            368,000Net
      cash provided by financing activities
            
            
            1,375,350
            
            
            
            1,365,500Net
      increase (decrease) in cash
            
            
            (241,973
            )
            
            
            347,991Cash
      at beginning of period
            
            
            739,869
            
            
            
            1,955Cash
      at end of period
            
            $
            497,896
            
            
            $
            349,946


6
  THE
X-CHANGE CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 (Continued)


Nine
      months ended September 30,2008
            
            
            2007SUPPLEMENTAL
      INFORMATIONInterest
      paid
            
            $
            86,200
            
            
            $
            -Taxes
      paid
            
            $
            -
            
            
            $
            -Non-Cash
      Financing activities:Accrued
      interest rolled into note principal
            
            $
            132,036
            
            
            $
            -Debt
      discount relieved from prepayment of principal
            
            $
            45,906
            
            
            $
            -




See
accompanying notes to the consolidated financial statements.
  7




THE
X-CHANGE CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





Note
1    Basis of Presentation





Our
Consolidated Balance Sheet as of September 30, 2008, the Consolidated Statements
of Operations for the three and nine months ended September 30, 2008 and 2007,
and the Consolidated Statements of Cash Flows for the nine months ended
September 30, 2008 and 2007 have not been audited. These statements have been
prepared on a basis that is consistent with the accounting principles applied in
our Annual Report on Form 10-KSB for the fiscal year ended December 31,
2007. In our opinion, these financial statements include all normal and
recurring adjustments necessary for a fair presentation of X-Change Corporation
(the “Company”) and Subsidiary. The results for the nine months are not
necessarily indicative of the results expected for the year.




As used
herein, the “Company”, “management”, “we” and “our” refers to X-Change
Corporation together with its subsidiary. The Company's fiscal year ends on
December 31st.




Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been omitted in accordance with the published
rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”)
for interim financial statements. The unaudited Consolidated Financial
Statements and the notes thereto in this report should be read in conjunction
with the audited Consolidated Financial Statements and notes thereto included in
our Annual Report on Form 10-KSB for the fiscal year ended December 31,
2007 (the “10-KSB”).





Organization
and History





The
X-Change Corporation was incorporated under the laws of the State of Delaware on
February 5, 1969, and changed its domicile to the State of Nevada on October 4,
2000.  We were originally organized to seek merger and/or acquisition
candidates.  In this respect, we have engaged in numerous transactions
since our inception.  For the periods reported on herein, AirGATE
Technologies, Inc. (“AirGATE”) is the sole operating subsidiary of the
Company.





Our
Business





Our
business model is focused on furthering the opportunities of its wholly owned
subsidiary AirGATE. AirGATE is developing end-to-end solutions in wireless
technologies including radio frequency identification (“RFID”) for the
business-to-business customer. We focus on products and services in vertical
markets, especially the oil and gas industry. We intend to deliver wireless
solutions in these markets built around a strategy focused on high-value,
high-return, recurring revenue opportunities. We are working on a number of
specialized technologies, but have not yet commercialized any of our
technologies.




8


Nature
of Operations and Going Concern





The
accompanying financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assume that the Company will
continue in operation for at least one year and will be able to realize its
assets and discharge its liabilities in the normal course of
operations.  Our financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts, or
amounts and classification of liabilities that might be necessary should we be
unable to continue as a going concern. While management believes that the
actions already taken or planned will mitigate the adverse conditions and events
which raise doubt about the validity of the going concern assumption used in
preparing these financial statements, there can be no assurance that these
actions will be successful. If the Company were unable to continue as a going
concern, then substantial adjustments could be necessary to the reported
carrying values of assets and the reported amounts of its
liabilities.




Several
conditions and events cast doubt about our ability to continue as a going
concern.  We have incurred substantial losses in the periods being
reported.  We require additional financing in order to fund our
business activities on an ongoing basis.  During 2007, the Company
raised approximately $3 million in three separate transactions including a
private placement and two financings structured as convertible debt. The Company
closed an additional convertible debt financing of $1.8 million on July 10,
2008. This financing does not provide sufficient capital to alleviate concerns
regarding our ability to continue as a going concern.




Our
future capital requirements will depend on numerous factors including, but not
limited to, our ability to perform on current and future development contracts
and the commercialization thereof.




We do not
have sufficient working capital to sustain our operations. We have been unable
to generate sufficient revenues to sustain our operations. We will have to
continue to obtain funds to meet our cash requirements through business
alliances or financial transactions with third parties, the sale of securities
or other financing arrangements, or we may be required to curtail our
operations, seek a merger partner, or seek protection under federal bankruptcy
laws. Any of the foregoing may be on terms that are unfavorable to us or
disadvantageous to existing stockholders. In addition, no assurance may be given
that we will be successful in raising additional funds or entering into business
alliances.




The
Company has incurred substantial costs in maintaining its status as a reporting
public company including dealing with recent SEC reviews. The Company has also
incurred substantial costs associated with raising capital for its continued
operations. Management is continually reviewing these costs on an on-going
basis.




9




We are
considering alternatives with respect to our intellectual property in areas
outside the oil and gas industry including our GenuDot system. In evaluating
these technologies, we may consider readdressing the marketplace, joint ventures
or outright sales of these technologies.




Our
auditors have included an explanatory paragraph in their audit opinion with
respect to our consolidated financial statements at December 31, 2007. The
paragraph states that our recurring losses from operations and resulting
continued dependence on access to external financing raise substantial doubt
about our ability to continue as a going concern. Furthermore, the factors
leading to and the existence of our going concern status may adversely affect
our relationship with customers and suppliers and have an adverse effect on our
ability to obtain financing.





Recent
Accounting Pronouncements





In
February, 2008, FASB issued a staff position, Effective Date of FASB Statement No.
157(“FSP 157-2”) which defers the effective date of SFAS 157 to fiscal
years beginning after December 15, 2008 for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). Examples of items
within the scope of FSP 157-2 are non-financial assets and liabilities initially
measured at fair value in a business combination (but not measured at fair value
in subsequent periods), and long-lived assets such as property plant and
equipment and intangible assets measured at fair value for an impairment
assessment under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.




The
partial adoption of SFAS 157 on January 1, 2008 with respect to financial assets
and financial liabilities recognized or disclosed at fair value in the financial
statements on a recurring basis did not have a material impact on the Company’s
consolidated financial statements. The Company is in the process of analyzing
the potential impact of SFAS 157 relating to our planned January 1, 2009
adoption of the remainder of the standard.





Note
2    Loss per Share





Basic
loss per share is calculated by dividing the net loss by the weighted average
common shares outstanding for the period.  The effects of common stock
equivalents are anti-dilutive and accordingly are excluded from the diluted loss
per share computation. Therefore, diluted loss is equal to basic loss per share.
If all potentially dilutive instruments (warrants, options and convertible
notes) were converted to common shares, total outstanding shares are estimated
to be approximately 151.3 million shares at September 30, 2008, subject to
conversion terms on certain convertible notes.  We currently do not
have a sufficient number of authorized shares if all notes were converted and
all options and warrants were exercised.





10





On
October 31, 2008, we filed Schedule 14C, Information Statement Pursuant to
Section 14(c) of the Securities Exchange Act 1934, with the Securities
Exchange Commission in order to amend our Articles of Incorporation with the
state of Nevada.  The purpose of the Amendment is to increase our
authorized Common Stock from 100,000,000 shares to 750,000,000 shares and our
authorized Preferred Stock from 10,000,000 to 75,000,000 shares.  The
Amendment will become effective upon the effectiveness of our filing of a
Certificate of Amendment to the Articles of Incorporation with the Secretary of
State of the State of Nevada.  The Board reserves the right to not
make such filing if it deems it appropriate not to do so.





Note
3    Stock Compensation




In June
2007, the Board of Directors approved and adopted the 2007 Stock Incentive Plan
("2007 Plan").  The 2007 Plan provides for the issuance of incentive
stock options and non-statutory stock options to the Company’s employees,
directors and consultants.  Under the 2007 Plan, the Company may grant
up to 6,000,000 shares of common stock to its employees or directors. The
exercise price of each option may not be less than the market price of the
Company’s stock on the date of grant and an option’s maximum term is ten years.
The options generally vest over a four year service period. The Plan has not yet
been submitted for a vote of stockholders.




The
following table summarizes stock options outstanding and changes during the nine
months ended September 30, 2008.




Weighted
              
              
              WeightedAverage
              
              
              Average
              
              
              AggregateNumber
      of
              
              
              Exercise
              
              
              Remaining
              
              
              IntrinsicOptions
              
              
              Price
              
              
              Term
              
              
              ValueOptions
      outstanding at January 1, 2008
              
              
              4,475,000
              
              
              $
              0.21Options
      granted
              
              
              100,000
              
              
              
              0.20Options
      exercised
              
              
              -Options
      forfeited
              
              
              (1,075,000
              )
              
              
              0.20Options
      outstanding at September 30, 2008
              
              
              3,500,000
              
              
              
              0.21
              
              
              
              9
              
              
              $
              -Options
      exerciseable at September 30, 2008
              
              
              1,750,000
              
              
              
              0.20
              
              
              
              9
              
              
              $
              -Options
      available for grants as of September 30, 2008
              
              
              2,500,000




11




Information
related to stock options outstanding at September 30, 2008 is summarized
below:




Options
      Outstanding
              
              Options
      ExercisableWeighted  Average
              Weighted
              Number
              Weighted  Average
              WeightedNumber
              Remaining
              Average
              Of
              Remaining
              AverageRange
      of
              of
              Contract
      Term
              Exercise
              Options
              Contract
      Term
              ExerciseExercise
      Price
              Options
              (in
      years)
              Price
              Exercisable
              (in
      years)
              Price$0.20
      - $0.22
              3,500,000
              9
              $0.21
              1,750,000
              9
              $0.20




The
following table summarizes non-cash stock-based compensation expense recorded
under SFAS 123(R) for the three and nine months ended September 30,
2008.




Three
      months ended
              
              
              Nine
      months endedSeptember
      30, 2008
              
              
              September
      30, 2008Research
      and development
              
              $
              (5,437
              )
              
              $
              (7,035
              )Sales
      and marketing
              
              
              -
              
              
              
              (5,469
              )General
      and administrative
              
              
              34,675
              
              
              
              128,733$
              29,238
              
              
              $
              116,229




As of
September 30, 2008 there was $145,926 of unrecognized compensation cost related
to unvested options. That cost is expected to be recognized over a weighted
average period of approximately 1 year.




The fair
values of option awards were estimated at the date of grant using a
Black-Scholes option-pricing model which utilizes a number of assumptions as
indicated below:




Nine
      months endedSeptember
      30, 2008Weighted
      average assumptions usedVolatility
            
            
            155.12%Expected
      option term (years)
            
            6
      yearsRisk-free
      interest rate
            
            
            2.50%Expected
      dividend yield
            
            
            —




The
Company’s assumption of expected volatility is based on the historical
volatility of the Company’s stock price subsequent to purchasing AirGATE
Technologies, Inc. The risk-free interest rate is based on U.S. Treasury
zero-coupon issues with a remaining term equal to the expected life at the date
of grant. The expected dividend yield is zero because the Company has not made
any dividend payments in its history and does not plan to pay dividends in the
foreseeable future.




12




The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
our employee stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management’s opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.





Note
4    Customer Concentration





Since
2006, a substantial portion of the Company’s business has been concentrated with
one customer. The services provided under the contract to this customer were
substantially completed in the first quarter of 2008.





Note
5    Notes payable





Convertible Debt Financing –
SIJ Financing





On
December 4, 2007, the Company entered into a Securities Purchase Agreement
(“SPA”) with Samson Investment Company (“Samson”), Ironman PI Fund (QP), LP
(“Ironman”), and John Thomas Bridge & Opportunity Fund, LP (“Opportunity
Fund”) (“SIJ Investors”).  In addition to the SPA, with each of the
SIJ Investors, the Company also entered into a Senior Secured Convertible Term
Note—Tranche A (“Tranche A Notes”) and a Tranche A Warrant (“Tranche A
Warrants”).  The Company, the SIJ Investors and Tejas Securities
Group, Inc. (“Tejas”) also executed a Registration Rights Agreement
(“RRA”).  Finally, the Company and the Investors executed a Security
Agreement and a Guaranty Agreement.  Pursuant to the SPA, the SIJ
Investors agreed to provide us with a total of $3.6 million in two $1.8 million
tranches, Tranche A and Tranche B.  On December 4, 2007, Tranche A was
closed.




On July
10, 2008, we closed on the Tranche B financing and received $1.8 million from
the SIJ Investors.  As a result of the Tranche A Financing and the
Tranche B Financing, X-Change received a total of $3.6 million.  As an
inducement to the Investors, X-Change delivered to the Investors 16,714,286
shares ("Tranche B Shares") of its common stock (par value $0.001 per share
"Common Stock"), split in proportion to their participation in the Tranche B
Financing. X-Change, the Investors and Tejas also executed on July 10, 2008 an
amendment ("RRA Amendment No. 1") to that certain Registration Rights Agreement
that was entered into on December 4, 2007 by and among the same parties
("RRA").




The
Tranche B Notes obligate the Company to repay to the SIJ Investors the aggregate
principal amount of $1.8 million, together with interest at 8% per
annum.  Principal on these notes is due five years after
issuance.  Interest on the notes accrues and is payable quarterly,
although the Company has the option to add accrued and unpaid interest to the
outstanding principal amount of the notes.  The Tranche B Notes are
convertible at the option of the SIJ Investors at a conversion price of
$0.07.  An automatic conversion feature also exists at this same
conversion price, and is applicable upon the Company’s achieving certain
commercialization milestones. As additional consideration for the Tranche B
Financing, X-Change issued the Investors Tranche B Warrants that are exercisable
for five years into an aggregate of 25,714,286 shares of Common Stock at $0.17
per share.




The
Company allocated the proceeds from the debentures between the warrants, stock
and debt based on the estimated relative fair values.  The value of
the warrants was calculated at $1,377,852 using the Black Scholes valuation
model and the following assumptions: discount rate of 3.1%, volatility of 162%
and expected term of 5 years.  The value of the stock was calculated
based on the number of shares issued and the current market price at the date of
the agreement.  The Company also calculated a beneficial conversion
feature totaling $767,869.  The Company is amortizing the warrant
value, stock value and the value attributable to the beneficial conversion
feature over the term of the debentures, five years.




The
Company incurred debt issuance costs in connection with the SIJ financing which
were recorded at $489,880.  The amounts recorded included cash paid
for legal and placement fees totaling $258,800, stock issued for services valued
at $34,150, and warrants issued for services in connection with the debt
totaling $196,930.  There were 2,970,000 warrants issued to Tejas and
434,000 warrants issued to Bergman to purchase shares of the Company’s common
stock at an exercise price of $0.07.  The value of the warrants was
determined using the Black Sholes model with the following assumptions: discount
rate of 3.1%, volatility of 162% and expected terms of 4 to 10
years.




All
shares of the Company’s common stock issued or issuable to the SIJ investors, as
well as shares issuable to Tejas upon exercise of their warrant rights, are
subject to the RRA. Pursuant to the RRA, the Company agreed to register all such
shares upon request of an SIJ Investor, provided that no demand may be made
within 180 days of the date of the closing.




The
obligations of the Company under the SIJ Financings are secured by a lien on and
security interest in all of AirGATE Technology Inc.’s assets as well as a
guarantee by AirGATE.






13





Item
2    Management's Discussion and Analysis of Financial Condition
and Results of Operations





The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included in our Annual Report on Form 10-KSB for
the year ended December 31, 2007 (“Annual Report”), the financial statements and
related notes in this quarterly report, the risk factors in our 2007 Annual
Report and all of the other information contained elsewhere in this quarterly
report. The terms “we”, “us”, “our”, “our Company” or “X-Change” refer to The
X-Change Corporation and its subsidiary, unless the context suggests
otherwise.




Forward-Looking
Statements





This
quarterly report on Form 10-Q includes “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
amended, which can be identified by the use of forward-looking terminology such
as, “may,” “expect,” “could,” “plan,” “seek,” “anticipate,” “estimate,” or
“continue” or the negative thereof or other variations thereon or comparable
terminology.




These
forward-looking statements are subject to various risks and uncertainties that
could cause actual results to differ materially from those referred to in the
forward-looking statements and are made pursuant to the “safe-harbor” provisions
of the Private Securities Litigation Reform Act of 1995. These statements are
made based on management’s current expectations or beliefs as well as
assumptions made by, and information currently available to,
management.




A variety
of factors could cause actual results to differ materially from those
anticipated in the Company’s forward-looking statements, including the following
factors: changes from anticipated levels of sales, access to capital, future
national or regional economic and competitive conditions, changes in
relationships with customers, difficulties in developing and marketing new
products, marketing existing products, customer acceptance of existing and new
products, validity of patents, technological change, dependence on key
personnel, availability of key component parts, dependence on third party
manufacturers, vendors, contractors, product liability, casualty to or other
disruption of the production facilities, delays and disruptions in the shipment
of the Company’s product, and the ability of the Company to meet its stated
business goals. For a detailed discussion of these and other cautionary
statements and factors that could cause actual results to differ from the
Company’s forward-looking statements, please refer to the Company’s filings with
the Securities and Exchange Commission, especially “Item 1. Description
of Business” (including the “Risk Factors” section of Item 1) and “Item 6.
Management’s Discussion and Analysis or Plan of Operation” of the Company’s 2007
Annual Report on Form 10-KSB.




The
X-Change Corporation was incorporated under the laws of the State of Delaware on
February 5, 1969, and changed its domicile to the State of Nevada on October 4,
2000.  We were originally organized to seek merger and/or acquisition
candidates.  In this respect, we have engaged in numerous transactions
since our inception.  For the periods reported on herein, AirGATE
Technologies, Inc. (“AirGATE”) is the sole operating subsidiary of the
Company.




Readers
are cautioned not to place undue reliance on these forward-looking statements,
which reflect management’s analysis only as of the date hereof. The Company does
not undertake any obligation to publicly revise these forward-looking statements
to reflect events or circumstances that arise after the date hereof. Readers
should carefully review the risk factors described in other documents the
Company files from time to time with the Securities and Exchange
Commission.




14




An
investment in our common stock is highly speculative, involves a high degree of
risk, and should be made only by investors who can afford a complete loss. You
should carefully consider the information in this report along with the risk
factors disclosed in our Form 10-KSB for the year ended December 31, 2007,
including our financial statements and the related notes, and our prior filings
of Form 10-QSB before you decide to buy or continue to hold our common
stock.




Several
conditions and events cast doubt about our ability to continue as a going
concern.  We have incurred substantial losses in the periods being
reported.  We require additional financing in order to fund its
business activities on an ongoing basis.  During 2007, we raised
approximately $3 million in three separate transactions including a private
placement and two financings structured as convertible debt. We closed an
additional convertible debt financing of $1.8 million on July 10, 2008. This
financing does not provide sufficient capital to alleviate concerns regarding
our ability to continue as a going concern.




Our
future capital requirements will depend on numerous factors including, but not
limited to, our ability to perform on current and future development contracts
and the commercialization thereof.




We do not
have sufficient working capital to sustain our operations. We have been unable
to generate sufficient revenues to sustain our operations. We will have to
continue to obtain funds to meet our cash requirements through business
alliances or financial transactions with third parties, the sale of securities
or other financing arrangements, or we may be required to curtail our
operations, seek a merger partner, or seek protection under federal bankruptcy
laws. Any of the foregoing may be on terms that are unfavorable to us or
disadvantageous to existing stockholders. In addition, no assurance may be given
that we will be successful in raising additional funds or entering into business
alliances.




The
Company has incurred substantial costs in maintaining its status as a reporting
public company including dealing with recent SEC reviews. The Company has also
incurred substantial costs associated with raising capital for its continued
operations. Management is continually reviewing these costs on an on-going
basis.




The
Company is considering alternatives with respect to its intellectual property in
areas outside the oil and gas industry including its GenuDot system. In
evaluating these technologies, the company may consider readdressing the
marketplace, joint ventures or outright sales of these
technologies.




Our
auditors have included an explanatory paragraph in their audit opinion with
respect to our consolidated financial statements at December 31, 2007. The
paragraph states that our recurring losses from operations and resulting
continued dependence on access to external financing raise substantial doubt
about our ability to continue as a going concern. Furthermore, the factors
leading to and the existence of our going concern status may adversely affect
our relationship with customers and suppliers and have an adverse effect on our
ability to obtain financing.




15






On
October 31, 2008, we filed Schedule 14C, Information Statement Pursuant to
Section 14(c) of the Securities Exchange Act 1934, with the Securities
Exchange Commission in order to amend our Articles of Incorporation with the
state of Nevada.  The purpose of the Amendment is to increase our
authorized Common Stock from 100,000,000 shares to 750,000,000 shares and our
authorized Preferred Stock from 10,000,000 to 75,000,000 shares.  The
Amendment will become effective upon the effectiveness of our filing of a
Certificate of Amendment to the Articles of Incorporation with the Secretary of
State of the State of Nevada.  The Board reserves the right to not
make such filing if it deems it appropriate not to do so.





Recent
Accounting Pronouncements





In
February, 2008, FASB issued a staff position, Effective Date of FASB Statement No.
157(“FSP 157-2”) which defers the effective date of SFAS 157 to fiscal
years beginning after December 15, 2008 for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). Examples of items
within the scope of FSP 157-2 are non-financial assets and liabilities initially
measured at fair value in a business combination (but not measured at fair value
in subsequent periods), and long-lived assets such as property plant and
equipment and intangible assets measured at fair value for an impairment
assessment under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.




The
partial adoption of SFAS 157 on January 1, 2008 with respect to financial assets
and financial liabilities recognized or disclosed at fair value in the financial
statements on a recurring basis did not have a material impact on the Company’s
consolidated financial statements. The Company is in the process of analyzing
the potential impact of SFAS 157 relating to our planned January 1, 2009
adoption of the remainder of the standard.




Results
of Operations





Our
business is focused on furthering the success of our wholly owned subsidiary
AirGATE Technologies, Inc. AirGATE derives its revenue from the design,
manufacturing and distribution of wireless and sophisticated technologies that
include radio frequency identification (“RFID”) and down-hole solutions for the
oil field services. We continue to develop products, services and solutions that
optimize exploration and production performance for oil and gas companies. The
strategy is to continue to focus on delivering new solutions directly to the oil
and gas market for high-value, high-return, recurring revenue
opportunities.




We
generated revenues of $7,657 and $345,514 for the quarter ended September 30,
2008 and 2007, respectively. Revenues were $386,755 and $1,360,422 for the nine
months ending September 30, 2008 and 2007, respectively. The decrease in
revenues was primarily due to the completion of the down-hole tool project in
early 2008.  This project provided the bulk of the revenues of the
Company in 2007 and was not extended or replaced upon completion.




Research
and development cost decreased to $53,874 from $303,702 for the three months
ended September 30, 2008 and 2007, respectively. Research and development
expenses were $524,888 and $1,155,148 for the nine months ended September 30,
2008 and 2007, respectively. This reduction reflects the wind down of our
efforts on the Hexion tool though additional efforts have been put into the
development of SAW (surface acoustic wave) applications which are not yet
producing revenue.




Sales and
marketing expenses were $83,695 and $46,706 for the three months ended September
30, 2008 and 2007, respectively. These costs were $203,894 for the first nine
months of 2008 and $149,167 for the same period of 2007.  The increase
was primarily a result of increased allocation of salaries due to focus of
executive time. These costs have increased primarily due to our marketing
efforts expended to penetrate into the oil and gas industry. We expect to
continue to increase sales and marketing efforts in the future as our planned
products get closer to commercialization.




General
and administrative expenses decreased to $391,671 for the three months ended
September 30, 2008 from $719,074 for the same period in 2007. These costs
decreased to $1,154,155 in the first nine months of 2008 from $1,849,398 for the
same comparable period of 2007.  The decrease is primarily due to
reduced salary costs as we have lowered Company head count.




16




For the
three months and nine months ended September 30, 2008, non-cash compensation
expense recorded under SFAS 123(R) was $29,626 and $130,687,
respectively.




Our
interest expense increased to $352,069 for the three months ended September 30,
2008 from $124,764 for the same period in 2007. Interest expense was $912,547
for the nine month period ending September 30, 2008 versus $365,897 for the same
period for 2007.  Interest expense has increased substantially due to
two financings completed in the second half of 2007 and an additional financing
completed in the third quarter of 2008. The increase is primarily due to the
amortization of convertible note discounts resulting from warrants issued with
debt and beneficial conversion features.





Liquidity
and Capital Resources





Operating
activities





Our
operations generated losses in 2007 and continued to generate losses in the
first nine months of 2008. Our net loss for the nine months ended September 30,
2008 was $2,404,464.  For the nine months ended September 30, 2008, we
recorded stock based compensation expense in the amount of $130,299, paid in
kind accrued interest of $139,036, amortization of financing fees of $123,897
and amortization of debt discount in the amount of $694,311.  Accounts
payable decreased $398,927 for the nine months ended September 30, 2008 over the
same period ended 2007.




There
were no uses of cash flows by investing activities during the first nine months
of 2008.




During
the third quarter ended September 30, 2008, we closed on the Tranche B financing
from the SIJ investors and received proceeds, net of fees, in the amount of
$1,541,200 and repaid $172,850 of our long term debt.




Our cash
decreased by $241,973 during the nine months ended September 30,
2008.




Our
working capital requirements depend on many factors including contract
extensions and new contracts. However, our primary source of working capital at
this time comes from securing investment financing. If losses continue as we
expect, we will have to obtain additional funds to meet our ongoing business
requirements.  We had a working capital deficit on September 30, 2008
in the amount of $313,195.




Convertible Debt Financing –
SIJ Financing





On
December 4, 2007, the Company entered into a Securities Purchase Agreement
(“SPA”) with Samson Investment Company (“Samson”), Ironman PI Fund (QP), LP
(“Ironman”), and John Thomas Bridge & Opportunity Fund, LP (“Opportunity
Fund”) (“SIJ Investors”).  In addition to the SPA, with each of the
SIJ Investors, the Company also entered into a Senior Secured Convertible Term
Note—Tranche A (“Tranche A Notes”) and a Tranche A Warrant (“Tranche A
Warrants”).  The Company, the SIJ Investors and Tejas Securities
Group, Inc. (“Tejas”) also executed a Registration Rights Agreement
(“RRA”).  Finally, the Company and the Investors executed a Security
Agreement and a Guaranty Agreement.  Pursuant to the SPA, the SIJ
Investors agreed to provide us with a total of $3.6 million in two $1.8 million
tranches, Tranche A and Tranche B.  On December 4, 2007, Tranche A was
closed.




On July
10, 2008, we closed on the Tranche B financing and received $1.8 million from
the SIJ Investors.  Between the Tranche A Financing and the Tranche B
Financing, X-Change received a total of $3.6 million.  As an
inducement to the Investors, X-Change delivered to the Investors 16,714,286
shares ("Tranche B Shares") of its common stock (par value $0.001 per share
"Common Stock"), split in proportion to their participation in the Tranche B
Financing. X-Change, the Investors and Tejas also executed on July 10, 2008 an
amendment ("RRA Amendment No. 1") to that certain Registration Rights Agreement
that was entered into on December 4, 2007 by and among the same parties
("RRA").




The
Tranche B Notes obligate the Company to repay to the SIJ Investors the aggregate
principal amount of $1.8 million, together with interest at 8% per
annum.  Principal on these notes is due five years after
issuance.  Interest on the notes accrues and is payable quarterly,
although the Company has the option to add accrued and unpaid interest to the
outstanding principal amount of the notes.  The Tranche B Notes are
convertible at the option of the SIJ Investors at a conversion price of
$0.07.  An automatic conversion feature also exists at this same
conversion price, and is applicable upon the Company’s achieving certain
commercialization milestones. As additional consideration for the Tranche B
Financing, X-Change issued the Investors Tranche B Warrants that are exercisable
for five years into an aggregate of 25,714,286 shares of Common Stock at $0.17
per share.




The
Company allocated the proceeds from the debentures between the warrants, stock
and debt based on the estimated relative fair values.  The value of
the warrants was calculated at $1,377,852 using the Black Scholes valuation
model and the following assumptions: discount rate of 3.1%, volatility of 162%
and expected term of 5 years.  The value of the stock was calculated
based on the number of shares issued and the current market price at the date of
the agreement.  The Company also calculated a beneficial conversion
feature totaling $767,869.  The Company is amortizing the warrant
value, stock value and the value attributable to the beneficial conversion
feature over the term of the debentures, five years.




17




The
Company incurred debt issuance costs in connection with the SIJ financing which
were recorded at $489,880.  The amounts recorded included cash paid
for legal and placement fees totaling $258,800, stock issued for services valued
at $34,150, and warrants issued for services in connection with the debt
totaling $196,930.  There were 2,970,000 warrants issued to Tejas and
434,000 warrants issued to Bergman to purchase shares of the Company’s common
stock at an exercise price of $0.07.  The value of the warrants was
determined using the Black Sholes model with the following assumptions: discount
rate of 3.1%, volatility of 162% and expected terms of 4 to 10
years.




All
shares of the Company’s common stock issued or issuable to the SIJ investors, as
well as shares issuable to Tejas upon exercise of their warrant rights, are
subject to the RRA. Pursuant to the RRA, the Company agreed to register all such
shares upon request of an SIJ Investor, provided that no demand may be made
within 180 days of the date of the closing.




The
obligations of the Company under the SIJ Financings are secured by a lien on and
security interest in all of AirGATE Technology Inc.’s assets as well as a
guarantee by AirGATE.




Going
Concern




In
connection with our Form 10-KSB for the year ended December 31, 2007, our
Independent Registered Public Accountants included a paragraph in their opinion
that referred to doubts about our ability to continue as a going
concern.  Several conditions and events cast doubt concerning our
ability to continue as a going concern.  We are dependent upon the
expected cash flow of ongoing development contracts, and require additional
financing in order to fund our business activities on an ongoing
basis.  We have taken steps to provide additional financing to the
Company and we are actively in discussions with a number of capital sources.
While we believe that the actions already taken or planned may mitigate the
adverse conditions and events which raise doubt about the validity of the going
concern assumption used in preparing these financial statements, there can be no
assurance that these actions will be successful or that we will have sufficient
funds to continue its operations.





Off-Balance
Sheet Arrangements





The
Company has a lease on its office space in Allen, Texas with commitments of
approximately $96,900 annually through December 31, 2010.





Inflation




We
believe that inflation has not had a significant impact on operations since
inception.





18





Item
4T  Controls and Procedures





(a)
            Evaluation
      of Disclosure Controls and
Procedures




The
Company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized,
accumulated and communicated to the Company’s management, including its Chief
Executive Officer ("CEO") and its Chief Financial Officer ("CFO"), as
appropriate, to allow timely decisions regarding required
disclosure.




As of the
end of the period covered by this report, the Company's CEO and CFO carried out
an evaluation of the effectiveness of the design and operation of the
Company's system of disclosure controls and procedures pursuant to Rules
13a-15(e) and 15d-15(e) under the Exchange Act.




Based on
this evaluation, our principal executive officer and our chief financial officer
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were not effective and not adequately
designed to ensure that the information required to be disclosed by us in the
reports we submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the applicable rules and forms and
that such information was accumulated and communicated to our chief executive
officer and chief financial officer, in a manner that allowed for timely
decisions regarding required disclosure.




Based on
our evaluation, management has concluded that our internal control over
financial reporting was not effective as of September 30, 2008. Management has
determined that (i) we are unable to maintain the proper segregation of
various accounting and finance duties because of our small size and limited
resources, (ii) much of the financial closing process is done off-line on
electronic spreadsheets that are maintained on individual computers and (iii)
based on our staffing limitations, we rely on our Chief Financial Officer to
provide a significant amount of our compensating controls.




The
Company will continue to periodically assess the cost versus benefit of adding
the resources that would improve segregation of duties and additional accounting
resources necessary to assure adequate compliance. Currently, with the
concurrence of the board of directors, the Company does not consider the
benefits to outweigh the costs of adding additional staff in light of the
limited number of transactions related to the Company’s operations.





(b)
            Changes
      in Internal Controls





In
connection with the evaluation of the Company's internal controls during the
Company's last fiscal quarter covered by this report required by paragraph (d)
of Rules 13a-15 and 15d-15 under the Exchange Act, the Company's CEO and CFO has
determined that there were no changes to the Company's internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially effect, the Company's internal controls over financial
reporting.




19




Part
II - Other Information





ITEM 1. LEGAL
PROCEEDINGS





None





ITEM
1A. RISK FACTORS





We are a
smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are
not required to provide information under this Item.





ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS




None.




ITEM 3. DEFAULTS UPON SENIOR
SECURITIES




None.





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





None.





ITEM 5. OTHER
INFORMATION




None.





Item
6 Exhibits




The
following exhibits are furnished as part of this report or incorporated herein
as indicated:





31.1
            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




20


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




THE
      X-CHANGE CORPORATION
              (Registrant)DATE:November
      12,
2008
            /s/ Kathleen
      Hanafan
              Kathleen
      Hanafan
              Chief
      Executive OfficerDATE:November
      12,
      2008
            /s/ WmChris
      Mathers
              Wm
      Chris Mathers
              Chief
      Financial Officer








21