UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 3)
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 1, 2011
THE X-CHANGE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 002-41703 90-0156146
(State or Other (Commission (IRS Employer
Jurisdiction of Incorporation) File Number) Identification No.)
12655 North Central Expressway, Suite 1000, Dallas TX 75243
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (972) 386-7350
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (SEE General Instruction A.2 below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
FORWARD LOOKING STATEMENTS
The following discussion, in addition to the other information contained in this
Current Report, should be considered carefully in evaluating our prospects. This
report (including without limitation the following factors that may affect
operating results) contains forward-looking statements regarding us and our
business, financial condition, results of operations and prospects. Words such
as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions or variations of such words are intended to
identify forward-looking statements, but are not the exclusive means of
identifying forward-looking statements in this report. Additionally, statements
concerning future matters such as revenue projections, projected profitability,
growth strategies, possible changes in legislation and other statements
regarding matters that are not historical are forward-looking statements.
Forward-looking statements in this report reflect the good faith judgment of our
management and the statements are based on facts and factors as we currently
know them. Forward-looking statements are subject to risks and uncertainties and
actual results and outcomes may differ materially from the results and outcomes
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences in results and outcomes include, but are not
limited to, those discussed below and in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" as well as those discussed
elsewhere in this report. Readers are urged not to place undue reliance on these
forward-looking statements which speak only as of the date of this report. We
undertake no obligation to revise or update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
report.
As used in this current report and unless otherwise indicated, the terms "we",
"us", "our", the "Company" and "X-Change" refer to The X-Change Corporation.
ITEM 5.06 CHANGE IN SHELL COMPANY STATUS
Management has determined that, as of the date of this Current Report, given the
current level of our operations, the Company is no longer a shell corporation as
that term is defined in Rule 405 of the Securities Act and Rule 12b-2 of the
Exchange Act. Therefore, the Company is filing this report to disclose such
information as would be required if the registrant were filing a general form
for registration of securities on Form 10.
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FORM 10 DISCLOSURE
ITEM 1. BUSINESS
CORPORATE HISTORY
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, we had disposed of all assets and operations.
Our principal office is located at 12655 North Central Expressway, Suite 1000,
Dallas, Texas 75243 and our telephone number is (972) 386-7350. Currently, the
Company has no known exposures to any current or proposed climate change
legislation which could negatively impact the Company's operations or require
capital expenditures to become compliant.
RECENT ACQUISITION OF ASSETS
On May 31, 2011, the Company acquired a casino ship, the "MV Texas Star Casino"
("Texas Star"), from CJP Entertainment, LLC, in exchange for the issuance of two
million (2,000,000) shares of the Company's common stock, in restricted form.
The Texas Star is currently berthed in Freeport, Texas. On June 6, 2011, the
Company 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 outside the nine mile territorial waters of Texas, in
international waters, as a casino ship.
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 was canceled. 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.
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On August 18, 2011, The X-Change Corporation (the "Company") entered into an
Asset Purchase Agreement with Old West Entertainment Corp. ("Old West"), a
Nevada corporation, which is not affiliated with the Company. As part of the
Agreement, the Company acquired all right, title and interest in all of Old
West's Operating Entertainment Business (the "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 will also assume all rights and obligations
under a Management Consulting Agreement between Old West and Arthur Molina Jr.,
also known in the music business as "Frost." In exchange, the Company issued
one million shares (1,000,000) of its common stock, in restricted form, to Old
West.
Old West focuses on hip-hop entertainment and is headed by Frost, a rapper and
hip-hop legend. Old West is an entertainment company specializing in all aspects
of entertainment including music, feature films, television, home video/DVD and
major events. The Company intends to utilize the Old West assets it has acquired
to establish itself in the entertainment industry including music, developing
new artists, movies, TV shows, and concert and event promotion.
As part of the Agreement, Frost was issued five million shares (5,000,000) of
the Company's common stock for his management services for a period of one year
and Frost was appointed President and CEO of the Company as well as acting CFO.
The Company also issued five million shares (5,000,000) of its common stock in
restricted form to the Bogat Family Trust on behalf of Raymond Dabney as
consideration for the management services Mr. Dabney will be providing to the
Company in operating the music and entertainment portion of the business for a
period of one year. Neither Frost nor the Bogat Trust are shareholders of Old
West. Old West sole shareholder, officer and director is Mark Jordan. Mr.
Jordan, Frost and the Bogat Trust were non-related and non-affiliates of the
Company prior to this transaction.
Based on the closing price of the Company's common stock as of August 17, 2011,
this acquisition is valued at $320,000 (one million shares times $.32 per
share). The assets the Company acquired from Old West include entertainment
contracts with Frost and other artists. The Company intends to develop
television reality shows and to develop products to market and sell under its
brand.
EMPLOYEES
The Company currently has no employees but has management contracts with its CEO
who will be providing his services on an as-needed basis. Management of the
Company expects to use consultants, attorneys and accountants as necessary. As
the Company needs employees, it will employ them. Since the Company has acquired
certain assets from Old West, the Company intends to primarily focus its
activities in the entertainment industry.
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WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy our reports or other filings
made with the SEC at the SEC's Public Reference Room, located at 100 F Street,
N.E., Washington, DC 20549. You can obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access
these reports and other filings electronically on the SEC's web site,
www.sec.gov.
ITEM 1A. RISK FACTORS
RISK FACTORS
RISKS RELATING TO OUR COMPANY AND BUSINESS
CONSUMER SPENDING ON LEISURE ACTIVITIES
The Company faces significant risk for the sales of its music, entertainment,
distribution and branded merchandise, which could be viewed as non-essential
leisure activity spending on behalf of the consumer. With an economic downturn,
discretionary spending tightens for consumers and our business and sales could
be significantly negatively impacted.
OUR COMMERCIAL SUCCESS DEPENDS SIGNIFICANTLY ON OUR ABILITY TO DEVELOP AND
COMMERCIALIZE OUR POTENTIAL SERVICES
Old West Entertainment relies on the expertise of Mr. Molina and other business
consultants to develop and commercialize its entertainment and brand. There can
be no assurance that a profitable commercialization level of the business will
be attained or that the brand will be a success. While management believes the
prior experience and success of Mr. Molina operating under his own name brand,
"Frost", is an indication that this business venture will be successful, there
can be no assurance of any meaningful or sustained success as a brand or
entertainment company.
THE COMPANY MUST RESPOND TO RECENT AND FUTURE CHANGES IN TECHNOLOGY, SERVICES,
STANDARDS AND CONSUMER BEHAVIOR TO REMAIN COMPETITIVE AND CONTINUE TO INCREASE
ITS REVENUES.
Technology, particularly digital technology used in the entertainment and media
industry, continues to evolve rapidly, and advances in that technology have led
to alternative methods for the distribution, storage and consumption of digital
content. These technological changes have driven and reinforced changes in
consumer behavior as consumers increasingly seek control over when, where and
how they consume content digitally. For example, consumer electronic innovations
have enabled consumers to view Internet-delivered content, including films,
television programming and magazines, on televisions, computers, tablets, phones
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and other portable electronic devices. These changes in technology and consumer
behavior will result in challenges and risks for the Company as it intends to
operate in these fields. If the Company fails to adapt to emerging technologies
and changes in consumer behavior, it could have a significant adverse effect on
the Company's competitive position and its businesses and results of operations.
TECHNOLOGICAL DEVELOPMENTS ALSO POSE OTHER CHALLENGES FOR THE COMPANY THAT COULD
ADVERSELY AFFECT ITS REVENUES AND COMPETITIVE POSITION.
The Company may not be able to secure the right to distribute content it may
license from others digitally or across new delivery platforms or devices as
those are being developed. Furthermore, advances in technology or changes in
competitors' product and service offerings may require the Company to make
additional research and development expenditures or offer products or services
in a digital format without charge or at a lower price than offered in other
formats. New technology or business initiatives supported by the Company may not
be embraced by consumers or advertisers, and therefore may not develop into
profitable business models, which could have a significant adverse effect on the
Company's competitive position and its businesses and results of operations. In
addition, new delivery platforms could lead to the loss of distribution control
and the loss of direct relationships with consumers.
THE COMPANY FACES RISKS RELATING TO COMPETITION FOR THE LEISURE AND
ENTERTAINMENT TIME AND DISCRETIONARY SPENDING OF CONSUMERS, WHICH HAS
INTENSIFIED IN PART DUE TO ADVANCES IN TECHNOLOGY AND CHANGES IN CONSUMER
BEHAVIOR.
The Company's business is subject to risks relating to increasing competition
for the leisure and entertainment time and discretionary spending of consumers.
The Company's proposed business will compete with all other sources of
entertainment, news and other information, including broadcast television,
films, the Internet, home video products, live events and radio broadcasts, for
consumers' leisure and entertainment time and discretionary spending.
Technological advancements, such as tablets and other portable electronic
devices, video-on-demand, new video formats and Internet streaming and
downloading, have increased the number of media and entertainment choices
available to consumers and intensified the challenges posed by audience
fragmentation. The increasing number of leisure and entertainment choices
available to consumers, including low-cost or free choices, could negatively
affect consumer demand for the Company's products and services, the prices the
Company receives as payment for licenses of the Company's content, which would
reduce the Company's expected revenues and could also result in the Company
incurring additional marketing expenses.
THE POPULARITY OF THE COMPANY'S CONTENT IS DIFFICULT TO PREDICT AND COULD LEAD
TO FLUCTUATIONS IN THE COMPANY'S REVENUES, AND LOW PUBLIC ACCEPTANCE OF THE
COMPANY'S CONTENT MAY ADVERSELY AFFECT ITS RESULTS OF OPERATIONS.
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The production and distribution of television programming, films, and other
content is inherently risky business, largely because the revenues derived
from the production, distribution and licensing of such content depends
primarily on its acceptance by the public, which is difficult to predict. Public
acceptance of new original television programming and new theatrical films is
very difficult to predict, which heightens the risks associated with such
content. The public acceptance of the Company's content depends on many factors,
only some of which are within the Company's control. Examples include the
quality and acceptance of competing content, including locally produced content,
available or released at or near the same time, the availability of alternative
forms of leisure and entertainment time activities, the adequacy of efforts to
limit piracy, the Company's ability to develop strong brand awareness and target
key audience demographics, the Company's ability to anticipate and adapt to
changes in consumer tastes and behavior on a timely basis and general economic
conditions. If the Company is not able to create and distribute content,
products and services that earn consumer acceptance, the Company's revenues and
its results of operations could be adversely affected.
THE COMPANY'S BUSINESS WILL OPERATE IN HIGHLY COMPETITIVE INDUSTRIES.
The Company's proposed business operations face intense competition from many
different sources, and the ability of these businesses to compete successfully
depends on many factors, including their ability to provide high-quality,
popular content, adapt to new technologies and distribution platforms, respond
to changes in consumer behavior and achieve widespread distribution. The
Company' competitors are much substantially larger and better financed and
capitalized with more name recognition than the Company and have been engaged in
this business for much longer than the Company.
THERE CAN BE NO ASSURANCE THAT THE COMPANY AND ITS BUSINESSES WILL BE ABLE TO
COMPETE SUCCESSFULLY IN THE FUTURE AGAINST EXISTING OR POTENTIAL COMPETITORS.
The failure to compete successfully may have an adverse effect on the Company's
businesses or results of operations.
THE COMPANY MAY BE ADVERSELY AFFECTED BY WEAK ECONOMIC AND MARKET CONDITIONS.
The Company's business may be affected by economic and market conditions,
including factors such as the rate of unemployment, the level of consumer
confidence, changes in consumer spending habits, and interest rates. Because
many of the Company's proposed products and services are largely discretionary
items, the deterioration of the economy in the U.S. or key international markets
could diminish demand for the Company's products and services and adversely
affect the Company's revenues.
PIRACY OF THE COMPANY'S CONTENT MAY DECREASE THE REVENUES RECEIVED FROM THE
EXPLOITATION OF ITS CONTENT AND ADVERSELY AFFECT ITS BUSINESS AND PROFITABILITY.
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The piracy of the Company's content, products and other intellectual property in
the U.S. and internationally may pose significant challenges for the Company's
businesses. Technological advances have made it easier to create, transmit and
distribute high quality unauthorized copies of content in unprotected digital
formats. The proliferation of unauthorized copies and piracy of the Company's
content and products or the products it licenses from third parties could result
in a reduction of the revenues that the Company receives from the legitimate
sale and distribution of its content and products. The Company intends to strive
vigorously to protect its intellectual property, but there can be no assurance
that the Company's efforts to enforce its rights and combat piracy will be
successful.
THE COMPANY'S BUSINESS MAY SUFFER IF IT CANNOT LICENSE OR ENFORCE THE
INTELLECTUAL PROPERTY RIGHTS ON WHICH ITS BUSINESS WILL DEPEND.
The Company will rely on patent, copyright, trademark and trade secret laws and
licenses and other agreements with its employees, customers, suppliers and other
parties to establish and maintain its intellectual property rights in content,
technology and products and services used to conduct its businesses. However,
the Company's intellectual property rights could be challenged or invalidated,
it could have difficulty obtaining such rights or the rights may not be
sufficient to permit it to take advantage of business opportunities, which could
result in costly redesign efforts, discontinuance of certain product and service
offerings or other competitive harm. Further, the laws of certain countries will
not protect the Company's proprietary rights or such laws may not be strictly
enforced, and the Company may be unable to protect its intellectual property
adequately against unauthorized copying or use in certain countries.
THE COMPANY'S BUSINESS MAY BE SUBJECT TO LABOR INTERRUPTION.
The Company will retain the services of writers, directors, actors, musicians,
technicians, trade employees and others involved in the development and
production of motion pictures, television programming and music who are covered
by collective bargaining agreements. If the Company or its suppliers are unable
to renew expiring collective bargaining agreements, it is possible that the
affected unions could take actions in the form of strikes, work slowdowns or
work stoppages. Such actions or the possibility of such actions, including
attempts to unionize, could cause delays in the production or the release dates
of the Company's feature films, television programming and magazines. The
Company could also incur higher costs from such actions, new collective
bargaining agreements or if collective bargaining agreements are renewed on less
favorable terms.
IF WE ARE UNABLE TO MANAGE OUR GROWTH EFFECTIVELY.
If the Company is unable to manage its growth it may be forced to curtail or
cease operations. Growth restrictions include: limited new artists to be
represented under the Company's brand, lack of human resource to build the
business and develop new TV shows and other entertainment assets, and reliance
on key personnel for meeting growth objectives. The Company's business plan and
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success are relying heavily on the business acumen and prior success of Mr.
Molina and Mr. Dabney and there can be no assurance that they will meet growth
objectives for the business or successfully develop new entertainment content
that will become commercially viable.
RELIANCE ON CAPITAL AND FUNDING TO GROW THE BUSINESS AND BRAND.
The Company is relying on capital from the public markets in addition to other
financing to meeting its business and growth objectives. There can be no
assurance that this capital or financing can be raised or obtained. As a result,
the Company may be forced to reduce or close portions of its business to sustain
operations until such capital or financing can be obtained, of which there can
be no assurance.
WE HAVE NO TRACK RECORD THAT WOULD PROVIDE A BASIS FOR ASSESSING OUR ABILITY TO
CARRY ON SUCCESSFUL BUSINESS ACTIVITIES. WE MAY NOT BE SUCCESSFUL IN
IMPLEMENTING OUR BUSINESS OBJECTIVES.
The revenue potential of our proposed business and operations is unproven and
the lack of an operating history makes it difficult to evaluate the future
prospects of our business. There is nothing at this time on which to base an
assumption that our business operations will prove to be successful or that we
will ever be able to operate profitably. We have no track record of successful
business activities, strategic decision-making by management, revenue
production, or other factors that would allow an investor to assess the
likelihood that we will be successful in marketing and sales of our products or
brand. There is a substantial risk that we will not be successful in
implementing our business plan, or if initially successful, in thereafter
generating any operating revenues or in achieving profitable operations.
While our newly appointed CEO, Arthur Molina, Jr., has extensive experience in
the music and entertainment industry as a recording artist, there can be no
guarantee that he will be able as successful in operating an entertainment
company. In order to move forward, the Company will have to raise capital or
secure loans to advance its operations in this industry, of which there can be
no assurances of its ability to raise capital or to secure loans.
OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A
GOING CONCERN. IF WE DO NOT HAVE SUFFICIENT FUNDING, WE MAY HAVE TO SUSPEND OR
CEASE OPERATIONS WITHIN TWELVE MONTHS.
Our audited financial statements for the year ended December 31, 2010 were
prepared using the assumption that we will continue our operations as a going
concern. We were incorporated in 1969 and do not have a history of earnings in
recent years. As a result, our independent accountants in their audit report
have expressed substantial doubt about our ability to continue as a going
concern. Continued operations are dependent on our ability to complete equity or
debt financing activities or to generate profitable operations. Such activities
may not be available or may not be available on reasonable terms. We believe
that if we do not have sufficient funding, we may have to suspend or cease
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operations within twelve months. Therefore, we may be unable to continue
operations in the future as a going concern. If we cannot continue as a viable
entity, our stockholders may lose some or all of their investment in the
Company.
WE ARE A SMALL COMPANY WITH LIMITED RESOURCES COMPARED TO SOME OF OUR CURRENT
AND POTENTIAL COMPETITORS AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AND
INCREASE MARKET SHARE.
The market for our operations is highly competitive and although we believe our
operations will feature artists and contents that will attract consumers, we
cannot guarantee that our products will be accepted by the consumer or be
accepted by a large enough segment of the consumer population to capture a
significant enough market share to successfully launch and sustain any future
operations. Our current and potential competitors may have longer operating
histories, significantly greater resources and name recognition, and a larger
base of customers than we have. Our competitors may also be able to adopt more
aggressive pricing policies and devote greater resources to the development,
marketing and sale of their products and services than we can. To be
competitive, we must invest significant resources in developing artistic
content, marketing, promotion, and sales. We may not have sufficient resources
to make these investments or to develop and expand our artistic content in a
manner necessary to be competitive, which in turn will cause our business to
suffer and restrict our profitability potential.
The entertainment industry is a very competitive field with significantly larger
competitors with better financial resources than the Company has at present.
These competitors have longer operating histories, significantly greater
resources and name recognition as well as larger customer bases than the Company
will have initially.
OUR COMMERCIAL SUCCESS DEPENDS SIGNIFICANTLY ON OUR ABILITY TO DEVELOP AND
COMMERCIALIZE OUR POTENTIAL SERVICES AS RAPIDLY AS POSSIBLE GIVEN OUR RECENT
LACK OF OPERATIONS.
Given our lack of viable operations over the past few years, we may have
difficulty in raising sufficient funds through the sale of stock or from other
types of financing so that we may adequately fund our operations and start
operating as currently planned.
OUR SUCCESS DEPENDS ON BEING ABLE TO ATTRACT ARTISTS, WRITERS, AND MUSICIANS TO
OPERATE UNDER CONTRACTS WITH OUR COMPANY AND THE ABILITY TO HIRE AND THEN TO
RETAIN QUALIFIED PERSONNEL TO MANAGE THESE ARTISTS AND TO PRODUCE ARTISTIC
CONTENT THAT APPEALS TO THE CONSUMER IN SIGNIFICANT QUANTITY TO ACHIEVE
PROFITABILITY. IF WE ARE NOT SUCCESSFUL IN ATTRACTING AND RETAINING THESE
PERSONNEL, OUR BUSINESS WILL SUFFER.
Our success depends substantially on the performance of our management team and
key personnel. Currently, we have no employees. All other personnel retained by
the Company are hired as consultants on an as-needed basis. Due to the
specialized nature of our business, we are particularly dependent on our
consultants who have the insider knowledge and contacts to attract artists
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willing to work with or be managed by the Company. Our future success will
depend on our ability to attract, integrate, motivate and retain qualified
sales, operations, and managerial personnel, as well as our ability to
successfully implement a plan for management succession.
Competition for qualified personnel in our business areas is intense, and we may
not be able to continue to attract and retain key personnel. In addition, if we
lose the services of any of our management team or key personnel and are not
able to find suitable replacements in a timely manner, our business could be
disrupted and we may incur increased operating expenses.
THE ELIMINATION OF MONETARY LIABILITY AGAINST THE COMPANY'S DIRECTORS, OFFICERS
AND EMPLOYEES UNDER NEVADA LAW AND THE EXISTENCE OF INDEMNIFICATION RIGHTS TO
THE COMPANY'S DIRECTORS, OFFICERS AND EMPLOYEES MAY RESULT IN SUBSTANTIAL
EXPENDITURES BY THE COMPANY AND MAY DISCOURAGE LAWSUITS AGAINST THE COMPANY'S
DIRECTORS, OFFICERS AND EMPLOYEES.
The Company's Certificate of Incorporation contains a specific provision that
eliminates the liability of directors for monetary damages to the Company and
the Company's stockholders; further, the Company is prepared to give such
indemnification to its directors and officers to the extent provided by Nevada
law. The foregoing indemnification obligations could result in the Company
incurring substantial expenditures to cover the cost of settlement or damage
awards against directors and officers, which the Company may be unable to
recoup. These provisions and resultant costs may also discourage the Company
from bringing a lawsuit against directors and officers for breaches of their
fiduciary duties and may similarly discourage the filing of derivative
litigation by the Company's stockholders against the Company's directors and
officers even though such actions, if successful, might otherwise benefit the
Company and its stockholders.
WE MAY BE EXPOSED TO RISKS RELATING TO MANAGEMENT'S CONCLUSION THAT OUR
DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL
REPORTING ARE INEFFECTIVE.
We do not have an independent audit committee and our Board of Directors may be
unable to fulfill the functions of such a committee which may compromise the
management of our business.
Currently, we do not have an independent audit committee. Our Board of Directors
functions as our audit committee and is comprised of three directors, one of
whom is not considered to be "independent" in accordance with the requirements
of Rule 10A-3 under the Securities Exchange Act of 1934. An independent audit
committee plays a crucial role in the corporate governance process, assessment
of the Company's processes relating to its risks and control environment,
oversight of financial reporting, and evaluation of internal and independent
audit processes. The lack of an independent audit committee may prevent the
Board of Directors from being independent in its judgments and decisions and its
ability to pursue the committee's responsibilities, which could compromise the
management of our business.
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RISKS RELATING TO THE COMMON STOCK
THE COMPANY'S STOCK PRICE MAY BE VOLATILE.
The market price of the Company's common stock is likely to be highly volatile
and could fluctuate widely in price in response to various factors, many of
which are beyond the Company's control, including the following:
* Consumer acceptance and demand for artists, theatrical and television
productions and brands by the Company or its competitors;
* additions or departures of key personnel;
* the Company's ability to execute its business plan;
* operating results that fall below expectations;
* loss of any strategic relationship;
* industry developments;
* economic and other external factors; and
* period-to-period fluctuations in the Company's financial results.
In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating
performance of particular companies. These market fluctuations may also
materially and adversely affect the market price of the Company's common stock.
WE MAY IN THE FUTURE ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WHICH WOULD
REDUCE INVESTORS' OWNERSHIP INTERESTS IN THE COMPANY AND WHICH MAY DILUTE OUR
SHARE VALUE.
Our Articles of Incorporation authorizes the issuance of 750,000,000 shares of
common stock, par value $0.001 per share and 75,000,000 shares of preferred
stock, $.001 par value. The future issuance of all or part of our remaining
authorized common stock may result in substantial dilution in the percentage of
our common stock held by our then existing stockholders. We may value any common
stock issued in the future on an arbitrary basis. The issuance of common stock
for future services or acquisitions or other corporate actions may have the
effect of diluting the value of the shares held by our investors, and might have
an adverse effect on any trading market for our common stock.
In the future, the Company might authorize a class of preferred stock with
rights and preferences superior to those of the common stockholders and which
might contain provisions giving them priority over the rights of the common
stockholders. Any such class of preferred stock may result in substantial
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dilution to our common stockholders and have an adverse effect on any trading
market for our common stock.
FINRA SALES PRACTICE REQUIREMENTS MAY LIMIT A STOCKHOLDER'S ABILITY TO BUY AND
SELL OUR STOCK.
The Financial Industry Regulatory Authority ("FINRA") has adopted rules that
relate to the application of the SEC's penny stock rules in trading our
securities and require that a broker/dealer have reasonable grounds for
believing that the investment is suitable for that customer, prior to
recommending the investment. Prior to recommending speculative, low priced
securities to their non-institutional customers, broker/dealers must make
reasonable efforts to obtain information about the customer's financial status,
tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is a high
probability that speculative, low priced securities will not be suitable for at
least some customers. FINRA's requirements make it more difficult for
broker/dealers to recommend that their customers buy our common stock, which may
have the effect of reducing the level of trading activity and liquidity of our
common stock. Further, many brokers charge higher transactional fees for penny
stock transactions. As a result, fewer broker/dealers may be willing to make a
market in our common stock, reducing a shareholder's ability to resell shares of
our common stock.
THE COMPANY'S COMMON STOCK IS CURRENTLY DEEMED TO BE "PENNY STOCK", WHICH MAKES
IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES.
The Company's common stock is and will be subject to the "penny stock" rules
adopted under section 15(g) of the Exchange Act. The penny stock rules apply to
companies whose common stock is not listed on the NASDAQ Stock Market or other
national securities exchange and trades at less than $5.00 per share or that
have tangible net worth of less than $5,000,000 ($2,000,000 if the company has
been operating for three or more years). These rules require, among other
things, that brokers who trade penny stock to persons other than "established
customers" complete certain documentation, make suitability inquiries of
investors and provide investors with certain information concerning trading in
the security, including a risk disclosure document and quote information under
certain circumstances. Many brokers have decided not to trade penny stocks
because of the requirements of the penny stock rules and, as a result, the
number of broker-dealers willing to act as market makers in such securities is
limited. If the Company remains subject to the penny stock rules for any
significant period, it could have an adverse effect on the market, if any, for
the Company's securities. If the Company's securities are subject to the penny
stock rules, investors will find it more difficult to dispose of the Company's
securities.
13
ITEM 2. FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2010
The Company had no revenue, except for nominal interest income, for either of
the years ended December 31, 2010 or 2009, respectively. The Company was
dependent on loans and lines of credit to fund its operations in 2010.
General and administrative expenses for each of the years ended December 31,
2010 and 2009 were approximately $127,000 and $41,000, respectively. The
increase in 2010 expenditures related principally to the Company's attempts to
find a suitable business combination partner as well as increases in
administrative costs and professional and consulting fees related to the
maintenance of the corporate entity and the Company's continued compliance with
the requirements of the Securities Exchange Act of 1934.
The Company recognized aggregate interest accruals, amortization of debt
financing fees and accretion of debt discounts of approximately $5,176,000 and
$744,000 during each of the years ended December 31, 2010 and 2009,
respectively. The Company's convertible debenture with La Jolla Cove Investors,
Inc. matured in August 2010. 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). As of this filing, La Jolla Cove Investors has not made a demand for
payment on the matured debenture and, subsequent to year-end, has advanced
additional monies to the Company to facilitate the development of the pending
21-Century Silicon transaction.
On May 4, 2009, the Company entered into a Settlement Agreement and Release with
AirGATE Technologies Inc. (AirGATE), HM Energy Technologies Inc. (HM), WM Chris
Mathers (Mathers), Kathleen Hanafan (Hanafan), Duke Loi (Loi), Samson Investment
Company (Samson), Ironman PI Fund (QP), L.P. (Ironman), John Thomas Bridge and
Opportunity Fund, LP (John Thomas and, collectively with Samson and Ironman,
SIJ) and Melissa CR 364, LTD (Melissa). In summary, as a result of the various
transactions effected under the Agreement, SIJ surrendered all of their shares
in the Company, cancelled financial obligations of the Company that exceeded
$3.6 million, with interest and terminated their rights under warrant and
guaranty agreements. The Company provided all parties with a full release of
claims, known and unknown, in exchange for these various surrenders,
cancellations and terminations. The Company recognized a gain on extinguishment
of debt of approximately $465,000 as a result of these actions.
Earnings per share for the respective years ended December 31, 2010 and 2009
were $(0.00) and $(0.00) based on the weighted-average shares issued and
outstanding at the end of each respective period.
14
BALANCE SHEET
As at December 31, 2010, the Company had assets of $571,260 comprised of a
license of $530,000, a note receivable of $40,714 and interest receivable of
$546 and had total liabilities of $1,178,357 comprised of a convertible
debenture of $286,225, note payable to shareholder of $837,490, accounts payable
of $4,570, and accrued interest payable of $50,072. The assets on the balance
sheet dated December 31, 2010 are no longer owned by the Company due to
rescission of the transactions by which the Company received the assets or
through abandonment of the assets by the Company.
OPERATING REVENUES
During the year ended December 31, 2010, the Company did not recognize any
operating revenue.
In March 2010, the Company issued an aggregate 3,902,439 shares of restricted,
unregistered common stock in connection with the redemption of $32,000 in
convertible debenture debt. As the conversion price was below the "fair value"
of the securities issued, the Company experienced a non-cash charge to
operations of approximately $57,760 which will be classified as "interest
expense" in the financial statements for the quarter ended March 31, 2010.
In September 2010 and December 2010, the Company issued an aggregate 9,797,416
restricted, unregistered post-reverse split shares to Melissa CR 364 LTD. to
retire a combination of approximately $50,000 on the aforementioned line of
credit and approximately $146,000 in accumulated accrued interest on both the
AirGATE and line of credit notes. As the valuation of the conversion as stated
in the separate note agreements was below the "fair value" of the securities
issued, the Company experienced a non-cash charge to operations of approximately
$4,950,000 which was classified as "interest expense" in the accompanying
financial statements.
In December 2010, the Company issued 1,000,000 shares of restricted,
unregistered post-reverse split shares, valued at approximately $530,000 which
was equal to the closing quotation of the Company's securities on the
transaction date, to 21-Century Silicon, Inc. (a Texas corporation) to license
the use of 21-Century Silicon's technology and to secure an exclusive right to
negotiate to acquire certain intellectual property from 21-Century Silicon. This
transaction was not closed.
OPERATING EXPENSES
During the year ended December 31, 2010, the Company had operating expenses and
a net loss of $5,304,043.
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2010, the Company had no cash balance of zero and a working
capital deficit of $(1,137,000).
15
Our capital needs over the next year, and each subsequent year, will be
approximately $2,000,000. Our anticipated expenses per year include:
We expect to incur these expenses over the next year as follows:
TIME PERIOD
EXPECTED EXPENSES
October 1, 2011 - December 31, 2011
$60,000 for general and administrative plus financing for projects, the costs of
which cannot be determined until we secure the projects.
January 1, 2012 - March 31, 2012
$60,000 for general and administrative plus financing for projects, the costs of
which cannot be determined until we secure the projects.
April 1, 2012 - June 30, 2012
$60,000 for general and administrative plus financing for projects, the costs of
which cannot be determined until we secure the projects.
July 1, 2012 - September 30, 2012
$60,000 for general and administrative plus financing for projects, the costs of
which cannot be determined until we secure the projects.
The Company estimates that it will cost approximately $100,000 to package each
reality show project it acquires. The Company estimates that once it secures the
rights to produce a movie, the cost be will approximately $500,000 to produce
the movie. Each musical album will cost approximately $50,000 to produce and
marketing expenses are estimated to be approximately $100,000 to $300,000 over
the next year. Unless and until the Company raises capital or is able to borrow
money, the Company will not be able to implement its business plan as proposed
and will not be able to produce any movies, television shows or music albums or
market its proposed products and services.
CASHFLOW FROM OPERATING ACTIVITIES
During the year ended December 31, 2010, the Company used $124,092 of cash for
operating activities related to the Company's general operations.
CASHFLOW FROM INVESTING ACTIVITY
During the year ended December 31, 2010, the Company did not have any investing
activities.
16
CASHFLOW FROM FINANCING ACTIVITIES
During the year ended December 31, 2010, the Company received $163,726 from
financing activities.
CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes have been prepared in accordance
with United States generally accepted accounting principles applied on a
consistent basis. The preparation of 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, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to
prepare our financial statements. A complete summary of these policies is
included in the notes to our financial statements which are incorporated herein
by this reference to the Company's most recent Annual Report for the year ended
December 31, 2010, as filed with the Securities and Exchange Commission on
January 18, 2011. In general, management's estimates are based on historical
experience, on information from third party professionals, and on various other
assumptions that are believed to be reasonable under the facts and
circumstances. Actual results could differ from those estimates made by
management.
GOING CONCERN
We have not attained profitable operations and are dependent upon obtaining
financing to pursue any extensive activities. For these reasons, our auditors
stated in their report on our audited financial statements that they have
substantial doubt that we will be able to continue as a going concern without
further financing.
Our continued operations are dependent on our ability to complete equity or debt
financing activities or to generate profitable operations. The Company
anticipates that it will begin to produce a positive cash flow twelve months
after it begins operating the gambling ship. The Company expects to begin
operating the ship by the end of the current year. The Company has signed a
Letter of Intent for the operation of the gambling ship.
FUTURE FINANCINGS
We will continue to rely on equity sales of our common shares in order to
continue to fund our business operations. Issuances of additional shares will
result in dilution to existing stockholders. There is no assurance that we will
achieve any additional sales of the equity securities or arrange for debt or
other financing to fund planned acquisitions and exploration activities.
17
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to
stockholders.
CONTRACTUAL OBLIGATIONS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2010-06, "Improving Disclosures about
Fair Value Measurements." ASU No. 2010-06 amends FASB Accounting Standards
Codification ("ASC") 820 and clarifies and provides additional disclosure
requirements related to recurring and non-recurring fair value measurements and
employers' disclosures about postretirement benefit plan assets. This ASU is
effective for interim and annual reporting periods beginning after December 15,
2009. The adoption of ASU 2010-06 did not have a material impact on the
Company's financial statements.
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities
that declare dividends to shareholders that may be paid in cash or shares at the
election of the shareholders are considered to be a share issuance that is
reflected prospectively in EPS, and is not accounted for as a stock dividend.
This standard is effective for interim and annual periods ending on or after
December 15, 2009 and is to be applied on a retrospective basis. The adoption of
this standard is not expected to have a significant impact on the Company's
consolidated financial statements.
In January 2010, the FASB issued an amendment to ASC 820, Fair Value
Measurements and Disclosure, to require reporting entities to separately
disclose the amounts and business rationale for significant transfers in and out
of Level 1 and Level 2 fair value measurements and separately present
information regarding purchase, sale, issuance, and settlement of Level 3 fair
value measures on a gross basis. This standard, for which the Company is
currently assessing the impact, is effective for interim and annual reporting
periods beginning after December 15, 2009 with the exception of disclosures
regarding the purchase, sale, issuance, and settlement of Level 3 fair value
measures which are effective for fiscal years beginning after December 15, 2010.
The adoption of this standard is not expected to have a significant impact on
the Company's consolidated financial statements.
18
In October 2009, FASB issued an amendment to the accounting standards related to
the accounting for revenue in arrangements with multiple deliverables including
how the arrangement consideration is allocated among delivered and undelivered
items of the arrangement. Among the amendments, this standard eliminated the use
of the residual method for allocating arrangement considerations and requires an
entity to allocate the overall consideration to each deliverable based on an
estimated selling price of each individual deliverable in the arrangement in the
absence of having vendor-specific objective evidence or other third party
evidence of fair value of the undelivered items. This standard also provides
further guidance on how to determine a separate unit of accounting in a
multiple-deliverable revenue arrangement and expands the disclosure requirements
about the judgments made in applying the estimated selling price method and how
those judgments affect the timing or amount of revenue recognition. This
standard, for which the Company is currently assessing the impact, will become
effective on January 1, 2011.
The Company has implemented all new accounting pronouncements that are in
effect. These pronouncements did not have any material impact on the financial
statements unless otherwise disclosed, and the Company does not believe that
there are any other new accounting pronouncements that have been issued that
might have a material impact on its financial position or results of operations.
SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
ITEM 3 - PROPERTIES
We currently maintain a mailing address, at a cost of $75 per month, at 9107
Wilshire Blvd., Suite 450, Beverly Hills, California 90210 and share another
office, of approximately 750 sq. feet, at a monthly rental of $1,500, on a month
to month basis, located at 2700 West Coast Highway, Suite 215, Newport Beach,
California 92660. Our telephone number is 888-223-9331. Other than this office,
we do not currently maintain any other office facilities but anticipate leasing
additional office space in Burbank, California which will have studio and
filming bays. The Company anticipates leasing this additional space later this
month or in early November.
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
19
acquisition candidates and engaged in various transactions since our inception.
As of December 31, 2008, we had disposed of all assets and operations.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
BENEFICIAL OWNERS
The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of September 31, 2011 by: (i)
each of our directors; (ii) each of our named executive officers; and (iii) each
person or group known by us to beneficially own more than 5% of our outstanding
shares of common stock. Unless otherwise indicated, the shareholders listed
below possess sole voting and investment power with respect to the shares they
own.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Amount and
Nature of
Title Name and Address Beneficial Percentage
of Class of Beneficial Owner Ownership of Class(1)
-------- ------------------- --------- -----------
Common Melissa 364 Ltd. 8,747,864 33.21%
9107 Wilshire Blvd. Suite 405
Beverly Hills CA 90210
Common K&D Equity 2,550,000 9.68%
9107 Wilshire Blvd. Suite 405
Beverly Hills CA 90210
Common Arthur Molina* 5,000,000 18.98%
9107 Wilshire Blvd. Suite 405
Beverly Hills CA 90210
Common Bogat Trust 5,000,000 18.98%
9107 Wilshire Blvd. Suite 405
Beverly Hills CA 90210
Common R. Wayne Duke* 0 0.00%
9107 Wilshire Blvd. Suite 405
Beverly Hills CA 90210
20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Amount and
Nature of
Title Name and Address Beneficial Percentage
of Class of Beneficial Owner Ownership of Class(1)
-------- ------------------- --------- -----------
Common John L. Maguire* 0 0.00%
9107 Wilshire Blvd. Suite 405
Beverly Hills CA 90210
Common All directors and executive
officers as a group (3 persons) 5,000,000 18.98%
TOTAL: 21,297,864 80.85%
----------
* Denotes officer and/or director
(1) The number and percentage of shares beneficially owned is determined under
rules of the SEC and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or shared
voting power or investment power and also any shares which the individual
has the right to acquire within 60 days through the exercise of any stock
option or other right. The persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Identification of Directors and Executive Officers
The following table sets forth the names and ages of our current directors and
executive officers:
Name Age Position With the Company Director Since
---- --- ------------------------- --------------
Arthur Molina, Jr. 47 CEO, CFO, Director August 22, 2011
R. Wayne Duke 62 Director May, 2011
John McGuire 69 Director May, 2011
The board of directors has no nominating, audit or compensation committee at
this time.
21
TERM OF OFFICE
Each director serves until our next annual meeting of the stockholders or unless
they resign earlier. The Board of Directors elects officers and their terms of
office are at the discretion of the Board of Directors. Each of our directors
serves until his or her successor is elected and qualified. Each of our officers
is elected by the board of directors to a term of one (1) year and serves until
his or her successor is duly elected and qualified, or until he or she is
removed from office.
BACKGROUND AND BUSINESS EXPERIENCE
The business experience during the past five years of the person presently
listed above as an Officer or Director of the Company is as follows:
Arthur Wright, Jr., President & Chief Executive Officer, Acting Chief Financial
Officer
Arturo R. Molina Jr. (Frost) -- originally known as Kid Frost -- is a pioneer in
the field of Latin hip-hop, cutting some of its very first records and helping
to bring exposure to other bilingual MCs. Mr. Molina has been a self-employed
musician for the past five years.
The veteran East Los Angeles rapper, who became a hip-hop icon in 1990 with his
groundbreaking single "La Raza," has stepped up his game in the last decade,
sharpening his lyrical skills and becoming an authority figure in the rap world.
His success allowed such Latino rappers as Cypress Hill, Fat Joe, Big Pun to
make substantial hip-hop inroads. His music features a hard-hitting mix of
hard-core hip-hop, smoothed out cuts for the ladies and laid-back songs for
cruising. This versatility is one of Frost's strengths, something that keeps him
fresh.
Rapping since 1980, Frost scored his first record deal with Electrobeat Records,
thanks to the help of his long time mentor and friend Ice-T. When deciding on
his name, Frost decided to model his moniker after that of the man who helped
start his career, choosing Frost since Frost comes before ice. Then known as Kid
Frost, Frost became a regular on the car show circuit in the mid 1980s. When he
released "La Raza" and his debut album, "Hispanic Causing Panic" a few years
later, his visibility exploded and helped the Lowrider culture thrive in
Southern California and eventually Worldwide. In 1995, Frost dropped the "Kid"
from his nickname and signed with Ruthless Records, Eazy-E's label (distributed
by Relativity).
With the Company's decision to expand its operations to the entertainment
industry, Mr. Frost's extensive experience and connections to the industry will
be invaluable in the Company moving forward in this field.
R. WAYNE DUKE, DIRECTOR
R. Wayne Duke is chairman and chief executive officer for Industrial
Clearinghouse, a large clearinghouse for industrial MRO products serving the
petroleum industry, a position he has held for more than ten years. Mr. Duke
22
holds a BBA in Finance and a Master's Degree in Business from The University of
North Texas.
JOHN MAGUIRE, DIRECTOR
John L. McGuire was formerly chief financial officer at Tyson Foods, Inc.
(NYSE:TSN), a position he served in from 1969 to 1983. Mr. McGuire is a CPA and
a member of the American Institute of Certified Public Accounts. He has also
served on numerous boards of directors, for both private and public companies.
Mr. McGuire graduated from the University of Arkansas Walton School of Business.
IDENTIFICATION OF SIGNIFICANT EMPLOYEES
As of the date of this Report, other than our current directors and officers, we
have no other full-time or part-time employees. We do have a management contract
with our CEO, Arthur Molina, for a one year term for which he received 5,000,000
shares of the Company's common stock in restricted form. The Company also has a
management contract with the Bogat Trust which secures the management services
of Raymond Dabney for a one year term in exchange for the issuance of 5,000,000
shares of the Company's common stock, in restricted form.
FAMILY RELATIONSHIP
We currently do not have any officers or directors of our company who are
related to each other.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years no director, executive officer, promoter or control
person of the Company has been involved in the following:
(1) A petition under the Federal bankruptcy laws or any state insolvency law
which was filed by or against, or a receiver, fiscal agent or similar officer
was appointed by a court for the business or property of such person, or any
partnership in which he was a general partner at or within two years before the
time of such filing, or any corporation or business association of which he was
an executive officer at or within two years before the time of such filing;
(2) Such person was convicted in a criminal proceeding or is a named subject of
a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(3) Such person was the subject of any order, judgment, or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from, or otherwise
limiting, the following activities:
i. Acting as a futures commission merchant, introducing broker, commodity
trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures Trading
Commission, or an associated person of any of the foregoing, or as an investment
23
adviser, underwriter, broker or dealer in securities, or as an affiliated
person, director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct or
practice in connection with such activity;
ii. Engaging in any type of business practice; or
iii. Engaging in any activity in connection with the purchase or sale of
any security or commodity or in connection with any violation of Federal or
State securities laws or Federal commodities laws;
(4) Such person was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any Federal or State authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described in paragraph (f)(3)(i) of this
section, or to be associated with persons engaged in any such activity;
(5) Such person was found by a court of competent jurisdiction in a civil action
or by the Commission to have violated any Federal or State securities law, and
the judgment in such civil action or finding by the Commission has not been
subsequently reversed, suspended, or vacated;
(6) Such person was found by a court of competent jurisdiction in a civil action
or by the Commodity Futures Trading Commission to have violated any Federal
commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated;
(7) Such person was the subject of, or a party to, any Federal or State
judicial or administrative order, judgment, decree, of finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of:
i. Any Federal or State securities or commodities law or regulation; or
ii. Any law or regulation respecting financial institutions or insurance
companies including, but not limited to, a temporary or permanent injunction,
order of disgorgement or restitution, civil money penalty or temporary or
permanent cease-and-desist order, or removal or prohibition order; or
iii. Any law or regulation prohibiting mail or wire fraud or fraud in
connection with any business entity; or
(8) Such person was the subject of, or a party to, any sanction or order, not
subsequently reversed, suspended or vacated, of any self-regulatory organization
(as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any
registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act
(7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or
24
organization that has disciplinary authority over its members or persons
associated with a member.
AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
The Company does not have an audit committee or an audit committee financial
expert (as defined in Item 407 of Regulation S-K) serving on its Board of
Directors. All current members of the Board of Directors lack sufficient
financial expertise for overseeing financial reporting responsibilities. The
Company has not yet employed an audit committee financial expert on its Board
due to the inability to attract such a person.
The Company intends to establish an audit committee of the board of directors,
which will consist of independent directors. The audit committee's duties will
be to recommend to the Company's board of directors the engagement of an
independent registered public accounting firm to audit the Company's financial
statements and to review the Company's accounting and auditing principles. The
audit committee will review the scope, timing and fees for the annual audit and
the results of audit examinations performed by the internal auditors and
independent registered public accounting firm, including their recommendations
to improve the system of accounting and internal controls. The audit committee
will at all times be composed exclusively of directors who are, in the opinion
of the Company's board of directors, free from any relationship which would
interfere with the exercise of independent judgment as a committee member and
who possess an understanding of financial statements and generally accepted
accounting principles.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to our executive officers
during the twelve month periods ended December 31, 2010 and 2009:
25
SUMMARY COMPENSATION TABLE
Change in
Pension
Value and
Non-Equity Non-qualified
Incentive Deferred All
Name and Plan Compen- Other
Principal Stock Option Compen- sation Compen-
Position Year Salary($) Bonus($) Awards($) Awards($) sation($) Earnings($) sation($) Totals($)
-------- ---- --------- -------- --------- --------- --------- ----------- --------- ---------
Haviland Wright 2010 $ -0- $ -0- $ -0- $ -0- $-0- $-0- $-0- $ -0-
President, CEO 2009 $ -0- $ -0- $ -0- $ -0- $-0- $-0- $-0- $ -0-
R. Wayne Duke 2009 $ -0- $ -0- $ -0- $ -0- $-0- $-0- $-0- $ -0-
Former CEO 2008 $ -0- $ -0- $ -0- $ -0- $-0- $-0- $-0- $ -0-
As of December 31, 2010, the Company has no other Executive Compensation issues
which would require the inclusion of other mandated table disclosures.
NARRATIVE DISCLOSURE TO SUMMARY COMPENSATION TABLE
There are no compensatory plans or arrangements, including payments to be
received from the Company with respect to any executive officer, that would
result in payments to such person because of his or her resignation, retirement
or other termination of employment with the Company, or its subsidiaries, any
change in control, or a change in the person's responsibilities following a
change in control of the Company.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
There were no outstanding equity awards to our executive officers as of December
31, 2010.
OPTION AWARDS
No officer or director of the Company received any equity awards, or holds
exercisable or unexercisable options, as of the year ended December 31, 2010.
26
PENSION, RETIREMENT OR SIMILAR BENEFIT PLANS
As of December 31, 2010, we had no pension plans or compensatory plans or other
arrangements which provide compensation in the event of termination of
employment or change in control of us. There are no arrangements or plans in
which we provide pension, retirement or similar benefits for directors or
executive officers. We have no material bonus or profit sharing plans pursuant
to which cash or non-cash compensation is or may be paid to our directors or
executive officers, except that stock options may be granted at the discretion
of the Board of Directors or a committee thereof.
COMPENSATION OF DIRECTORS
Our directors receive no extra compensation for their service on our board of
directors.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
DIRECTOR INDEPENDENCE
For purposes of determining director independence, we have applied the
definitions set out in NASDAQ Rule 5605(a)(2). The OTCBB on which shares of
Common Stock are quoted does not have any director independence requirements.
The NASDAQ definition of "Independent Officer" means a person other than an
Executive Officer or employee of the Company or any other individual having a
relationship which, in the opinion of the Company's Board of Directors, would
interfere with the exercise of independent judgment in carrying out the
responsibilities of a director.
According to the NASDAQ definition, Arthur Molina is not an independent director
because he is also an executive officer of the Company.
RELATED PARTY TRANSACTIONS
None of the directors or executive officers of the Company, nor any person who
owned of record or was known to own beneficially more than 5% of the Company's
outstanding shares of its Common Stock, nor any associate or affiliate of such
persons or companies, has any material interest, direct or indirect, in any
transaction that has occurred during the past fiscal year, or in any proposed
transaction, which has materially affected or will affect the Company, with the
exception of the shares issued to Mr. Molina as part of his management
consulting agreement with the Company.
With regard to any future related party transaction, we plan to fully disclose
any and all related party transactions in the following manor:
27
Disclosing such transactions in reports where required;
Disclosing in any and all filings with the SEC, where required;
Obtaining disinterested directors consent; and
Obtaining shareholder consent where required.
Review, Approval or Ratification of Transactions with Related Persons
We are a smaller reporting company as defined by Rule 12b-2 of the Securities
Exchange Act of 1934 and are not required to provide the information under this
item.
ITEM 8. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our
company, nor are we involved as a plaintiff in any material proceeding or
pending litigation. There are no proceedings in which our director, officer or
any affiliates, or any registered or beneficial shareholder, is an adverse party
or has a material interest adverse to our interest.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
COMMON STOCK
Our common stock is currently quoted on the NASDAQ OTC Bulletin Board, under the
trading symbol "XCHC." Because we are quoted on the OTC Bulletin Board, our
securities may be less liquid, receive less coverage by security analysts and
news media, and generate lower prices than might otherwise be obtained if they
were listed on a national securities exchange.
The following table sets forth the range of the high and low bid prices per
share of our common stock as reported on www.bigcharts.com during the last two
calendar years for the period indicated. These prices represent quotations
between dealers without adjustment for retail mark-up, markdown or commission
and may not represent actual transactions.
Year ended December 31, 2009 High Low
Quarter ended March 31 $0.002 $0.001
Quarter ended June 30 $0.013 $0.001
Quarter ended September 30 $0.09 $0.01
Quarter ended December 31 $0.06 $0.01
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Year ended December 31, 2010 (as adjusted for the September 2010 reverse stock
split)
Quarter ended March 31 $0.184 $0.78
Quarter ended June 30 $0.32 $1.58
Quarter ended September 30 $0.05 $1.00
Quarter ended December 31 $0.441 $1.00
RECORD HOLDERS
As of January 12, 2011, there were approximately 142 registered holders of
record of the common stock.
REPURCHASES OF EQUITY SECURITIES
We did not purchase any of our equity securities during 2010 and 2009.
EQUITY COMPENSATION
During 2010 and 2009, respectively, we did not issue any shares of our common
stock to consultants. We may from time to time issue additional shares to our
consultants, employees or directors at the discretion of our board of directors.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
None, other than those previously reported in our Form 10-K for the year ended
December 31, 2010 and our current report on Form 8-K filed with the SEC on May
25, 2011 and the subsequent amendments to that Form 8-K.
ITEM 11. DESCRIPTION OF THE REGISTRANT'S SECURITIES
COMMON STOCK
Our authorized capital stock consists of 750,000,000 shares of $0.001 par value
common stock and 75,000,000 shares of $0.001 par value preferred stock. Each
share of common stock entitles a stockholder to one vote on all matters upon
which stockholders are permitted to vote. No stockholder has any preemptive
right or other similar right to purchase or subscribe for any additional
securities issued by us, and no stockholder has any right to convert the common
stock into other securities. No shares of common stock are subject to redemption
or any sinking fund provisions. All the outstanding shares of our common stock
are fully paid and non-assessable. Subject to the rights of the holders of the
preferred stock, if any, our stockholders of common stock are entitled to
dividends when, as and if declared by our board from funds legally available
therefore and, upon liquidation, to a pro-rata share in any distribution to
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stockholders. We do not anticipate declaring or paying any cash dividends on our
common stock in the foreseeable future.
Pursuant to our Articles of Incorporation, our board has the authority, without
further stockholder approval, to provide for the issuance of up to 75,000,000
shares of our preferred stock in one or more series and to determine the
dividend rights, conversion rights, voting rights, rights in terms of
redemption, liquidation preferences, the number of shares constituting any such
series and the designation of such series. Our board has the power to afford
preferences, powers and rights (including voting rights) to the holders of any
preferred stock preferences, such rights and preferences being senior to the
rights of holders of common stock. No shares of our preferred stock are
currently outstanding. Although we have no present intention to issue any shares
of preferred stock, the issuance of shares of preferred stock, or the issuance
of rights to purchase such shares, may have the effect of delaying, deferring or
preventing a change in control of our company.
DIVIDENDS
We have never paid any cash dividends on our common stock. We intend to retain
and use any future earnings for the development and expansion of business and do
not anticipate paying any cash dividends in the foreseeable future.
We refer you to our Certificate of Incorporation, Bylaws and the applicable
provisions of the Nevada private Corporations Law for a more complete
description of the rights and liabilities of holders of our securities.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
We have the authority under the Nevada General Corporation Law to indemnify our
directors and officers to the extent provided for in such statute. Set forth
below is a discussion of Nevada law regarding indemnification which we believe
discloses the material aspects of such law on this subject. The Nevada law
provides, in part, that a corporation may indemnify a director or officer or
other person who was, is or is threatened to be made a named defendant or
respondent in a proceeding because such person is or was a director, officer,
employee or agent of the corporation, if it is determined that such person:
* conducted himself in good faith;
* reasonably believed, in the case of conduct in his official capacity
as a director or officer of the corporation, that his conduct was in
the corporation's best interest and, in all other cases, that his
conduct was at least not opposed to the corporation's best interests;
and
* in the case of any criminal proceeding, had no reasonable cause to
believe that his conduct was unlawful.
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A corporation may indemnify a person under the Nevada law against judgments,
penalties, including excise and similar taxes, fines, settlement, unreasonable
expenses actually incurred by the person in connection with the proceeding. If
the person is found liable to the corporation or is found liable on the basis
that personal benefit was improperly received by the person, the indemnification
is limited to reasonable expenses actually incurred by the person in connection
with the proceeding, and shall not be made in respect of any proceeding in which
the person shall have been found liable for willful or intentional misconduct in
the performance of his duty to the corporation. The corporation may also pay or
reimburse expenses incurred by a person in connection with his appearance as
witness or other participation in a proceeding at a time when he is not a named
defendant or respondent in the proceeding.
Our Articles of Incorporation provides that none of our directors shall be
personally liable to us or our stockholders for monetary damages for an act or
omission in such directors' capacity as a director; provided, however, that the
liability of such director is not limited to the extent that such director is
found liable for (a) a breach of the directors' duty of loyalty to us or our
stockholders, (b) an act or omission not in good faith that constitutes a breach
of duty of the director to us or an act or omission that involves intentional
misconduct or a knowing violation of the law, (c) a transaction from which the
director received an improper benefit, whether or not the benefit resulted from
an action taken within the scope of the director's office, or (d) an act or
omission for which the liability of the director is expressly provided under
Nevada law. Limitations on liability provided for in our Articles of
Incorporation do not restrict the availability of non-monetary remedies and do
not affect a director's responsibility under any other law, such as the federal
securities laws or state or federal environmental laws.
We believe that these provisions will assist us in attracting and retaining
qualified individuals to serve as executive officers and directors. The
inclusion of these provisions in our Articles of Incorporation may have the
effect of reducing a likelihood of derivative litigation against our directors
and may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of case, even though such an action,
if successful, might otherwise have benefitted us or our stockholders.
Our Bylaws provide that we will indemnify our directors to the fullest extent
provided by Nevada General Corporation Law and we may, if and to the extent
authorized by our board of directors, so indemnify our officers and other
persons whom we have the power to indemnify against liability, reasonable
expense or other matters.
Regarding indemnification for liabilities arising under the Securities Act of
1933 which may be permitted for directors or officers pursuant to the foregoing
provisions, we are informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy, as expressed in the
Act and is therefore unenforceable.
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ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements and notes thereto are hereby incorporated by
this reference to the Company's most recent Annual Report for the year ended
December 31, 2010, as filed with the Securities and Exchange Commission on
January 18, 2011.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
END OF FORM 10 DISCLOSURE
ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(b) Exhibits.
Exhibit
Number Description Filed
------ ----------- -----
3.5 Certificate of Amendment to the Filed with the SEC on April 1,
Articles of Incorporation 2011 as part of our Current
Report on Form 8-K.
SIGNATURE
Pursuant to the requirements 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.
Date: October 12, 2011
THE X-CHANGE CORPORATION
/s/ Arthur Molina, Jr.
----------------------------------
Name: Arthur Molina, Jr.
Title: President
3
