10KSB 1 form10ksb123105.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, 2005 [ ] 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.) 710 Century Parkway Allen, TX 75013 (Address of principal executive offices)(Zip Code) (972) 747-0051 (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] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ] State issuer's revenues for its most recent fiscal year: $567,238 As of March 31, 2006, there were approximately 27,222,000 shares of Common Stock outstanding, of which 20,522,000 were held by non-affiliates. The aggregate market value of Common Stock (based upon the closing price on March 31, 2006) held by non-affiliates was approximately $8,208,800. 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... 7 ITEM 7. Financial Statements................................................. 7 ITEM 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................................... 8 ITEM 8a. Controls and Procedures..................................... 8 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.......................11 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 originally 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 furthering the business interest of the most recent acquisition, AirGATE Technologies, Inc. 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. In June 2004, the Company formed a new subsidiary, OIL ID Systems, Inc., which subsequently acquired 38 wells in east Texas and is headquartered in Allen, TX. This subsidiary subsequently changed its name to Curado Oil & Gas. The principals involved in this subsidiary have 25 years of experience in the marketing of and exploration for petroleum products and services. On November 1, 2005, substantially all of the assets of Curado were sold to a local oil and gas producer in order to further the business development of AirGATE Technolgies, Inc. 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. In September 2004, AirGATE, which was previous owned by the company, was sold to Michael L. Sheriff. At that time, the Company retained a 15% revenue interest in projects that AirGATE held at the time. On July 20, 2005, the Company reacquired AirGATE Technologies, Inc. for 10,000,000 shares of restricted common stock. PRESENT BUSINESS MODEL: The Company's business model is now primarily focused on furthering the success of the wholly owned subsidiary AirGATE Technologies, Inc. AirGATE Technologies, Inc. is an early-stage company and is a leading provider of wireless solutions utilizing radio frequency identification (RFID), 802.15.4 (Zigbee) low power, mesh-based networks and SAW (surface acoustic wave) technologies. It is expected that these markets will exceed $6 billion dollars by 2008 and provide the Company with upside potential as the RFID markets continue to mature. AirGATE Technologies, Inc., a leader in unique applications utilizing RFID and wireless, intelligent, sensor technology, is a full-solution company that handles business assessment, technology selection, including proprietary AirGATE technology, and integration and support. The Company has, in an environment of technology cost compression, built a stable of technology partners that are best in class and span a wide range of solutions to support small, medium and large enterprises. AirGATE is a founding member of the DFW-based RFID HUB. 3 The AirGATE mission is to provide customers with innovative technology solutions, such as Radio Frequency Identification (RFID), that are the product of inventive minds melding superior technical skills with outside-the-box thinking and state-of-the-art technologies. AirGATE builds its portfolios of products and services around a simple concept; provide the customer with truly exceptional value and AirGATE is assured of an exceptional return. AirGATE provides customers with solutions tailored to their specific needs; products and services of unsurpassed convenience, performance and reliability that are an uncommon value. AirGATE's current applications include prison inmate collect call verification, child safety seat buckle status, product authentication, real-time location systems, remote oil and gas well monitoring and proprietary oil industry solutions. AirGATE holds several lucrative development contracts. These companies include Hexion Specialty Chemical, Securus Technologies, Inc. and Hitachi America, Ltd. Based in Columbus, Ohio, Hexion Specialty Chemicals combines the former Borden Chemical, Bakelite, Resolution Performance Products and Resolution Specialty Materials companies into the global leader in thermoset resins. Hexion serves the global wood and industrial markets through a broad range of thermoset technologies, specialty products and technical support for customers in a diverse range of applications and industries. Hexion Specialty Chemicals is owned by an affiliate of Apollo Management, L.P. Additional information is available at www.hexion.com. For the year ended December 31, 2005, Hexion Specialty Chemicals posted total revenue of $4.5 Billion. SECURUS Technologies is the country's largest independent supplier of detainee telecommunications and information management solutions, serving over 3,100 correctional facilities nationwide. A recognized leader in providing comprehensive, innovative technical solutions and responsive customer service, SECURUS' sole focus is the specialized needs of the corrections and law enforcement communities. SECURUS is headquartered in Dallas, Texas, with offices in Selma, Alabama; Raleigh, North Carolina; Brantford, Ontario; Belleville, Ontario, and has application redundancy backup systems in Allen, Texas and Irving Texas. Please visit: http://www.securustech.net. Hitachi America, Ltd., a subsidiary of Hitachi, Ltd., markets and manufactures a broad range of electronics, computer systems and products, and consumer electronics, and provides industrial equipment and services throughout North America. For more information, visit http://www.hitachi.us. AirGATE's is currently focused on creating development contracts with high profile corporations. The development contracts create immediate cash flow for the company. However, the key to the long-term success of the Company is the built-in recurring revenue stream. Each relationship establishes a recurring revenue stream whereby AirGATE is paid a portion of the corporate partners revenue stream generated utilizing the AirGATE developed technologies upon commercialization. AirGATE currently has several patents pending on its technology and will continue to file additional patents to protect its intellectual property. AirGATE Technologies' business model is strengthened by several key differentiators that sets it apart from its competition. AirGATE's focus is to create long-term shareholder value by: (1) Pursuing intelligent, opportunistic, wireless and RFID applications in vertical industries that generate recurring revenue; (2) Partnering with other wireless and RFID solution providers, both hardware and software; (3) Partnering with industry organizations, highlighting AirGATE's wireless solutions; (4) Partnering with strategic vendors and manufacturers; and (5) continue building a recognizable brand identity for the Company. The founders of AirGATE Technologies have over 125 years accumulated expertise in Radio Frequency (RF) solutions, services, middleware and network management systems including: >> Supply Chain Management >> Wireless and RF Engineering >> System Integration 4 >> Network Management Systems >> Enterprise Databases >> Microsoft and UNIX Environments The team has a mix of financial, technical, network, and wireless backgrounds as well as a strong emphasis on operations and marketing with such companies as Northern Telecom, Texas Instruments, Sprint, MCI, Motorola, ActionFax International, Inc., and Ericsson. All are seasoned entrepreneurs ITEM 2 DESCRIPTION OF PROPERTY The executive offices of the Company, as of the date this report, are located at 710 Century Parkway Allen, TX 75013. The Company entered into a long-term lease arrangement for this space on November 1, 2005. The telephone number at this address is (972) 747-0051. ITEM 3 LEGAL PROCEEDINGS On January 11, 2006, The Company commenced legal action against former employee James E. Flowers, Logix Consulting, Inc. and WaveTrac, Inc. As the Plaintiff, the Company seeks temporary and permanent injunctive relief and damages against the Defendants as a result of their unlawful and malicious breach of contract (violation of non disclosure provisions); breach of fiduciary duty, misappropriation of trade secrets and other proprietary information; tortuous interference with prospective business relationships; and conversion. As part of the legal action, the Company is demanding the return of 4,250,000 shares of restricted common stock issued to Mr. Flowers. 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, 2005. PART II ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Principal Market and Sales Prices for Common Stock: As of March 15, 2006, there were 27,222,000 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 2005 2004 ---- ---- ----------------------------------------------------------------- High Low High Low ----------------------------------------------------------------- First Quarter $2.35 $1.26 $0.95 $0.05 ----------------------------------------------------------------- Second Quarter $2.25. $0.48 $0.62 $0.31 ----------------------------------------------------------------- Third Quarter $0.88 $0.25 $0.39 $0.12 ----------------------------------------------------------------- Fourth Quarter $0.85 $0.30 $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 December 31, 2003, certain shareholders contributed back to capital. On March 15, 2004, the Company acquired furniture and fixtures totaling $9,000 for 15,000 shares of common stock. The Company issued these shares on August 12, 2005. 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 business, operations and prospects of Kolt Oil and Gas. On November 23, 2004, the Company issued 1,000,000 shares of restricted common stock for consulting services. The shares were valued at $0.001 per share. On January 11, 2005, the Company issued 1,120,000 shares of restricted common stock for consulting service. In connection with the issuance of the shares, $84,000 was recorded as consulting expense. On of March 31, 2005, the Company issued 100,000 shares of restricted common stock to an outside investor for $1.00. On 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. On July 20, 2005, the Company reacquired AirGATE Technologies, Inc. for 10,000,000 restricted shares of common stock. 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 a one time consulting expense. 6 On November 11, 2005, the Company issued 20,000 restricted common stock to engineer employees of the Company. In connection with issuance of the shares, $1,500 was recorded as consulting expense. On January 5, 2006, the Company issued 10,000 restricted common stock to a consultant of the Company On January 5, 2006, the Company issued 500,000 shares of restricted common stock, $.001 par value, to Hexion Specialty Chemical, Inc. as consideration for Hexion's expected $219,180 increase in development costs and AirGATE's expected $219,180 decrease in development costs of the development contract between Hexion and AirGATE which was finalized in the first week of 2006. 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. In November 2005, the Company sold the majority of the oil and gas leases and ceased oil and gas operations. The sale of the assets for $500,000 produced a one-time gain of approximately $169,000. The proceeds were utilized to reduce certain liabilities as well as create operating capital for the furtherance of the operations of the Company's wholly owned subsidiary, AirGATE Technologies which was reaquired in July of 2005. As is common with development stage companies, the Company has had recurring losses from operations since inception and had a deficit at year-end. Through current operations, the asset sale, development contracts and shareholder loans, the company has been able to maintain its operations in an orderly fashion. PLAN OF OPERATION: The Company's present business model is focused on the continued development AirGATE Technologies' business model and is strengthened by several key differentiators that set it apart from its competition. AirGATE Technologies' focus is to create long-term shareholder value by: (1) Pursuing intelligent, opportunistic, wireless and RFID applications in vertical industries that generate recurring revenue; (2) Partnering with other wireless and RFID solution providers, both hardware and software; (3) Partnering with industry organizations, highlighting AirGATE's wireless solutions; (4) Partnering with strategic vendors and manufacturers; and (5) Building a recognizable brand identity for AirGATE in the RFID arena. RESULTS OF OPERATIONS: The Company had revenues of 37,439 and 567,238 for the years ended December 31, 2004 and 2005, respectively. The Company has realized a net loss from operations of $495,957 since entering the development stage in Ocrtober 2000. Since October 4, 2000, the Company has been a development stage company and had not begun principal operations. Accordingly, comparisons with prior periods are not meaningful. The Net Loss for December 31, 2004 was $73,823 while the Net Loss for December 31, 2005 was $364,098. Approximately $216,000 of one time non cash expenses are included in the loss. LIQUIDITY AND CAPITAL RESOURCES: During 2005 the Company generated and used cash through operating activities, the sale of the oil and gas assets, and financing activities As of December 31, 2005, the Company had a net working capital deficit of approximately $249,297. 7 ITEM 7 FINANCIAL STATEMENTS The financial statements of the Company as of and for the years ended December 31, 2005 and December 31, 2004 are included immediately preceding the signature page to this Report. See Item 13 for a list of the financial statements and 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 and its principal subsidiary, AirGATE Technologies, Inc., have concluded that the X-Change Corporation'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. There were no significant changes in the X-Change Corporation's 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. 8 -------------------------- --------- ------------------------------------------- NAME AGE POSITIONS HELD -------------------------- --------- ------------------------------------------- Michael L. Sheriff 60 President, CEO and Chairman of the Board -------------------------- --------- ------------------------------------------- Robert Barbee 35 Vice President of Operations -------------------------- --------- ------------------------------------------- Scott R. Thompson 43 CFO, Treasurer, Secretary -------------------------- --------- ------------------------------------------- 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. MICHAEL L. 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., 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. 9 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 obtained the distributorship for micro chemical applications for 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 that focuses principally on the aviation and oil and gas industries. SCOTT R. 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 privately owned and emerging businesses as well as multinational corporations in the private and public sectors. 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. 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 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 does not owe any compensation to executive officers for the year ended December 31, 2005. 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. 10 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, 2006, 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 OF BENEFICIAL OWNER NUMBER OF SHARES (1) PERCENT OF CLASS Michael Sheriff 5,450,000 20.02% Robert Barbee 1,000,000 3.67% Scott R. Thompson 250,000 0.92% James Flowers 4,250,000(2) 15.61% All directors and executive officers 6,700,000 24.61% as a group (3 persons) ---------------------- (1) Based upon 27,712,000 shares of Common Stock outstanding on March 31, 2006. (2) Currently subject to litigation ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. 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. 11 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 during 2005: July 28, 2005 Stock Purchase Agreement for the acquisition of AirGATE Technologies, Resignation of Charles Stidham and Press Release. September 9, 2005 Termination of Jim Flowers, Chief Operating Officer November 4, 2005 Material Agreement, 62 month lease agreement on Current office space. January 3, 3006 Material Agreement, contract with Hexion Specialty Chemicals 12 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, 2005 and 2004: Service 2005 2004 ------------------------------ ------------- ------------- Audit Fees $ 14,600 $ 5,865 Audit-Related Services - - Tax Fees 130 130 All Other Fees - - ------------- ------------- Total $ 14,730 $ 5,995 ============= ============= 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 2004 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. 13 THE X-CHANGE CORPORATION -:- INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2005 AND 2004 F-1 CONTENTS Page Independent Auditor's Report....................................F - 1 Consolidated Balance Sheets December 31, 2005 and 2004....................................F - 3 Consolidated Statements of Operations For the Years Ended December 31, 2005 and 2004................F - 4 Consolidated Statement of Stockholders' Equity For the Years Ended December 31, 2005 and 2004................F - 5 Consolidated Statements of Cash Flows For the Years Ended December 31, 2005 and 2004...............F - 10 Notes to Consolidated Financial Statements.....................F - 11 INDEPENDENT AUDITOR'S REPORT The X-Change Corporation & Subsidiaries We have audited the accompanying consolidated balance sheets of The X-Change Corporation as of December 31, 2005 and 2004, and the related consolidated statements of operations, cash flows and statement of stockholders' equity for the years ended December 31, 2005 and 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 as of December 31, 2005 and 2004 and the results of its operations and its cash flows for the years ended December 31, 2005 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 17, 2006 F-2 THE X-CHANGE CORPORATION CONSOLIDATED BALANCE SHEETS
December 31, 2005 2004 ------------------- -------------------- ASSETS: Current Assets Cash $ 10,505 $ 4,902 Deposits 10,270 - Employee Advances 338 - ------------------- -------------------- Total Current Assets 21,113 4,902 ------------------- -------------------- Fixed Assets Computer Equipment 13,453 - Furniture and Fixtures 30,173 - Less Accumulated Depreciation (11,432) - ------------------- -------------------- Total Fixed Assets 32,194 - ------------------- -------------------- Oil & Gas Properties, Using Full Costs Method Oil & Gas Exploration Costs 4,569 36,878 ------------------- -------------------- Total Oil & Gas Properties 4,569 36,878 ------------------- -------------------- Total Assets $ 57,876 $ 41,780 =================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities Accounts Payable $ 103,253 $ 42,292 Accrued Expenses 11,415 - Loan from Shareholders 155,742 - ------------------- -------------------- Total Current Liabilities 270,410 42,292 ------------------- -------------------- Stockholders' Equity Preferred Stock, Par Value $.001, Series A Convertible - 5,000,000 Shares Authorized, 0 Issued at December 31, 2005 and 2004 - - Common Stock, Par value $.001, Authorized 100,000,000 Shares, Issued 26,712,000 and 14,752,000 at December 31, 2005 and 2004 26,712 14,752 Paid-In Capital 793,399 653,283 Retained Deficit (1,032,645) (668,547) ------------------- -------------------- Total Stockholders' Equity (212,534) (512) ------------------- -------------------- Total Liabilities and Stockholders' Equity $ 57,876 $ 41,780 =================== ====================
The accompanying notes are an integral part of these financial statements. F-3 THE X-CHANGE CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, --------------------------------------- 2005 2004 ------------------- ------------------ Revenues $ 400,983 $ - Oil Revenues 166,255 37,439 ------------------- ------------------ Total Revenue 567,238 37,439 Costs of Operations 248,370 29,192 ------------------- ------------------ Net Operating Income 318,868 8,247 Expenses General & Administrative 824,703 82,070 ------------------- ------------------ Net Loss from Operations (505,835) (73,823) ------------------- ------------------ Other Income Interest, Net (27,496) - Gain on Sale of Oil Wells 169,233 - ------------------- ------------------ Total Other Income 141,737 - ------------------- ------------------ Net Income (Loss) $ (364,098) $ (73,823) =================== ================== Earnings per Share, Basic & Diluted $ (0.02) $ (0.01) =================== ================== Weighted Average Shares Outstanding 20,740,027 16,295,835 =================== ==================
The accompanying notes are an integral part of these financial statements. F-4 THE X-CHANGE CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
Preferred Stock Common Stock Paid-In Retained Shares Par Value Shares Par Value Capital Deficit ---------- -------- ---------------- ----------------- ----------------- ----------------- Balance at December 31, 2003 - $ - 13,002,000 $ 14,752 $ 653,283 $ (594,724) Shares issued for services - - 5,100,000 5,100 63,900 - Stock exchanged - - 150,000 150 - - Shares canceled - - (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 (668,547) Shares issued for consulting - - 1,200,000 1,120 82,880 - Shares issued for cash - - 100,000 100 99,900 - Shares issued for consulting - - 70,000 70 930 - Shares exchanged for AirGate - - 10,000,000 10,000 (174,424) - Shares issued for consulting - - 650,000 650 129,350 - Shares issued for consulting - - 20,000 20 1,480 - Net Income (Loss) - - - - - (364,098) ---------- -------- ---------------- ----------------- ----------------- ----------------- Balance at December 31, 2005 - $ - 26,792,000 $ 26,712 $ 793,399 $ (1,032,645) ========== ======== ================ ================= ================= =================
The accompanying notes are an integral part of these financial statements. F-5 THE X-CHANGE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31, ------------------------------------- 2005 2004 ------------------ ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $ (364,098) $ (73,823) Adjustments to reconcile net loss to net cash Provided by operating activities: Stock Issued for Services 216,500 4,150 Depreciation and Amortization 11,432 - Net Loss from Discontinued Operations - 58,315 Decrease (Increase) in Deposits (10,270) - Decrease (Increase) in Employees Advances (338) - Increase (Decrease) in Accounts Payable 60,961 41,366 Increase (Decrease) in Accrued Expenses 11,415 - ------------------ ----------------- Net Cash Used in Operating Activities (74,398) 30,008 Net Cash From Discontinued Activities - 6,685 ------------------ ----------------- Net Cash Used in Operating Activities (74,398) 36,693 ------------------ ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Furniture and Equipment (43,626) - Acquisition of AirGate (64,424) - Oil & Gas Exploration Costs 32,309 (36,878) ------------------ ----------------- Net Cash Provided by Investing Activities (75,741) (36,878) ------------------ ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Loan from Shareholders 155,742 - Capital Contributed - 5,087 ------------------ ----------------- Net Cash Provided by Financing Activities 155,742 5,087 ------------------ ----------------- Net (Decrease) Increase in Cash and Cash Equivalents 5,603 4,902 Cash and Cash Equivalents at Beginning of Period 4,902 - ------------------ ---------------- Cash and Cash Equivalents at End of Period $ 10,505 $ 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-6 THE X-CHANGE CORPORATION 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 $496,000 for the period from October 4, 2000 (inception of development stage) to December 31, 2005, 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 any shortfall of operational cash flow. The Company's future capital requirements will depend on numerous factors including, but not limited to, their ability to perform on current and future development contracts and the commercialization thereof. 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-7 THE X-CHANGE CORPORATION 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. 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 July 20, 2005, the Company acquired AirGATE Technologies, Inc. for 10,000,000 restricted shares of common stock. After the AirGATE acquisition, the Company issued 650,000 shares of restricted stock to consultants of AirGATE Technologies, Inc. Nature of Business In July 2005, the Company reacquired AirGATE Technologies, Inc., due to the fact that AirGATE had made significant strides in taping the RFID marketplace. The Company's business model is now primarily focused on furthering the success of the wholly owned subsidiary AirGATE Technologies, Inc. AirGATE Technologies, Inc. is an early-stage company and is a leading provider of wireless solutions utilizing radio frequency identification (RFID), 802.15.4 (Zigbee) low power, mesh-based networks and SAW (surface acoustic wave) F-8 THE X-CHANGE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) technologies.specializing in radio frequency identification (RFID) and intelligent, sensor networks. It is expected that these markets will exceed $6 billion dollars by 2008 and provide the Company with tremendous upside potential as the RFID markets continue to mature. As a full-solution company, AirGATE Technologies handles business assessment, process and technology blending, solution architecture, technology selection, including proprietary AirGATE technology, and solution integration and support. AirGATE Technologies, Inc., a leader in unique applications utilizing RFID and wireless, intelligent, sensor technology, is a full-solution company that handles business assessment, technology selection, including proprietary AirGATE technology, and integration and support. The Company has, in an environment of technology cost compression, built a stable of technology partners that are best in class and span a wide range of solutions to support small, medium and large enterprises. AirGATE is a founding member of the DFW-based RFID HUB. The AirGATE mission is to provide customers with innovative technology solutions, such as Radio Frequency Identification (RFID), that are the product of inventive minds melding superior technical skills with outside-the-box thinking and state-of-the-art technologies. AirGATE builds its portfolios of products and services around a simple concept; provide the customer with truly exceptional value and AirGATE is we are assured of an exceptional return. AirGATE provides customers with solutions tailored to their specific needs; products and services of unsurpassed convenience, performance and reliability that are an uncommon value. AirGATE's current applications include prison inmate collect call verification, child safety seat buckle status, product authentication, real-time location systems, remote oil and gas well monitoring and proprietary oil industry solutions. Principals of Consolidation The consolidated financial statements include the accounts for The X-Change Corporation and its wholly owned subsidiaries AirGATE Technologies, Inc. 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. 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. F-9 THE X-CHANGE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. In November 2005, the Company sold the majority of the oil and gas leases and ceased oil and gas operations. The sale of the assets for $500,000 produced a one-time gain of approximately $169,000. The proceed were utilized to reduce certain liabilities as well as create operating capital for the furtherance of the operations of the Company's wholly owned subsidiary, AirGATE Technologies, Inc, which was acquired in July 2005. 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. F-10 THE X-CHANGE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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, 2005, the Company had a net operating loss carryforward for income tax reporting purposes of approximately $1,032,645that may be offset against future taxable income through 2025. 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 - COMMITMENTS Prior to 2005, all activities of the Company had been conducted by corporate officers from either their homes or business offices. On November 4, 2005, The Company entered into a commercial lease agreement (the "Lease") with Armet Bethany Limited Partnership (the "Landlord") for approximately 11,400 square feet of rentable area in Bethany Tech Center at 404 West Bethany Drive in Allen, Texas. The term of the Lease is 62 months commencing on November 1, 2005 and ending on December 31, 2010. The Company has no option to extend the Lease. The base rent under the Lease is as follows: November 1, 2005 to November 30, 2005: $0; December 1, 2005 to December 31, 2005: $6,650; January 1, 2006 to December 31, 2006: $7,600 per month; and January 1, 2007 to December 31, 2010: $8,075 per month. In addition to base rent, the Company will be responsible for certain costs and expenses specified in the Lease, including, without limitation, certain utility, HVAC service, insurance, maintenance, repair, tax, insurance and CAM (common area maintenance) costs and expenses. F-11 THE X-CHANGE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - COMMITMENTS (Continued) 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 December 31, 2005, there is no outstanding balance against the line. NOTE 4 - 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, 2005, there are no preferred shares issued. NOTE 5 - 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 F-12 THE X-CHANGE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - COMMON STOCK TRANSACTIONS (Continued) 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. As of January 11, 2005, the Company issued 1,120,000 shares of restricted common stock for cash of $84,000. As of March 31, 2005, the Company issued 100,000 shares of restricted common stock to an outside investor for $1per share. 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. On July 20, 2005, the Company reacquired AirGATE Technologies, Inc. for 10,000,000 restricted shares of common stock. 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 a one time consulting expense. On November 11, 2005, the Company issued 20,000 restricted common stock to engineer employees of the Company. In connection with issuance of the shares, $1,500 was recorded as consulting expense. On January 5, 2006, the Company issues 10,000 restricted common stock to a consultant of the Company On January 5, 2006, the Company issued 500,000 shares of restricted common stock, $.001 par value, to Hexion Specialty Chemical, Inc. as consideration for Hexion's expected $219,180 increase in development costs and AirGATE's expected $219,180 decrease in development costs of the development contract between Hexion and AirGATE which was finalized in the first week of 2006. F-13 THE X-CHANGE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - OIL AND GAS ACTIVITIES In November 2005, the Company sold the majority of the oil and gas leases and ceased oil and gas operations. The sale of the assets for $500,000 produced a one-time gain of approximately $169,000. The proceeds were utilized to reduce certain liabilities as well as create operating capital. Oil and Gas Revenue for the year ended December 31, 2005, amounted to 166,255. NOTE 7 - CONTINGENCIES On January 11, 2006, The Company commenced legal action against former employee James E. Flowers, Logix Consulting, Inc. and WaveTRracAC, Inc. As the Plaintiff, the Company seeks temporary and permanent injunctive relief and damages against the Defendants as a result of their unlawful and malicious breach of contract (violation of non disclosure provisions); breach of fiduciary duty, misappropriation of trade secrets and other proprietary information; tortuous interference with prospective business relationships; and conversion. As part of the legal action, the Company is demanding the return of 4,250,000 shares of restricted common stock issued to Mr. Flowers. NOTE 8 - MERGER/ACQUISITION 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 July 20, 2005, The X-Change Corporation acquired all of the outstanding shares (the "Acquisition") of AirGate Technologies, Inc.("AirGate"), pursuant to a Stock Purchase Agreement dated the same. In consideration for the Acquisition, the Company issued 10,000,000 shares of restricted common stock. AirGATE Technologies, Inc. is an early-stage company and is a leading provider of wireless solutions utilizing radio frequency identification (RFID), 802.15.4 (Zigbee) low power, mesh-based networks and SAW (surface acoustic wave) technologies.specializing in radio frequency identification (RFID) and intelligent, sensor networks. It is expected that these markets will exceed $6 billion dollars by 20087 and provide the Company with tremendous upside potential as the RFID markets continue to mature. As a full-solution company, AirGATE Technologies handles business assessment, process and technology blending, solution architecture, technology selection, including proprietary AirGATE technology, and solution integration and support.AirGATE Technologies, Inc., a leader in unique applications utilizing RFID and wireless, intelligent, sensor technology, is a full- F-14 THE X-CHANGE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8 - MERGER/ACQUISITION (Continued) solution company that handles business assessment, technology selection, including proprietary AirGATE technology, and integration and support. AirGATE holds several lucrative development contracts with several companies. These companies include Hexion Specialty Chemical, and Securus Technologies, Inc. and Hitachi America, Ltd. NOTE 9 - SUBSEQUENT EVENTS Effective January 3, 2006, AirGATE Technologies, Inc. ("AirGATE"), a wholly-owned subsidiary of The X-Change Corporation ("X-Change"), entered into a letter agreement (the "Agreement") with Hexion Specialty Chemicals, Inc. ("Hexion") to launch Phase II of a three-phase project (the "Project") related to the research and development by AirGATE of an oil and gas exploration product (the "Product"). The cost of the Project (including labor to be provided by AirGATE) is (a) expected to be $931,640 and (b) generally intended to be borne equally by AirGATE and Hexion (i.e., $465,820 each). Hexion is expected to pay its share of the development cost plus an additional $219,180 (i.e., an aggregate of $685,000) to AirGATE as follows: $250,000 at the commencement of Phase II and $72,500 on or before the third of each calendar month commencing in February 2006 and ending in July 2006. AirGATE is expected to pay its share of the development cost minus $219,180 (i.e., an aggregate of $246,640) as follows: $146,640 in labor over the term of the Project and $100,000, which shall be utilized to purchase software and hardware over the duration of the project. The Company issued 500,000 shares of restricted common stock, $.001 par value, to Hexion on January 5, 2006 as consideration for Hexion's expected $219,180 increase in development costs and AirGATE's expected $219,180 decrease in development costs. If the Project is successfully completed, the Agreement provides that AirGATE will be paid a royalty by Hexion in an amount equal to 5% of the Hexion's gross revenue derived from the Product during the term beginning on date of commercialization of the Product and ending on the 7 year anniversary of such date. F-15 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 19, 2006 By:/s/ Michael L. Sheriff ----------------------------------------------- Michael L. Sheriff, President and Chief Executive Officer (Principal Executive Officer) Dated: April 19, 2006 By:/s/ Scott Thompson ----------------------------------------------- Scott Thompson, Chief Financial Officer (Principal Financial Officer)