10KSB 1 form10ksb123104.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission file number 002-41703 THE X-CHANGE CORPORATION (Name of Small Business Issuer in Its Charter) Nevada 90-0156146 --------------------------------------- ------------------------------------ (State of Incorporation or Organization) (I.R.S. Employer Identification No.) 100 Allentown Parkway, Suite 110 Allen, TX 75002 (Address of principal executive offices)(Zip Code) (972) 747-1206 (Issuer's telephone number, including area code) 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 Title of Class Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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. [X] YES [ ] NO Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of 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. [X] State issuer's revenues for its most recent fiscal year: $37,439 As of March 15, 2005, there were approximately 14,752,000 shares of Common Stock outstanding, of which 13,752,000 were held by non-affiliates. The aggregate market value of Common Stock (based upon the average of the bid and asked prices on March 15, 2005) held by non-affiliates was approximately $29,000,000. Documents incorporated by reference: None. Transitional Small Business Disclosure Format (check one): [ ] YES [X] NO THE X-CHANGE CORPORATION FORM 10-KSB TABLE OF CONTENTS
PAGE PART I ITEM 1. Description of Business............................................................ 3 ITEM 2. Description of Property............................................................ 5 ITEM 3. Legal Proceedings.................................................................. 5 ITEM 4. Submission of Matters to a Vote of Security Holders................................ 5 PART II ITEM 5. Market for Common Equity and Related Stockholder Matters........................... 5 ITEM 6. Management's Discussion and Analysis or Plan of Operation.......................... 6 ITEM 7. Financial Statements............................................................... 7 ITEM 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................................. 7 ITEM 8a. Controls and Procedures.......................................................... 7 ITEM 8b. Other Information ............................................................. 8 PART III ITEM 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act........................ 8 ITEM 10. Executive Compensation........................................................... 10 ITEM 11. Security Ownership of Certain Beneficial Owners and Management................... 10 ITEM 12. Certain Relationships and Related Transactions................................... 10 ITEM 13. Exhibits and Reports on Form 8-K................................................. 11 ITEM 14. Principal Accountant Fees and Services ........................................... 12
2 RISK FACTORS AND CAUTIONARY STATEMENTS Forward-looking statements in this report are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1933, as amended. The Company wishes to inform readers that actual results may differ substantially from such forward-looking statements. Forward-looking statements include statements concerning underlying assumptions and other statements that are other than statements of historical fact. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy," "believes," "anticipates," "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the statements, including, but not limited to, the following: the ability of the Company to provide for its obligations, to provide for its working capital needs from operating revenues, to obtain additional financing, to meet competitive challenges and technological changes and other risks as may be detailed in the Company's periodic report filings with the Securities and Exchange Commission. ITEM 1 DESCRIPTION OF BUSINESS ORGANIZATION AND HISTORY: The Company 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. The company was organized to seek merger and/or acquisition candidates. In this respect the Company has engaged in numerous transactions since inception and is now intent on continuing to acquire interests in oil and gas opportunities that management believes will generate significant operating revenues and a return on investment to shareholders using the "Paragon" technology discussed below. The Company, since inception, has had as its principal business purpose the identification of and capitalization on business opportunities. In furtherance of this, the Company has made a number of acquisitions during its existence. Specifically during the past three years, the Company acquired the business and operations of WEBiX on January 15, 2003, in exchange for securities. On March 13, 2003, the Company rescinded its agreement with WEBiX and reentered the development stage. On February 9, 2004, the Company formed a wholly owned subsidiary, AirGate Technologies, Inc., for the purpose of engaging in the development and acquisition of leading-edge wireless internet/networking technologies, principally RFID ("radio frequency identification"). On September 30, 2004, the Company decided that the business plan of AirGate could not be advanced and should be discontinued. The Company sold AirGate to its founder, Michael Sheriff, in exchange for the return of 3,500,000 common shares of the Company's common stock. The Company retained a 15 percent net proceeds interest from Air Gate contracts with Standard Motor Products, Medtronics - Cranial and Spinal Division, Borden Chemical and child safety seat technology. In June 2004, the Company formed a new subsidiary, OIL ID Systems, Inc., which subsequently acquired 38 wells in east Texas and is now headquartered in Dallas. This subsidiary subsequently changed its name to Curado Energy Resources, Inc. The principals involved in this subsidiary have 25 years of experience in the marketing of and exploration for petroleum products and services. On September 30, 2004, the Company entered into a share purchase agreement with Kolt Oil and Gas, a Texas Corporation, to acquire the business, operations and prospects of Kolt. Subsequently, Kolt was not able to deliver all of the consideration promised; therefore, the Company agreed that the only asset which Kolt would have is a Texas operator's license for oil and gas properties. The Company issued 150,000 shares of restricted stock in exchange for this asset. 3 PRESENT BUSINESS MODEL: The Company's business model now consists of several key differentiators that, management feels, will set it apart. The Company's focus is to create long-term shareholder value by: - Pursuing intelligent, opportunistic acquisitions of other oil & gas exploration and production company opportunities whose business plans and operations are complementary; - Consolidating redundant functions, such as oilfield operations, billing and accounting and customer support; - Partnering with other oil and gas exploration and production companies that can provide leverage for the Company's activities; - Joining with energy industry organizations to highlight the Company's technology solutions and oil and gas expertise; - Exploitation of secondary and tertiary oil recovery methods in oil fields where current methods have failed to result in significant oil recovery; and - Deepening efforts in wells which are currently highly successful and located in close proximity to our holdings, reducing drilling risk and increasing profit opportunity. The Company's sole focus is now on the oil and gas industry, the primary objective being to identify, acquire, and develop working interest percentages in smaller, underdeveloped oil and gas projects in Texas that do not meet the requirements of the larger producers and developers. Currently the Company has two wholly-owned subsidiaries, Curado Energy Resources, Inc., which presently owns 52 wells in East Texas and which was formerly known as OIL ID systems, and Kolt Oil and Gas, Inc., which is licensed to operate oil and gas properties in Texas. The Company also has a 15% interest in four RFID (Radio Frequency Identification) projects. The Company, through Curado, now has as its objective the acquisition and development of properties with the following general characteristics: -Locations within or close to areas with an established production history and infrastructure; -Multiple productive sands and reservoirs; -Low or non-existent current production levels with identified proven and potential reserve opportunities; and -Properties which management believes will respond favorably to treatment with the company's proprietary biochemical process. Currently, all of Curado's oil and gas assets are located in the East Texas Woodbine Field, which covers five counties in East Texas, those being Rusk, Gregg, Smith, Upshur and Cherokee. This field is over 70 years old, having produced over six billion barrels of oil, with estimated reserves of one billion barrels remaining. PARAGONE BIO-TECHNOLOGY: Since the fourth quarter of 2004, Curado has been customizing a proprietary process for injecting a microbial bio-tech process into low and non performing wells. Micro-Tes manufactures the microbial-based product that is the basis for the proprietary process. Curado has gained access to the microbial product through a distribution agreement that Micro-Tes has with the Robert Barbee, a director and executive officer of the Company. Micro-Tes was founded in 1991 and manufactures a broad line of microbial-based products. These products consist of blends of acclimated, naturally occurring, non-pathogenic microbes. These microbes offer a safe and economical alternative to chemicals. Curado specifically uses the Micro-Tes' product named PARAGONE, which solubilizes paraffin and asphaltene in formations, well bores, pumps, flow lines, heater treaters and storage tanks. The product reduces or eliminates emulsion, corrosion, scale, hydrogen sulfide and oil carry over. PARAGONE releases drilling fluid, frac gels, polymers and soap from the formation. It increases API gravity, oil production, gas production and water injection rates. Treatments with the product have resulted in significant savings for the company when compared to the cost prohibitive alternative of chemical treatments. 4 The use of PARAGONE allows Curado to focus on recompletions and workovers that would otherwise be cost prohibitive. In addition to the recompletions and workovers of existing wells, Curado will focus on deepening existing wells when managements believe such can minimize risk and maximize the use of resources. Through a combination of art and science management believes that it can minimize the risk of unsuccessful deepening efforts and capitalize on the experience of management and consultants. The Company is focused on enhanced recovery technologies that will allow it to become a leader in oil & gas development. ITEM 2 DESCRIPTION OF PROPERTY The executive offices of the Company, as of the date of this report, are located at 100 Allentown Parkway, Suite 110, Allen, TX 75002. The Company is receiving the use of these premises free of charge until March 15, 2005. The telephone number at this address is (972) 747-1206. ITEM 3 LEGAL PROCEEDINGS There are no pending legal proceedings to which the Company is a party or to which any of its properties are subject, nor are there any proceedings known to the Company to be contemplated by any governmental authority. Additionally, the Company is unaware of any legal proceedings, pending or contemplated, in which any director, officer, affiliate or any principal security holder of the Company is a party or has an interest adverse to the Company. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were subject to a vote of security holders during the year ended December 31, 2004. PART II ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Principal Market and Sales Prices for Common Stock: As of March 15, 2005, there were 14,752,000 shares of Common Stock issued and outstanding which were held of record by 184 shareholders. Because brokerage firms hold a substantial number of shares in "street name" on behalf of their customers, the Company is unable to estimate the total number of stockholders represented by these record holders. As of March 15, 2005, there were no shares of Preferred Stock of the Company issued or outstanding. The Common Stock is currently quoted on the OTCBB, under the trading symbol "XCHC." The following table sets forth the range of the high and low bid prices per share of the Common Stock as reported by the NASD during the last two calendar years for the period indicated. Prices reported are based on quotations between dealers, and do not reflect retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions. 5 ------------------------------------------------------------------- FISCAL YEAR FISCAL YEAR 2004 2003 ---- ---- ------------------------------------------------------------------- High Low High Low ------------------------------------------------------------------- First Quarter $0.95 $0.05 $0.08 $0.04 ------------------------------------------------------------------- Second Quarter $0.62 $0.31 $0.20 $0.05 ------------------------------------------------------------------- Third Quarter $0.39 $0.12 $0.19 $0.07 ------------------------------------------------------------------- Fourth Quarter $2.34 $0.20 $0.22 $0.05 ------------------------------------------------------------------- DIVIDENDS: The Company has never paid any cash dividends on its Common Stock. The Company intends to retain and use any future earnings for the development and expansion of its business and does not anticipate paying any cash dividends in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES: On April 2, 2004, the Company issued 100,000 shares of common stock for consulting services. The shares were valued at $0.53 per share. On April 26, 2004, the Company's president surrendered his stock options contract for 12,000,000 common shares in exchange for the issuance of 4,000,000 shares of restricted common stock. The shares are restricted for 2 years. In connection with issuance of the shares, $15,000 was recorded as consulting expense. On September 30, 2004, the Company sold 100% of its AirGate, a wholly owned subsidiary, shares in exchange for return of 3,500,000 of its common shares. These shares were returned to treasury and subsequently canceled. On September 30, 2004, the Company entered into a share purchase agreement with Kolt Oil and Gas, a Texas Corporation, where it acquired the business, operations and prospects of Kolt Oil and Gas for 2,500,000 shares of common stock. Subsequently, the share purchase agreement with Kolt Oil and Gas was rescinded and the 2,500,000 shares were canceled. On March 11, 2005, the Company issued 150,000 shares to acquire the Texas operator's license for oil and gas properties of Kolt Oil and Gas. On November 23, 2004, the Company issued 1,000,000 shares of common stock for consulting services. The shares were valued at $0.001 per share. ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read in conjunction with the Company's audited financial statements and notes thereto which appear elsewhere in this report. The Company ceased all operations in WEBiX during the fourth quarter of 2002 and the acquisition was unwound in the first quarter of 2003. Similarly, the Company disposed of its RFID subsidiary in the third quarter of 2004 and began operations in the oil and gas industry during the latter half of 2004. As is common with development stage companies, the Company has had recurring losses from operations since inception and had a deficit at year-end. The company was able to obtain only enough working capital, as loans, to close and maintain its operations in an orderly fashion. 6 PLAN OF OPERATION: The Company's present business model consists of several key differentiators that, management feels, will set it apart from its competition. The Company's focus is to create long-term shareholder value by: (1) Pursuing intelligent, opportunistic acquisitions of other oil & gas exploration and production company opportunities whose business plans and operations are complementary; (2) consolidating redundant functions, such as oilfield operations, billing and accounting and customer support; (3) Partnering with other oil and gas exploration and production company software, that can provide leverage for the Company's activities; (4) Joining with energy industry organizations, highlighting the Company's technology solutions and oil and gas expertise and (5) Building a recognizable brand identity for its operating subsidiaries. The Company's sole focus is now on the oil and gas industry, the primary objective being to identify, acquire, and develop working interest percentages in smaller, underdeveloped oil and gas projects in Texas that do not meet the requirements of the larger producers and developers. RESULTS OF OPERATIONS: The Company only had limited operations, and had realized only limited revenues for the year ended December 31, 2004. The Company has realized a net loss from operations of $669,000 since the inception due primarily to legal, accounting and management fees necessary to bring the Company through the development stage to become a producer of oil and gas. Since October 4, 2000, the Company has been in the development stage company and has not begun principal operations. Accordingly, comparisons with prior periods are not meaningful. LIQUIDITY AND CAPITAL RESOURCES: The Company continues to seek strategic alternatives, including discussions with joint venture partners and investors. During January 2005, the Company signed a revolving line of credit promissory note for $500,000 with certain shareholders. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company's ability to continue as a going concern, however, is dependent upon the Company's ability to implement its business objectives in order to generate cash flow. ITEM 7 FINANCIAL STATEMENTS The financial statements of the Company as of and for the years ended December 31, 2004 and December 31, 2003 are included immediately preceding the signature page to this Report. See Item 13 for a list of financial statement schedules included. ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 8A CONTROLS AND PROCEDURES We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company's financial reports and to other members of senior management and the Board of Directors. Based on their evaluation, as of the end of the period covered by this Annual Report on Form 10-KSB, the principal executive officer and principal financial officer of The X-Change Corporation have concluded that The X-Change Corporation, Inc.'s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective in ensuring that the information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. 7 There were no significant changes in The X-Change Corporation internal control over financial reporting during the Company's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. ITEM 8B OTHER INFORMATION None. PART III ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The following table sets forth all of the current directors and executive officers of the Company, including their ages, as of the date of this report.
------------------------------- ------------------------- --------------------------------------------- NAME AGE POSITIONS HELD ------------------------------- ------------------------- --------------------------------------------- Charles Stidham 62 President, CEO and Chairman of the Board ------------------------------- ------------------------- --------------------------------------------- Robert Barbee 34 Vice President of Operations, and Director ------------------------------- ------------------------- --------------------------------------------- Scott Thompson 42 CFO, Treasurer, and Director ------------------------------- ------------------------- ---------------------------------------------
None of the executive officers, directors and/or control persons of the Company have been convicted in or been the subject of any pending criminal proceedings, or the subject of any order, judgment or decree involving the violation of any state or federal securities laws. No current director has any arrangement or understanding whereby he is or will be selected as a director or as an executive officer. All directors will hold office until the next annual meeting of shareholders and until their respective successors have been duly elected and qualified, unless and until they earlier resign or are removed from office. The executive officers of the Company are elected by the Board of Directors at its annual meeting immediately following the annual meeting of shareholders. The Company does not currently have any standing audit, nominating or compensation committees, or any committee performing similar functions. CHARLES STIDHAM was a private investor during the five years preceding the date of this report. He graduated from Georgia Tech University in 1964 with a degree in mechanical engineering and from the University of Texas in Austin with a Juris Doctorate in 1972. ROBERT BARBEE holds a Business Degree from Kilgore College which he obtained in 1992. He has been actively involved in the oil and gas business in East Texas since 1989. Mr. Barbee has been Vice-President of Oil Patch Pipe & Supply since 2000. This entity is an independent oil field supply store which has garnered the distributorship for micro chemical applications to down hole well bore repair. Mr. Barbee acted as President of S&B Resources from 1991 until 2002, when he directed the sale of all its assets. S&B was a small, privately-held oil 8 and gas company which owned and operated its own production. From 1992 through 1994 he directed LAZ Financial, a Russian company involved in oil and gas natural resource. From 1995 through 1998 Mr. Barbee was Operations Management for 4-S Operating, one of the top ten operators in East Texas, where he oversaw the production of approximately 15,000 barrels of oil monthly. Mr. Barbee also worked with Gregg Industrial Insulators, Inc., where he increased sales by approximately $5,000,000 annually. Mr. Barbee also serves on the Board of Directors for Merritt Tool in Kilgore, Texas. This company is a privately owned machine tool shop which focuses principally on the aviation and oil and gas industries. SCOTT R. THOMPSON joined the Company in the final quarter of 2004. He graduated the University of Denver, Colorado, in 1985 with a Bachelor of Science Degree in Accounting, receiving his CPA in 1986 while working for Ernst & Whinney, a "Big 8" accounting firm. His clients at Ernst & Whinney included multinational and oil and gas clients. Mr. Thompson has focused during the past 12 years on real estate sales and development and since 2000 has been a part owner and manager for a capital management company. He holds Series 7, 55, 63 and 65 securities licenses. MICHAEL P. MCINERNEY joined the Company on October 21, 2004 as a consultant to coordinate corporate development. He brings over 30 years experience to the Company. His past experience includes executive positions with two New York Stock Exchange listed companies, the oversight of corporate development and investor relations with these companies and serving on the board of directors of Canadian and European subsidiaries of U.S. based international energy concerns. Mr. McInerney has conducted meetings, developed presentation materials and coordinated field trips to the Far East, U.S., Canada, Europe and South America for institutional investors and has been successful in arranging private investor financing. Mr. McInerney holds a Bachelors of Business Arts in Accounting from the University of Michigan and is a member of the American Institute of Certified Public Accountants. His credentials include past President of the Petroleum Investor Relations Association and of the Institute of Management Accountants. WILLIAM (BILL) BOTTO holds degrees in both Biology, with an emphasis in microbiology, and Petroleum Geology. He is also a Registered Professional Geologist in the state of Texas. Mr. Botto has over 23 years experience in the oil & gas industry. His experience ranges from frontier exploration in the East Texas Cretaceous carbonates and sands to the tertiary sands of offshore Texas and Louisiana. He has worked for Placid Oil Co., Sage Energy Co., and SPG Exploration. In 1991 he co-founded Micro-TES, Inc., whose focus is designing biological products for enhancing oil production (Microbial Enhanced Oil Recovery, "MEOR"), bioremediation, and related products. He is currently involved in oil recovery projects in the USA, China, Russia, and the Athabasca TAR sands in western Canada. Mr. Botto is a consultant to the Company and is provides the Paragone technology to its development Mr. Botto is an active member of the AAPG (American Association of Petroleum Geology) and the American Society of Microbiology. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.: Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company during its past fiscal year, and Form 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, there were no directors, officers or shareholders that failed to file, on a timely basis, reports required to be filed under Section 16(a) of the Exchange Act. AUDIT COMMITTEE FINANCIAL EXPERT: The Company's board of directors does not have an "audit committee financial expert," within the meaning of such phrase under applicable regulations of the Securities and Exchange Commission, serving on its audit committee. The board of directors believes that all members of its audit committee are financially literate and experienced in business matters, and that one or more members of the audit committee are capable of (i) understanding generally accepted accounting principles ("GAAP") and financial statements, (ii) assessing the general application of GAAP principles in connection with our 9 accounting for estimates, accruals and reserves, (iii) analyzing and evaluating our financial statements, (iv) understanding our internal controls and procedures for financial reporting; and (v) understanding audit committee functions, all of which are attributes of an audit committee financial expert. However, the board of directors believes that there is not any audit committee member who has obtained these attributes through the experience specified in the SEC's definition of "audit committee financial expert." Further, like many small companies, it is difficult for the Company to attract and retain board members who qualify as "audit committee financial experts," and competition for these individuals is significant. The board believes that its current audit committee is able to fulfill its role under SEC regulations despite not having a designated "audit committee financial expert." ITEM 10 EXECUTIVE COMPENSATION The Company has not paid, nor does it owe, any compensation to executive officers for the year ended December 31, 2004. The Company's by-laws authorize the Board of Directors to fix the compensation of directors, to establish a set salary for each director and to reimburse the director's expenses for attending each meeting of the Board of Directors. As of the date of this report, no salaries or other compensation have been paid to any of the Board of Directors, individually or as a group. ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership as of March 15, 2005, of the Common Stock by (1) each person known to the Company to be the beneficial owner of more than five percent of the Common Stock, (2) each director and executive officer of the Company, and (3) all directors and officers of the Company as a group. Information relating to beneficial ownership of the Company is based upon "beneficial ownership" concepts set forth in the rules promulgated under the Exchange Act. Under these rules a person is deemed to be a "beneficial owner" of a security if that person has or shares "voting power," which includes the power to vote or to direct the voting of a security, or "investing power," which includes the power to dispose or to direct the disposition of a security. Under the rules, more than one person may be deemed to be a beneficial owner of the same securities. A person is also deemed to be a beneficial owner of any security as to which that person has the right to acquire beneficial ownership within sixty (60) days from the current date. NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES (1) PERCENT OF CLASS Robert Barbee 1,000,000 6.78% All directors and executive officers 1,000,000 6.78% as a group (3 persons) South Beach Live, Inc. 1,055,000 7.15% ---------------------- (1) Based upon 14,752,000 shares of Common Stock outstanding on March 15, 2005. ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 10 ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K ------- -------------------------------- (A) EXHIBITS Exhibit No. Exhibit Name 2.1 Plan of Merger, incorporated by reference to Exhibit 10.1 to Form 8-K dated January 30, 2002 - Previously Filed. 3.1 Articles of Incorporation - Previously Filed. 3.2 Certificate of Amendment to Articles of Incorporation of Registrant filed with the Secretary of State of the State of Nevada on January 14, 2002 - Previously Filed. 3.3 By-Laws - Previously Filed. 4.1 Specimen of Common Stock Certificate - Previously Filed. 4.3 Form of Warrant Agreement, previously filed, incorporated by reference to Exhibit 10.2 to Form 8-K dated January 30, 2002 - Previously Filed. 10.1 License Agreement dated as of June 20, 2001 between WebIAm, Inc. as licensor, and WEBiX Inc. (the predecessor of the Company), as licensee- Previously Filed. 10.2 Amendment to License Agreement dated as of January 15, 2002 - Previously Filed. 10.3 Form of Lock-Up Agreement, incorporated by reference to Exhibit 4.1 to Form 8-K dated January 30, 2002 - Previously Filed. 10.4 Securities Repurchase Agreement - Previously Filed. 21 List of subsidiaries - None 31.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Principal Executive Officer Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Principal Financial Officer Pursuant to 18 U.S.C Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Filed herewith. Reports on Form 8-K filed in the fourth quarter of 2004: There were no Form 8-K's filed during the quarter ended December 31, 2004. 11 ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES The following is a summary of the fees billed to us by Robison, Hill & Company for professional services rendered for the years ended December 31, 2004 and 2003: Service 2004 2003 ------------------------------ ------------- ------------- Audit Fees $ 5,865 $ 7,596 Audit-Related Services - - Tax Fees 130 130 All Other Fees - - ------------- ------------- Total $ 5,995 $ 7,726 ============= ============= AUDIT FEES consist of fees billed for professional services rendered for the audits of our financial statements, reviews of our interim consolidated financial statements included in quarterly reports, services performed in connection with filings with the Securities & Exchange Commission and related comfort letters and other services that are normally provided by Robison, Hill & Company in connection with statutory and regulatory filings or engagements. TAX FEES consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions. AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITORS: The Audit Committee is to pre-approve all audit and non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services as allowed by law or regulation. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specifically approved amount. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval and the fees incurred to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Audit Committee pre-approved 100% of the Company's 2003 audit fees, audit-related fees, tax fees, and all other fees to the extent the services occurred after May 6, 2003, the effective date of the Securities and Exchange Commission's final pre-approval rules. 12 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) -:- INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2004 AND 2003 CONTENTS Page Independent Auditor's Report............................................F - 1 Consolidated Balance Sheets December 31, 2004 and 2003............................................F - 3 Consolidated Statements of Operations For the Years Ended December 31, 2004 and 2003........................F - 4 Consolidated Statement of Stockholders' Equity Period February 5, 1969 (inception) to December 31, 2004...............F - 5 Consolidated Statements of Cash Flows For the Years Ended December 31, 2004 and 2003........................F - 9 Notes to Consolidated Financial Statements.............................F - 10 INDEPENDENT AUDITOR'S REPORT The X-Change Corporation & Subsidiaries (A Development Stage Company) We have audited the accompanying consolidated balance sheets of The X-Change Corporation (a development stage company) as of December 31, 2004 and 2003, and the related consolidated statements of operations and cash flows for the years ended and the cumulative since October 4, 2000 (inception of development stage) to December 31, 2004, and the consolidated statement of stockholders' equity since February 5,1969 (inception) to December 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The X-Change Corporation (a development stage company) as of December 31, 2004 and 2003 and the results of its operations and its cash flows for the years ended December 31, 2004 and 2003 and the cumulative since October 4, 2000 (inception of development stage) to December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. F-1 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Respectfully Submitted, /s/ Robison, Hill & Co. Certified Public Accountants Salt Lake City, Utah April 11, 2005 F-2 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
December 31, 2004 2003 ------------------- -------------------- ASSETS: Current Assets: Cash $ 4,902 $ - ------------------- -------------------- Total Current Assets 4,902 - ------------------- -------------------- Oil & Gas Properties, Using Full Costs Method Oil & Gas Exploration Costs 36,878 - ------------------- -------------------- Total Oil & Gas Properties 36,878 - ------------------- -------------------- Total Assets $ 41,780 $ - =================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: $ 42,292 $ 926 ------------------- -------------------- Total Current Liabilities 42,292 926 ------------------- -------------------- Stockholders' Equity: Preferred Stock, Par Value $.001, Series A Convertible - 5,000,000 Shares Authorized, 0 Issued at December 31, 2004 and 2003 - - Common Stock, Par value $.001, Authorized 100,000,000 Shares, Issued 14,752,000 and 13,002,000 at December 31, 2004 and 2003 14,752 13,002 Paid-In Capital 653,283 580,796 Retained Deficit (536,688) (536,688) Deficit Accumulated During Development Stage (131,859) (58,036) ------------------- -------------------- Total Stockholders' Equity (512) (926) ------------------- -------------------- Total Liabilities and Stockholders' Equity $ 41,780 $ - =================== ====================
The accompanying notes are an integral part of these financial statements. F-3 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF OPERATIONS
Cumulative Since October 4, 2000 For the Year Ended Inception of December 31, Development --------------------------------------- 2004 2003 Stage ------------------- ------------------ ----------------- Revenues $ 37,439 $ - $ 37,439 Costs of Operations 29,192 - 29,192 ------------------- ------------------ ----------------- Net Operating Income 8,247 - 8,247 Expenses General & Administrative 23,755 7,902 81,791 ------------------- ------------------ ----------------- Net Loss from Continuing Operations (15,508) (7,902) (73,544) ------------------- ------------------ ----------------- Discontinued Operations Loss on Sale of AirGate (58,315) - (58,315) ------------------- ------------------ ----------------- Net Income (Loss) $ (73,823) $ (7,902) $ (131,859) =================== ================== ================= Earnings per Share, Basic & Diluted $ (0.01) $ - =================== ================== Weighted Average Shares Outstanding 16,295,835 22,444,620 =================== ==================
The accompanying notes are an integral part of these financial statements. F-4 THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM FEBRUARY 5, 1969 (INCEPTION) TO DECEMBER 31, 2004
Deficit Accumulated Since October 4, 2000 Inception of Preferred Stock Common Stock Paid-In Retained Development Shares Par Value Shares Par Value Capital Deficit Stage -------- -------- --------- --------- --------- --------- ---------- Balance at February 5, 1969 (inception) -- $ -- -- $ -- $ -- $ -- $ -- June 11, 1969 Issuance of Stock for cash -- -- 928 1 102,154 -- -- Issuance of stock for services -- -- 50 -- 6,137 -- -- Net Loss 1969 to 1993 -- -- -- -- -- (171,352) -- -------- -------- --------- --------- --------- --------- ---------- Balance at December 31, 1993 (unaudited) -- -- 978 1 108,291 (171,352) -- Net Loss -- -- -- -- -- (40,337) -- -------- -------- --------- --------- --------- --------- ---------- Balance at December 31, 1994 -- -- 978 1 108,291 (211,689) -- Issuance of stock for services -- -- 48,200 48 3,676 -- -- Net Income -- -- -- -- -- 99,673 -- -------- -------- --------- --------- --------- --------- ---------- Balance at December 31, 1995 and 1996 -- -- 49,178 49 111,967 (112,016) --
F-5 THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM FEBRUARY 5, 1969 (INCEPTION) TO DECEMBER 31, 2004 (Continued)
Deficit Accumulated Since October 4, 2000 Inception of Preferred Stock Common Stock Paid-In Retained Development Shares Par Value Shares Par Value Capital Deficit Stage ---------- ---------- ---------- ---------- ---------- ---------- ---------- Issuance of stock for services -- $ -- 157,143 $ 157 $ 36,473 $ -- $ -- Net Loss -- -- -- -- -- (36,630) -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1997 -- -- 206,321 206 148,440 (148,646) -- Issuance of stock for services -- -- 119,636 120 27,767 -- -- Net Loss -- -- -- -- -- (27,887) -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1998 -- -- 325,957 326 176,207 (176,533) -- Return of shares to treasury -- -- (85,957) (86) 86 -- -- Issuance of stock for services -- -- 2,760,000 2,760 221,490 -- -- Net Loss -- -- -- -- -- (224,250) -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1999 as originally reported -- -- 3,000,000 3,000 397,783 (400,783) --
F - 6 THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM FEBRUARY 5, 1969 (INCEPTION) TO DECEMBER 31, 2004 (Continued)
Deficit Accumulated Since October 4, 2000 Inception of Preferred Stock Common Stock Paid-In Retained Development Shares Par Value Shares Par Value Capital Deficit Stage ---------- ---------- ---------- ---------- ---------- ---------- ---------- 50:1 reverse stock split -- $ -- (2,940,000) $ (2,940) $ 2,940 $ -- $ -- 4:1 forward stock split -- -- 180,000 180 (180) -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Restated balance at December 31, 1999 -- -- 240,000 240 400,543 (400,783) -- Issuance of stock for cash -- -- 14,300,000 14,300 60,700 -- -- Issuance of stock for services -- -- 8,000,000 8,000 82,000 -- -- Net Loss -- -- -- -- -- (135,905) (44,357) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2000 -- -- 22,540,000 22,540 543,243 (536,688) (44,357) Net Loss -- -- -- -- -- -- (5,777) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2001 -- -- 22,540,000 22,540 543,243 (536,688) (50,134) Contributed Capital -- -- -- -- 21,039 -- -- ---------- ---------- ---------- ---------- ---------- ---------- ----------
F - 7 THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE PERIOD FROM FEBRUARY 5, 1969 (INCEPTION) TO DECEMBER 31, 2004 (Continued)
Deficit Accumulated Since October 4, 2000 Inception of Preferred Stock Common Stock Paid-In Retained Development Shares Par Value Shares Par Value Capital Deficit Stage ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2002 -- $ -- 22,540,000 $ 22,540 $ 564,282 $ (536,688) $ (50,134) December 31, 2003, Shares Canceled -- -- (9,538,000) (9,538) 9,538 -- -- Contributed Capital -- -- -- -- 6,976 -- -- Net Income (Loss) -- -- -- -- -- -- (7,902) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2003 -- -- 13,002,000 13,002 580,796 (536,688) (58,036) Issuance of stock for services -- -- 5,100,000 5,100 63,900 -- -- Stock exchanged for Kolt Oil -- -- 150,000 150 -- -- -- Shares canceled with sale of AirGate -- -- (3,500,000) (3,500) 3,500 -- -- Contributed Capital -- -- -- -- 5,087 -- -- Net Income (Loss) -- -- -- -- -- -- (73,823) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2004 -- $ -- 14,752,000 $ 14,752 $ 653,283 $ (536,688) $ (131,859) ========== ========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-8 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative Since October 4, 2000 For the Year Ended Inception of December 31, Development ------------------------------------- 2004 2003 Stage ------------------ ---------------- ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (73,823) $ (7,902) $ (131,859) Adjustments to reconcile net loss to net cash Provided by operating activities: Stock Issued for Services 4,150 - 4,150 Net Loss from Discontinued Operations 58,315 - 58,315 Increase (Decrease) in Accounts Payable 41,366 926 71,387 ------------------ ---------------- ------------------ Net Cash Used in Operating Activities 30,008 (6,976) 1,993 Net Cash From Discontinued Activities 6,685 - 6,685 ------------------ ---------------- ------------------ Net Cash Used in Operating Activities 36,693 - 8,678 ------------------ ---------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Oil & Gas Exploration Costs (36,878) - (36,878) ------------------ ---------------- ------------------ Net Cash Provided by Investing Activities (36,878) - (36,878) ------------------ ---------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributed 5,087 6,976 33,102 ------------------ ---------------- ------------------ Net Cash Provided by Financing Activities 5,087 6,976 33,102 ------------------ ---------------- ------------------ Net (Decrease) Increase in Cash and Cash Equivalents 4,902 - 4,902 Cash and Cash Equivalents at Beginning of Period - - - ------------------ ---------------- ------------------ Cash and Cash Equivalents at End of Period $ 4,902 $ - $ 4,902 ================== ================ ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ------------------------------------------------- Cash paid during the year for: Interest $ - $ - $ - Franchise and income taxes $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: None ----------------------------------------------------------- ----------- The accompanying notes are an integral part of these financial statements. F-9 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of accounting policies for The X-Change Corporation is presented to assist in understanding the Company's financial statements. The accounting policies conform to generally accepted accounting principles and have been consistently applied in the preparation of the financial statements. 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. Several conditions and events cast doubt about the Company's ability to continue as a "going concern". The Company has incurred net losses of approximately $132,000 for the period from October 4, 2000 (inception of development stage) to December 31, 2004, has a liquidity problem, and requires additional financing in order to finance its business activities on an ongoing basis. The Company is actively pursuing alternative financing and has had discussions with various third parties, although no firm commitments have been obtained. In the interim, shareholders of the Company have committed to meeting its minimal operating expenses. The Company's future capital requirements will depend on numerous factors including, but not limited to, its acquisition, rework, development and production of current and additional oil and gas producing properties. These financial statements do not reflect adjustments that would be necessary if the Company were 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 would be necessary to the carrying values of assets, the reported amounts of its liabilities, the reported expenses, and the balance sheet classifications used. F-10 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Organization and Basis of Presentation The Company was incorporated under the laws of the State of Delaware on February 5, 1969 as Diversified Technologies Group, Inc., the Company reincorporated and changed its domicile to the State of Nevada on October 4, 2000. The Company on December 1, 1999, entered into an agreement (Reorganization Agreement) to acquire all of the outstanding capital stock of S&J (Chatteris) Holdings Limited, a United Kingdom corporation (S&J Holdings). Pursuant to the Reorganization Agreement, the Company agreed to acquire all of the outstanding capital stock of S&J in exchange for shares of Common Stock. The Reorganization Agreement required S&J Holdings to perform certain conditions, including the delivery of audited financial statements. These conditions had not been fulfilled by February 14, 2000; therefore, the agreement was rescinded and deemed to have been void and of no effect from the beginning as if the acquisition had not occurred. All shares issued in the acquisition were returned to treasury. The Company also attempted two acquisitions in 2000, neither of which were able to deliver the required financial statements. The first was rescinded and the second was not consummated. In June 2001, the Company entered into a reorganization agreement that was later rescinded for failure to provide adequate compliance with the representations, warranties and covenants of the agreement. In July 2001, the Company changed its name to The X-Change Corporation. On January 15, 2002, the Company merged with WEBiX, Inc. This merger resulted in the Company acquiring the business and operations of WEBiX, in exchange for the issuance by the Company of a controlling interest in its shares to the former shareholders of WEBiX. On March 13, 2003, the Company repurchased its shares and disposed of WEBiX and reentered the development stage. On February 9, 2004, the Company formed a wholly owned subsidiary, AirGate Technologies, Inc. Subsequently on September 30, 2004 the Company sold 100% of its ownership in the Company to Michael Sheriff. In June 2004, the Company formed a new subsidiary, OIL ID Systems, Inc., which acquired thirty-eight wells in east Texas. As of December 31, 2004, OIL ID Systems, Inc. changed its name to Curado Energy Resources, Inc. On September 30, 2004, the Company entered into a share purchase agreement with Kolt Oil and Gas, a Texas Corporation, where it acquired the business, operations and prospects of Kolt Oil & Gas for 2,500,000 shares of common stock. Subsequently, the share purchase agreement with Kolt Oil and Gas was rescinded and the 2,500,000 shares were canceled. On March 11, 2005, the F-11 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Company issued 150,000 shares to acquire the Texas operator's license for oil and gas properties of Kolt Oil and Gas. Nature of Business On February 9, 2004, the Company formed a wholly owned subsidiary, AirGate Technologies, Inc., for the purpose of engaging in the development and acquisition of leading-edge wireless internet/networking technologies, principally RFID ("radio frequency identification"). In June 2004, the Company formed two wholly owned subsidiaries, Innovative Telecommunication Technologies, Inc. (ITT) and OIL ID Systems, Inc. The VoIP telephone systems being offered by the Company's ITT subsidiary allow traditional carriers and new voice entrants to build large distributed VoIP networks without central office equipment investment and architecture. The system is virtually a "plug-in" installation working with either LAN-based VoIP phones or PC-based softphones. Demand for radio frequency identification solutions by energy producers and oil field service companies led the Company to create OIL ID Systems as a compliment to its wholly owned subsidiary, AirGate Technologies, Inc. The level of demand for RFID systems in producing oil fields around the world is on the rise, and OIL ID Systems will assist AirGate Technologies in developing applications and aggressively capturing market share within this growing RFID market niche. As of December 31, 2004, OIL ID Systems changed its name to Curado Energy Resources, Inc. On September 30, 2004, the Company decided that the business plan of AirGate could not be advanced and decided to discontinue its efforts with this plan and disposed of AirGate. In connection with a share purchase agreement with Kolt Oil and Gas, the Company decided to look into the oil and gas industry. The Company's primary objective is to identify, acquire, and develop working interest percentages in smaller, underdeveloped oil and gas projects in Texas that do not meet the requirements of the larger producers and developers. Principals of Consolidation The consolidated financial statements include the accounts for The X-Change Corporation and its wholly owned subsidiaries Kolt Oil & Gas and Curado Energy Resources, Inc. (Formerly OIL ID Systems, Inc.) The results of subsidiaries acquired during the year are consolidated from their effective dates of acquisition. All significant intercompany accounts and transactions have been eliminated. On September 30, 2004, the AirGate Technologies was sold and thus is not included in the consolidation. F-12 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Cash and Cash Equivalents For the purpose of reporting cash flows, the Company considers all highly liquid debt instruments purchased with maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes. Oil and Gas Producing Activities The Company is in the development stage and has earned minimal revenues from its planned operations. It is primarily engaged in the acquisition, exploration, and development of oil and gas properties. The Company uses the full costs method of accounting for these activities. Under the full cost concept, all costs incurred in acquiring, exploring, and developing properties within a relatively large geopolitical (as opposed to geological) cost center (such as a country) are capitalized when incurred and are amortized as mineral reserves in the cost center are produced, subject to a limitation that the capitalized costs not exceed the value of those reserves. All costs incurred in oil and gas producing activities are regarded as integral to the acquisition, discovery, and development of whatever reserves ultimately result from the efforts as a whole, and are thus associated with the company's reserves. Concentrations of Credit Risk The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. Pervasiveness of Estimates The preparation of financial statements in conformity with generally accepted accounting principles required management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-13 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stock Compensation for Non-Employees The Company accounts for the fair value of its stock compensation grants for non-employees in accordance with FASB Statement 123. The fair value of each grant is equal to the market price of the Company's stock on the date of grant if an active market exists or at a value determined in an arms length negotiation between the Company and the non-employee. Earnings (Loss) per Share Basic loss per share has been computed by dividing the loss for the year applicable to the common stockholders by the weighted average number of common shares outstanding during the years. The effects of common stock equivalents are anti-dilutive and thus are not considered. NOTE 2 - INCOME TAXES As of December 31, 2004, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $669,000 that may be offset against future taxable income through 2024. Current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited. No tax benefit has been reported in the financial statements, because the Company believes there is a 50% or greater chance the carryforwards will expire unused. Accordingly, the potential tax benefits of the loss carryforwards are offset by a valuation allowance of the same amount. NOTE 3 - DEVELOPMENT STAGE COMPANY/GOING CONCERN The Company has just commenced its intended principal operations and as is common with a development stage of oil and gas extraction, the Company has had recurring losses. Continuation of the Company as a going concern is dependent upon obtaining the additional working capital necessary to be successful in its planned activity, and the management of the Company has developed a strategy, which it believes will accomplish this objective through current oil and gas production, additional equity funding and long term financing, which will enable the Company to operate for the coming year. NOTE 4 - COMMITMENTS As of December 31, 2004, all activities of the Company have been conducted by corporate officers from either their homes or business offices. Currently, there are no outstanding debts owed by the company for the use of these facilities and there are no commitments for future use of the facilities. F-14 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - PREFERRED STOCK The Company has authorized a total of 10,000,000 shares of Preferred Stock. Series A Convertible Preferred Stock is the initial series of Preferred Stock. This series shall consist of 5,000,000 shares with a par value of $.001. The Corporation is under no obligation to pay dividends or to redeem the Series A Convertible Preferred Stock. This series of stock is convertible into 10 shares of Common Stock at the option of the shareholder or upon automatic conversion. In the event of any liquidation, dissolution or winding-up of the Corporation, the holders of outstanding shares of Series A Preferred shall be entitled to be paid out of the assets of the Corporation available for distribution to shareholders, before any payment shall be made to or set aside for holders of the Common Stock, at an amount of $1 per share. As of December 31, 2004, there are no preferred shares issued. NOTE 6 - COMMON STOCK TRANSACTIONS On April 2, 2004, the Company issued 100,000 shares of common stock for consulting services. The shares were valued at $0.53 per share. On April 26, 2004, the Company's president surrendered his stock options contract for 12,000,000 common shares in exchange for the issuance of 4,000,000 shares of restricted common stock. The shares are restricted for 2 years. In connection with issuance of the shares, $15,000 was recorded as consulting expense. On September 30, 2004, the Company sold 100% of its AirGate, a wholly owned subsidiary, shares in exchange for return of 3,500,000 of its common shares. These shares were returned to treasury and subsequently canceled. On September 30, 2004, the Company entered into a share purchase agreement with Kolt Oil and Gas, a Texas Corporation, where it acquired the business, operations and prospects of Kolt Oil and Gas for 2,500,000 shares of common stock. Subsequently, the share purchase agreement with Kolt Oil and Gas was rescinded and the 2,500,000 shares were canceled. On March 11, 2005, the Company issued 150,000 shares to acquire the Texas operator's license for oil and gas properties of Kolt Oil and Gas. On November 23, 2004, the Company issued 1,000,000 shares of common stock for consulting services. The shares were valued at $0.001 per share. F-15 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - OIL AND GAS ACTIVITIES As of December 31, 2004, the Company had net revenues of $8,247 from its proven reserves in the East Texas property. As of December 31, 2004, $36,878 has been capitalized in connection with the exploration of unproven properties. NOTE 8 - CONTINGENCIES On September 30, 2004, the Company entered into a recision agreement with Michael Sheriff and AirGate Technologies, Inc. whereby 100% of AirGates stock owned by X-Change Corporation would be sold to Michael Sheriff in exchange for the return of 3,500,000 common shares of X- Change Corporation's stock. As part of the purchase price, X-Change Corporation is entitled to 15 percent of the net proceeds resulting from contracts with Standard Motor Products, Medtronics - Cranial and Spinal Division, Borden Chemical and proceeds from the sale or license of the Child Safety Seat technology. NOTE 9 - MERGER/ACQUISITION On January 15, 2002, the Company and its newly created wholly owned subsidiary X-Change Technologies Corp, merged with WEBiX, Inc. (a Florida Corporation). As a result, the Company acquired the business and operations of WEBiX, in exchange for the issuance of a controlling interest in The X-Change Corporations' shares to the former shareholders of WEBiX. Under the Plan of Merger, 24,000,000 shares of Common Stock, 4,000,000 shares of Series A Convertible Preferred Stock (convertible into 40,000,000 shares of Common Stock) and 40,000,000 warrants were issued. In addition, certain existing shareholders of the Company surrendered approximately 9,500,000 shares of Common Stock to treasury. In connection with this merger, the par value of the Series A Convertible Preferred Stock changed from $.01 to $.001. On March 13, 2003, the Company rescinded its agreement with X-Change Technologies. The rescission, essentially, resulted in the return of all X-Change Corporation's assets in exchange for the surrender of all securities held by the former X-Change Technologies shareholders in the F-16 THE X-CHANGE CORPORATION (A DEVELOPMENT STAGE COMPANY) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9 - MERGER/ACQUISITION (Continued) Company and the assumption by X-Change Technologies Corp. of all the Company's debt immediately prior to closing. The rescission effected a change in control over the business, policies and affairs of the Company from the X-Change shareholders to those shareholders holding securities in the Company prior to January 15, 2002. As a result, 15,062,000 shares of common stock and 5,000,000 shares of preferred stock were returned to treasury and the Company had 22,540,000 shares of common stock, which was the amount outstanding immediately prior to closing of the X- Change Technologies Corp. acquisition on January 15, 2002. All lock-up agreements pertaining to these shares were released effective with the closing. On September 30, 2004, the Company entered into a share purchase agreement with Kolt Oil and Gas, a Texas Corporation, where it acquired the business, operations and prospects of Kolt Oil and Gas for 2,500,000 shares of common stock. Subsequently, the share purchase agreement with Kolt Oil and Gas was rescinded and the 2,500,000 shares were canceled. On March 11, 2005, the Company issued 150,000 shares to acquire the Texas operator's license for oil and gas properties of Kolt Oil and Gas. F-17 SIGNATURES In accordance with 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) Dated: April 13, 2005 By:/s/ Charles Stidham ----------------------------------------- Charles Stidham, President and Chief Executive Officer (Principal Executive Officer) Dated: April 13, 2005 By:/s/ Scott Thompson ----------------------------------------- Scott Thompson, Chief Financial Officer (Principal Financial Officer)