10QSB 1 form10qsb063005.txt U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ------------ TO ------------. COMMISSION FILE NUMBER 002-41703 THE X-CHANGE CORPORATION (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) NEVADA 90-0156146 -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 100 ALLENTOWN PARKWAY, SUITE 110, ALLEN, TX 75002 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (972) 747-1206 ISSUER'S TELEPHONE NUMBER APPLICABLE ONLY TO CORPORATE ISSUERS STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON EQUITY, AS OF THE LATEST PRACTICAL DATE: AUGUST 12, 2005 25,572,000 TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE). YES ; NO X PART I ITEM 1. FINANCIAL STATEMENTS THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED BALANCE SHEETS
(Unaudited) June 30, December 31, 2005 2004 ------------------- -------------------- ASSETS Current Assets: Cash $ 91,453 $ 4,902 Accounts Receivable 146,891 - Salary Advance 2,030 - ------------------- -------------------- Total Current Assets 240,374 4,902 ------------------- -------------------- Fixed Assets: Office Equipment 1,057 - Less Accumulated Depreciation (53) - ------------------- -------------------- Net Fixed Assets 1,004 - ------------------- -------------------- Oil & Gas Properties Oil & Gas Properties 250,926 36,878 Less Depletion (2,839) - ------------------- -------------------- Net Oil & Gas Properties 248,087 36,878 ------------------- -------------------- TOTAL ASSETS $ 489,465 $ 41,780 =================== ====================
F-2 THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited) June 30, December 31, 2005 2004 ------------------- ------------------- LIABILITIES Current Liabilities: Accounts Payable and Accrued Liabilities $ 70,042 $ 42,292 Notes Payable 203,231 - Due to Shareholder 25,702 - ------------------- ------------------- Total Current Liabilities 298,975 42,292 ------------------- ------------------- TOTAL LIABILITIES 298,975 42,292 ------------------- ------------------- STOCKHOLDERS' EQUITY (DEFICIT) Preferred Stock, Par Value $.001, Series A Convertible - 5,000,000 Shares Authorized, 0 Issued at June 30, 2005 and December 31, 2004 - - Common Stock, Par value $.001, Authorized 100,000,000 Shares, Issued 14,922,000 and 14,752,000 at June 30, 2005 and December 31, 2004 14,922 14,752 Paid-In Capital 714,525 653,283 Retained Deficit (536,688) (536,688) Deficit Accumulated During Development Stage (2,269) (131,859) ------------------- ------------------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 190,490 (512) ------------------- ------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 489,465 $ 41,780 =================== ===================
See accompanying notes F-3 THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Cumulative Since October 4, 2000 For the Three Months Ended For the Six Months Ended Inception of June 30, June 30, Development 2005 2004 2005 2004 Stage ------------------ ----------------- ---------------- ---------------- ---------------- Revenues $ 58,895 $ - $ 126,956 $ - $ 164,395 Costs of Operations 29,694 - 38,476 - 67,668 ------------------ ----------------- ---------------- ---------------- ---------------- Net Operating Income 29,201 - 88,480 - 96,727 Expenses General & Administrative 45,715 128,014 55,019 152,074 136,810 ------------------ ----------------- ---------------- ---------------- ---------------- Net Loss from Continuing Operations (16,514) (128,014) 33,461 (152,074) (40,083) ------------------ ----------------- ---------------- ---------------- ---------------- Other Income (Expense) Interest Expense (1,716) (1,508) (3,933) (1,885) (3,933) Interest Income 62 - 62 - 62 Sale of Working Interest 100,000 - 100,000 - 100,000 Discontinued Operations Loss on Sale of AirGate - - - - (58,315) ------------------ ----------------- ---------------- ---------------- ---------------- Net Income (Loss) $ 81,832 $ (129,522)$ 129,590 $ (153,959)$ (2,269) ================== ================= ================ ================ ================ Earnings per Share, Basic & Diluted $ 0.01 $ (0.01) $ 0.01 $ (0.01) ================== ================= ================ ================ Weighted Average Shares Outstanding 14,922,000 15,972,010 14,922,000 14,496,848 ================== ================= ================ ================
See accompanying notes F-4 THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Cumulative Since October 4, 2000 For the Six Months Ended Inception of June 30 Development -------------------------------------- 2005 2004 Stage ------------------ ------------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ 129,590 $ (153,959) $ (2,269) Adjustments to reconcile net loss to net cash Provided by operating activities: Depreciation and Depletion 2,892 1,785 2,892 Stock Issued for Services 1,000 68,000 5,150 Net Loss from Discontinued Operations - - 58,315 Change in Operating Assets and Liabilities: (Increase) Decrease in Deposits - (2,500) - (Increase) Decrease in Employee Advances (2,030) (433) (2,030) (Increase) Decrease in Accounts Receivable (107,837) - (107,837) Increase (Decrease) in Accounts Payable 27,750 164 99,137 Increase (Decrease) in Accrued Interest 3,933 1,885 3,933 ------------------ ------------------ ----------------- Net Cash Used in Operating Activities 55,298 (85,058) 57,291 Net Cash Used in Discontinued Activities - - 6,685 ------------------ ------------------ ----------------- Net Cash Used in Operating Activities 55,298 (85,058) 63,976 ------------------ ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Oil & Gas Property Interest (253,102) - (289,980) Purchase of Office Equipment (1,057) (9,979) (1,057) Sale of Office Equipment - 950 - Purchase of Furniture and Fixtures - (5,000) - ------------------ ------------------ ----------------- Net Cash Provided by Investing Activities (254,159) (14,029) (291,037) ------------------ ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Loans 200,000 - 200,000 Proceeds from Shareholder Loan 25,000 99,125 25,000 Capital Contributed 60,412 - 93,514 ------------------ ------------------ ----------------- Net Cash Provided by Financing Activities 285,412 99,125 318,514 ------------------ ------------------ ----------------- Net (Decrease) Increase in Cash 86,551 38 91,453 Cash at Beginning of Period 4,902 - - ------------------ ------------------ ----------------- Cash at End of Period $ 91,453 $ 38 $ 91,453 ================== ================== =================
F-5 THE X-CHANGE CORPORATION (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)
Cumulative Since October 4, 2000 For the Six Months Ended Inception of June 30, Development -------------------------------------- 2005 2004 Stage ------------------ ------------------ ----------------- 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 -----------------------------------------------------------------------
See accompanying notes F-6 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of accounting policies for The X-Change Corporation (A Development Stage Company) 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 $539,000 for the period from October 4, 2000 (inception of development stage) to June 30, 2005. The Company's general business strategy is to acquire interests in emerging opportunities that the Company believes will generate significant revenues and return a profit to shareholders. In the oil and gas industry, the Company will continue to evaluate its prospects and opportunities, and if feasible, these properties will be developed or will be sold at a profit to the Company. The continued operations of the Company and the recoverability of oil and gas property acquisition, exploration and development costs is dependent upon the existence of economically recoverable reserves and the ability of the Company to obtain financing to complete the development of those reserves, and upon future profitable production. To date, the Company has not generated significant revenues from operations and will require additional funds to meet its obligation and the costs of its operations. As a result, significant losses are anticipated prior to the generation of any revenues. The Company is planning additional ongoing equity financing by way of private placements to fund its obligations and operations. The Company's future capital requirements will depend on many factors, including costs of exploration of the properties, cash flow from operations, costs to complete well production, if warranted, and competition and global market conditions. The Company's anticipated recurring operating losses and growing working capital needs may require that it obtain additional capital to operate its business. Further, the Company does not have sufficient funds on hand to complete the exploration of the properties. F-7 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The Company will depend almost exclusively on outside capital to complete the exploration and development of the oil and gas properties. Such outside capital will include the sale of additional stock and may include commercial borrowing. There can be no assurance that capital will be available as necessary to meet these continuing exploration and development costs or, if the capital is available, that it will be on terms acceptable to the Company. The issuances of additional equity securities by the Company may result in a significant dilution in the equity interests of its current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase the Company's liabilities and future cash commitments. If the Company is unable to obtain financing in the amounts and on terms deemed acceptable, the business and future success may be adversely affected. 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. Interim Reporting The unaudited financial statements as of June 30, 2005 and for the three and six month period then ended, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and results of operations for the three and six months. Operating results for interim periods are not necessarily indicative of the results which can be expected for full years. 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 F-8 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 rescinded the agreement with 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 & 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 & 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 & Gas. F-9 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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 the oil and gas industry around the world is on the rise, and OIL ID Systems was created to assist AirGATE Technologies in developing contacts and 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 sold AirGATE to Michael L. Sheriff. In connection with a share purchase agreement with Kolt Oil & Gas, because of continued rising oil and gas demand and prices, the Company decided to investigate opportunities in 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 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-10 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 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 Properties The Company follows the full cost method of accounting for its oil and gas properties. Accordingly, all costs related to the acquisition, exploration, development of oil and gas reserves, including related overhead costs and related asset retirement costs, are capitalized. Such costs include land and lease acquisition costs, annual carrying charges of non-producing properties, geological and geophysical costs, costs of drilling and equipping productive and non-productive wells, and direct exploration salaries and related benefits. Proceeds from the disposal of oil and gas properties are recorded as a reduction of the related capitalized costs without recognition of a gain or loss unless the disposal would result in a change of 20 percent or more in the depletion rate. The Company operates in one cost center, being the United States. Depletion and depreciation of the capitalized costs are computed using the unit-of-production method based on the estimated proven reserves of oil and gas determined by independent consultants. Estimated future removal and site restoration costs are provided over the life of proven reserves on a unit-of-production basis. Costs, which include the cost of production equipment removal and environmental clean-up, are estimated each period by management based on current regulations, costs, technology and industry standards. The charge is included in the provision for depletion and depreciation and the actual restoration expenditures are charged to the accumulated provision amounts as incurred. Total depletion expense for the six months ended June 30, 2005 and 2004 was $2,839 and $0, respectively. The Company applies a ceiling test to capitalized costs to ensure that such costs do not exceed estimated future net revenues from production of proven reserves at year end market prices less future production, administrative, financing, site restoration, and income tax costs plus the lower of cost or estimated market value of unproved properties. If capitalized costs are determined to exceed estimated future net revenues, a write-down of carrying value is charged to depletion in the period. F-11 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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. Income Taxes The Company follows the liability method of accounting for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax balances. Future tax assets and liabilities are measured using enacted or substantially enacted tax rates expected to apply to the taxable income in the years in which those differences are expected to be recovered or settled. The effect on future tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. As at December 31, 2004, the Company had net operating loss carryforwards; however, due to the uncertainty of realization the Company has provided a full valuation allowance for the deferred tax assets resulting from these loss carryforwards. F-12 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Earnings (Loss) per Share Basic earnings (loss) per share has been computed by dividing the income (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. Future tax benefits which may arise as a result of these losses and resource deductions have not been recognized in these financial statements, as their realization is determined not likely to occur. 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 Through March 31, 2005, all activities of the Company had been conducted by corporate officers from either their homes or business offices. In April 2005, the Company entered into a lease agreement with AirGATE Technologies, Inc. to share office space on a month-to-month basis. Currently, there are no outstanding debts owed by the company for the use of these facilities. F-13 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 5 - LINE OF CREDIT / NOTE PAYABLE - SHAREHOLDER During January, 2005, a shareholder extended to the Company an unsecured line of credit for up to $500,000. The credit line carries interest at the existing prime rate. As of June 30, 2005, the Company owed $25,702, against this line of credit and is reported along with accrued interest in the accompanying financial statements as Due to Shareholder. NOTE 6 - NOTE PAYABLE As of June 30, 2005, the Company received a short term loan of $200,000, with interest at 8 percent. As of June 30, 2005, accrued interest on this loan was $3,231. NOTE 7 - 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 June 30, 2005, there are no preferred shares issued. NOTE 8 - 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. F-14 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 8 - COMMON STOCK TRANSACTIONS (Continued) 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 & 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 & 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 & 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. As of March 31, 2005, the Company issued 100,000 shares of restricted common stock to an outside investor for $1. As of March 31, 2005, the Company issued 70,000 shares of restricted common stock for consulting services. In connection with issuance of the shares, $1,000 was recorded as consulting expense. NOTE 9 - OIL AND GAS ACTIVITIES Currently, the Company has two wholly-owned subsidiaries, Curado Energy Resources, Inc., which presently owns 55 wells in East Texas and which was formerly known as OIL ID systems, and Kolt Oil & Gas, Inc., which is licensed to operate oil and gas properties in Texas. 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. For the three and six months ended June 30, 2005, the Company had net revenues of $58,895 and $126,956, respectively, from its proven reserves in the East Texas property. As of June 30, 2005, $250,926 has been capitalized in connection with the exploration of unproven properties. F-15 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 10 - CONTINGENCIES On September 30, 2004, the Company entered into an agreement with Michael Sheriff and AirGATE Technologies, Inc. whereby 100% of AirGATE's 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 then in development in the automotive, medical instrument, aerospace and oil exploration services industries. NOTE 11 - 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 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 now has 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 & 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 & 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 & Gas. F-16 THE X-CHANGE CORPORATION (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 12 - SALE OF WORKING INTEREST On June 6, 2005, the Company gave Flag Energy Resources, Inc. the exclusive rights to market a portion of the Company's properties in East Texas for a period of 90 days upon depositing $100,000. NOTE 13 - SUBSEQUENT EVENTS On July 20, 2005, the Company reacquired AirGATE Technologies, Inc. for 10,000,000 restricted shares of common stock. See Form 8K filed with the Securities and Exchange Commission dated July 28, 2005 for more information. After the AirGATE acquisition, the Company issued 650,000 shares of restricted common stock to consultants of AirGATE Technologies, Inc. In connection with issuance of the shares, $130,000 was recorded as consulting expense. F-17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION This discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's annual report on Form 10-KSB for the year ended December 31, 2004. PLAN OF OPERATION The Company's primary focus is to acquire interests in emerging opportunities that the Company believes will generate significant revenues and return a profit to shareholders. In the oil and gas industry, the Company will continue to evaluate its prospects and opportunities. If feasible, these properties will be developed or will be sold at a profit to the Company. The Company intends to utilize its oil and gas contacts to market its AirGATE developed technology to the oil and gas industry where AirGATE already holds a significant contract. 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 advanced technology plays and companies whose business plans and operations are complementary to the Company's future growth; - Consolidating redundant functions, such as operations, billing and accounting and customer support; - Partnering with other companies that can provide leverage for the Company's activities; - Joining industry organizations to highlight the Company's technology solutions. Currently the Company has two wholly-owned subsidiaries, Curado Energy Resources, Inc., which presently owns 55 wells in East Texas and which was formerly known as OIL ID systems, and Kolt Oil & Gas, Inc., which is licensed to operate oil and gas properties in Texas. The Company, through Curado, has as its objective the development of its current properties through biochemical treatment and well deepening efforts. 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. In April 2005, the Company was contacted by agents of the Royal Government of Cambodia regarding onshore and offshore oil and gas research and exploration rights in Cambodia. F-18 Representatives of the company traveled to Cambodia to evaluate the opportunity, and plans were made to open a Cambodian office pending approvals. Based upon the opportunities presented to the Company in Cambodia, X-Change Corporation has facilitated a Memorandum of Understanding ("MOU") between KD Power Group Co., Ltd. of the Kingdom of Cambodia and Boca Shipping Ltd., a Bahamian company for a coal mining exploration and production project for the Ang Long Veng District in Cambodia. For its part, the X-Change Corporation will receive a 5% share of the interests of Boca Shipping Ltd. PARAGONE BIO-TECHNOLOGY: Since the fourth quarter of 2004, Curado has been evaluating 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 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. 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 management believes deepening is economically feasible. The Company is focusing on enhanced recovery technologies that will allow it to maximize the potential of its current holdings. MANAGEMENT CHARLES STIDHAM He 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. Mr. Stidham resigned as Chief Executive Officer and Chairman immediately after the AirGATE reacquisition. MICHAEL SHERIFF Mr. Sheriff joined the Company immediately after the acquisition of AirGATE Technologies as Chariman and Chief Executive Officer. Michael Sheriff, president and chief executive officer, has over thirty-five years of experience in the computer and telecommunications industry. In 1998 Mr. Sheriff founded Net Access Exchange, Inc., F-19 dba YPAY. YPAY was a new Internet media network that provided advertisers with a unique and compelling value proposition to reach consumers via the Internet through use of broadband-like rich media over dial-up connections - the first broadband over narrowband advertising and entertainment network, providing TV-like advertising without compromising or interfering with the user's Internet connection. YPAY utilized a patented message delivery system to harness the power of the Internet with multi-media and market-targeting capabilities not available in any other advertising medium. In 1995, Mr. Sheriff founded CyberQuest -- a full-service Internet development company -- focusing its efforts on Internet commerce in the business-to-business marketplaces. Under Mr. Sheriff's leadership, the company's Internet e-commerce flagship, bid4it, was developed utilizing a revolutionary new, patent pending "bid-and-ask" matching technology. The site was launched in 1997 as one of the first commodity trading Internet applications. Mr. Sheriff sold CyberQuest in October 1998 to a NASD OTC:BB listed company. He then served as CEO of the public company, CBQ, Inc., as well as being Chairman of the company's Board of Directors. In 1994, Mr. Sheriff founded and developed Good Stuff Cheap (GSC), a first to market Internet- based retail site. The company was the first to use intelligent shopping agents and was featured in Wired Magazine in December 1994, GSC was also featured on the Discovery Channel in December 1996. Mr. Sheriff is also the former founder, President and CEO of ActionFax International, Inc. Action Fax operates one of the largest public fax/Internet kiosk networks in the world with locations in most world airports. Prior to ActionFax, Mr Sheriff was the founder and President of First National Computer Corporation, which pioneered the rental of personal computers. Under his direction, First National Computer became one of the largest PC rental firms in the United States. Mr. Sheriff has held senior sales, marketing and management positions with National Semiconductor, Northern Telecom, SYCOR, Inc. and SINGER. DEAN ELLIOTT Mr. Elliott served as the interim President for the Company during the second quarter until his resignation on July 20, 2005. Mr. Elliott holds a Bachelor of Arts from the University of Texas. Mr. Elliot has over 25 years experience in the oil and gas industry. The first 15 years was spent in the crude oil marketing division of Tesoro Petroleum Corp. (NYSE), Mitsuri & Co. (NYSE) subsidiary of Avant Petroleum and Adams Resources, Inc. (AMEX) subsidiary Gulfmark Energy, Inc. where the negotiation purchase and sales and logistics movements of millions of barrels of oil. From 1991 to present, Mr. Elliott has acted as president of independent oil companies, Kolt Oil & Gas, Inc. and PRL Oil Company, Inc. His responsibilities include seeking, securing, and overseeing exploration porjects, producing oil and gas property acquisition, rasing necessary capital from private investors, supervision of pumpers, field personnel, administrative staff dealing with entering into contracts and F-20 all other aspects of operations from prospects to pipeline. ROBERT BARBEE Mr. 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 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 Mr. Thompson joined the Company in the final quarter of 2004. He graduated from 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 Mr. 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. F-21 WILLIAM (BILL) BOTTO Mr. 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. CURADO ENERGY RESOURCES, INC. In June 2004, the Company formed a new subsidiary, Curado Energy Resources, Inc. (formerly OIL ID Systems, Inc.). Curado Energy Resources, Inc. is an independent oil & gas exploration and production company with headquarters in Dallas, Texas. The principals involved in the company have 25 years of experience in the marketing of and exploration for petroleum products and services. RESULTS OF OPERATIONS The Company had $45,715 and $128,014 in general and administrative expenses for the three month ended June 30, 2005 and 2004, respectively. For the quarters ended June 30, 2005 and 2004, the Company had $58,895 and $0 in revenues, respectively. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2005, the Company had total current assets of $240,374 and total assets of $489,465 as compared to $4,902 current assets and $41,780 total assets at December 31, 2004. The Company had a net working capital (deficit) of ($58,601) at June 30, 2005 and ($37,390) at December 31, 2004. Net stockholders' equity (deficit) in the Company was and $190,490 as of June 30, 2005 and ($512) at December 31, 2004. The Company continues to seek strategic alternatives, including discussions with joint venture partners and investors. During January 2004, the Company signed a revolving line of credit promissory note for $500,000 with certain shareholders. The accompanying quarterly 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. F-22 ITEM 3. CONTROLS AND PROCEDURES The Company's Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company. (a) Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's President, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon the evaluation, the Company's President concluded that, as of the end of the period, the Company's disclosure controls and procedures were effective in timely alerting him to material information relating to the Company required to be included in the reports that the Company files and submits pursuant to the Exchange Act. (b) Changes in Internal Controls Based on this evaluation as of June 30, 2005, there were no significant changes in the Company's internal controls over financial reporting or in any other areas that could significantly affect the Company's internal controls subsequent to the date of his most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES 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 F-23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 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 second quarter of 2005: On July 20, 2005, The X-Change Corporation acquired all the outstanding shares of AirGATE Technologies, Inc., pursuant to the Stock Purchase Agreement between Michael L. Sheriff and the Company. This transaction of detailed in the 8K filing dated July 27, 2005 and filed July 28, 2005. F-24 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE X-CHANGE CORPORATION (Registrant) DATE: August 15, 2005 By:/s/ Michael L. Sheriff ------------------------- Michael L. Sheriff, Chief Executive Officer (Principal Executive Officer) DATE: August 15, 2005 By:/s/ Scott R. Thompson ------------------------ Scott R. Thompson, Chief Financial Officer (Principal Financial Officer) F-25