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EX-32.1 - CERTIFICATION - OMNICANNA HEALTH SOLUTIONS, INC.ex32one.htm
EX-31.1 - CERTIFICATON - OMNICANNA HEALTH SOLUTIONS, INC.ex31one.htm

 

 

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 
Washington, DC 20549

Form 10-Q 


 

(Mark one) 

[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange 
Act of 1934

For the quarterly period ended September 30, 2011

[ ] 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 Registrant as Specified in Its Charter) 

     
Nevada   90-0156146
 (State of Incorporation)     (I.R.S. Employer ID Number)

 

12655 North Central Expressway, Suite 1000, Dallas, Texas 75243 
(Address of Principal Executive Offices)

(972) 386-7350 
(Registrant's Telephone Number)


 

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the 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.

YES [X] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES [ ] NO [X]

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

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]

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

YES [ ] NO [X]

State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date: August 19, 2011: 26,341,291

Transitional Small Business Disclosure Format (check one): YES [ ] NO [X]

 


 

THE X-CHANGE CORPORATION

Form 10-Q for the Quarter ended September 30, 2011

Table of Contents

     
    Page
PART I - FINANCIAL INFORMATION  
     
   Item 1 - Financial Statements F-
     
   Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations  14
     
   Item 3 - Quantitative and Qualitative Disclosures About Market Risk 20 
     
   Item 4 - Controls and Procedures  20
     
 PART II - OTHER INFORMATION  
     
   Item 1 - Legal Proceedings 20 
     
   Item 1A - Legal Proceedings 20 
     
   Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 20 
     
   Item 3 - Defaults Upon Senior Securities  20
     
   Item 4 - (Removed and Reserved)  20
     
   Item 5 - Other Information  20
     
   Item 6 - Exhibits  20
     
SIGNATURES  21

 

F-1
 


 

 

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

 
 

 

       
THE X-CHANGE CORPORATION
Balance Sheets
September 30, 2011 and December 31, 2010
   September 30,  December 31,
   2011  2010
   (unaudited)
$
  (audited)
$
ASSETS          
Current Assets          
Cash   5,459    —   
Note receivable   —      40,714 
Interest receivable   —      546 
Total current assets   5,459    41,260 
           
License agreeement   —      530,000 
Intangibles, net of accumulated amortization          
 of $19,340 and $0   260,660    —   
Goodwill   122,268    —   
TOTAL ASSETS   388,386    571,260 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current Liabilities          
Accounts payable   44,434    4,570 
Accrued expenses   120,000    —   
Accrued interest payable   123,365    50,072 
Notes payable to shareholder   893,168    837,490 
Convertible debenture, net or unamortized discount   285,225    286,225 
Loans payable to related party   17,019    —   
Total current liabilities and total liabilities   1,483,211    1,178,357 
           
Stockholders’ Deficit          
Preferred stock, $0.001 par value          
 Authorized 75,000,000 shares          
 Issued and outstanding, 0 shares   —      —   
Common stock, $0.001 par value          
 Authorized 750,000,000 shares          
 Issued and outstanding, 26,341,291shares and   26,341    16,310 
 16,309,916, respectively          
Prepaid consulting   (2,823,013)   —   
Additional paid-in capital   26,541,220    23,579,289 
Accumulated deficit   (24,839,372)   (24,202,696)
Total stockholders' deficit   (1,094,824)   (607,097)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT   388,386    571,260 
      

  

The accompanying notes are an integral part of these financial statements. 

 

F-2
 


 

THE X-CHANGE CORPORATION
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(UNAUDITED)
         
     
   For the three months
ended September 30,
  For the nine months
ended September 30, 
   2011  2010  2011  2010
    $    $    $    $ 
Revenue        —           —   
                     
Operating Expenses                    
Management fees   376,987    —      376,987    —   
Professional fees   8,500    —      8,500    —   
Depreciation and Amortization   19,340    —      19,340    —   
General and administrative   26,887    28,762    102,263    93,302 
Total operating expenses   431,714    28,762    507,090    93,302 
Net Operating Loss   (431,714)   (28,762)   (507,090)   (93,302)
                     
Other income (expense)                    
Interest expense, including amortization of financing
fees and note discounts
   (25,602)   (38,621)   (88,326)   (202,188)
Loss on write-off of note and interest receivable   —      —      (41,260)     
Net Income (Loss) Before Income Taxes   (25,602)   (38,621)   (129,586)   (202,188)
Income tax provision   —      —           —   
Income tax benefit   —      —           —   
Net tax   —      —           —   
                     
Net Loss From Continuing                    
 Operations   (457,316)   (67,383)   (636,676)   (295,490)
Discontinued operations   —      —      —      —   
Income tax benefit   —      —      —      —   
Net Loss   (457,316)   (67,383)   (636,676)   (295,490)
                     
Net loss per common share                    
- Basic and diluted  $(0.02)  $(0.01)  $(0.04)  $(0.05)
                     
Weighted average number of                    
common shares outstanding   19,470,058    5,513,000    17,461,892    5,452,963 

 The accompanying notes are an integral part of these financial statements.

  

F-3
 


 

 

                 
THE X-CHANGE CORPORATION
STATEMENT OF SHAREHOLDERS’ EQUITY/(DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
(Unaudited)
                        Additional                
   Preferred   Common    Paid-in    Prepaid    Accum.      
    Shares    Par    Shares    Par  Capital    Consulting    Deficit    Total 
         $         $    $    $    $    $ 
Balances at January 1, 2009   —      —      104,108,673    104,109    17,729,670    —      (18,545,328)   (711,549)
Effect of August 9, 2010 1 for 20
reverse split
   —      —      (98,902,726)   (98,903)   98,903    —      —      —   
Balances at January 1, 2001,
as adjusted
   —      —      5,205,947    5,206    17,828,573    —      (18,545,328)   (711,549)
Common stock issued for debenture
conversion
   —      —      105,925    106    2,012    —      —      2,118 
Balance of issued and outstanding                                        
 stock to transfer agent and historical                                        
 corporate records   —      —      5,506    5    (5)   —      —      —   
                                         
Net loss for the year                                 (353,325)   (353,325)
Balances at December 31, 2009   —      —      5,317,378    5,317    17,830,580    —      (18,898,653)   (1,062,756)
Common stock issued for debenture
conversion
   —      —      195,122    195    31,805    —      —      32,000 
Effect of issuance at less than
“fair value”
   —      —      —      —      57,756    —      —      57,756 
Payment of note principal and
accrued interest
   —      —      9,797,416    9,798    186,150    —      —      195,948 
Effect of issuance at less than
“fair value”
   —      —      —      —      4,943,998    —      —      4,943,998 
Acquisition of License Agreement   —      —      1,000,000    1,000    529,000    —      —      530,000 
                                         
Net loss for the year                                 (5,304,043)   (5,304,043)
Balances at December 31, 2010   —      —      16,309,916    16,310    23,579,289    —      (24,202,696)   (607,097)
Debenture converted into common
stock
   —      —      21,375    21    979    —      —      1,000 
Warrants exercised   —      —      10,000    10    9,990    —      —      10,000 
Common stock issued for acquisition   —      —      2,000,000    2,000    1,748,000    —      —      1,750,000 
Common stock for acquisition cancelled   —      —      (2,000,000)   (2,000)   (1,748,000)   —      —      (1,750,000)
Cancellation of shares   —      —      (1,000,000)   (1,000)   (518,038)   —           (519,038)
Adjustment to reconcile share
cancellation
   —      —      —      —      —      —      342,778    342,778 
Common stock issued for acquisition   —      —      1,000,000    1,000    279,000    —      —      280,000 
Common stock issued pursuant to                                        
 management agreements   —      —      10,000,000    10,000    3,190,000    (3,200,000)   —      —   
Amortization of shares issued for
services
   —      —      —      —      —      376,987    —      376,987 
Net loss for the period                                 (636,676)   (636,676)
Balances at September 30, 2011   —      —      26,341,291    26,341    26,541,220    (2,823,013)   (24,839,372)   (1,094,824)

   

The accompanying notes are an integral part of these financial statements.

  

F-4
 

 


 

 

THE X-CHANGE CORPORATION

STATEMENTS OF CASH FLOWS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

(UNAUDITED)

       
       
   For the nine months
   ended September 30,
   2011  2010
   $  $
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss   (636,676)   (295,490)
Plus:          
Loss from discontinued operations   —      —   
Total net loss   (636,676)   (295,490)
Adjustments to reconcile net loss to net          
 cash used in operating activities:          
Depreciation   —      —   
Amortization   19,340    76,694 
Amortization of prepaid consulting   376,987    —   
Loss on cancellation of license agreement   11,338    —   
Loss (gain) on settlement of debt   41,260    —   
Interest expense paid with common stock   —      57,756 
Changes in operating assets and liabilities:          
Accounts receivable   —      —   
Prepaid expenses and deposits   —      —   
Inventory   —      —   
Accounts payable   39,864    31,396 
Accrued expenses   22,258    —   
Accrued interest payable   73,293    67,738 
CASH FLOWS USED IN OPERATING ACTIVITIES          
FROM CONTINUING OPERATIONS   (52,336)   (61,906)
CASH FLOWS PROVIDED BY OPERATING          
ACTIVITIES FROM DISCONTINUED OPERATIONS   —      —   
NET CASH USED IN OPERATING ACTIVITIES   (52,336)   (61,906)
CASH FLOWS FROM INVESTING ACTIVITIES          
Net liabilities assumed on asset purchase   107,269    —   
Goodwill acquired on asset purchase   (122,268)   —   
Purchase of property, plant & equipment   —      —   
CASH FLOWS USED IN INVESTING ACTIVITIES   (14,999)   —   
CASH FLOWS FROM FINANCING ACTIVITIES          
           
Convertible debenture          
Proceeds from the exercise of share purchase warrants   10,000    —   
Proceeds from notes payable to shareholders   55,678    60,865 
Repayment of advances from related parties   (3,800)   —   
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES   61,878    60,865 
NET INCREASE (DECREASE) IN CASH   5,459    (1,041)
CASH, BEGINNING OF PERIOD   —      1,080 
CASH, END OF PERIOD   5,459    39 
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Net liabilities assumed with asset purchase   107,268    —   
Goodwill acquired on asset purchase   122,268    —   
Conversion of debenture into common stock   1,000    32,000 
Common stock cancelled on license agreement termination   519,038    —   
Issuance of common stock for warrant exercise   10,000    —   
Interest paid   —      —   

 

 

F-5
 


 

 

THE X-CHANGE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

 

1. SUMMARY OF SIGNIFICICANT ACCOUNTING POLICIES

A. Organization and General Description of Business

The X-Change Corporation (Company) was incorporated under the laws of the State of Delaware on February 5, 1969 and changed its corporate domicile to the State of Nevada on October 4, 2000. We were originally organized to seek merger and/or acquisition candidates and engaged in various transactions since our inception. As of December 31, 2008, the Company has disposed of all operating assets and operating activities.

In March 2010, the Company formed the wholly-owned subsidiaries - Caballo Blanco Communications, Ltd. and Commerce Services, Inc. - as Colorado corporations to conduct operations related to the various proposed acquisitions. On December 27, 2010, the Company changed the corporate name of Commerce Services, Inc. to PolySilicon, Inc. to conduct the business activities related to a then proposed acquisition. There has been no economic activity conducted within either subsidiary since their formation.

Between March 2010 and October 2010, the Company announced and abandoned several proposed acquisitions.

On October 7, 2010, the Company announced that it signed an agreement in principle to acquire 21-Century Silicon, Inc., based in Richardson, Texas (21-Century). The terms of the acquisition was anticipated to involve a change in control of the Company and the appointment of new directors. Concurrent with the execution of the agreement in principle, the Company issued 1,000,000 shares of restricted, unregistered common stock to license 21-Century's technology and to secure an exclusive right to negotiate to acquire certain intellectual property. The closing of the acquisition was subject to the completion of all appropriate due diligence. On November 8, 2010, 21-Century executed a note payable to the Company in the amount of approximately $28,500, bearing interest at 10.0% for working capital advances made by the Company on 21-Century's behalf. On January 17, 2011, the Company announced that through its wholly-owned subsidiary, PolySilicon, Inc, it had completed the purchase of the intangible assets of 21-Century, subject to an agreement to purchase a $3,500,000 note payable owed to the State of Texas (Texas Note) by 21-Century. On January 28, 2011, the Company announced that it had cancelled the purchase of 21-Century and canceled its offer to purchase the Texas Note. The purchase of the assets was conditioned on the Company being able to purchase the Texas Note. The State of Texas' insistence on additional repetitive reviews of the proposed transaction, which was scheduled for closing, resulted in the Company's inability to complete and close the financing necessary for silicon manufacturing. Concurrent with this action, the Company rescinded the 1,000,000 shares issued in the October 7, 2010 event and executed its lien on the assets of 21-Century Silicon in satisfaction of a note receivable and accrued interest totaling approximately $41,200. Upon foreclosure on said assets, the Company's management elected to take a 100% impairment against the foreclosed value resulting in a charge to operations in the first quarter of 2011 of approximately $41,200. Any gain, if any, upon the ultimate disposition of said assets will be recognized at the point of future sale.

 

F-6
 


On March 7, 2011, the Company announced that it had entered into an Agreement and Plan of Exchange with Surrey Vacation Properties, Inc. (a Missouri corporation) (Seller) to acquire 100% of the issued and outstanding stock of the Seller. In the transaction, it is anticipated that the Company will issue 63,283,391 restricted, unregistered shares of its $0.001 par value common stock. A copy of the Contract for Sale was filed as an exhibit to a Current Report on Form 8-K filed with the SEC on or about March 11, 2011. On April 26, 2011, as reported on a Current Report on Form 8-K filed with the SEC on or about April 28, 2011, the CEO of Surrey Vacation Resorts, Inc. (Surrey) informed the Company that Surrey would not able to meet a condition of closing of the acquisition of Surrey by the Company. Surrey had been unable to obtain the necessary written approval of the acquisition transaction from its lenders and further informed the Company that Surrey would be unable to close the transaction. Upon receipt of this information, the Company agreed to terminate the aforementioned contract to acquire Surrey Vacation Resorts, Inc.

On May 25, 2011, the Company announced that it had closed on the purchase of a Casino Ship located in Freeport, Texas. The acquisition was purchased by LDC Collection Systems, Inc., a newly-formed and wholly-owned subsidiary incorporated under the Laws of the State of Texas. The purchase price was 2,000,000 shares of restricted, unregistered common stock of the Company with an agreed-upon valuation of approximately $1,750,000. The Casino ship, known as "The Texas Star Casino", is a 155-foot ocean going vessel equipped with 250 slot machines and various table games. The ship also has facilities for entertainment, beverage service and dining. The ship was purchased from CJP Entertainment LLC, a Missouri corporation. The ship was built in 1977 and updated in 1986. The ship previously operated out of ports located in Georgia and Florida.

On June 6, 2011, the Company has also entered into a Letter of Intent ("LOI") with George J. Akmon and Jerry Monday & Associates, LLC (collectively referred to as "Operators") to operate "The Texas Star Casino" outside the nine mile territorial waters of Texas, in international waters, as a casino ship. As it is the intent to operate the ship outside the 9-mile State of Texas territorial limit means that the Company, nor its operators, will be required to acquire or hold a gaming license from the State of Texas.

On July 25, 2011, the Company, its wholly-owned subsidiary, LDC Collection Systems, Inc. and CJP Entertainment LLC, mutually agreed to execute a Repurchase Agreement whereby the May 25, 2011 transaction was reversed. The Company retained no rights to own or operate the cruise ship and no further action was taken on the June 6, 2011 LOI to operate said casino ship.

On August 18, 2011, the Company entered into an Asset Purchase Agreement with Old West Entertainment Corp. (Old West), a corporation formed February 3, 2011 in accordance with the Laws of the State of Nevada. Prior to this transaction, Old West was not affiliated with or related to the Company or its management. As part of the Agreement, the Company acquired all right, title and interest in all of Old West's Operating Entertainment Business (Assets). The Assets include a website, client base, capital assets, hardware, software, intellectual property as well as all of Old West's artists, properties, patents, trademarks and distribution rights and agreements relating to Old West's music and entertainment business. The Company also assumed all rights and obligations under a Management Consulting Agreement between Old West and Arthur Molina Jr. (Molina), also known in the music business as "Frost." In exchange, the Company issued 1,000,000 shares of restricted, unregistered shares of the Company's common stock to Old West with a fair market value of $280,000. The preliminary allocated of the asset purchase price is as follows:

 Old West Asset Purchase     
 Net liabilities assumed  $107,268 
 Acquisition fees   15,000 
 Fair market value of shares issued   280,000 
 Preliminary asset purchase valuation  $402,268 

 

F-7
 

 


 

B.  Basis of Presentation

 

These financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars.  The Company’s fiscal year end is December 31.

 

C.  Interim Financial Statement

 

These statements reflect all normal recurring adjustments, which, in the opinion of management, are necessary for the fair presentation of financial position, results of operations and cash flows for the periods presented. The accompanying financial statements should be read in conjunction with Cannabis Science Inc’s financial statements for the years ended December 31, 2010 and 2009 filed in the Company’s Form 10-K dated April 15, 2011, which includes all disclosures required by accounting principles generally accepted in the United States of America, or GAAP. The results of operations for the periods ended September 30, 2011 and 2010 are not necessarily indicative of expected operating results for the full year.

 

D. Use of Estimates

 

The preparation of these financial statements in conformity with U.S. generally accepted accounting principles requires 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.  The Company regularly evaluates estimates and assumptions related to stock-based compensation and deferred income tax valuations.  The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.  The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.  To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

E. Basic and Diluted Net Income (Loss) Per Share

 

Under ASC 260, "Earnings Per Share" ("EPS"), the Company provides for the calculation of basic and diluted earnings per share.  Basic EPS includes no dilution and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution of securities that could share in the earnings or losses of the entity.  For the periods July 1, 2011 to September 30, 2011, January 1, 2011 to September 30, 2011, and from inception through September 30, 2011, basic and diluted loss per share are the same since the calculation of diluted per share amounts would result in an anti-dilutive calculation.

 

F. Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

 

G. Concentration of Credit Risk

Financial instruments, which potentially subject us to a concentration of risk, include cash and, in prior periods, accounts receivable. The customers of our former subsidiary, AirGATE, were based in the United States and we were not subject to exchange risk for accounts receivable.

The Company maintains its cash in domestic financial institutions subject to insurance coverage issued by the Federal Deposit Insurance Corporation (FDIC). Under FDIC rules, the Company is entitled to aggregate coverage as defined by Federal regulation per account type per separate legal entity per financial institution. During the six month period ended September 30, 2011 and the year ended December 31, 2010, and subsequent thereto, respectively, the Company has not had any had deposits in a financial institution with credit risk exposures in excess of statutory FDIC coverage. The Company has incurred no losses as a result of any unsecured credit risk exposures.

 

F-8
 


 

 

 

H. Fair Value Measurements

 

ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and requires certain disclosures about fair value measurements.  In general, fair values of financial instruments are based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality and the customer’s creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  

 

I. Income Taxes

 

Under ASC 740, “Income Tax”, the Company is required to account for its income taxes through the establishment of a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carry forwards.  Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets and liabilities for book and tax purposes during the year.

 

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carry forwards.  A valuation allowance is established to reduce that deferred tax asset if it is "more likely than not" that the related tax benefits will not be realized.

 

I. Convertible Debt Instruments


The Company records debt net of debt discount for beneficial conversion features and warrants, on a relative fair value basis. Beneficial conversion features are recorded pursuant to the Beneficial Conversion Feature and Debt Topics of the FASB Accounting Standards Codification. The amounts allocated to warrants and beneficial conversion rights are recorded as debt discount and as additional paid-in-capital. Debt discount is amortized to interest expense over the life of the debt.

 

J. Debt Financing Arrangements

 

On August 15, 2006, the Company executed a long-term Promissory Note (Melissa Note) with Melissa CR 364 Ltd., a Texas limited partnership (Melissa Ltd.) providing a $1,000,000 line of credit. Melissa Ltd. is managed by a former officer and shareholder of the Company.

 

The Melissa Note had an initial term of 24 months with interest accruing at 10% per annum. Accrued interest under the note was payable quarterly beginning November 1, 2006, and the principal and any remaining accrued interest was due at maturity on August 14, 2008. The Company pledged 100% of the issued and outstanding common stock of AirGATE as collateral for the note. At the discretion of Melissa Ltd, the Melissa Note may be converted into restricted common stock of the Company at any time at an agreed upon conversion rate of $0.825 per share. In addition, the Melissa Note may be prepaid at any time without penalty.

 

The Company valued and recorded an embedded beneficial conversion feature in connection with the Melissa Note of $756,950, and amortized this amount over the initial two year life of the note resulting in non-cash charges to earnings as a component of interest expense through December 31, 2008.

 

F-9
 

 


  

At maturity, the Company failed to make the required payment of the entire outstanding principal and accrued interest due under the Melissa Note. On August 22, 2008, the Company, AirGATE and the Melissa Ltd. entered into an Amendment to Promissory Note (the Amendment) amending the Melissa Note. The Amendment extended the maturity date of the Note to December 15, 2008 and, in a supplemental Board action, changed the conversion rate to par value ($0.001 per share). In connection with the Amendment, AirGATE paid Melissa Ltd. (i) $100,000 to be applied against the outstanding principal of the Melissa Note, (ii) all interest on the Note accrued through August 15, 2008, and (iii) $4,500, representing Melissa Ltd's attorneys' fees and costs in connection with the Amendment.

 

After the application of the $100,000 principal payment against the outstanding principal under the Note, the outstanding principal owed under the Note was $697,794. Interest payments were due on the 15th of each month beginning September 15, 2008. If either the Company and/or AirGATE completes a corporate financing transaction before December 15, 2008, whereby either the Company and/or AirGATE receives in excess of $300,000 through the issuance of debt or equity or a combination thereof, the Company and/or AirGATE agreed to remit to Melissa Ltd. in payment of the obligations under the Melissa Note, the entire net proceeds of such transaction, or such smaller amount of net proceeds as is necessary to pay the entire outstanding principal amount of the Melissa Note, plus all accrued interest.

 

In December 2008, Melissa Ltd. began foreclosure proceedings against its collateral, which included 100% of the Company's holdings in AirGATE, and the right to convert the Melissa Note into restricted, unregistered shares of the Company's common stock. The foreclosure proceeding was consummated on January 16, 2009 and the Company's holdings in AirGATE were forfeited. Additionally, Melissa Ltd. converted approximately $51,000 of principal on the Melissa Note to 51,000,000 shares of the Company's common stock, concurrent with the maturity date of December 15, 2008.

 

As of September 30, 2011 and December 31, 2010, the outstanding balance on the Melissa Note is approximately $822,568 and $806,093, inclusive of capitalized accrued interest. Interest continues to accrue at 10% per annum.

 

SOUTH BEACH LIVE, LTD. NOTE

During Calendar 2009, the Company executed a $100,000 Line of Credit Note Payable with South Beach Live, Ltd. (South Beach), a significant Company stockholder, to provide funds necessary to support the corporate entity and comply with the periodic reporting requirements of the Securities Exchange Act of 1934, as amended. This note bears interest at 10.0% and matures in Calendar 2011. Through September 30, 2011 and December 31, 2010, respectively, an aggregate of approximately $193,168 and $169,250 has been advanced against this note.

 

LCII DEBENTURES

During the quarter ending September 30, 2007, the Company entered into a Securities Purchase Agreement with La Jolla Cove Investors, Inc. ("LCII") providing for two convertible debentures totaling $400,000 with two corresponding sets of non-detachable warrants totaling 4,000,000 shares with an exercise price of $1.00. The convertible debentures accrue interest at 6-1/4% until converted or the expiration of their three year term. The respective debentures matured in August 2010; however, in the absence of a formal extension agreement, both parties have agreed to stay the maturity and allow future conversions and warrant exercises to occur.

 

The debentures and warrants have mandatory conversion features. These conversion features becomes effective in the first full calendar month after the common stock underlying the debenture is either I) registered under the Securities Act of 1933 (the "Act"), which is at the Company's option, or ii) available by LCII to be resold pursuant to Rule 144 of the Act. If the conversion feature becomes effective, LCII is obliged to convert an average of 10% of the face value of the debenture each calendar month into a variable number of shares of the Company's common stock. The number of shares is determined by a formula where the dollar amount of the debenture being converted is multiplied by eleven, from which the product of the conversion price and ten times the dollar amount of the debenture being converted is then subtracted, all of which is then divided by the conversion price. The conversion price is equal to the lesser of (I) $1.00, or

(ii) 80% of the average of the 3 lowest volume weighted average prices during the twenty trading days prior to the conversion election. The Company can prevent conversion if the trading price falls below $0.30 per share on the date LCII elects to convert. Under certain provisions, if LCII does not convert an average of at least 5% of the face value of the debenture, the Company may prepay portions of the debenture. As contractually linked, if LCII converts a portion of the debenture, LCII must also exercise a proportionate amount of the warrants.

 

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In the event that the entire $400,000 of the convertible debentures is converted in conjunction with the required exercise of warrants, the Company will receive a total of $4.4 million from LCII. The aggregate number of shares issuable to LCII in this event is dependent on the trading price of the Company's common stock over the term of the conversion process.

The Company allocated the proceeds from the debentures between the warrants and the debt based on the estimated relative fair value of the warrants and the debt. The value of the warrants was calculated at $273,634 using the Black-Scholes model and the following assumptions: discount rate of 4.1%, volatility of 156% and expected term of three years. The Company also calculated a beneficial conversion feature totaling $126,366. The Company is amortizing both the warrant value and value attributed to the beneficial conversion feature (total $400,000) over the term of the debentures. This non-cash charge to income is included in interest expense.

 

At September 30, 2011 and December 31, 2010, respectively, the outstanding principal amount of convertible debentures totaled approximately $285,225 and $286,225.

 

K. Stock-Based Compensation

 

Effective January 1, 2006, the Company adopted ASC 718-10, Compensation - Stock Compensation ("ASC 718-10"), using the modified-prospective method. Under ASC 718-10, share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the applicable period of the award.

 

L. Goodwill

 

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquire. In accordance with ASC 350, "Goodwill and Intangible Assets", the Company tests goodwill for impairment at the reporting unit level on an annual basis in the fourth quarter or more frequently if the Company believes indicators of impairment exist. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair values of the applicable reporting units to their carrying values. If the fair value is greater than the carrying value there is no goodwill impairment. If the carrying amount of a reporting unit exceeds the reporting unit's fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill.

 

The Company determined there was no transitional impairment resulting from the acquisition of Old West Entertainment Corp. assets on August 18, 2011.

 

M. Intangible Assets

 

Intangible assets are recorded at cost and are amortized over their estimated useful lives as follows:

 

 Website  Straight-line over 1 year  
 Contracts  Straight-line over 2 years  
 Human resources  Straight-line over 3 years  
 Intellectual property R&D  Straight-line over 1 year  

 

 

 

 

F-11
 

 


 

N. Recent Accounting Pronouncements

 

During the year ended December 31, 2010 and through November 22, 2011, there were several new accounting pronouncements issued by the FASB the most recent of which was Accounting Standards Update 2011-09. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

 

2. GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with U.S. generally accepted accounting principles, which contemplate the continuation of the Company as a going concern. The Company reported an accumulated deficit of $68,139,436 and had a stockholder’s deficit of $2,038,474 at September 30, 2011.

 

In view of the matters described, there is substantial doubt as to the Company's ability to continue as a going concern without a significant infusion of capital. At September 30, 2011, the Company had minimal operations. There can be no assurance that management will be successful in implementing its plans. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

We anticipate that we will have to raise additional capital to fund operations over the next 12 months. To the extent that we are required to raise additional funds to acquire research and growing facilities, and to cover costs of operations, we intend to do so through additional public or private offerings of debt or equity securities. There are no commitments or arrangements for other offerings in place, no guaranties that any such financings would be forthcoming, or as to the terms of any such financings. Any future financing may involve substantial dilution to existing investors. We had been relying on our common stock to pay third parties for services which has resulted in substantial dilution to existing investors.

 

3. RELATED PARTY TRANSACTIONS

As of September 30, 2011, a total of $156,818 (December 31, 2010: $107,835) was due to a related party. The amounts due are non-interest bearing, unsecured and have no specified terms of repayment. This related party also performs management services to the Company under a management consulting agreement signed on July 1, 2010.

4. PREFERRED STOCK

The Company is authorized to issue up to a total of 75,000,000 shares of $0.001 par value Preferred Stock. The Company's Board of Directors has designated 250,000 shares as "Series A Convertible Preferred Stock".

The Company 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 Company, 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 September 30, 2011 and December 31, 2010, respectively, there were no shares of preferred stock issued and outstanding.

 

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5.  COMMON STOCK

AMENDMENT TO THE ARTICLES OF INCORPORATION

On January 31, 2011, the Board of Directors of the Company and its majority shareholder approved an amendment to its Articles of Incorporation increasing the authorized capital of the Company from 37,500,000 shares of common stock, par value $.001 and 3,750,000 shares of preferred stock, par value $.001, to 750,000,000 shares of common stock and 75,000,000 share of preferred stock. The Amended Articles were filed with the Nevada Secretary of State on March 22, 2011, the effective date of the amendment.

REVERSE STOCK SPLIT

Effective August 9, 2010, Company's Board of Directors declared a 1-for-20 reverse split of the issued and outstanding shares of common stock. The reverse stock split was implemented by adjusting the stockholders' book entry accounts to reflect the number of shares held by each stockholder following the split. No fractional shares were issued in connection with the reverse stock split and any fractional shares resulting from the reverse split were rounded up to the nearest whole share. The reverse stock split reduced the number of the Company's issued and outstanding shares of common stock on this date from 136,089,746 to approximately 5,513,000.

On January 31September 30, 2011, the Company's Board of Directors and its majority shareholder approved an amendment to its Articles of Incorporation increasing the authorized capital of the Company from 37,500,000 shares of $0.001 par value common stock and 3,750,000 shares of $0.001 par value preferred stock to 750,000,000 shares of $0.001 par value common stock and 75,000,000 shares of $0.001 par value preferred stock. The Amended Articles were filed with the Nevada Secretary of State on March 22September 30, 2011, the effective date of the amendment.

The effects of these actions are reflected in the accompanying financial statements as of the first day of the first period presented.

 

During the three-months ended September 30, 2011, the Company issued the following common stock:

 

On August 18, 2011 the Company issued 1,000,000 restricted and unregistered common shares, with a fair market value of $280,000, to Old West Entertainment Corp. to purchase its business and assets.

 

On August 18, 2011 the Company issued 5,000,000

 

6. INTANGIBLE ASSETS

 

 Intellectual assets, primarily intellectual property  $280,000 
 Less accumulated amortization   19,340 
   $260,000 

 

 

Intangible assets are stated at fair value on the date of purchase less accumulated amortization. Amortization is computed using the straight-line method over the estimated lives of the related assets (see Notes to Consolidated Financial Statements 1.(m) for relating estimated lives of specific intangible assets).                   

 

7. COMMITMENTS

 

  Payments due by period
  Total < 1 Year 1-3   Years 3-5 Years* > 5 Years*
Operating Lease $92,000 $42,000 $50,000 $150,000 $50,000

 

On August 25, 2011, the Company signed a two year lease on a 4,000 sq. ft. office, recording studio and TV production facility. Commitments under the lease are $4,000 per month, inclusive of taxes and maintenance. *The Company has an option to new the lease for an additional 3 years at the same rate of $4,000 per month.

 

8. SUBSEQUENT EVENTS

 

None.

 

 

F-13
 

 


 

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(1) CAUTION REGARDING FORWARD-LOOKING INFORMATION

Certain statements contained in this quarterly filing, including, without limitation, statements containing the words "believes", "anticipates", "expects", "aims" and words of similar import, constitute forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Such factors include, among others, the following: international, national and local general economic and market conditions: demographic changes; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other factors referenced in this and previous filings.

Given these uncertainties, readers of this Form 10-Q/A and investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

(2) GENERAL

The X-Change Corporation (Company) was incorporated under the laws of the State of Delaware on February 5, 1969 and changed its corporate domicile to the State of Nevada on October 4, 2000. We were originally organized to seek merger and/or acquisition candidates and engaged in various transactions since our inception. As of December 31, 2008, the Company has disposed of all operating assets and operating activities.

In March 2010, the Company formed the wholly-owned subsidiaries - Caballo Blanco Communications, Ltd. and Commerce Services, Inc. - as Colorado corporations to conduct operations related to the various proposed acquisitions. On December 27, 2010, the Company changed the corporate name of Commerce Services, Inc. to PolySilicon, Inc. to conduct the business activities related to a then proposed acquisition. There has been no economic activity conducted within either subsidiary since their formation.

Between March 2010 and October 2010, the Company announced and abandoned several proposed acquisitions.

 

14
 


 

On October 7, 2010, the Company announced that it signed an agreement in principle to acquire 21-Century Silicon, Inc., based in Richardson, Texas (21-Century). The terms of the acquisition was anticipated to involve a change in control of the Company and the appointment of new directors. Concurrent with the execution of the agreement in principle, the Company issued 1,000,000 shares of restricted, unregistered common stock to license 21-Century's technology and to secure an exclusive right to negotiate to acquire certain intellectual property. The closing of the acquisition was subject to the completion of all appropriate due diligence. On November 8, 2010, 21-Century executed a note payable to the Company in the amount of approximately $28,500, bearing interest at 10.0% for working capital advances made by the Company on 21-Century's behalf. On January 17, 2011, the Company announced that through its wholly-owned subsidiary, PolySilicon, Inc, it had completed the purchase of the intangible assets of 21-Century, subject to an agreement to purchase a $3,500,000 note payable owed to the State of Texas (Texas Note) by 21-Century. On January 28, 2011, the Company announced that it had cancelled the purchase of 21-Century and canceled its offer to purchase the Texas Note. The purchase of the assets was conditioned on the Company being able to purchase the Texas Note. The State of Texas' insistence on additional repetitive reviews of the proposed transaction, which was scheduled for closing, resulted in the Company's inability to complete and close the financing necessary for silicon manufacturing. Concurrent with this action, the Company rescinded the 1,000,000 shares issued in the October 7, 2010 event and executed its lien on the assets of 21-Century Silicon in satisfaction of a note receivable and accrued interest totaling approximately $41,200. Upon foreclosure on said assets, the Company's management elected to take a 100% impairment against the foreclosed value resulting in a charge to operations in the first quarter of 2011 of approximately $41,200. Any gain, if any, upon the ultimate disposition of said assets will be recognized at the point of future sale.

On March 7, 2011, the Company announced that it had entered into an Agreement and Plan of Exchange with Surrey Vacation Properties, Inc. (a Missouri corporation) (Seller) to acquire 100% of the issued and outstanding stock of the Seller. In the transaction, it is anticipated that the Company will issue 63,283,391 restricted, unregistered shares of its $0.001 par value common stock. A copy of the Contract for Sale was filed as an exhibit to a Current Report on Form 8-K filed with the SEC on or about March 11, 2011. On April 26, 2011, as reported on a Current Report on Form 8-K filed with the SEC on or about April 28, 2011, the CEO of Surrey Vacation Resorts, Inc. (Surrey) informed the Company that Surrey would not able to meet a condition of closing of the acquisition of Surrey by the Company. Surrey had been unable to obtain the necessary written approval of the acquisition transaction from its lenders and further informed the Company that Surrey would be unable to close the transaction. Upon receipt of this information, the Company agreed to terminate the aforementioned contract to acquire Surrey Vacation Resorts, Inc.

On May 25, 2011, the Company announced that it had closed on the purchase of a Casino Ship located in Freeport, Texas. The acquisition was purchased by LDC Collection Systems, Inc., a newly-formed and wholly-owned subsidiary incorporated under the Laws of the State of Texas. The purchase price was 2,000,000 shares of restricted, unregistered common stock of the Company with an agreed-upon valuation of approximately $1,750,000. The Casino ship, known as "The Texas Star Casino", is a 155-foot ocean going vessel equipped with 250 slot machines and various table games. The ship also has facilities for entertainment, beverage service and dining. The ship was purchased from CJP Entertainment LLC, a Missouri corporation. The ship was built in 1977 and updated in 1986. The ship previously operated out of ports located in Georgia and Florida.

 

15
 


On June 6, 2011, the Company has also entered into a Letter of Intent ("LOI") with George J. Akmon and Jerry Monday & Associates, LLC (collectively referred to as "Operators") to operate "The Texas Star Casino" outside the nine mile territorial waters of Texas, in international waters, as a casino ship. As it is the intent to operate the ship outside the 9-mile State of Texas territorial limit means that the Company, nor its operators, will be required to acquire or hold a gaming license from the State of Texas.

On July 25, 2011, the Company, its wholly-owned subsidiary, LDC Collection Systems, Inc. and CJP Entertainment LLC, mutually agreed to execute a Repurchase Agreement whereby the May 25, 2011 transaction to purchase a Casino Ship located in Freeport, Texas. The original transaction was valued at approximately $1,750,000 (which approximated 21.9% of a November 8, 2006 independent third-party appraisal by Cruise Research and Management of the casino ship) (see Exhibit 99.1 of the Company's Current Report on Form 8-K filed on or about June 2, 2011) and consideration of 2,000,000 shares of the Company's restricted, unregistered common stock was issued to the seller. Concurrent with the execution of the July 25, 2011 Repurchase Agreement, the 2,000,000 shares of the Company's common stock held by the CJP Entertainment LLC was returned to the Company and cancelled. As the Company retained no rights to own or operate the cruise ship, no further action was taken by Management, George J. Akmon and/or Jerry Monday & Associates, LLC with regard to the June 6, 2011 LOI to operate said casino ship and said negotiations and obligations ceased on the part of all parties. Pursuant to the appropriate accounting literature, this transaction is reflected in the accompanying restated financial statements net of all the aforementioned events as of September 30, 2011.

On August 18, 2011, the Company entered into an Asset Purchase Agreement with Old West Entertainment Corp. (Old West), a corporation formed February 3, 2011 in accordance with the Laws of the State of Nevada. Prior to this transaction, Old West was not affiliated with or related to the Company or its management. As part of the Agreement, the Company acquired all right, title and interest in all of Old West's Operating Entertainment Business (Assets). The Assets include a website, client base, capital assets, hardware, software, intellectual property as well as all of Old West's artists, properties, patents, trademarks and distribution rights and agreements relating to Old West's music and entertainment business. The Company also assumed all rights and obligations under a Management Consulting Agreement between Old West and Arthur Molina Jr. (Molina), also known in the music business as "Frost." In exchange, the Company issued 1,000,000 shares of restricted, unregistered shares of the Company's common stock to Old West. In addition, the Company issued 5,000,000 shares of restricted, unregistered shares of the Company's common stock each to Arturo Molina Jr. (Frost) for management services as President and Bogat Family Trust as consideration for the management services that beneficiaries of the Trust will be providing to the Company in operating the music and entertainment portion of the business over the next 12 months.

(3) PLAN OF BUSINESS

The Company’s primary business is now that of Old West and specifically for the entertainment industry including music, developing new artists, movies, TV shows, and concert and event promotion.

Old West is focused on hip-hop entertainment and is headed by Arturo Molina Jr. (Frost), a rapper and hip-hop legend. The Company specializes in all aspects of entertainment including music, feature films, television, home video/DVD and major events. The Company currently operates a Sunday night drive radio show hosted by Frost whom also has his music featured and representation through Old West.

In August 2011, the Company has opened a new recording and production studio to develop its media assets and an administrative office to manage the business and operations of Old West.

16
 


(4) RESULTS OF OPERATIONS

The Company had no revenue for either of the nine or three month periods ended September 30, 2011 and 2010, respectively. Management anticipates revenue to be generated from the business of Old West as the operations are built out and the business plan is implemented.

General and administrative expenses for the nine months ended September 30, 2011 and 2010 were $102,263 and $93,302, respectively. General and administrative expenses were $26,887 and $28,762 for the three months ended September 30, 2011 and 2010, respectively. This increase is due to increased operating costs resulting from the Old West asset purchase on August 18, 2011.

Management fees for the three and nine months ended September 30, 2011 and 2010 were $376,987 and $0, respectively. This increase is due to increased expense relating to management agreements signed with Frost and Bogat Family Trust in conjunction with the asset purchase of Old West.

Other increases were amortization relating to the intangible assets acquired from Old West and professional fees incurred.

As of the date of this filing, we do not have any other specific business combination under consideration and we have not (nor has anyone on our behalf), directly or indirectly, contacted any prospective target business or had any discussions, formal or otherwise, with respect to such a transaction with us. We have not (nor have any of our agents or affiliates) been approached by any candidates (or representative of any candidates) with respect to a possible acquisition transaction with our company. Additionally, we have not engaged or retained any agent or other representative to identify or locate any suitable acquisition candidate for us.

The Company recognized interest accruals, amortization of debt financing fees and accretion of debt discounts of $88,326 and $202,188 during the nine months ended September 30, 2011 and 2010, respectively. Interest accruals, amortization of debt financing fees and accretion of and debt discounts of $25,602 and $38,621 were recorded during the three months ended September 30, 2011 and 2010, respectively. The Company's convertible debenture with La Jolla Cove Investors, Inc. matured in August 2010. This debenture is discussed more fully in our Annual Report on Form 10-K for the year ended December 31, 2010. We specifically note that all of the Company's debt is in default due to the December 2008 foreclosure action and, accordingly, has been classified as "current" on the Company's balance sheet regardless of the stated maturity date(s).

Earnings per share for the respective nine month periods ended September 30, 2011 and 2010 were $(0.04) and $(0.05), respectively, based on the weighted-average shares issued and outstanding at the end of each respective period as adjusted for the August 2010 1-for-20 reverse stock split. Earnings per share for the respective three month periods ended September 30, 2011 and 2010 were $(0.02) and $(0.01), respectively.

The Company does not expect to generate any meaningful revenue or incur operating expenses for purposes other than fulfilling the obligations of a reporting company under the Securities Exchange Act of 1934 unless and until such time that the Company completes a business combination transaction.

 

17
 


(5) LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2011 and December 31, 2010 the Company had a working capital of approximately $(1,477,752) and $(1,137,097), respectively.

The Company has in sufficient working capital to sustain operations and fulfill its business plans under Old West. No formal commitments or arrangements to advance or loan funds to the Company or repay any such advances or loans exist. There is no legal obligation for either management or significant stockholders to provide additional future funding.

Further, the Company is at the mercy of future economic trends and business operations for this controlling stockholders to have the resources available to support the Company. Should their pledges fail to provide financing, the Company has not identified any alternative sources of working capital to support the Company.

The Company's ultimate continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis. The Company faces considerable risk in its business plan and a potential shortfall of funding due any potential inability to raise capital in the equity securities market. If adequate operating capital and/or cash flows are not received during the next twelve months, the Company could become dormant until such time as necessary funds could become available.

The Company anticipates future sales or issuances of equity securities to fulfill its business plan. However, there is no assurance that the Company will be able to obtain additional funding through the sales of additional equity securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company.

The Company's Articles of Incorporation authorize the issuance of up to 75,000,000 shares of preferred stock and 750,000,000 shares of common stock. The Company's ability to issue preferred stock may limit the Company's ability to obtain debt or equity financing as well as impede potential takeover of the Company, which may be in the best interest of stockholders. The Company's ability to issue these authorized but unissued securities may also negatively impact our ability to raise additional capital through the sale of our debt or equity securities.

While the Company is of the opinion that good faith estimates of the Company's ability to secure additional capital in the future to reach its goals have been made, there is no guarantee that the Company will receive sufficient funding to sustain operations or implement any future business plan steps.

Regardless of whether the Company's cash assets prove to be inadequate to meet the Company's operational needs, the Company might seek to compensate providers of services by issuances of stock in lieu of cash.

 

18
 


 

(6) CRITICAL ACCOUNTING POLICIES

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (GAAP). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

During the year ended December 31, 2010 and through November 22, 2011, there were several new accounting pronouncements issued by the FASB the most recent of which was Accounting Standards Update 2011-09. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s financial statements.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company may be subject to certain market risks, including changes in interest rates and currency exchange rates. At the present time, the Company does not undertake any specific actions to limit those exposures.

ITEM 4 - CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As of September 30, 2011, our management, under the supervision and with the participation of our Chief Executive and Financial Officer (Certifying Officer), evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15 promulgated under the Exchange Act. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our Certifying Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Certifying Officer concluded that, as of September 30, 2011, our disclosure controls and procedures were not effective to ensure that the information required to be disclosed by us in our reports is recorded, processed, summarized and reported within the time periods specified by the SEC due to a inherent weakness in our internal controls over financial reporting due to our status as a shell corporation and having a sole officer and director. However, our Certifying Officer believe that the restated financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the respective periods presented.

(b) Changes in Internal Controls

There were no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the quarter ended September 30, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Existing internal controls of Old West were adopted upon completion of the asset purchase on August 18, 2011 in addition to ensuring the overall controls and procedures of the Company were met.

 

 

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PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

The Company may become involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters should not have an adverse material impact either individually or in the aggregate on results of operations, financial position or cash flows of the Company.

ITEM 1A - RISK FACTORS

Not applicable

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

On July 25, 2011, the Company, its wholly-owned subsidiary, LDC Collection Systems, Inc. and CJP Entertainment LLC, mutually agreed to execute a Repurchase Agreement whereby the May 25, 2011 transaction to purchase a Casino Ship located in Freeport, Texas. Concurrent with the execution of the July 25, 2011 Repurchase Agreement, the 2,000,000 shares of the Company's common stock held by the CJP Entertainment LLC was returned to the Company and cancelled.

On August 18, 2011, the Company issued 1,000,000 restricted and unregistered common shares, with a fair market value of $280,000, to Old West Entertainment Corp. under an asset purchase agreement.

On August 18, 2011, the Company issued 5,000,000 shares of restricted, unregistered shares of the Company's common stock each to Arturo Molina Jr. (Frost) for management services as President and Bogat Family Trust as consideration for the management services that beneficiaries of the Trust will be providing to the Company in operating the music and entertainment portion of the business over the next 12 months. The shares had a fair market value of $0.32.

ITEM 3 - DEFAULTS ON SENIOR SECURITIES

None.

ITEM 4 - (REMOVED AND RESERVED)

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS

31.1 Certification pursuant to Section 302 of Sarbanes-Oxley Act of 2002 
32.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

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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   
     
     
Dated: November 22, 2011 By: /s/ Arthur Molina, Jr.  
  Arthur Molina, Jr.  
  Chairman, Chief Executive Officer,  
  Acting Chief Financial Officer and Director  

 

 

 

 

 

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