UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB/A

Amendment No. 1

(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2007

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission file number: 000-32885

XA, INC.

(Exact name of small business issuer as specified in its charter)

NEVADA	88-0471263
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)

875 NORTH MICHIGAN AVENUE, SUITE 2626

CHICAGO, ILLINOIS 60611

(Address of principal executive offices)

(312) 397-9100

(Registrant's telephone number)

Securities registered under Section 12(b) of the Exchange Act:

NONE

Securities registered under Section 12(g) of the Exchange Act:

COMMON STOCK, $.001 PAR VALUE PER SHARE

Check whether the registrant (1) has 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 [  ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X].

The issuer's revenues for the most recent fiscal year ended December 31, 2007 were $8,433,848.

The aggregate market value of the issuer's voting and non-voting common equity held by non-affiliates computed by reference to the average bid and ask price of such common equity as of April 14, 2008, was approximately $305,645.

As of April 11, 2008 the issuer had 3,977,252 shares of common stock, $.001 par value per share outstanding ("Common Stock").

Documents Incorporated by Reference: NONE

Transitional Small Business Disclosure Format: Yes [  ] No [X]

The Registrant is filing this Amendment No. 1 to its Form 10-KSB for the fiscal year ended December 31, 2007, to include the results of the Registrant’s assessment of internal control over financial reporting under “Item 8A. Controls and Procedures,” below, as of December 31, 2007, which information was not included in the Registrant’s original Form 10-KSB filing as the Registrant had not yet completed such assessment at that time. Other than the section entitled “Item 8A. Controls and Procedures”, all of the other sections of this Form 10-KSB/A remain the same as originally filed by the Registrant on April 15, 2008, and investors should review the Registrant's most recent periodic and current report filings for updated information on the operations and financial condition of the Registrant.

XA, INC.

FORM 10-KSB/A

YEAR ENDED

December 31, 2007

INDEX

Part I

Item 1	Description of Business	3
Item 2.	Description of Property	17
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	19

Part II

Item 5.	Market for Common Equity and Related Stockholder Matters	20
Item 6.	Management's Discussion and Analysis or Plan of Operation	21
Item 7.	Financial Statements	F-1
Item 8.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 8A.	Controls and Procedures	38
Item 8B	Other Information	38

Part III

Item 9.	Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act	39
Item 10.	Executive Compensation	44
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	50
Item 12.	Certain Relationships and Related Transactions	54
Item 13.	Exhibits and Reports on Form 8-K	56
Item 14.	Principal Accountant Fees and Services Signatures	62

PART I

ITEM 1. DESCRIPTION OF BUSINESS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

CERTAIN STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-KSB/A (THIS "FORM 10 KSB"), INCLUDING STATEMENTS UNDER "ITEM 1. DESCRIPTION OF BUSINESS," AND "ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS", CONSTITUTE "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1934, AS AMENDED, AND THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (COLLECTIVELY, THE "REFORM ACT"). CERTAIN, BUT NOT NECESSARILY ALL, OF SUCH FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "BELIEVES", "EXPECTS", "MAY", "SHOULD", OR "ANTICIPATES", OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY, OR BY DISCUSSIONS OF STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF XA, INC., AND/OR ITS WHOLLY OWNED SUBSIDIARIES, THE EXPERIENTIAL AGENCY, INC., AN ILLINOIS CORPORATION AND FIORI XA, INC., XA SCENES, INC. AND XA INTERACTIVE, INC., NEVADA CORPORATIONS (COLLECTIVELY "XA", "THE COMPANY", "WE", "US" OR "OUR") TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-KSB/A , UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31, 2007.

BUSINESS HISTORY

XA, Inc. was originally incorporated in Nevada as Synreal Services Corp. ("Synreal") on August 28, 2000. The Company's business plan was to engage in the business of providing due diligence and administrative services for real estate syndications. Prior to entering into an Exchange Agreement, discussed below, and the consummation of the transactions thereunder, the Company was considered a development stage enterprise, as defined in Financial Accounting Standards Board No. 7. Our principal executive offices are located at 875 North Michigan Avenue, Suite 2626, Chicago, Illinois 60611. Our telephone number is (312) 397-9100 and our fax number is (312) 573-1515.

On December 4, 2003, Synreal, The Experiential Agency, Inc., formerly G/M Productions, Inc., an Illinois corporation ("Experiential") and the former Experiential shareholders entered into an Exchange Agreement (the "Exchange" or "Acquisition") whereby Experiential became a wholly-owned subsidiary of the Company and control of the Company shifted to the former Experiential shareholders. In addition, Frank Goldstin, the Company's former Chief Executive Officer and a former director of the Company, entered into a stock purchase agreement with the Company's former officers and directors, Brian Chelin and Jennifer Wallace. Synreal was considered a "shell" at the time of the Acquisition; therefore, the transaction was treated as a reverse merger.

Effective February 2, 2004, the Company declared a 13 to 1 forward stock split. Effective December 9, 2004, the Company declared a 1 for 20 reverse stock split. The effects of the stock splits have been retroactively reflected in this Form 10-QSB unless otherwise stated.

In June 2004, the Company entered into a Subscription Agreement with Alpha Capital Aktiengesellschaft, Stonestreet Limited Partnership, Whalehaven Funds Limited, Greenwich Growth Fund Limited and Genesis Microcap Inc. (collectively the "6% Note Purchasers") to purchase convertible promissory notes having an aggregate principal amount of $2,500,000, $1,250,000 of which was sold on June 30, 2006 (the "First Tranche" and $1,250,000 which was sold on September 13, 2006 (the "Second Tranche"), which had a 6% annual interest rate, and a conversion price of $0.25 per share (the " 6% Notes"). Following the reverse stock split on December 9, 2004, the conversion price of the 6% Notes would have been $5.00 per share, however, the Company agreed to change the conversion price of the 6% Notes to $2.00 per share. The Subscription Agreement also provided for the issuance of warrants to purchase up to an aggregate of 250,000 shares of Common Stock, with an exercise price of $9.60 per share (the "Class A Warrants"), and warrants to purchase up to an aggregate of 500,000 shares of Common Stock, with an exercise price of $5.00 per share (the "Class B Warrants"). The Company did not agree to change the exercise price of the Class A Warrants or the exercise price of the Class B Warrants. The Class A Warrants expire Four (4) years from the date they were issued. The Class B Warrants have expired and no Class B Warrants were ever exercised by the 6% Note Purchasers.  The Class A Warrants were automatically re-priced in connection with the Follow On Funding, described below, and as such currently have an exercise price of $0.30 per share.

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Of the $2,500,000 in Convertible 6% Notes issued to the Note Holders, $467,500 in principal and $4,555.67 in interest were converted into a total of 94,412 post split shares, leaving $2,032,500 (not including any accrued interest) of principal remaining under the 6% Notes as of June 30, 2006, when the First Tranche was due. We used $1,047,000 of the funds raised through the August 2006 Funding (as defined below) to repay the First Tranche and used $1,030,575 of the funds raised through the September and October 2006 Fundings (as defined below) to repay the amount we owed under the Second Tranche. As such, as of the date of this filing, we have repaid all of the amounts due to the 6% Note Purchasers under the 6% Notes.

On August 8, 2006 (the "Closing"), we entered into a Securities Purchase Agreement (the "Purchase Agreement") with Sands Brothers Venture Capital LLC, Sands Brothers Venture Capital II LLC, Sands Brothers Venture Capital III LLC, Sands Brothers Venture Capital IV LLC, and Katie & Adam Bridge Partners, L.P. (each a "The Sands Brothers Purchasers"), pursuant to which we sold the Sands Brothers Purchasers 11% Senior Subordinated Secured Convertible Promissory Notes in the aggregate principal amount of $1,250,000 (collectively the "Senior Notes") and five (5) year warrants to purchase an aggregate of one hundred and seventy-five thousand (175,000) shares of our common stock at an exercise price of $1.10 per share (the "Warrants" and collectively with the Senior Notes, the "Securities" and the entire transaction is defined herein as the "August 2006 Funding").

On September 13, 2006, we entered into a Waiver of Rights Agreement (the "Second Waiver Agreement"), with the 6% Note Purchasers, whereby the 6% Note Purchasers agreed to extend the due date of the Second Tranche and agreed to waive all reset, anti-dilution and re-pricing rights they may have had in connection with the September and October Fundings (as defined below), as well as certain shares and warrants contained in the August 2006 Funding Waiver Agreement.

On September 26, 2006, we entered into Securities Purchase Agreements with G. Chris Andersen and Paul M. Higbee, two individuals ("Andersen" and "Higbee"). Pursuant to the Securities Purchase Agreements, we sold each of Andersen and Higbee $100,000 in fifteen month, 11% Senior Subordinated Secured Convertible Promissory Notes (the "Andersen and Higbee Notes"), and granted each of them fifteen thousand (15,000) five year warrants to purchase shares of our common stock at an exercise price of $1.10 per share (the "Andersen and Higbee Warrants," and collectively the entire September 26, 2006 funding transaction, the "September 2006 Funding").

On October 23, 2006, we entered into a Securities Purchase Agreement with Vision Opportunity Master Fund, Ltd. ("Vision," and collectively with Andersen and Higbee, the "Second Funding Purchasers"). Pursuant to the Securities Purchase Agreement with Vision (collectively with the Andersen and Higbee Securities Purchase Agreements, the "Second Funding Purchase Agreements"), we sold Vision $1,250,000 in fifteen month, 11% Senior Subordinated Secured Convertible Promissory Notes (the "Vision Notes," and collectively with the Andersen and Higbee Notes, the "Second Funding Notes" or the "Second Funding Senior Notes") and granted Vision one hundred thousand (100,000) five year warrants to purchase shares of our common stock at $0.30 per share, and one hundred and eighty seven thousand five hundred (187,500) five year warrants to purchase shares of our common stock at an exercise price of $1.10 per share (collectively the "Vision Warrants" and with the Andersen and Higbee Warrants, the "Second Funding Warrants"). Collectively referred to herein as the "October 2006 Funding," and collectively with the September 2006 Funding, the "September and October 2006 Fundings".

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Although as originally executed, the Higbee and Andersen Notes had similar provisions to the August 2006 Funding Notes (which did not have an Optional Conversion Right as defined and described below, among other less material differences not discussed herein), we later agreed to conform both the Higbee and Andersen closing documents to the Vision Notes and documents described herein and may conform the closing documents for the August 2006 Funding Notes in the future. As such, the Higbee Notes and the Andersen Notes have substantially similar terms as those described below (other than the dates contained therein and the amount of each Purchaser's investment).

In addition to the Warrants we granted to Vision in connection with the funding, Mastodon Ventures, Inc. ("MVI"), which was issued 666,667 warrants to purchase shares of our common stock at $0.30 per share, assigned 100,000 of such warrants to Vision, and the August 2006 Second Funding Purchasers, who were granted an aggregate of 333,333 warrants to purchase shares of our common stock at $0.30 per share, assigned 133,000 of such warrants to Vision.

Follow On Funding

On or about June 11, 2007, we entered into Securities Purchase Agreements with Andersen and Higbee (the “Follow On Andersen and Higbee Purchase Agreements”), two individuals ("Andersen" and "Higbee"). Pursuant to the Andersen and Higbee Securities Purchase Agreements, we sold Andersen and Higbee $25,000 in twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Notes each (the "Follow On Andersen and Higbee Notes"), and granted each of them twenty-five thousand (25,000) five year warrants to purchase shares of our common stock at an exercise price of $0.30 per share (the "Follow On Andersen and Higbee Warrants," and collectively the “Andersen and Higbee Follow On Funding”).

On or about June 22, 2007, we entered into a Securities Purchase Agreement (the "Follow On Sands Brothers Purchase Agreement") with The Sands Brothers Purchasers, pursuant to which we sold such Sands Brothers Purchasers twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Notes in the aggregate principal amount of $200,000 (collectively the "Follow On Sands Brothers Notes") and five (5) year warrants to purchase an aggregate of two hundred thousand (200,000) shares of our common stock at an exercise price of $0.30 per share (the "The Follow On Sands Brothers Warrants," and collectively the “Sands Brothers Follow On Funding”).

On or about June 29, 2007, we entered into a Securities Purchase Agreement with Vision, and collectively with Andersen and Higbee and the Sands Brothers Purchasers, the "Purchasers”. Pursuant to the Securities Purchase Agreement with Vision (collectively with the Andersen and Higbee Purchase Agreements and the Sands Brothers Purchase Agreement, the "Follow On Funding Purchase Agreements"), we sold Vision $200,000 in twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Notes (the "Follow On Vision Note," and collectively with the Follow On Andersen and Higbee Notes and the Follow On Sands Brothers Notes, the "Follow On Notes") and granted Vision two hundred thousand (200,000) five year warrants to purchase shares of our common stock at $0.30 per share (the “Follow On Visions Warrants,” and collectively the Follow On Andersen and Higbee Warrants, and the Follow On Sands Brothers Warrants, the “Follow On Warrants,” and the “Follow On Vision Funding,” and collectively with the Andersen and Higbee Follow On Funding and the Sands Brothers Follow On Funding, the “Follow On Funding”).

Although as originally executed, the Andersen and Higbee Follow On Funding agreements had slightly different terms and provisions than the Sands Brothers Follow On Funding and the Vision Follow On Funding documents, we subsequently agreed to conform the Andersen and Higbee Follow On Funding documents to the Sands Brothers Follow On Funding and Vision Follow On Funding documents, as described herein, and as a result, Andersen and Higbee, the Sands Brothers Purchasers and Vision all are parties to substantially identical Follow On Funding documents, varying only in connection with the dates of such documents and the accompanying Maturity Date of such Follow On Notes.

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The Senior Notes, Second Funding Senior Notes, Follow On Notes, Warrants, Second Funding Warrants (as well as the MVI and Venture Warrants), and the Follow On Notes contain certain anti-dilution provisions, which provide that if we issue or sell any additional shares of common stock (including convertible shares of common stock and/or options or warrants to purchase shares of common stock) other than as a dividend or other distribution (a "Dilutive Issuance") at less than the Conversion Price or Exercise Price then in effect, the Conversion Price or Exercise Price shall be automatically reduced to the lower Effective Price (as defined in the Senior Notes, Second Funding Senior Notes, Follow On Notes, Warrants, Second Funding Warrants and Follow On Warrants) of the issuance and/or sale. However, Purchasers have agreed to waive such anti-dilution provision in connection with the issuance of up to 250,000 shares for professional services, which have been fully issued to date ( the "Excepted Issuances").  As a result, we have used up all of the Excepted Issuances.  However, because the issuance of the Follow On Warrants were not included in the Excepted Issuances as provided in the Prior $1.10 Warrants, the exercise price of such Prior $1.10 Warrants was automatically reset to $0.30 in connection with the grant of the Follow On Warrants (the “Purchaser Re-pricing”). Additionally, because the issuance of the Follow On Warrants was not waived by the holders of our Class A Warrants, exercisable for $9.60 per share, which were granted on June 30, 2004 in connection with a sale of 6% Convertible Notes on that date, such Class A Warrants were automatically re-priced, pursuant to their anti-dilution provisions to $0.30 per share (the “Class A Re-pricing” and collectively with the Purchaser Re-pricing, the “Re-pricings”).

Our repayment of the Senior Notes, Second Funding Senior Notes and Follow On Notes and any accrued interest thereon is secured by a security interest in substantially all of our assets, which we granted to the Purchasers pursuant to a Security Agreement (the "Security Agreement"), which we entered into with the Purchasers, Second Funding Purchasers and Follow On Funding Purchasers at the closings. Additionally in September 2006, the Sands Brothers Purchasers entered into an Acknowledgment of Rights Agreement with us, whereby they agreed that their security interest rights in our assets would be pari passu with the rights of Higbee, Andersen and Vision.

We also granted the Purchasers, Venture and MVI (as defined below) registration rights in connection with the shares of common stock issuable in connection with the conversion of the Senior Notes, Second Funding Senior Notes, and Follow On Notes and the exercise of the Warrants, the Second Funding Warrants, the MVI Warrants, the Venture Warrants (as defined below), and the Follow On Warrants collectively the "Underlying Shares"), pursuant to our entry into Registration Rights Agreements, which we entered into at the closings, which were later superseded by Registration Rights agreements entered into with the Purchasers in June 2007 (the "Registration Rights Agreements").

Furthermore, pursuant to the Purchase Agreement, we agreed to grant the Purchasers the right to appoint one Director to our Board of Directors (or a Board Advisory Seat to observe at all board meetings). In the event such purchasers desire to exercise such right to appoint a Director, our Board of Directors will be increased to five (5) members.

Prior to our entry into the Purchase Agreement and the Second Funding Purchase Agreements, and the consummation of the funding, we received waivers from LaSalle Bank National Association to approve the fundings and a construction loan with LaSalle Bank National Association, as described below. Additionally, we received the waiver of the 6% Note Purchasers, ,who purchased the 6% Convertible Notes in June and September 2004, to approve the funding and waive our previous default under the 6% Convertible Notes (described in greater detail below) pursuant to our entry into a Waiver of Rights Agreement with the 6% Note Purchasers on July 17, 2006, with an effective date of June 30, 2006, which Waiver of Rights Agreement was later extended by the 6% Note Purchasers until August 9, 2006 in connection with the August 2006 Funding, and our entry into two additional Waiver of Rights Agreements with the 6% Note Purchasers, the Second Waiver Agreement and the Third Waiver Agreement (as described herein).  However, the 6% Note Purchasers did not consent to the issuance of convertible notes and warrants in connection with the Follow On Funding, and as such, the exercise price of the Class A Warrants held by the 6% Note Purchasers has automatically reset to $0.30 per share in connection with the issuance of the Follow On Warrants.

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We also agreed to issue an aggregate of 333,333 warrants to purchase shares of our common stock at an exercise price of $0.30 per share to Sands Brothers Venture Capital Funds ("Venture" and the "Venture Warrants") and 666,667 warrants to purchase shares of our common stock at an exercise price of $0.30 per share to MVI Ventures, Inc. ("MVI" and the "MVI Warrants") in consulting fees in connection with the August 2006 Funding. Both the Venture Warrants and the MVI Warrants are exercisable for five (5) years from the date of the August 2006 Closing.

The Senior Notes, warrants, closing and related agreements are described in greater detail in our Form 8-K filing, which we filed with the Commission on August 15, 2006, and the Second Funding Senior Notes, Second Funding Warrants and related agreements are described in greater detail in our Form 8-K filing, which we filed with the Commission on November 1, 2006.  The Follow On Notes are described in greater detail in our Form 8-K filing which we filed with the Commission on July 12, 2007.

In connection with each of the Follow On Funding transactions, we entered into Registration Rights Agreements with each of the Purchasers, which replaced and superseded the prior Registration Rights Agreements entered into between the Purchasers and us in August, September and October 2006.  The Registration Rights Agreements were subsequently replaced and superseded by the Registration Rights Agreements entered into with the Purchasers in connection with the Second Follow on Funding, described below.

Waiver of Rights Agreement

We entered into a Waiver of Rights Agreement with the Purchasers, Mastodon Ventures, Inc. and its assigns, dated on or around June 22, 2007, pursuant to which we and the Purchasers agreed to the Re-pricings; agreed that the Conversion Price of the Prior Notes (as defined therein) would be equal to the Conversion Price of the Follow On Notes; and the Purchasers agreed to waive any defaults which may have occurred in connection with our failure to meet the required date of effectiveness of our registration statement filing, as was required under the prior Rights Agreements, which have since been superseded and replaced in their entirety by the Follow On Rights Agreements.

First Amendments to Prior Notes

A required term of the Follow On Funding was that each of the Purchasers agree that the maturity date of the Prior Notes (the August, September and October 2006 notes) which they hold would be extended to the maturity dates of the Follow On Notes which they hold. The amendment and extension to each of the Purchaser’s Prior Notes was accomplished by each of the Purchasers entry into a First Amendment to the 11% Senior Secured Convertible Promissory Notes with us, on or around the date of their purchases of the Follow On Notes (and in the case of Andersen and Higbee, on or around the date they entered into conforming documents with us, as described above, (the “Note Amendments”)). Pursuant to the Note Amendments, each of the Purchasers agreed that the maturity date of the Prior Notes which they hold would be extended to the maturity date of their respective Follow On Notes. For example, the maturity date of Vision’s Prior Note in the amount of $1,250,000, was extended until the maturity date of the Follow On Vision Note, June 29, 2008.

LaSalle Bank Loans

The Company has a line of credit agreement which it entered into on August 12, 2004, with LaSalle Bank National Association ("LaSalle") in the amount of $750,000.  The line of credit was originally due August 12, 2005, and the interest varied at 0.25% over the prime rate. The Company's assets secure the line of credit. Prior to the expiration of the line of credit, the line of credit was renewed for another year and increased to $800,000. On or around June 30, 2007, the Company entered into a promissory note evidencing amounts owed under the line of credit, in the amount of $600,000, which promissory note accrued interest at the rate of 2.25% above the prime rate then in affect, which line of credit was later amended and replaced by the Line of Credit, defined and described below.

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On June 1, 2006, we entered into a business loan for a loan of up to $750,000 with LaSalle, which loan accrued interest at the prime rate plus 0.25% until paid in full.  The loan was originally due on June 30, 2007, but was extended by the parties entry into a separate promissory note on or around June 30, 2007, which increased the interest rate to the prime rate then in effect, plus an additional 2.25% per annum, which provided for $66,666 to be paid on July 31, 2007; a payment of accrued interest under the promissory note on July 31, 2007; and one payment of principal and interest of approximately $200,064 on July 31, 2007.  We failed to make the required payments due under the promissory note pursuant to the payment schedule above, and as such, the interest rate of the funds due under the promissory note increased by 2%; however, this promissory note was subsequently amended and replaced by the LaSalle Line of Credit defined and described below. 

On or about August 27, 2007, we entered into a promissory note with LaSalle, evidencing a line of credit (the “LaSalle Line of Credit”), which evidenced and aggregated the amounts previously outstanding under the line of credit and promissory note described above, in an amount equal to $867,000.  The LaSalle Line of Credit bears interest at the rate of 2.25% above the prime rate then in effect, which was equal to 10.5% per annum as of August 27, 2007, adjustable as provided in the LaSalle Line of Credit, until paid.  We were required to make monthly payments of interest under the LaSalle Line of Credit, with the full outstanding balance of the LaSalle Line of Credit due on December 1, 2007.  The agreement provides that, in the event of default, the interest rate of the LaSalle Line of Credit will increase by 2% over the interest rate then in effect.

We failed to make the required payment due under the promissory note on December 1, 2007, which promissory note had a remaining balance of $844,485.03 as of December 11, 2007.  This unpaid balance consists of $837,904.00 in principle and $6,581.03 in accrued and unpaid interest.  On December 3, 2007, LaSalle notified the Company by letter that the promissory note was in default, and beginning on December 4, 2007, interest will accrue on the unpaid balance of the promissory note (and any accrued and unpaid interest thereon) at the default annual rate of 11.75% (the prime rate plus 4.25% per year), based on the bank’s prime rate of 7.5%.  Pursuant to LaSalle’s letter as of December 4, 2007, the Company had until December 31, 2007 to repay the remaining balance of the promissory note, or LaSalle would seek alternatives to payment.

Second Follow On Funding

On or about December 21, 2007, the Company entered into a Securities Purchase Agreement (the "Sands Brothers Purchase Agreement") with Sands Brothers Venture Capital III LLC (the “Sands Brothers III”), pursuant to which we sold Sands Brothers III a twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Note in the aggregate principal amount of $200,000 (the "Second Follow On Sands Brothers Note") and five (5) year warrants to purchase an aggregate of two hundred thousand (200,000) shares of our common stock at an exercise price of $0.30 per share (the "Sands Brothers Warrants," and collectively the “Sands Brothers Second Follow On Funding”).

On or about December 21, 2007, we entered into a Securities Purchase Agreement with Vision Opportunity Master Fund, Ltd. ("Vision," and collectively with Sands Brothers, the "Second Follow On Purchasers”). Pursuant to the Securities Purchase Agreement with Vision (collectively with the Sands Brothers Purchase Agreement, the "Second Follow On Funding Purchase Agreements"), we sold Vision a $200,000 twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Note (the "Second Follow On Vision Note," and collectively with the Second Follow On Sands Brothers Notes, the "Second Follow On Notes") and granted Vision two hundred thousand (200,000) five year warrants to purchase shares of our common stock at $0.30 per share (the “Second Follow On Vision Warrants,” and collectively with the Second Follow On Sands Brothers Warrants, the “Second Follow On Warrants,” and the “Second Follow On Vision Funding,” and collectively with the Sands Brothers Second Follow On Funding, the “Second Follow On Funding”).

The Company paid $100,000 from the Second Follow On Funding to LaSalle, to repay a portion of the principal and interest owed to LaSalle through the LaSalle Line of Credit and entered into a Forbearance Agreement with LaSalle, pursuant to which LaSalle will forbear enforcement of its rights and remedies against us and Experiential until June 1, 2008, conditioned on performance of certain terms and conditions.  These terms and conditions include entering into a new note in the amount of $738,000 with continuing interest and principal payments of $10,000 due on March 1, 2008, April 1, 2008, and May 1, 2008.  Furthermore, the Forbearance Agreement requires the Company, the Second Follow On Purchasers and the other junior lenders to enter into Subordination Agreements and a General Release for the benefit of LaSalle (the “Subordination Agreements”), as well as requiring us to agree to pay all legal fees and expenses incurred by LaSalle in connection with the defaults and the Forbearance Agreement.

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Second Follow On Funding Notes

The $400,000 in Second Follow On Notes bear interest at the rate of 11% per annum until paid, and have a maturity date of the earlier of (i) December 21, 2008; or upon the consummation by us of a merger, combination or sale of substantially all of our assets or the purchase by a single entity or person or group of affiliated entities or persons of more than fifty (50%) percent of our voting stock, of which there are no current plans (a “Combination Event”).

Interest on the Second Follow On Notes is payable upon maturity, repayment or upon conversion of the Notes into shares of our common stock as described below. The Second Follow On Notes may not be prepaid prior to their maturity date. Any amount not paid under the Notes when due will bear interest at the rate of eighteen percent (18%) per annum until paid in full (the "Default Interest").

The Second Follow On Notes are convertible, at the option of each of the Second Follow On Purchasers, at any time, into shares of our common stock at a conversion price equal to the lesser of $0.50 or 50% of the effective price per share of shares of common stock sold in a Private Offering (as defined below, provided that such conversion price will never be less than $0.25 per share (unless the Private Offering price is less than $0.25 per share, in which case the Conversion Price will be equal to such Private Offering price due to the anti-dilution provisions of the notes as described below), the "Conversion Price") if we complete a private offering of our securities in which we receive gross proceeds of not less than $3,000,000 (the "Private Offering").

Our repayment of the Second Follow On Notes and any accrued interest thereon is secured by a security interest in substantially all of our assets, which the Second Follow On Purchasers share pari passu, which we granted to the Second Follow On Purchasers pursuant to Security Agreements (the "Security Agreements"), which we entered into with the Second Follow On Purchasers at the various closings.

Pursuant to the Second Follow On Notes, we agreed that we would not undertake certain events, including those described below, without the prior written consent of all of the Second Follow On Purchasers:

o liquidate or dissolve, consolidate with, or merge into or with, any other corporation or other entity, except that any wholly-owned subsidiary may merge with another wholly-owned subsidiary or with us;

o will not sell, transfer, lease or otherwise dispose of, or grant options, warrants or other rights with respect to, all or a substantial part of our properties or assets to any person or entity outside of the ordinary course of business, unless specifically excluded in the Purchase Agreement;

o will not redeem or repurchase any of our outstanding securities; and

o will not create, incur or assume any indebtedness other than in the ordinary course of business, and/or in connection with the Subsequent Funding.

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"Events of Default" under the Second Follow On Notes include but are not limited to the following:

o our failure to pay any amounts due under the Second Follow On Notes when due, and such failure continues for five (5) days;

o our failure to comply with any covenants we made pursuant to the Purchase Agreements and such failure continues for a period of five (5) business days in connection with our affirmative covenants and two (2) business days in connection with our negative covenants;

o our entry into bankruptcy or insolvency;  

o our default in the payment of any other obligation in connection with money borrowed in excess of $50,000, which default continues for three (3) business days;

o if a judgment is rendered against us or any of our subsidiaries which exceeds in aggregate $50,000, which judgment is not vacated or satisfied within twenty (20) days; or  

o our violation of any material representation of any of the documents entered into in connection with the Funding.

If an Event of Default occurs under the Second Follow On Notes, the Second Follow On Purchasers may seek specific performance of any covenant or agreement contained in the Second Follow On Notes and/or enforce their security interest over substantially all of our assets.

Furthermore, pursuant to the Second Follow On Purchase Agreement, we agreed to grant the Second Follow On Purchasers the right to appoint one Director to our Board of Directors (or a Board Advisory Seat to observe at all board meetings). In the event such Second Follow On Purchasers desire to exercise such right to appoint a Director, our Board of Directors will be increased to five (5) members.

Pursuant to the Second Follow On Notes, we agreed to provide the Second Follow On Purchasers a right of first refusal to invest pro rata in any and all of our future financings on identical terms as those offered to other potential investors. Furthermore, we agreed to not create or incur, contingently or otherwise, any indebtedness (other than indebtedness incurred in our historic business and in the ordinary course of our business), which is not expressly subordinated in right of payment and otherwise to the Second Follow On Notes.

Second Follow On Funding Warrants

The Second Follow On Funding Warrants are exercisable at an exercise price of $0.30 per share (subject to adjustment in the Second Follow On Warrants), at any time prior to 5:00 P.M. EST on: December 21, 2012.

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The Second Follow On Warrants are exercisable in connection with the payment of cash, or if such Second Follow On Warrants are exercised on a date when a registration statement covering the shares underlying the Second Follow On Warrants has not been declared effective with the Securities and Exchange Commission or such registration statement is no longer in effect, the Second Follow On Warrants include a cashless feature, whereby if the exercise price of the warrants is equal to or greater than the Fair Market Value of our common stock (as defined in the Second Follow On Warrants), the number of shares of common stock issuable to the Second Follow On Purchasers in connection with any exercise is equal to the product of the number of shares to which the Second Follow On Warrants are being exercised multiplied by a fraction, the numerator of which is the exercise price then in effect and the denominator of which is the Fair Market Value of our common stock.

Additionally, in connection with the Second Follow On Funding, the terms of all of the prior warrants issued to Sands Brothers and Vision in 2006 and 2007, in connection with prior fundings were amended to extend the exercise date of such warrants to five (5) years from the date of the Second Following On Funding.

Second Follow On Funding Registration Rights Agreements

In connection with each of the Second Follow On Funding transactions, we entered into Registration Rights Agreements with each of the Second Follow On Purchasers and Mastodon Ventures, Inc., which replaced and superseded the prior Registration Rights Agreements entered into between the Second Follow On Purchasers and us in August 2006, October 2006, and June 2007, in connection with the previous sale of $3,150,000 in 11% Senior Secured Convertible Notes (the “Prior Funding” and the “Prior Notes”) to such Second Follow On Purchasers and additional purchasers not defined above, and the grant of an aggregate of 1,942,500 warrants to purchase shares of our common stock at an exercise price of $0.30 per share (the “Prior Warrants”), to all such purchasers and Mastodon Ventures, Inc. (“Mastodon”), as a consultant to us and the Second Follow On Purchasers in connection with the Prior Funding (the “Second Follow On Rights Agreements”). The Second Follow On Rights Agreements provided the Second Follow On Purchasers and Mastodon  and its assigns, registration rights in connection with the shares that the Prior Notes and the Second Follow On Notes are convertible into, as well as an additional 350,000 warrants with identical terms as the Second Follow On Warrants which were issued to Mastodon in connection with the Second Follow On Funding, and which the Second Follow On Warrants and Prior Warrants are exercisable for (the “Registrable Securities”).

Pursuant to the Second Follow On Rights Agreements, we agreed to register the Registrable Securities on a  registration statement with the Securities and Exchange Commission (the "Commission" and the "Registration Statement") pursuant to the deadlines discussed below. We agreed that in the event that the Private Offering has not occurred within six (6) months of the date of the Second Follow On Funding closing, December 21, 2007, which date is June 21, 2008, we would file the Registration Statement with the Commission within forty-five days of such six (6) month anniversary, August 5, 2008, and that we would obtain effectiveness of the Registration Statement no more than ninety (90) days after the date we are required to file such Registration Statement, or November 3, 2008 (the "Initial Registration Deadlines").  

In the event that we are unable to register all of the Registrable Securities in one Registration Statement because of the applicability of Rule 415, the Second Follow On Purchasers, as well as Mastodon (collectively the “Registration Rights Holders”), have agreed that the number of shares we can register at any one time will be allocated pro rata to each of the Registration Rights Holders.

We and the Second Follow On Purchasers also agreed pursuant to the Second Follow On Rights Agreement, that in the event that we are not able to register all of the Registrable Securities, that we would use our best efforts to file additional Registration Statements to register the Registrable Securities that were not registered in any initial Registration Statement as promptly as possible and in a manner permitted by the Commission (each an “Additional Registration Statement”). We agreed to file any Additional Registration Statement within the earlier of (i) sixty (60) days following the sale of substantially all of the Registrable Securities included in the initial Registration Statement or any Additional Registration Statement and (ii) six (6) months following the effective date of the initial Registration Statement or any Additional Registration Statement, or such earlier date as permitted by the Commission. We also agreed that if we are required to file any Additional Registration Statement, that we would file such Additional Registration Statement within thirty (30) days and use our best efforts to obtain effectiveness of such Additional Registration Statement within ninety (90) days of such filing date (the “Additional Registration Deadlines,” and collectively with the Initial Registration Deadlines, the “Registration Deadlines”).

If we fail to obtain effectiveness of any required Registration Statement by the applicable Registration Deadlines, or after such effectiveness the Second Follow On Purchasers are unable to sell the Registrable Securities, due to any reason other than the Commission’s application of Rule 415, we are obligated, pursuant to the Second Follow On Rights Agreements, to pay the Second Follow On Purchasers an amount in cash equal to two (2%) of the total principal amount of the Prior Notes and the Second Follow On Notes ($71,000), for each thirty (30) day period which the Registration Deadlines are not met or the Second Follow On Purchasers are unable to sell the Underlying Shares. If we fail to pay such damages within five (5) days of the date payable, we are required to pay interest on the amount payable at the rate of eighteen percent (18%) per annum, accruing daily until such amounts are paid in full.

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Subsequent Events:

Sands Brothers Line of Credit

On or about February 29, 2008, the Company and Experiential Agency, Inc., the Company’s wholly owned subsidiary (“Experiential”) entered into a Revolving Line of Credit Agreement (the “Sands Brothers Line of Credit”) with Sands Brothers Venture Capital III LLC (“Sands Brothers”), pursuant to which Sands Brothers extended a revolving line of credit to the Company for a period extending to June 29, 2008 in the principal amount of up to two hundred thousand dollars ($200,000).  Any funds advanced to the Company through the Sands Brothers Line of Credit will be used for operating expenses in connection with the operations of Experiential, and will be immediately transferred to Experiential as a capital contribution.  Such operating expenses may include but are not limited to legal fees, vendor expenses, auditor fees, payroll, rents, and financing expenses.

In connection with the Sands Brothers Line of Credit, the Company received an initial advance on or around February 29, 2008, of one hundred thousand dollars ($100,000) and executed and delivered to Sands Brothers a Promissory Note (the “First Advance Note”) in the initial amount of one hundred thousand dollars ($100,000), evidencing such advance.  Further, on March 27, 2008, the Company received a second advance of one hundred thousand dollars ($100,000) and executed and delivered to Sands Brothers a Promissory Note (the “Second Advance Note”) in the amount of one hundred thousand dollars ($100,000), evidencing such advance.  The second advance exhausted the funding Sands Brothers has agreed to provide pursuant to the Sands Brothers Line of Credit. The First Advance Note and the Second Advance Note bear interest until paid in full at the rate of twelve percent (12%) per annum, with the interest on such notes payable monthly in arrears commencing on April 1, 2008.  In the event any payment is not made within three (3) days of the date such payment is due under either note, both outstanding notes will bear interest at the rate of fifteen percent (15%) per annum, and such failure to pay the required payment is defined as an “Acceleration Event.” Any Acceleration Event or Event of Default gives Sands Brothers the right to provide for the entire amount of unpaid principal and interest on the outstanding notes to be immediately due and payable with fifteen days prior notice in the event of an Acceleration Event and without prior notice if an Event of Default occurs.  The principal and any unpaid interest on the both notes is due and payable on June 29, 2008.

Business Operations:

We, referred to herein as “XA,” through our wholly-owned subsidiaries, The Experiential Agency, Inc., an Illinois corporation (“Experiential”), XA Scenes, Inc., Fiori XA, Inc. and XA Interactive, Inc., Nevada corporations are a comprehensive event marketing, design and production services agency. With full-service offices in Chicago and New York City as well as a sales office in Los Angeles, and a venue in New York City, XA is a leading provider of event services on an outsourced basis for corporations, associations and other organizations in the United States and abroad. XA provides its clients with a single source to their business communications and event planning needs.

In the third quarter of 2005, XA formed a wholly owned Nevada subsidiary, XA Scenes, Inc. ("XA Scenes"). XA Scenes was formed as a special events venue management firm. XA’s senior management team believes that there is a significant opportunity for XA Scenes to capitalize on the synergies that exist between XA’s event marketing agency, Experiential, and selected joint venture partners.

For eighteen (18) years, XA has worked with clients around the globe to design and produce strategic multidimensional, highly stylized and integrated event programs. During the year ended December 31, 2007, XA planned more than one hundred events which were attended by more than 100,000 people, for clients including Sports Illustrated, Moet Hennessey, McDonald's Corporation (NYSE:MCD), Cookie Magazine, National Geographic, McGraw Hill, Walt Disney Company (NYSE:DIS), Pepsi (NSYE:PBG), UNICEF, NBC Universal, Heitman,  Jet Airways, Audi, LXR, New Yorker Magazine and Guinness Beer.

In January 2007, XA was awarded Special Event Magazine’s Gala Award in the category of “Best Event Marketing Campaign” for Real Simple’s Holiday Solutions. The annual award competition recognizes achievement in all areas of special events and design. The winners are selected after 5 rounds of judging by members of Special Event Magazine's Advisory Board. The award winning event produced and designed by XA helped to recreate Real Simple magazine with a Holiday Solutions five-week mall tour that targeted female consumers. To implement the vision, the XA event team designed and constructed living rooms in high-traffic malls. The rooms created an experience, idea or amenity to guests, while allowing advertisers direct interaction with readers. Over 100,000 consumers visited the events in addition to 330,000 TV viewers.

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In March 2007, XA was awarded two BiZBash Event Style Awards in the categories of “Best Lighting Design” and “Best Corporate Event Concept” both for the Sopranos cast and crew screening after party. The BiZBash Event Style Awards of 2007 honored the people behind New York's most innovative events of 2006. XA won the Best Corporate Event Concept Award for an "innovative and effective theme for an event planned by or for a corporation." The award winning event produced and designed by XA celebrated the premiere of the 6th and final season of the HBO show the Sopranos. The overall concept was inspired by a traditional Italian Street Festival and XA successfully transformed a large ballroom into an intimate affair for 1,000 members of the Soprano's extended family. A comprehensive lighting design concept combined advanced technology such as intelligent lighting with basic tools including 4,000 Italian string lights.

XA focuses on strategic growth that includes, among other things, the acquisition and development of targeted business communications and event management companies in key regions throughout the United States. XA has developed a vertically integrated infrastructure that it believes will enhance its ability to continue to provide event services on a national basis. In order to provide its clients with a single source solution to their event planning needs, XA offers a wide range of services that encompass the event planning process including general management, concept creation, content creation and execution. XA believes that its vertically integrated organization, creative talent, technological leadership and its willingness to commit capital to acquire or develop proprietary exhibitions and special events are competitive advantages in a fragmented industry in which most vendors provide a limited set of services on a local basis.

Industry and Market Overview

The events industry in the United States is highly fragmented with several local and regional vendors that provide a limited range of services in two main segments: 1) business communications and event management; and 2) meeting, conferences and trade shows. The industry also consists of specialized vendors such as production companies, meeting planning companies, and destination logistics companies that may offer their services outside of the events industry.

According to an event marketing study conducted by PROMO Magazine ("PROMO") in 2005, and published in its April 1, 2006 edition, marketers spent $171 billion in event marketing in 2005, up 3% from the previous year. Additionally, according to The George P. Johnson Co.'s annual survey, EventView '05/'06, as reported by PROMO, 96% of marketing executives use events in their marketing mix. Because of these trends, XA believes it is well positioned to gain a greater share of the market for event production services and grow its operations moving forward.

Principal Products and Services

XA offers a wide range of services that encompass the event planning process including general management, concept creation, content creation, and execution. XA earns most of its revenue from event services fees that it charges clients regarding the following general service areas:

*	Event Marketing;
*	Design and production;
*	Meetings, Conferences and Trade Shows;
*	Entertainment and Show Production;
*	Business Theater & General Sessions;
*	Mobile Marketing;
*	Audio/Visual Production;
*	Public Relations;
*	Destination Management;
*	XA Interactive (Digital Marking); and
*	Venue Management.

XA earns a management fee when it provides general management services. XA earns fees on a fee-for-services basis when it undertakes event marketing and business communications projects.

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General Management Services

XA offers general management services that provide its clients with centralized coordination and execution of the overall event. In connection with providing general management services, XA utilizes an executive producer responsible for overseeing the production of an event or exhibition. The executive producer coordinates the services that XA provides for the client. XA provides the following general management services:

*	Project oversight;
*	Budget oversight;
*	Quality assurance and control;
*	Project funding and sponsorship development;
*	Project control and accountability;
*	Event promotion and marketing creation;
*	Schedule management; and
*	Fulfillment provider management.

Concept Creation

XA works with a client to craft the client's message, identify the best means of communicating that message, and develop cost-effective creative solutions. XA provides the following concept creation services:

*	Joint determination of client needs and goals;
*	Market research to support message creation and communication;
*	Message content design;
*	Media selection; and
*	Initial project pricing and budgeting.

Content Creation

After the concept for an event is created, XA's professionals work to develop and produce the client's message. XA provides the following content creation services:

*	Speech composition;
*	Speaker support-graphics creation;
*	Audio/Video production;
*	Digital media creation;
*	Collateral materials design and distribution;
*	Entertainment and speaker scripting and booking; and
*	Theme and staging design.

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Execution

XA uses internal resources to execute an event. As the clients' needs dictate, however, XA can structure its role so that it is transparent to attendants at the event. XA provides the following execution services:

*	On-site quality and logistics control;
*	Hotel and venue coordination and buying;
*	Transportation management;
*	Security coordination;
*	Telemarketing services for the sale of exhibition space;
*	Hospitality management;
*	Registration management;
*	Cash and credit card payment management;

* Entertainment coordination;

*	Tour program design;
*	Permit and approval procurement; and
*	Food and beverage management.

Fulfillment

Fulfillment is the last stage in the event process. It includes the actual provision of services such as catering, registration, transportation rental, audio and visual equipment rental, decoration rental and temporary on-site labor. XA offers fulfillment services using either internal resources or third-party vendors as determined on an event-by-event basis.

Full Service Offices

XA operates two full-service offices located in Chicago and New York City as well as a sales office in Los Angeles and a venue in New York City. Chicago is home to XA's headquarters, which serves as the centralized base for administration and purchasing. XA opened the Los Angeles and New York City offices during 2003. XA chose to open offices in New York City and Los Angeles to better serve its national client base by providing existing clients with local offices and staff to coordinate and provide ongoing integrated communication services. In addition, by having local offices operating in New York City and Los Angeles, XA is better able to acquire new clients and business opportunities through aggressive local business development activities.

In December 2005, XA Scenes, entered into a lease on the ninth floor of 636-642 West 28th Street, New York, New York 10001, also known as the "Terminal Warehouse". We plan to use the Property for office space, event and production space and to host certain events in the future. Completed in June 2006, the 11,500 square foot multi-use facility consists of approximately 5,000 square feet of design production/office space and 6,500 square feet of special event space. The XA Scenes facility provides clients with spectacular views of the Hudson River within a state of the art special events facility.

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On March 6, 2006, The Experiential Agency, Inc., the Company's wholly owned subsidiary ("Experiential"), entered into a Lease on Unit No. 2B in Building No. 2 of 1435 51st Street, in North Bergen, New Jersey. The lease commenced on April 1, 2006, and ends on March 31, 2009. The monthly rent on the lease is $4,037 from April 1, 2006 until March 31, 2007, $4,238 for the period from April 1, 2007 until March 31, 2008, and $4,449 for the period from April 1, 2008 until March 31, 2009. Upon the expiration of the lease, Experiential has the option to renew the lease for an additional three (3) year term. The monthly rental fees during the additional three year term, will be $4,671 from April 1, 2009 and March 31, 2010, $4,904 from April 1, 2010 and March 31, 2011, and $5,149 from April 1, 2011 to March 31, 2012. The landlord has the right to terminate the lease at any time after March 31, 2009, with six (6) months prior written notice to Experiential. This space will be used by XA for production and fabrication of décor elements for events and storage of production inventory.

 Creative Talent

A primary value that XA brings to its clients is the creative talent, energy and commitment of its employees. XA seeks to attract and retain the best personnel by developing attractive compensation, benefits and training programs and providing long-term career opportunities that its smaller competitors cannot duplicate. XA has approximately eighty-one (81) employees, of whom approximately fifty (50) are part-time employees and thirty-one (31) are full-time employees.

XA compliments its staff with a pool of over 100 professionals hired on a project-by-project basis who have distinguished themselves through prior experience with XA. XA is not a party to any collective bargaining agreement with a union. From time to time, however, XA does independently contract with, or hire, union personnel during the production of a particular meeting or event. XA considers itself to have good relations with its employees and independent contractors.

Today, corporations are searching for new ways to motivate, excite and impart a message to their audience. XA is able to help them accomplish these goals by designing a creative platform from which to communicate. For instance, most companies do not realize they can afford to do a concert event with headline talent because it has never been presented to them as a marketing tool. Most of XA's programs are more in line with the standard format of events (i.e., meetings and business theater).

Breaking the traditional mold can be a hard sell to a conservative client, but when XA's team can demonstrate how hosting one large, memorable event can save $250,000 from the marketing budget, and, most importantly, have a greater impact on attendees, the client understands the value of XA marketing.

To execute XA's expansion plans, XA has also recruited a number of senior executives with broad and diverse experience managing rapidly growing national and international businesses.

Centralized Administration and Purchasing

XA has centralized its administrative and purchasing functions to enhance cost efficiency and quality control. The corporate headquarters in Chicago are the center for administration, MIS, finance, accounting and human resources. XA has a national client base. XA oftentimes plans and executes multiple events for different national clients in a single geographic location. XA negotiates through the Chicago office with local vendors in these geographic locations for the provision of services to its national clients. XA repeatedly uses the same vendors in these local markets. XA believes that it enjoys purchasing power and economies of scale greater than that available to its local competitors.

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Technological Capabilities

XA believes that it can invest more in technology than its local competitors and thereby become a leader in utilizing advanced technologies. XA is able to allocate its investment in technology over its large national event base, whereas a local competitor that does not have a national event base may not be willing to invest heavily in advanced technology.

XA currently uses advanced communications technologies such as digitized presentations and multimedia applications to provide high quality customer service. In addition, XA is creating business communication applications using media, such as DVD technology, plasma screens, interactive video and the satellite communications.

Intellectual Property

The Company is the owner of the proprietary trademark, "The Experiential Agency(R)" (US Serial No: 78241557). Additionally, the Company has filed for a trademark for "XA" and "XA Scenes," but has not as of the date of this filing received approval of such trademarks.

The Company also owns the rights to the internet domain names, including:

* www.gmproductions.com;

* www.gmproductions.net;

* www.expagency.com;

* www.experientialagency.com;

* www.theexperientialagency.com; and

*www.musters.com.

The Company does not own any patents or licenses related to its products or services.

Competition

Companies in the events industry compete based on service breadth and quality, creativity, responsiveness, geographic proximity to clients, and price. Most vendors of outsourced event services are small, local companies that cannot provide the wide range of services, international coverage, creative talent, purchasing power and technological capabilities required by large corporations and associations.

XA competes primarily with a large number of local and regional firms as well as specialized vendors such as production companies meeting planning companies (such as Carat Face-to-Face), entertainment & show production firms and destination logistics companies. Most of these competitors and specialized vendors provide a limited range of services relative to XA's service offerings. As a vertically integrated service provider, we believe XA offers a comprehensive solution to client organizations with the assurance of a high quality of service and the opportunity to form a long-term relationship. At the national level, XA faces larger competitors such as Jack Morton Worldwide - part of the Interpublic Group of Companies (IPG: NYSE), and George P. Johnson.

We believe that XA is positioning itself as the Event Marketing Partner with its unique selling point being the ability to act as a single source for the client's total event marketing needs. This would encompass the entire spectrum of services associated with event marketing, right from strategizing and defining an event portfolio, conceptualization of the event theme and content creation to the final implementation / management of the event itself and post event Return On Investment assessment.

ITEM 2. DESCRIPTION OF PROPERTY

Our corporate headquarters are located in Chicago, Illinois. In July 2004, we entered into an eight-year lease for approximately 4,600 square feet of office space for our corporate headquarters. Our current lease commitment is $10,069 per month.

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In August 2003, we opened an office in New York City. We lease this office space from Thom Filicia, Inc. pursuant to a five year sublease. Our lease commitment on our New York Office space is $1,300 per month plus the obligation to pay utilities.

We also have offices in Los Angeles, California. On January 15, 2004, we entered into a four-year and seven-month lease for this office space from Gilmore North Market, LLC. Our current lease commitment is $1,750 per month plus the obligation to pay utilities.

On December 23, 2005, XA Scenes, Inc., our wholly owned subsidiary, entered into a Lease, (the "Lease") on the ninth floor of 636-642 West 28th Street, New York, New York 10001, also known as the "Terminal Warehouse" (the "Property") with Waterfront NY Realty Corp. ("Landlord"). The Lease has a term of ten (10) years (the "Term"), and commenced on June 1, 2006. We agreed to pay initial annual rent under the Lease equal to $260,000 per year, which rent increases at the rate of 3% per year (with the rate of rent for the 10th year of the Lease being $350,000), payable monthly at the initial rate of $21,666.66 per month.

On March 6, 2006, The Experiential Agency, Inc., our wholly owned subsidiary (“Experiential”), entered into a Lease on Unit No. 2B in Building No. 2 of 1435 51st Street, in North Bergen, New Jersey. The lease commenced on April 1, 2006, and ends on March 31, 2009. The monthly rent on the lease is $4,037 from April 1, 2006 until March 31, 2007, $4,238 for the period from April 1, 2007 until March 31, 2008, and $4,449 for the period from April 1, 2008 until March 31, 2009. Upon the expiration of the lease, Experiential has the option to renew the lease for an additional three (3) year term. The monthly rental fees during the additional three year term, will be $4,671 from April 1, 2009 and March 31, 2010, $4,904 from April 1, 2010 and March 31, 2011, and $5,149 from April 1, 2011 to March 31, 2012. The landlord has the right to terminate the lease at any time after March 31, 2009, with six (6) months prior written notice to Experiential.

ITEM 3. LEGAL PROCEEDINGS

Our wholly owned subsidiary, The Experiential Agency, Inc., formerly G/M! Productions, Inc., an Illinois corporation has a pending lawsuit, Erie West, L.L.C., v. G/M! Productions, Inc., No. 04 M1 137777, with one of our former landlords, in the Circuit Court of Cook County, Illinois. The lawsuit is in connection with office space we previously leased from Eire West, L.L.C. (the "Landlord"), at 308 West Erie Street, Chicago, Illinois. The Landlord in its First Amended Verified Complaint, alleged that we failed to provide the Landlord a cash deposit or new standby letter of credit when our previous letter of credit expired; and that the Landlord is owed money for unpaid rental fees, which it alleged we stopped paying under our lease with Landlord on July 1, 2004, which lease was to run until March 31, 2008.

We filed an Answer and Affirmative Defenses to First Amended Verified Complaint to the Landlord's claims in the Circuit Court of Cook County, Illinois on May 31, 2005 (the "Answer"). In the Answer, we pleaded certain affirmative defenses, including that we have fully performed all conditions and covenants under the lease, and that we are therefore not in default; that we validly terminated the lease on June 30, 2004, after giving previous notice on several occasions to the Landlord, as a result of the fact that we were prevented the use and quiet enjoyment of the premises; and that the Landlord had the duty and obligation at all times to take reasonable steps to mitigate the damages sustained (the "Affirmative Defenses").

Since the filing of our Answer, the Landlord has filed Second and Third Amended Verified Complaints, and we have answered such complaints. The Landlord's Third Amended Verified Complaint alleged damages for our alleged breach of the lease and alleged damages for prospective rent. The total damages asked for by the Landlord in the Third Amended Verified Complaint total approximately $309,710 plus interest. On February 28, 2006, we filed our Answer and Affirmative Defenses to Third Amended Verified Complaint, whereby we denied certain of the Landlord's claims and asserted our Affirmative Defenses. The trial date was scheduled for July 2007, but has since been extended.  There is a hearing scheduled for October 14, 2008.

In March 2006, we received notice of a lawsuit filed against XA, Inc., our wholly owned subsidiary, The Experiential Agency, Inc., and our Chief Executive Officer and Director, Joseph Wagner, Chief Operating Officer, Jean Wilson, and one of our employees, Marcy Manley, individually, by our former employee, Lara Shipp ("Shipp"). The lawsuit was filed in the Northern District of Illinois. The lawsuit alleged damages in connection with our discharge of Shipp, alleged that we failed to pay her certain commissions which she was due and that she was denied rights under the Family Medical Leave Act. Additionally, the lawsuit alleges breach of contract, declaratory relief regarding her interests in the Company, promissory estoppel, tortious interference with contract and fraudulent inducement. Shipp alleged that her employment contract with us entitled her to commissions of gross revenues on reoccurring business and that she was terminated in violation of Family and Medical Leave Act ("FMLA").  The lawsuit asked for all wages, benefits and other compensation that she lost as a result of her alleged termination in violation of FMLA, front pay and reasonable attorney's fees. Shipp also alleged that we violated the Illinois Wage Payment and Collection Act and alleges that she is due commissions and other amounts greater than $100,000 in unpaid commissions and automobile reimbursement, attorney's fees, pre and post judgment interest and punitive damages Furthermore, Shipp alleged that she was due an ownership interest in XA, Inc., which is larger than her current stake. The matter has been resolved and the terms are confidential.

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During the second quarter of 2007, we filed a complaint against three of our former employees and another third party, alleging that two of those former employees had violated their non-compete agreements with us, which they agreed to pursuant to and in connection with their entry into employment agreements with us, as well as other causes of action, including violation of the Illinois Trade Secrets Act and tortuous interference. We subsequently obtained a Restraining Order against the two former employees who we allege are barred from their current actions due to their non-compete agreements with us, which prevents them from performing any services on behalf of any of our clients. Subsequent to the filing of this Report, we anticipate entering the discovery phase of the litigation. We are seeking an injunction against the defendants and damages in connection with our former employees’ breach of their non-compete agreements and the other causes of actions alleged.  The case is still ongoing.

The Company is not aware of any pending legal proceedings other than the ones described above, to which it is a party which is material to its business operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

"Bid" and "asked" offers for the common stock are listed on the NASDAQ OTC-Bulletin Board published by the National Quotation Bureau, Inc. The Company's common stock began regular trading during the third quarter of the fiscal year ended December 31, 2003. The trading symbol for the Common Stock was originally "SYSC", and was changed to "EXAG" in connection with the Company's name change on December 11, 2003, and was later changed to "XAIN" in connection with the Company's name change on December 9, 2004.

The following table sets forth the high and low trading prices for the Company's common stock for the periods indicated as reported by the NASDAQ OTC-Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

TRADING PRICES
Quarter Ended	High	Low
December 31, 2007	$0.28	$0.07
September 30, 2007	$0.50	$0.28
June 30, 2007	$0.54	$0.255
March 31, 2007	$0.48	$0.25
December 31, 2006	$0.35	$0.21
September 30, 2006	$0.40	$0.15
June 30, 2006	$0.75	$0.30
March 31, 2006	$0.51	$0.40

There were approximately 35 holders of record of the common stock as of April 11, 2008. The Company has never paid a cash dividend on its common stock and does not anticipate the payment of a cash dividend in the foreseeable future. The Company intends to reinvest in its business operations any funds that could be used to pay a cash dividend. The Company's common stock is considered a "penny stock" as defined in the Commission's rules promulgated under the Exchange Act. In general, a security which is not quoted on NASDAQ or has a market price of less than $5.00 per share where the issuer does not have in excess of $2,000,000 in net tangible assets (none of which conditions the Company meets) is considered a penny stock. The Commission's rules regarding penny stocks impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally persons with net worth in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rules, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Thus, the Rules affect the ability of broker-dealers to sell the Company's shares should they wish to do so because of the adverse effect that the Rules have upon liquidity of penny stocks. Unless the transaction is exempt under the Rules, under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, broker-dealers effecting customer transactions in penny stocks are required to provide their customers with (i) a risk disclosure document; (ii) disclosure of current bid and ask quotations if any; (iii) disclosure of the compensation of the broker-dealer and its sales personnel in the transaction; and (iv) monthly account statements showing the market value of each penny stock held in the customer's account. As a result of the penny stock rules the market liquidity for the Company's securities may be severely adversely affected by limiting the ability of broker-dealers to sell the Company's securities and the ability of purchasers of the securities to resell them.

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Recent Sales of Unregistered Securities

On June 11, 2007, we entered into Subscription Agreements with G. Chris Andersen and Paul M. Higbee, whereby we sold each of them (i) $25,000 in twelve (12) month 11% Senor Secured Convertible Promissory Notes (for $50,000 in total Notes sold) which are convertible as provided in such notes; and (ii) five year Warrants to purchase 25,000 shares of our common stock each (for the total issuance of 50,000 warrants) at an exercise price of $0.30 per share. We claim an exemption from registration afforded by Section 4(2) of the Securities Act of 1933 for the above, since the foregoing did not involve a public offering, the recipients took the securities for investment and not resale and we took appropriate measures to restrict transfer.

On June 22, 2007, we entered into a Subscription Agreement with Sands Brothers Venture Capital LLC, Sands Brothers Venture Capital II LLC, Sands Brothers Venture Capital III LLC, Sands Brothers Venture Capital IV LLC, and Katie & Adam Bridge Partners, L.P.(the “Sands Brothers Purchasers”), whereby we sold the Sands Brothers Purchasers an aggregate of (i) $200,000 in twelve (12) month 11% Senor Secured Convertible Promissory Notes which are convertible as provided in such notes; and (ii) five year Warrants to purchase 200,000 shares of our common stock at an exercise price of $0.30 per share. We claim an exemption from registration afforded by Section 4(2) of the Securities Act of 1933 for the above, since the foregoing did not involve a public offering, the recipients took the securities for investment and not resale and we took appropriate measures to restrict transfer.

On or about June 29, 2007, we entered into a Subscription Agreement with Vision Opportunity Master Fund, Ltd. ("Vision”), whereby we sold Vision (i) $200,000 in twelve (12) month 11% Senor Secured Convertible Promissory Notes which are convertible as provided in such notes; and (ii) five year Warrants to purchase 200,000 shares of our common stock at an exercise price of $0.30 per share. We claim an exemption from registration afforded by Section 4(2) of the Securities Act of 1933 for the above, since the foregoing did not involve a public offering, the recipient took the securities for investment and not resale and we took appropriate measures to restrict transfer.

On December 21, 2007, we entered into a Subscription Agreements with Sands Brothers Venture Capital III, LLC and Vision Opportunity Master Fund, Ltd., whereby we sold each of them (i) $200,000 in twelve (12) month 11% Senor Secured Convertible Promissory Notes (for $400,000 in total Notes sold) which are convertible as provided in such notes; and (ii) five year Warrants to purchase 200,000 shares of our common stock each (for the total issuance of 400,000 warrants) at an exercise price of $0.30 per share. We claim an exemption from registration afforded by Section 4(2) of the Securities Act of 1933 for the above, since the foregoing did not involve a public offering, the recipients took the securities for investment and not resale and we took appropriate measures to restrict transfer.

On December 21, 2007, in consideration for and in connection with the Second Follow On Funding (described above) we granted Mastodon 350,000 five year Warrants to purchase shares of our common stock at an exercise price of $0.30 per share. We claim an exemption from registration afforded by Section 4(2) of the Securities Act of 1933 for the above, since the foregoing did not involve a public offering, the recipient took the securities for investment and not resale and we took appropriate measures to restrict transfer.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. THESE FORWARD LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THIS REPORT. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH "SELECTED FINANCIAL DATA" AND THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

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Marketing and Growth Strategy

The major focus of our growth strategy over the next several years will be the acquisition and development of targeted business communications and event management companies in key regions throughout the United States. Our management has identified a number of targeted strategic acquisition opportunities in the form of business communications and event management companies in key regions throughout the United States. Our targeted acquisitions are intended to add geographic coverage to our existing businesses as well as broaden our service offerings. The initial acquisitions are planned to focus on business communications and event management companies which are specialized in the on-site logistical aspects of the business communications and event management industry, and are located in the Chicago, New York City and Los Angeles areas. We have not entered into any preliminary negotiations or discussions with any acquisition targets, nor do we have any definitive agreements with any acquisition targets, however we plan to take steps to acquire such acquisition targets in the future, of which there can be no assurance, funding permitting, of which there can be no assurance.

We also plan to fuel our growth through a broader, carefully designed growth strategy that includes extending relationships with existing clients, building new client relationships, expanding our international client base, making selected infrastructure acquisitions, and expanding our media services. We believe that substantial opportunities exist to expand relationships with existing clients by cross-selling the full range of our services, building out our national office network and expanding our service offerings, particularly with respect to our events, multimedia and corporate branding capabilities. We will seek to capitalize on the services provided to one division or operation of a client by selling our services to other divisions or operations, including their foreign operations. We have also initiated advertising and public relations programs to enhance our brand recognition in the marketplace.

We also believe that multinational organizations headquartered both inside and outside of the United States are increasingly interested in building relationships with business communications and event management firms and owners of events who can provide their services on a worldwide basis. Our international client base continues to grow and in order to better serve these organizations, we plan to aggressively expand our international client base over the next 12 to 24 months, funding permitting.

The Company believes that there is an increasing trend on the part of associations, historically the largest owners and operators of exhibitions, to outsource the operational management and often the ownership of exhibitions as they focus on their core missions and seek to improve efficiencies.

We believe that the events industry revolves on a competitive axis based on service breadth and quality, creativity, responsiveness, geographic proximity to clients, and price. Most vendors of outsourced event services are small, local companies that cannot provide the wide range of services, international coverage, creative talent, purchasing power and technological capabilities required by large corporations and associations. As a vertically integrated service provider we believe that we will be able to offer a comprehensive solution to these organizations with the assurance of a high quality of service and the opportunity to form a long-term relationship.

We differentiate ourselves from our competitors by offering a single source solution to the market for business communication and event management services on a national basis, employing creative, energetic professionals, and centralizing our administration and purchasing functions.

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COMPARISON OF OPERATING RESULTS

YEAR ENDED DECEMBER 31, 2007 COMPARED TO THE YEAR ENDED DECEMBER 31, 2006

We had sales of $8,433,848 for the year ended December 31, 2007, compared to sales of $9,824,677 for the year ended December 31, 2006, a decrease in sales from the prior period of $1,390,829 or 14.2%. The decrease in sales was mainly due to the loss of the LaSalle Bank account and several other client accounts, during the year ended December 31, 2007.  Our sales vary quarter to quarter based on the number of programs and events we plan during those quarters.

We had cost of goods sold relating to direct production costs of $4,519,232 for the year ended December 31, 2007, compared to cost of goods sold relating to direct production costs of $5,782,391 for the year ended December 31, 2006, a decrease in cost of goods sold from the prior period of $1,263,159 or 21.8%.  The decrease in cost of goods sold was directly attributable to our decrease in sales for the year ended December 31, 2007, compared to the prior year.

Cost of goods sold as a percentage of sales was 53.6% for the year ended December 31, 2007, compared to 58.9% for the year ended December 31, 2006, a decrease in cost of goods sold as a percentage of sales of 5.3% from the prior year.

We had gross profit of $3,914,616 for the year ended December 31, 2007, compared to gross profit of $4,042,286 for the year ended December 31, 2006, a decrease in gross profit of $127,670 or 3.2% from the prior period. The decrease in gross profit was due to the 14.2% decrease in sales offset by the 21.8% decrease in cost of goods sold.

We had administrative expenses of $4,775,951 for the year ended December 31, 2007, compared to administrative expenses of $4,992,871 for the year ended December 31, 2006, a decrease in administrative expenses of $216,920 or 4.3% from the prior period.

The decrease in administrative expenses was due to reductions in the number of our senior producers during the year ended December 31, 2007, compared to the year ended December 31, 2006, and our management’s effort to reduce administrative expenses during the three months ended December 31, 2007.

We had a loss from operations of $861,335 for the year ended December 31, 2007, compared to a loss from operations of $950,585 for the year ended December 31, 2006, a decrease in loss from operations of $89,250 or 9.4% from the prior period. The decrease in loss from operations was mainly attributable to the $216,920 or 4.3% decrease in administrative expenses offset by the $127,670 or 3.2% decrease in gross profit for the year ended December 31, 2007, compared to the prior year.

We had net other expenses for the year ended December 31, 2007, of $962,620, compared to net other expenses of $1,041,017 for the year ended December 31, 2006, a decrease in net other expenses of $78,397 or 7.5% from the prior period. The main reason for the decrease in net other expenses was a $540,000 decrease in intangible impairment, to $0 for the year ended December 31, 2007, compared to $540,000 for the year ended December 31, 2006, in connection with a one time writedown of an operating loss carryforward, offset by a $453,034 or 88.9% increase in other expenses, to $962,711 for the year ended December 31, 2007, compared to $509,677 for the year ended December 31, 2006, in connection with interest on our outstanding promissory notes and higher accrued interest on our outstanding convertible notes, in connection with a greater amount of convertible notes, with a higher interest rate outstanding during the year ended December 31, 2007, compared to the year ended December 31, 2006, and an $8,569 decrease in other income for the year ended December 31, 2007 compared to the year ended December 31, 2006.

We had a net loss of $1,823,955 for the year ended December 31, 2007, compared to a net loss of $1,991,602 for the year ended December 31, 2006, a decrease in net loss of $167,647 or 8.4% from the prior year. The decrease in net loss was attributable to the 4.3% decrease in administrative expenses, the 21.8% decrease in cost of goods sold and the 7.5% decrease in net other expenses, offset by the 14.2% decrease in sales for the year ended December 31, 2007, compared to the year ended December 31, 2006.

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We had other comprehensive income, consisting of decrease in fair value of derivatives, for the year ended December 31, 2007 of $454,091, compared to $296,121 for the year ended December 31, 2006, an increase of $157,970 or 53.3% from the prior year.  This decrease in fair value of derivatives is attributable to the volatile price of the Company’s common stock.

We had net comprehensive loss of $1,369,864 for the year ended December 31, 2007, compared to net comprehensive loss of $1,695,481 for the year ended December 31, 2006, a decrease in net comprehensive loss of $325,617 or 19.2% from the prior year.

LIQUIDITY AND CAPITAL RESOURCES

We had total current assets of $1,615,096 as of December 31, 2007, which included cash of $504,012; accounts receivable of $394,453; work in progress at cost of $43,408; prepaid expenses of $253,473; and prepaid finance charges of $419,750.

We had total fixed assets of $964,651 as of December 31, 2007, which included equipment of $244,736; furniture and fixtures of $66,177; and leasehold improvements of $1,006,745; which was offset by $353,006 of accumulated deprecation. Leasehold improvements mainly included the XA Scenes office space and venue rental in New York, improvements on that space, and equipment mainly includes equipment purchased in connection with the XA Scenes venue.

We had other assets of $937,248 as of December 31, 2007, which included $71,939 of deposits; and $865,309 of goodwill.

We had total assets of $3,516,995 as of December 31, 2007.

We had total current liabilities of $5,688,233 as of December 31, 2007, which included $706,630 of accounts payable, $421,104 of interest payable, which mainly represents accrued and unpaid interest on our 11% Convertible Notes; $3,292 of withheld and accrued taxes; $169,303 of unearned revenues; $837,904 of line of credit; and $3,550,000 of current portion of long term debt in connection with amounts owed to the Purchasers pursuant to the outstanding promissory notes.

We had derivative liability of $10,116 as of December 31, 2007, in connection with the outstanding notes owed to the Purchasers.

We had negative working capital of $4,073,137 and a total retained deficit of $5,233,538 as of December 31, 2007.

We had net cash used by operating activities of $703,903 for the year ended December 31, 2007, which was mainly due to $1,873,995 of net loss, offset by $334,722 decrease in prepaid finance charges, $318,344 increase in accrued interest, $192,398 increase in accounts payable, $212,853 in amortization of discounts on notes payable and $141,145 of depreciation.

We had $300 of net cash used by investing activities for the year ended December 31, 2007, which was due to $2,000 of purchase of fixed assets offset by $1,700 of decrease in deposits.

We had $835,589 of net cash used by financing activities during the year ended December 31, 2007, which represented an $850,000 increase in notes payable and a $37,904 increase in line of credit, offset by an increase of $52,315 in derivative liability.

The Company has a line of credit agreement which it entered into on August 12, 2004, with LaSalle Bank National Association ("LaSalle") for $750,000.  The line of credit was due August 12, 2005, and the interest varied at 0.25% over the prime rate. The Company's assets secure the line of credit. Prior to the expiration of the line of credit, the line of credit was renewed for another year and increased to $800,000. On or around June 30, 2007, the Company entered into a promissory note evidencing amounts owed under the line of credit, in the amount of $600,000, which promissory note accrued interest at the rate of 2.25% above the prime rate then in affect, which line of credit was later amended and replaced by the Line of Credit, defined and described below.

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On June 1, 2006, we entered into a business loan for a loan of up to $750,000 with LaSalle, which loan accrued interest at the prime rate plus 0.25% until paid.  The loan was originally due on June 30, 2007, but was extended by the parties entry into a promissory note on or around June 30, 2007, which increased the interest rate to 2.25% per annum, which provided for $66,666 to be paid on July 31, 2007; a payment of accrued interest under the promissory note on July 31, 2007; and one payment of principal and interest of approximately $200,064 on July 31, 2007.  We failed to make the required payments due under the promissory note pursuant to the payment schedule above, and as such, the interest rate of the funds due under the promissory note increased by 2%; however, this promissory note was subsequently amended and replaced by the LaSalle Line of Credit defined and described below. 

On or about August 27, 2007, we entered into a promissory note with LaSalle, evidencing a line of credit (the “LaSalle Line of Credit”), which evidenced and aggregated the amounts previously outstanding under the line of credit and promissory note described above, in an amount equal to $867,000.  The LaSalle Line of Credit bears interest at the rate of 2.25% above the prime rate then in effect, which was equal to 10.5% per annum as of August 27, 2007, adjustable as provided in the LaSalle Line of Credit, until paid.  We were required to make monthly payments of interest under the LaSalle Line of Credit, with the full outstanding balance of the LaSalle Line of Credit due on December 1, 2007.  The agreement provides that, in the event of default, the interest rate of the LaSalle Line of Credit will increase by 2% over the interest rate then in effect.

We failed to make the required payment due under the promissory note on December 1, 2007, which promissory note had a remaining balance of $844,485.03 as of December 11, 2007.  This unpaid balance consisted of $837,904.00 in principle and $6,581.03 in accrued and unpaid interest.  On December 3, 2007, LaSalle notified the Company by letter that the promissory note was in default, and beginning on December 4, 2007, interest will accrue on the unpaid balance of the promissory note (and any accrued and unpaid interest thereon) at the default annual rate of 11.75% (the prime rate plus 4.25% per year), based on the bank’s prime rate of 7.5%.  Pursuant to LaSalle’s letter as of December 4, 2007, the Company had until December 31, 2007 to repay the remaining balance of the promissory note, or LaSalle would seek alternatives to payment.

We subsequently paid $100,000 from the Second Follow On Funding to LaSalle, to repay a portion of the principal and interest owed to LaSalle through the LaSalle Line of Credit and entered into a Forbearance Agreement with LaSalle, pursuant to which LaSalle will forbear enforcement of its rights and remedies against us and Experiential until June 1, 2008, conditioned on performance of certain terms and conditions.  These terms and conditions include entering into a new note in the amount of $738,000 with continuing interest and principal payments of $10,000 due on March 1, 2008, April 1, 2008, and May 1, 2008.  Furthermore, the Forbearance Agreement requires the Company, the Second Follow On Purchasers and the other junior lenders to enter into Subordination Agreements and a General Release for the benefit of LaSalle (the “Subordination Agreements”), as well as requiring us to agree to pay all legal fees and expenses incurred by LaSalle in connection with the defaults and the Forbearance Agreement.

Description of Funding Events:

On August 8, 2006, we entered into a Securities Purchase Agreement, with Sands Brothers Venture Capital LLC, Sands Brothers Venture Capital II LLC, Sands Brothers Venture Capital III LLC, Sands Brothers Venture Capital IV LLC, and Katie & Adam Bridge Partners, L.P. (collectively the "Sands Brothers Purchasers"), pursuant to which we sold the Sands Brothers Purchasers fifteen month, 11% Senior Subordinated Secured Convertible Promissory Notes in the aggregate principal amount of $1,250,000 (the "August 2006 Notes") and five (5) year warrants to purchase an aggregate of one hundred and seventy-five thousand (175,000) shares of our common stock at an exercise price of $1.10 per share (the "Warrants").

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On September 26, 2006 and October 23, 2006, we sold an aggregate of $1,450,000 in additional 11% Senior Subordinated Convertible Promissory Notes (the "Second Funding Notes") to three purchasers (the "Second Funding Purchasers"), who were also issued an aggregate of 217,500 five year warrants to purchase shares of our common stock at $1.10 per share and 100,000 five year warrants to purchase shares of our common stock at $0.30 per share (the "Second Funding Warrants," and collectively the whole transaction, the "Second Funding").

On or about June 11, 2007, we entered into Securities Purchase Agreements with Andersen and Higbee (the “Follow On Andersen and Higbee Purchase Agreements”), two individuals ("Andersen" and "Higbee"). Pursuant to the Andersen and Higbee Securities Purchase Agreements, we sold Andersen and Higbee $25,000 in twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Notes each (the "Follow On Andersen and Higbee Notes"), and granted each of them twenty-five thousand (25,000) five year warrants to purchase shares of our common stock at an exercise price of $0.30 per share (the "Follow On Andersen and Higbee Warrants," and collectively the “Andersen and Higbee Follow On Funding”).

On or about June 22, 2007, we entered into a Securities Purchase Agreement (the "Follow On Sands Brothers Purchase Agreement") with The Sands Brothers Purchasers, pursuant to which we sold such Sands Brothers Purchasers twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Notes in the aggregate principal amount of $200,000 (collectively the "Follow On Sands Brothers Notes") and five (5) year warrants to purchase an aggregate of two hundred thousand (200,000) shares of our common stock at an exercise price of $0.30 per share (the "The Follow On Sands Brothers Warrants," and collectively the “Sands Brothers Follow On Funding”).

On or about June 29, 2007, we entered into a Securities Purchase Agreement with Vision, and collectively with Andersen and Higbee and the Sands Brothers Purchasers, the "Purchasers”). Pursuant to the Securities Purchase Agreement with Vision (collectively with the Andersen and Higbee Purchase Agreements and the Sands Brothers Purchase Agreement, the "Follow On Funding Purchase Agreements"), we sold Vision $200,000 in twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Notes (the "Follow On Vision Note," and collectively with the Follow On Andersen and Higbee Notes and the Follow On Sands Brothers Notes, the "Follow On Notes") and granted Vision two hundred thousand (200,000) five year warrants to purchase shares of our common stock at $0.30 per share (the “Follow On Visions Warrants,” and collectively the Follow On Andersen and Higbee Warrants, and the Follow On Sands Brothers Warrants, the “Follow On Warrants,” and the “Follow On Vision Funding,” and collectively with the Andersen and Higbee Follow On Funding and the Sands Brothers Follow On Funding, the “Follow On Funding”).

A required term of the Follow On Funding was that each of the Purchasers agree that the maturity date of the Prior Notes which they hold would be extended to the maturity dates of the Follow On Notes which they hold. The amendment and extension to each of the Purchaser’s Prior Notes was accomplished by each of the Purchasers entry into a First Amendment to the 11% Senior Secured Convertible Promissory Notes with us, on or around the date of their purchases of the Follow On Notes (and in the case of Andersen and Higbee, on or around the date they entered into conforming documents with us, as described above, (the “Note Amendments”)). Pursuant to the Note Amendments, each of the Purchasers agreed that the maturity date of the Prior Notes which they hold would be extended to the maturity date of their respective Follow On Notes. For example, the maturity date of Vision’s Prior Note in the amount of $1,250,000, was extended until the maturity date of the Follow On Vision Note, June 29, 2008.

Our repayment of the August 2006 Notes, Second Funding Notes and Follow On Notes and any accrued interest thereon is secured by a security interest in substantially all of our assets, which we granted to the Purchasers pursuant to a Security Agreements which we entered into with the Purchasers at the closings.

On or about December 21, 2007, the Company entered into a Securities Purchase Agreement (the "Sands Brothers Purchase Agreement") with Sands Brothers Venture Capital III LLC (the “Sands Brothers III”), pursuant to which we sold Sands Brothers III a twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Note in the aggregate principal amount of $200,000 (the "Second Follow On Sands Brothers Note") and five (5) year warrants to purchase an aggregate of two hundred thousand (200,000) shares of our common stock at an exercise price of $0.30 per share (the "Sands Brothers Warrants," and collectively the “Sands Brothers Second Follow On Funding”).

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On or about December 21, 2007, we entered into a Securities Purchase Agreement with Vision Opportunity Master Fund, Ltd. ("Vision," and collectively with Sands Brothers, the "Second Follow On Purchasers”). Pursuant to the Securities Purchase Agreement with Vision (collectively with the Sands Brothers Purchase Agreement, the "Second Follow On Funding Purchase Agreements"), we sold Vision a $200,000 twelve (12) month, 11% Senior Subordinated Secured Convertible Promissory Note (the "Second Follow On Vision Note," and collectively with the Second Follow On Sands Brothers Notes, the "Second Follow On Notes") and granted Vision two hundred thousand (200,000) five year warrants to purchase shares of our common stock at $0.30 per share (the “Second Follow On Vision Warrants,” and collectively with the Second Follow On Sands Brothers Warrants, the “Second Follow On Warrants,” and the “Second Follow On Vision Funding,” and collectively with the Sands Brothers Second Follow On Funding, the “Second Follow On Funding”).

On or about February 29, 2008, the Company and Experiential entered into a Revolving Line of Credit Agreement (the “Sands Brothers Line of Credit”) with Sands Brothers Venture Capital III LLC (“Sands Brothers”), pursuant to which Sands Brothers extended a revolving line of credit to the Company for a period extending to June 29, 2008 in the principal amount of up to two hundred thousand dollars ($200,000).

In connection with the Sands Brothers Line of Credit, the Company received an initial advance on or around February 29, 2008, of one hundred thousand dollars ($100,000) and executed and delivered to Sands Brothers a Promissory Note (the “First Advance Note”) in the initial amount of one hundred thousand dollars ($100,000), evidencing such advance.  Further, on March 27, 2008, the Company received a second advance of one hundred thousand dollars ($100,000) and executed and delivered to Sands Brothers a Promissory Note (the “Second Advance Note”) in the amount of one hundred thousand dollars ($100,000), evidencing such advance.  The second advance exhausted the funding Sands Brothers has agreed to provide pursuant to the Sands Brothers Line of Credit. The First Advance Note and the Second Advance Note bear interest until paid in full at the rate of twelve percent (12%) per annum, with the interest on such notes payable monthly in arrears commencing on April 1, 2008.  In the event any payment is not made within three (3) days of the date such payment is due under either note, both outstanding notes will bear interest at the rate of fifteen percent (15%) per annum, and such failure to pay the required payment is defined as an “Acceleration Event.” Any Acceleration Event or Event of Default gives Sands Brothers the right to provide for the entire amount of unpaid principal and interest on the outstanding notes to be immediately due and payable with fifteen days prior notice in the event of an Acceleration Event and without prior notice if an Event of Default occurs.  The principal and any unpaid interest on both notes is due and payable on June 29, 2008.

Use of Proceeds:

We immediately used $1,047,000 of the funds received through the sale of the August 2006 Notes along with approximately $40,000 in cash on hand to repay the $1,086,486 amount owed under our outstanding 6% Convertible Notes, which we sold to certain purchasers in June and September 2004 (the "6% Notes" and the "6% Note Purchasers"). The 6% Note Purchasers had originally purchased $2,500,000 in 6% Notes from us in two tranches, one tranche of $1,250,000 on June 30, 2004 (the "First Tranche") and $1,250,000 on September 13, 2004 (the "Second Tranche").

The 6% Note Purchasers previously converted a portion of the 6% Notes into shares of our common stock, and as a result, only approximately $1,056,180 of principal remained due under the June 2004 tranche of the 6% Notes on June 30, 2006, which amount was not immediately paid when due. This amount would have accrued interest at the default rate equal to 15% until paid, however our default was waived by the 6% Note Purchasers pursuant to our entry into the Waiver of Rights Agreement with the 6% Note Purchasers. As a result, the remaining balance under the First Tranche of the 6% Notes was equal to $1,056,180 as of August 8, 2006, which amount was increased to $1,086,486 in connection with accrued and unpaid interest at 6% per annum on the outstanding amount of the First Tranche of the 6% Notes and the Second Tranche of the 6% Notes. The remaining amount of the August 2006 funding equal to approximately $203,000 was paid to various parties in connection with attorney's fees and finder's fees in connection with the August 2006 funding.

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We used $1,030,575 of the funds received through the Second Funding to repay the amount due under the Second Tranche of the 6% Notes and interest on such amount as of October 18, 2006. We owed approximately $1,012,434 in principal on the September 2004 portion of the 6% Notes, which notes were due and payable on September 13, 2006, but which due date was later extended to October 18, 2006, pursuant to the Third Waiver Agreement. The total amount of principal and interest at 6% per annum which was due under the 6% Notes as of October 18, 2006, was approximately $1,030,575. Due to our repayment of the Second Tranche of the 6% Notes, we no longer owe the 6% Note Purchasers any money, however, such 6% Note Purchasers still hold 250,000 warrants to purchase shares of our common stock at an exercise price of $9.60 per share, which expire if unexercised on June 30, 2008. An additional amount of $165,000 of the remaining amount received through the Second Funding was used to pay various closing costs and legal fees, including $80,000 paid to Laidlaw & Company (UK) Ltd. ("Laidlaw") in connection with finders fees and consulting fees in connection with the October funding and amounts paid to Vision's legal counsel in attorney's fees and due diligence fees in connection with the October closing, leaving us with approximately $250,000 from the amount raised through the Second Funding after repaying the 6% Note Purchasers and closing fees.

In connection with the Follow On Funding, we agreed to pay legal fees to the Sands Brothers Purchasers’ counsel, which amounted to approximately $20,000 in addition to our legal counsel’s fees associated with the Follow On Funding of approximately $30,000. As a result, we received an aggregate of $400,000 in connection with the sale of the $450,000 in Follow On Notes.

The Company paid $100,000 from the Second Follow On Funding to LaSalle, to repay a portion of the principal and interest owed to LaSalle through the LaSalle Line of Credit and entered into a Forbearance Agreement with LaSalle, pursuant to which LaSalle will forbear enforcement of its rights and remedies against us and Experiential until June 1, 2008, conditioned on performance of certain terms and conditions.  These terms and conditions include entering into a new note in the amount of $738,000 with continuing interest and principal payments of $10,000 due on March 1, 2008, April 1, 2008, and May 1, 2008.  Furthermore, the Forbearance Agreement requires the Company, the Second Follow On Purchasers and the other junior lenders to enter into Subordination Agreements and a General Release for the benefit of LaSalle (the “Subordination Agreements”), as well as requiring us to agree to pay all legal fees and expenses incurred by LaSalle in connection with the defaults and the Forbearance Agreement.

The funds advanced to the Company through the Sands Brothers Line of Credit will be used for operating expenses in connection with the operations of Experiential, and will be immediately transferred to Experiential as a capital contribution.  Such operating expenses may include but are not limited to legal fees, vendor expenses, auditor fees, payroll, rent, and financing expenses.

We will need to raise additional financing in the future to repay the $3,550,000, not including accrued and unpaid interest on the notes, which we owe under the August, September and October 2006 Senior Notes, the Follow On Notes and the Second Follow On Notes, which notes are due and payable on June 22, 2008 in connection with the $1,250,000 August 2006 funding and $200,000 of the Follow On Funding, June 11, 2008, in connection with $200,000 of the Notes and $50,000 of the Follow On Notes, June 29, 2008, in connection with the $1,250,000 October 2006 funding and $200,000 of the Follow On Funding, and December 21, 2008, in connection with $400,000 of the Second Follow On Notes, assuming such note holders do not convert such notes into shares of our common stock in connection with their Optional Conversion and Mandatory Conversion rights (described above) and will require approximately $837,904 which we owe under the LaSalle Line of Credit, which amount was due on December 31, 2007; however, LaSalle has agreed to forbear its rights and remedies against us and Experiential until June, 1, 2008, provided we perform the terms and conditions discussed above.  We can provide no assurances however that we will be able to perform these terms and conditions, or that we will be able to obtain sufficient funds from alternative lending sources to repay the amount owed pursuant to the LaSalle Line of Credit.  Further, we owe Sands Brothers Venture Capital III LLC $200,000 in connection with a line of credit, which amount and any unpaid interest is due and payable on June 29, 2008.  In addition to the amounts described above, we anticipate the need for approximately $1 to $5 million of additional financing to support strategic acquisitions and our current expansion plan for the next 18 to 24 months.

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We currently hope to raise approximately $3,000,000 in private equity or debt financing within the next fifteen months, of which there can be no assurance (the "Private Offering"). If we are able to affect the Private Offering, the September and October 2006 Second Funding Purchasers will have thirty (30) days following the closing of the Private Offering to decide whether to convert their September and October 2006 Notes into shares of our common stock (in connection with the conversion features of such Notes) and the August 2006 purchasers will be required to immediately convert their August 2006 Notes into shares of our common stock. If those September and October 2006 purchasers choose not to convert their September and October 2006 Notes into shares of our common stock, we will then have ten (10) days to repay them the total outstanding amount of their Notes together with any accrued and unpaid interest thereon.  All of the Follow On Notes are convertible at the option of the holders thereof until such notes are paid by us in full, along with any accrued and unpaid interest thereon.

A substantial portion of our investment capital for the next 12 months, if any, other than those amounts used to repay the LaSalle Line of Credit (and/or which will need to be used to repay the Notes, assuming such Notes are not converted into shares of our common stock) will be used to finance the expansion of our business in accordance with our growth and acquisition strategy described above. To the extent that the proceeds are not used for acquisitions, such proceeds will be used for general corporate purposes and for working capital needs. The amount and timing of such uses will vary depending on the availability of acquisition opportunities. Pending such uses, the net proceeds will be invested in short-term investment grade securities.

Furthermore, we may receive up to approximately $750,000 in connection with the exercise of the Warrants, which funds we plan to use, if such Warrants are exercised for cash (and not pursuant to a cashless exercise), of which there can be no assurance, for financing future acquisitions and/or working capital.

While we are not currently a party to any agreements with respect to any acquisitions, it is possible that an agreement in principle or a definitive agreement as to one or more acquisitions will be executed prior to the completion of the current capital raising efforts. It is likely that the closing of any acquisition would require us to raise additional funds, which there can be no assurance will be available on favorable terms, if at all.

At this time, no additional financing has been secured. We have no commitments from officers, directors or affiliates to provide funding. Our growth and continued operations could be impaired by limitations on our access to the capital markets as well as penalties we may be forced to pay to the Purchasers if we are unable to repay the Notes when due, if such Notes are not converted into shares of our common stock. Without additional financing, we believe we can continue our operations for at least the next twelve months with our current revenues; however, if we are unable to obtain additional financing upon terms that management deems sufficiently favorable, or at all, it would have a material adverse impact upon our ability to pursue our expansion strategy and/or repay the Notes when due, if such notes are not converted into shares of our common stock. There can be no assurance that capital from outside sources will be available, or if such financing is available, it may involve issuing securities senior to our common stock or equity financings which are dilutive to holders of our common stock. In addition, in the event we do not raise additional capital from conventional sources, it is likely that our growth will be restricted and we may need to scale back or curtail implementing our business plan.

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RISK FACTORS

WE HAVE A PRESENT NEED FOR CAPITAL IN ADDITION TO $2.7 MILLION RAISED IN AUGUST THROUGH OCTOBER 2006, $450,000 RAISED IN JUNE 2007, $400,000 RAISED IN DECEMBER 2007, AND $200,000 RAISED IN MARCH 2008.

We intend to seek additional acquisitions which acquisitions will likely require additional capital ranging from $3 to $5 million, which is in addition to $2.7 million raised in August through October 2006, $450,000 raised in June 2007, $400,000 raised in December 2007, and $200,000 raised in March 2008. Furthermore, the due date of such Notes (as amended by the First Amendment to the Notes), is June 22, 2008 in connection with the $1,250,000 August 2006 funding and $200,000 of the Follow On Funding, June 11, 2008, in connection with $200,000 of the Notes and $50,000 of the Follow On Notes, June 29, 2008, in connection with the $1,250,000 October 2006 funding and $200,000 of the Follow On Funding, and December 21, 2008, in connection with $400,000 of the Second Follow On Notes, if such Notes are not converted into shares of our common stock prior to such due dates. Finally, we have approximately $837,904 which is due to LaSalle as of December 31, 2007 (described in greater detail above under “Liquidity and Capital Resources”) and $200,000 which is due to Sands Brothers Venture Capital III LLC on June 29, 2008. At this time, no additional financing has been secured. Our growth and continued operations could be impaired by limitations on our access to the capital markets. There can be no assurance that capital from outside sources will be available, or if such financing is available, that it will be on terms that management deems sufficiently favorable. If we are unable to obtain additional financing upon terms that management deems sufficiently favorable, or at all, it would have a material adverse impact upon our ability to continue our business operations and pursue our expansion strategy. We need to raise additional capital to repay the Purchasers and the Line of Credit, and as a result, we may seek to enter into acquisitions or mergers in the future, of which we currently have no immediate plans, but which if undertaken, could result in a restructuring, change of control and/or a change in our business focus, as well as potential dilution to then current shareholders. In the event we do not raise additional capital from conventional sources, there is every likelihood that we may need to scale back or curtail implementing our business plan.

WE MAY CHOOSE TO GO PRIVATE IN THE FUTURE AND/OR CEASE OUR PUBLIC FILINGS, WHICH COULD CAUSE YOU TO LOSE ALL LIQUIDITY IN YOUR INVESTMENT, AND/OR COULD CAUSE ANY INVESTMENT IN THE COMPANY TO BECOME WORTHLESS.

We may choose to go private in the future through a reverse merger with a separate company, or otherwise.  Additionally, the Company may file a Form 15 in the future, which if approved by the Commission, will suspend its periodic and current report filing obligations with the Commission. In the event that our management decides to take the Company private, any investors in the Company could be forced to be bought out, could hold shares in a non-reporting company or in the event of a reverse merger, could own shares in a company with operations which may be completely different, more risky and have less assets and/or revenues than the Company.  The shares they hold after any merger transaction or after any transaction which results in us ceasing to file reports with the Commission, if any, may not have an equivalent value to their shares of the Company, and/or may have diminished liquidity.  In the event that we decide to go private and/or file a Form 15 to suspend our reporting obligations with the Commission, any investment in the Company could be lost, may have a lesser value than our shares currently have, and/or may have no value or liquidity at all. 

WE HEAVILY DEPEND ON JOSEPH WAGNER AND JEAN WILSON.

The success of the Company depends heavily upon the personal efforts and abilities of Joseph Wagner and Jean Wilson. Joseph Wagner entered into a sixty (60) month Consulting Agreement with the Company effective August 1, 2006 (which agreement was amended on March 8, 2007), pursuant to which Mr. Wagner serves as the Company's, Chief Executive Officer, President and Secretary. Mr. Wagner is also the Chairman of the Board of Directors of the Company. Mr. Wagner may engage in business activities or interests outside of the Company which are not adverse or competitive to the Company. Jean Wilson serves as the Company's Chief Operating Officer, Treasurer and as a director of the Company pursuant to a sixty (60) month Employment Agreement she entered into with the Company, with an effective date of August 1, 2006. Mr. Wagner and Ms. Wilson may voluntarily terminate their employment at any time. The loss of Mr. Wagner, Ms. Wilson or other key employees could have a material adverse effect on our business, results of operations or financial condition. In addition, the absence of Mr. Wagner or Ms. Wilson may force us to seek a replacement who may have less experience or who may not understand our business as well, or we may not be able to find a suitable replacement.

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OUR ABILITY TO OPERATE SUCCESSFULLY AND MANAGE OUR POTENTIAL GROWTH DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED TECHNICAL, MANAGERIAL, SALES, MARKETING AND FINANCIAL PERSONNEL.

The Company's success heavily depends upon its ability to attract and retain highly qualified technical, managerial, sales, marketing and financial personnel. The Company faces competition for qualified personnel in these areas. The Company cannot be certain that it will be able to attract and retain qualified personnel. The Company's inability to hire and retain additional qualified personnel in the future could have a material adverse effect on our business, results of operations or financial condition.

OUR AUDITOR HAS RAISED DOUBT AS TO WHETHER WE CAN CONTINUE AS A GOING CONCERN.

We had a net loss of $1,823,955 for the year ended December 31, 2007.  We also had an adjustment to net loss of $454,091 due to the decrease in the fair value of our derivatives, and a net comprehensive loss of $1,369,864 for the year ended December 31, 2007. We had a $4,073,137 working capital deficiency and a total retained deficit of $5,233,538 as of December 31, 2007. These factors among others indicate that we may be unable to continue as a going concern, particularly in the event that we cannot obtain additional financing and/or attain profitable operations. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty and if we cannot continue as a going concern, your investment in us could become devalued or even worthless.

THE SENIOR NOTES ARE SECURED BY A SECURITY INTEREST IN SUBSTANTIALLY ALL OF OUR ASSETS.

In August 2006, we sold $1,250,000 in 11% Senior Secured Convertible Notes to certain purchasers, in September and October we sold an additional $1,450,000 in 11% Senior Secured Convertible Notes to three purchasers, in June 2007, we sold an aggregate of $450,000 in 11% Senior Secured Convertible Notes to the Purchasers, and in December 2007, we sold an aggregate of $400,000 in 11% Senior Subordinated Secured Convertible Promissory Notes. All of our currently outstanding Notes and interest on such Notes are convertible into shares of our common stock; however, if we fail to register the shares which the Notes are convertible into, such registration statement ceases to be effective or if the Purchasers fail to convert the outstanding amount of the Senior Notes into shares of our common stock, we will be obligated to repay up to $3,550,000, not including any accrued interest, on the due date of such Notes (as amended by the First Amendment to the Notes), June 22, 2008 in connection with the $1,250,000 August 2006 funding and $200,000 of the Follow On Funding, June 11, 2008, in connection with $200,000 of the Notes and $50,000 of the Follow On Notes, June 29, 2008, in connection with the $1,250,000 October 2006 funding and $200,000 of the Follow On Funding, and December 21, 2008, in connection with $400,000 of the Second Follow On Notes. If we default in our repayment of the Notes when due, the Purchasers can take control of substantially all of our assets due to the fact that the repayment of the Notes are secured by a Security Agreement, pursuant to which we granted the Purchasers a security interest in substantially all of our assets. As a result, if we default in the repayment of the Notes, the Purchasers may take control of substantially all of our assets, which could force us to curtail or abandon our business operations, and any investment in us could become worthless.

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THE SEC MAY LIMIT THE NUMBER OF SHARES WE ARE ELIGIBLE TO REGISTER FOR RESALE AT ANY ONE TIME.

We previously agreed to register all of the shares of common stock issuable to the Purchasers and various other parties in connection with the conversion of the Convertible Notes and the exercise of outstanding warrants to purchase shares of our common stock. However, the SEC has recently made public statements indicating the SEC’s Division of Corporation Finance will question the ability of issuers to register shares for resale in a secondary offering (an offering made on behalf of a selling shareholder, versus a primary offering made by the issuer) where the number of shares offered exceeds an estimated one-third of the total number of shares held by non-affiliates prior to the underlying private transaction.  Although this position is not written or settled law, it is possible the SEC staff will view any resale offering by investors as an offering by us and deem it a primary offering if the number of shares we seek to register exceeds the estimated one-third threshold.  Even if the number of shares we seek to register is below the estimated one-third threshold, the SEC staff may still take the position that the offering is a primary offering rather than a secondary offering.  In that event, we may seek to register only a portion of the shares we are required to offer at any one time and will only be able to register additional shares after the passage of time and the sale of substantially all of the shares subject to the previous registration statement.  As a result, the number of shares each investor may include in a registration statement could be substantially reduced. If we are prohibited from registering all of the shares underlying the Convertible Notes and exercisable into common stock in connection with the exercise of the warrants, as we previously agreed, the Purchasers may be limited in their ability to convert such Notes and as a result, we could be forced to repay the entire amount of such Notes which would require a substantial amount of additional cash than we currently have on hand, and may require us to sell additional notes to raise such additional funding, of which there can be no assurance.

OUR INDUSTRY IS HIGHLY COMPETITIVE.

The event production industry is highly competitive and fragmented. The Company expects competition to intensify in the future. The Company competes in each of its markets with numerous national, regional and local event production companies, many of which have substantially greater financial, managerial and other resources than those presently available to the Company. Numerous well-established companies are focusing significant resources on providing event marketing, design and production services that will compete with the Company's services. No assurance can be given that the Company will be able to effectively compete with these other companies or that competitive pressures, including possible downward pressure on the prices it charges for its products and services, will not arise. In the event that the Company cannot effectively compete on a continuing basis or competitive pressures arise, such inability to compete or competitive pressures will have a material adverse effect on the company’s business, results of operations and financial condition.

IF WE FAIL TO TIMELY FILE AND/OR OBTAIN EFFECTIVENESS OF A REGISTRATION STATEMENT REGISTERING THE SHARES OF COMMON STOCK UNDERLYING THE PURCHASERS NOTES AND WARRANTS, WE WILL FACE SIGNIFICANT PENALTIES, WHICH COULD DECREASE THE AMOUNT OF OUR CASH ON HAND AND CAUSE THE VALUE OF OUR STOCK TO DECLINE IN VALUE.

Pursuant to the Registration Rights Agreements, we agreed to register the shares of common stock which the Notes are convertible into and the shares of common stock underlying the Warrants (the “Underlying Shares”).  Pursuant to the Second Follow On Rights Agreements (which replaced and superseded the prior Registration Rights Agreements entered into in August 2006, October 2006, and June 2007, in connection with the previous sale of $3,150,000 in 11% Senior Secured Convertible Notes), we agreed to register the Registrable Securities on a Form SB-2 registration statement with the Securities and Exchange Commission (the "Commission" and the "Registration Statement") pursuant to the deadlines discussed below. We agreed that in the event that the Private Offering has not occurred within six (6) months of the date of the Second Follow On Funding closing, December 21, 2007, which date is June 21, 2008, we would file the Registration Statement with the Commission within forty-five days of such six (6) month anniversary, August 5, 2008, and that we would obtain effectiveness of the Registration Statement no more than ninety (90) days after the date we are required to file such Registration Statement, or November 3, 2008 (the "Initial Registration Deadlines").  However, in the event that we are unable to register all of the Registrable Securities in one Registration Statement because of the applicability of Rule 415 of the Securities Act of 1933, as amended, the Purchasers, as well as Mastodon Ventures, Inc. (collectively the “Registration Rights Holders”), have agreed that the number of shares we can register at any one time will be allocated pro rata to each of the Registration Rights Holders and to file additional registration statements to register the remaining Registrable Securities as described above under “Second Follow On Funding Registration Rights Agreement.”

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If we fail to obtain effectiveness of any required Registration Statement by the applicable Registration Deadlines, or after such effectiveness the Second Follow On Purchasers are unable to sell the Registrable Securities, due to any reason other than the Commission’s application of Rule 415, we are obligated, pursuant to the Second Follow On Rights Agreements, to pay the Second Follow On Purchasers an amount in cash equal to two (2%) of the total principal amount of the Prior Notes and the Second Follow On Notes ($71,000), for each thirty (30) day period which the Registration Deadlines are not met or the Second Follow On Purchasers are unable to sell the Underlying Shares. If we fail to pay such damages within five (5) days of the date payable, we are required to pay interest on the amount payable at the rate of eighteen percent (18%) per annum, accruing daily until such amounts are paid in full. As a result, if we fail to timely file the Registration Statement and/or are prevented from timely receiving effectiveness of such filing, we could be forced to pay the Purchasers substantial penalties, which would reduce our cash on hand, and could cause us to curtail our current business plans, which would likely cause the value of our common stock to decline in value.

WE CURRENTLY HAVE A PENDING LAWSUIT WITH ONE OF OUR FORMER LANDLORDS, WHICH LANDLORD ALLEGED APPROXIMATELY $309,710 IN DAMAGES.

Our former landlord, Erie West, L.L.C. (the "Landlord"), filed a lawsuit against us(described in greater detail under "Legal Proceedings," below) claiming approximately $309,710 in damages and alleging that the Landlord is owed money for unpaid rental fees, which it alleged we stopped paying rent under on July 1, 2004, which lease was to run until March 31, 2008. We filed answers to the Landlord's allegations, denying certain allegations and asserting affirmative defenses to others. If we are forced to pay the approximately $309,710 in alleged damages and/or additional amounts in attorney's fees and interest owed to our former landlord, our cash on hand would be severely impacted and our business could be adversely affected.

OUR GROWTH WILL PLACE SIGNIFICANT STRAINS ON OUR RESOURCES.

The Company's growth is expected to place a significant strain on the Company's managerial, operational and financial resources as Joseph Wagner and Jean Wilson are our only officers. The Company has limited employees in addition to its small number of officers. Furthermore, as the Company receives contracts, the Company will be required to manage multiple relationships with various customers and other third parties. These requirements will be exacerbated in the event of further growth of the Company or in the number of its contracts. There can be no assurance that the Company's systems, procedures or controls will be adequate to support the Company's operations or that the Company will be able to achieve the rapid execution necessary to successfully offer its services and implement its business plan. The Company's future operating results will also depend on its ability to add additional personnel commensurate with the growth of its business. If the Company is unable to manage growth effectively, the Company's business, results of operations and financial condition will be adversely affected.

WE FACE A RISK OF A CHANGE IN CONTROL DUE TO THE FACT THAT OUR CURRENT OFFICERS AND DIRECTORS DO NOT OWN A MAJORITY OF OUR OUTSTANDING COMMON STOCK.

Our current officers and Directors can vote an amount of common stock equal to approximately fifteen percent (15%) of our outstanding common stock. As a result, our officers and Directors may not exercise majority voting control over us and our shareholders who are not officers and Directors of us may be able to obtain a sufficient number of votes to choose who serves as our Directors. Because of this, the current composition of our Board of Directors may change in the future, which could in turn have an effect on those individuals who currently serve in management positions with us. If that were to happen, our new management could affect a change in our business focus and/or curtail or abandon our business operations, which in turn could cause the value of our securities, if any, to decline.

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OUR ARTICLES OF INCORPORATION, AS AMENDED, AND BYLAWS LIMIT THE LIABILITY OF, AND PROVIDE INDEMNIFICATION FOR, OUR OFFICERS AND DIRECTORS.

Our Articles of Incorporation, as amended, generally limit our officers' and directors' personal liability to the Company and its stockholders for breach of fiduciary duty as an officer or director except for breach of the duty of loyalty or acts or omissions not made in good faith or which involve intentional misconduct or a knowing violation of law. Our Articles of Incorporation, as amended, and Bylaws provide indemnification for our officers and directors to the fullest extent authorized by the Nevada General Corporation Law against all expense, liability, and loss, including attorney's fees, judgments, fines excise taxes or penalties and amounts to be paid in settlement reasonably incurred or suffered by an officer or director in connection with any action, suit or proceeding, whether civil or criminal, administrative or investigative (hereinafter a "Proceeding") to which the officer or director is made a party or is threatened to be made a party, or in which the officer or director is involved by reason of the fact that he or she is or was an officer or director of the Company, or is or was serving at the request of the Company as an officer or director of another  corporation or of a partnership, joint venture, trust or other enterprise whether the basis of the Proceeding is alleged action in an official capacity as an officer or director, or in any other capacity while serving as an officer or director. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions by the officers and directors for liabilities incurred in connection with their good faith acts for the Company. Such an indemnification payment might deplete the Company's assets. Stockholders who have questions respecting the fiduciary obligations of the officers and directors of the Company should consult with independent legal counsel. It is the position of the Securities and Exchange Commission that exculpation from and indemnification for liabilities arising under the 1933 Act and the rules and regulations thereunder is against public policy and therefore unenforceable.

RISKS RELATING TO OUR COMMON STOCK

THE MARKET PRICE OF OUR COMMON STOCK HISTORICALLY HAS BEEN VOLATILE.

The market price of our common stock historically has fluctuated significantly based on, but not limited to, such factors as general stock market trends, announcements of developments related to our business, actual or anticipated variations in our operating results, our ability or inability to generate new revenues, conditions and trends in the event production industry and in the industries in which our customers are engaged.

Our common stock is traded on the OTCBB under the symbol “XAIN.” In recent years, the stock market in general has experienced extreme price fluctuations that have oftentimes been unrelated to the operating performance of the affected companies. Similarly, the market price of our common stock may fluctuate significantly based upon factors unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock.

THE COMPANY HAS ESTABLISHED PREFERRED STOCK WHICH CAN BE DESIGNATED BY THE COMPANY'S BOARD OF DIRECTORS WITHOUT SHAREHOLDER APPROVAL AND HAS ESTABLISHED SERIES A PREFERRED STOCK, WHICH GIVES THE HOLDERS MAJORITY VOTING POWER OVER THE COMPANY.

The Company has 500,000 shares of preferred stock authorized. The shares of preferred stock of the Company may be issued from time to time in one or more series, each of which shall have distinctive designation or title as shall be determined by the Board of Directors of the Company ("Board of Directors") prior to the issuance of any shares thereof. The preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as adopted by the Board of Directors.

Because the Board of Directors is able to designate the powers and preferences of the preferred stock without the vote of a majority of the Company's shareholders, shareholders of the Company will have no control over what designations and preferences the Company's preferred stock will have. As a result of this, the Company's shareholders may have less control over the designations and preferences of the preferred stock and as a result the operations of the Company.

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THE CONVERSION OF THE NOTES AND THE EXERCISE OF THE WARRANTS, MVI WARRANTS AND VENTURE WARRANTS WILL CAUSE SUBSTANTIAL DILUTION TO OUR EXISTING SHAREHOLDERS.

We had 3,977,252 shares of common stock outstanding as of April 14, 2008. Assuming a conversion price of $0.25 per share (which conversion price and therefore the number of shares issuable in connection with the conversion of the Notes is subject to adjustment as provided in the Notes, subject to a $0.25 floor), the principal amount of the outstanding notes held by the Purchasers will convert into 14,200,000 shares of common stock and the outstanding Warrants, MVI Warrants and Venture Warrants can be exercised for 2,555,167 shares of common stock. As such, the conversion of the August, September and October 2006 Notes, the Follow On Notes, the Second Follow On Notes and exercise of the Warrants, Venture Warrants and MVI Warrants as well as the Follow On Warrants and Second Follow On Warrants, will cause substantial dilution to our existing shareholders.  Additionally, shareholders should keep in mind that the outstanding Warrants, Venture Warrants and MVI Warrants contain cashless exercise provisions, whereby in the event the shares issuable in connection with such securities are not registered with the Commission, the holders of such securities can exercise such securities for shares of our common stock by receiving a lesser number of shares of our common stock (as calculated in such warrants) and by not paying cash for such conversions.

WE WILL INCUR SIGNIFICANT INCREASED COSTS AS A RESULT OF OPERATING AS A FULLY REPORTING COMPANY IN CONNECTION WITH SECTION 404 OF THE SARBANES OXLEY ACT, AND OUR MANAGEMENT WILL BE REQUIRED TO DEVOTE SUBSTANTIAL TIME TO NEW COMPLIANCE INITIATIVES.

Moving forward, we anticipate incurring significant legal, accounting and other expenses in connection with our status as a fully reporting public company. The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently implemented by the SEC have imposed various new requirements on public companies, including requiring changes in corporate governance practices. As such, our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure of controls and procedures. In particular, for this Annual Report on Form 10-KSB/A , we were required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act.  For fiscal year 2009, Section 404 will require us to obtain a report from our independent registered public accounting firm attesting to the assessment made by management.  Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

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INVESTORS MAY FACE SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK DUE TO FEDERAL REGULATIONS OF PENNY STOCKS.

Our common stock will be subject to the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.

In addition, various state securities laws impose restrictions on transferring "penny stocks" and as a result, investors in the common stock may have their ability to sell their shares of the common stock impaired.

 THE COMPANY HAS NOT PAID ANY CASH DIVIDENDS.

The Company has paid no cash dividends on its common stock to date and it is not anticipated that any cash dividends will be paid to holders of the Company's common stock in the foreseeable future. While the Company's dividend policy will be based on the operating results and capital needs of the business, it is anticipated that any earnings will be retained to finance the future expansion of the Company.

THE NOTES AND WARRANTS ISSUED TO THE PURCHASERS, THE 6% NOTE PURCHASERS, AND CERTAIN CONSULTANTS IN CONNECTION WITH THOSE FUNDINGS HAVE ANTI-DILUTION PROVISIONS, WHICH IF TRIGGERED COULD CAUSE SUBSTANTIAL DILUTION TO OUR THEN SHAREHOLDERS.

The $3,550,000 in Notes have a conversion price equal to the lesser of $0.50 or 50% of the effective price of a planned subsequent private offering of our securities in which we receive gross proceeds of not less than $3,000,000, subject to a floor of $0.25 (the “Private Offering”), the approximately 2,692,500 five (5) year warrants to purchase shares of our common stock at $0.30 per share which we issued to the Purchasers and certain consultants in connection with the August, September and October 2006 fundings, the Follow On Funding and the Second Follow On Funding; and the 250,000 Class A Warrants which currently have an exercise price of $0.30 per share and are held by the 6% Note Purchasers, who previously purchased 6% Convertible Term Notes from us in June and September 2004, which notes have been repaid to date, but which Class A Warrants remain outstanding, contain anti-dilution provisions. Pursuant to those anti-dilution provisions, if we issue any shares of common stock or warrants to purchase any shares of common stock (or convertible securities) with an effective price per share of less than the conversion price of the Notes then in effect or the exercise price of the warrants then in effect, the conversion price of such Notes shall automatically reset to such effective price and/or the exercise price of such warrants shall reset to such lower effective price.

While the Purchasers have waived these anti-dilution provisions in connection with any securities issued in connection with the Private Offering, if we issue any other securities at an effective price less than the conversion price of the Notes or the exercise price of the Warrants, the Purchasers could be able to convert such Notes and/or exercise such Warrants into a much greater number of shares of common stock than they are currently able to. If this were to happen, the Purchasers could take voting control of the Company (subject to the Purchaser’s agreement to not hold more than 9.99% of our outstanding common stock unless they give us sixty-one days prior written notice) or choose to sell such shares in the open market, which would cause the trading value of our common stock to decline precipitously and could cause our common stock to become worthless.

-36-

IF WE ARE LATE IN FILING OUR QUARTERLY OR ANNUAL REPORTS WITH THE SEC, WE MAY BE DE-LISTED FROM THE OVER-THE-COUNTER BULLETIN BOARD.

Pursuant to Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely filing of periodic reports with the SEC, any OTCBB issuer which fails to file a periodic report (Form 10-QSB's or 10-KSB's) by the due date of such report (not withstanding any extension granted to the issuer by the filing of a Form 12b-25), three (3) times during any twenty-four (24) month period is automatically de-listed from the OTCBB. Such removed issuer would not be re-eligible to be listed on the OTCBB for a period of one-year, during which time any subsequent late filing would reset the one-year period of de-listing. If we are late in our filings three times in any twenty-four (24) month period and are de-listed from the OTCBB, our securities may become worthless and we may be forced to curtail or abandon our business plan.

WE CURRENTLY HAVE A SPORADIC, ILLIQUID, VOLATILE MARKET FOR OUR COMMON STOCK, AND THE MARKET FOR OUR COMMON STOCK MAY REMAIN SPORADIC, ILLIQUID, AND VOLATILE IN THE FUTURE.

We currently have a highly sporadic, illiquid and volatile market for our common stock, which market is anticipated to remain sporadic, illiquid and volatile in the future and will likely be subject to wide fluctuations in response to several factors, including, but not limited to:

(1)	actual or anticipated variations in our results of operations;
(2)	our ability or inability to generate new revenues;
(3)	the number of shares in our public float;
(4)	increased competition; and
(5)	conditions and trends in the market for event planning services and event venues.

Furthermore, because our common stock is traded on the over the counter bulletin board, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. Additionally, at present, we have a very limited number of shares in our public float, and as a result, there could be extreme fluctuations in the price of our common stock. Further, due to the limited volume of our shares which trade and our limited public float, we believe that our stock prices (bid, asked and closing prices) are entirely arbitrary, are not related to the actual value of the Company, and do not reflect the actual value of our common stock (and in fact reflect a value that is much higher than the actual value of our common stock). Shareholders and potential investors in our common stock should exercise caution before making an investment in the Company, and should not rely on the publicly quoted or traded stock prices in determining our common stock value, but should instead determine value of our common stock based on the information contained in the Company's public reports, industry information, and those business valuation methods commonly used to value private companies.

-37-

ITEM 7. FINANCIAL STATEMENTS

The Financial Statements required by Item 310 of Regulation S-B are stated in U.S. dollars and are prepared in accordance with U.S. Generally Accepted Accounting Principles.

Pollard-Kelley Auditing Services, Inc.
Auditing Services	4500 Rockside Road #450, Independence OH 44131 330-836-2558

Report of Independent Registered Public Accounting Firm

Board of Directors

XA, Inc. and Subsidiary

We have audited the Balance sheet of XA, Inc. and Subsidiary as of December 31, 2007 and the related statements of operations, stockholders equity and cash flows for the years ending December 31, 2007.  These statements are responsibility of Company’s Management.  Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (Unites States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements.  An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XA, Inc. and Subsidiary as of December 31, 2007 and the related statements of operations, stockholders equity and cash flows for the years ending December 31, 2007 in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 6 to the financial statements, the Company has suffered losses the last two years.  This factor, among others including the Notes payable due in 2008, raises substantial doubt about the Company’s ability to continue as a going concern.  Management feels the Company’s continuation as a going concern depends upon its ability to obtain additional sources of capital and financing.  Management’s plan in regard to this matter is also described in Note 6.  The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Pollard-Kelley Auditing Services, Inc.

/S/ Pollard-Kelley Auditing Services, Inc.

Independence, Ohio

April 13, 2008

F-1

XA, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 2007 and 2006
	2007			2006
ASSETS
Current Assets
Cash	$	504,012		$	372,626
Accounts receivable		394,453			470,270
Work in process at cost		43,408			-
Prepaid expenses		253,473			180,981
Prepaid finance charges		419,750			463,556
Total Current Assets		1,615,096			1,487,433
Fixed Assets
Equipment		244,736			244,736
Furniture and fixtures		66,177			66,177
Leasehold improvements		1,006,745			1,004,745
		1,317,657			1,315,657
Less accumulated depreciation		(353,006	)		(211,861	)
		964,651			1,103,796
Other Assets
Deposits		71,939			73,639
Goodwill		865,309			865,309
		937,248			938,948
	$	3,516,995		$	3,530,177
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	706,630		$	514,232
Interest Payable		421,104			102,760
Withheld and accrued taxes		3,292			3,731
Unearned revenues		169,303			166,911
Line of credit		837,904			800,000
Current portion of long term debt		3,550,000			1,450,000
Total Current Liabilities		5,688,233			3,037,634
Long-term Debt
Note payable		-			1,250,000
Derivative Liability		10,116			62,431
Stockholders' Equity
Series A preferred stock		-			-
Common stock		3,977			3,952
Additional paid in capital		2,297,996			2,289,621
Accumulated other comprehensive income		750,212			296,121
Retained deficit		(5,233,538	)		(3,409,583	)
		(2,181,353	)		(819,889	)
	$	3,516,995		$	3,530,177
See accompanying notes to financial statements.

F-2

XA, Inc. and Subsidiary
CONSOLIDATED INCOME STATEMENT
For the Year Ended December 31, 2007 and 2006
	Year-to-date			Year-to-date
	2007			2006
Revenues
Sales	$	8,433,848		$	9,824,677
Cost of goods sold
Direct production costs		4,519,232			5,782,391
Gross profit		3,914,616			4,042,286
Administrative expense
Administrative		4,775,951			4,992,871
Income from operations		(861,335	)		(950,585	)
Other income and expenses
Other income		91			8,660
Other expenses		(962,711	)		(509,677	)
Intangible impairment		-			(540,000	)
		(962,620	)		(1,041,017	)
Income before taxes		(1,823,955	)		(1,991,602	)
Tax provisions
Tax provisions		-			-
Net (Loss)		(1,823,955	)		(1,991,602	)
Other Comprehensive Income
Decrease in fair value of
derivatives		454,091			296,121
Net Comprehensive Income	$	(1,369,864	)	$	(1,695,481	)
Loss per Share
Average shares outstanding		3,960,375			3,952,250
Net Loss	$	(0.46	)	$	(0.50	)
Other Comprehensive Income	$	0.11		$	0.07
Net Other Comprehensive Income	$	(0.35	)	$	(0.43	)
See accompanying notes to financial statements.

F-3

XA, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Period from January 1, 2005 through December 31, 2007												Accumulated
										Additional		Other
	Series A Preferred Stock					Common Stock --------------				Paid-in		Comprehensive		Retained
	Shares			Amount		Shares		Amount		Capital		Income		Deficit			Total
Balance December 31, 2004		3		$	-		3,516,250	$	3,516	$	2,170,532	$	-	$	(1,300,835	)	$	873,213
Shares issued for services		-			-		202,500		203		42,625		-					42,828
Net Loss		-			-		-		-		-		-		(109,646	)		(109,646	)
Balance December 31, 2005		3			-		3,718,750		3,719		2,213,157				(1,410,481	)		806,395
Shares issued for services		-			-		108,500		108		51,589		-		-			51,697
Shares issued for debt		-			-		125,000		125		24,875		-		-			25,000
Purchase and retirement of
Preferred shares		(1	)		-		-		-		-		-		(7,500	)		(7,500	)
Net Other Comprehensive Loss		-			-		-		-		-		296,121		(1,991,602	)		(1,695,481	)
Balance December 31, 2006		2		$	-		3,952,250	$	3,952	$	2,289,621	$	296,121	$	(3,409,583	)	$	(819,889	)
Retirement of preferred shares		(2	)		-		-		-		-		-		-			-
Shares issued for services		-			-		25,000		25		8,375				-			8,400
Shares issued for debt		-			-										-			-
Purchase and retirement of
Preferred shares					-		-		-		-		-					-
Net Other Comprehensive Loss		-			-		-		-		-		454,091		(1,823,955	)		(1,369,864	)
Balance December 31, 2007		-		$	-		3,977,250	$	3,977	$	2,297,996	$	750,212	$	(5,233,538	)	$	(2,181,353	)
See accompanying notes to financial statements.

F-4

XA, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended December 31, 2007 and 2006
	Year to date			Year to date
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss)	$	(1,873,995	)	$	(1,991,602	)
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Intangibles impairment					540,000
Depreciation		141,145			59,348
Amortization of Discounts on Notes Payable		212,853			260,614
Stock for services and debt		8,400			76,697
Changes in Current assets and liabilities:
(Increase) Decrease in Accounts receivable		75,817			744,222
(Increase) Decrease in Work in process		(43,048	)		770,562
(Increase) Decrease in Prepaid expenses		(72,492	)		(144,056	)
(Increase) Decrease in Prepaid finance charges		334,722			(250,703	)
(Increase) Decrease Prepaid employment contracts		-			164,467
(Decrease) Increase in Accounts payable		192,398			68,246
(Decrease) Increase in Accrued payroll		-			-
(Decrease) Increase in Accrued interest		318,344			41,285
(Decrease) in Withheld and accrued taxes		(439	)		(740	)
Increase (Decrease) in Unearned revenue		2,392			(1,055,318	)
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES		(703,903	)		(716,978	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Fixed assets		(2,000	)		(1,027,372	)
Purchase of Preferred stock		-			(7,500	)
Increase in Goodwill		-			-
(Increase) Decrease in Deposits		1,700			(927	)
NET CASH (USED) BY INVESTING
ACTIVITIES		(300	)		(1,035,799	)
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock		-			-
Increase in Derivative Liability		(52,315	)		62,431
Payments on Notes Payable		-			(2,032,500	)
Increase in Notes Payable		850,000			2,700,000
Increase in Line of credit		37,904			800,000
NET CASH USED BY
FINANCING ACTIVITIES		835,589			1,529,931
NET INCREASE (DECREASE) IN CASH		131,386			(222,846	)
CASH ACQUIRED IN ACQUISITION		-			-
CASH AT BEGINNING OF PERIOD		372,626			595,472
CASH AT END OF PERIOD	$	504,012		$	372,626
See accompanying notes to financial statements.

F-5

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

HISTORY

The Company was incorporated on August 29, 1991 as Goldstin/Mercola Productions, Inc. in Illinois.  On January 4, 1993 the name was changed to G/M Productions, Inc.  On  December  4,  2003 the Company entered into an exchange agreement with Synreal  Services  Corp  a  publicly  traded  Nevada  corporation.  The exchange agreement  resulted  in the exchange of 1,769,231 newly issued shares of Synreal common  stock  for  all  the  outstanding  shares  of  G/M Productions, Inc.  In addition  the  shareholder  of  G/M  Productions  entered  into a stock purchase agreement  with  the  former  officers  and  directors  of  Synreal  whereby the shareholder  acquired  1,000,000  shares of Synreal common stock.  Synreal was a shell at the time of the acquisition and therefore the acquisition was treated as a reverse  merger  whereby the acquired company is treated as the acquiring company  for  accounting  purposes.  On  December  9, 2003, the stockholders and directors  of  the Company passed two resolutions changing the Company's name to The  Experiential  Agency, Inc.,  and authorizing  a  13:1  forward  stock  split.

On May 26, 2005, the Company issued 52,500 shares of common stock for services. The shares were valued at $18,428.

On September 15, 2005, the Company issued 115,000 shares of common stock for services.  The shares were valued at $14,950.

On November 9, 2005, the Company issued 10,000 shares of common stock for services.  The shares were valued at $2,700.

On December 31, 2005, the Company issued 25,000 shares of common stock for services.  The shares were valued at $6,750.

On February 6, 2006, the Company issued 33,500 shares of common stock for services.  The shares were valued at $9,497.

On April 14, 2006, the Company issued 25,000 shares of common stock for services.  The shares were valued at $14,067.

On July 31, 2006, the Company issued 25,000 shares of common stock for services. The shares were valued at $14,067.

F-6

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

On September 1, 2006, the Company issued 50,000 shares of common stock for services and debt reduction.  The shares were valued at $10,000.

On November 6, 2006 the Company issued 25,000 shares of common stock for services.  The shares were valued at $14,066.

On December 29, 2006 the Company issued 75,000 shares of common stock for services and debt reduction.  The shares were valued at $15,000.

On September 4, 2007, the Company issued 25,000 shares of common Stock for services.  The shares were valued at $8,400.

The Company has determined the value of all share issues to be the market value of the security issued on the date the liability for the service was incurred.

The consolidated financial statements include the accounts of XA, Inc., The Experiential Agency, Inc., Fiori XA, Inc. and XA Scenes, Inc. All significant inter-company accounts and transactions have been eliminated in consolidation.  The Company is a comprehensive event marketing, design and production firm with full service offices in Chicago and New  York,  and  a sales office in Los Angeles.

CASH AND CASH EQUIVALENTS

For  purposes  of  the  statement  of  cash  flows,  the  Company  considers all short-term  debt  securities  three  months  or  less  to  be  cash equivalents.

Cash paid during the year for:
	2007		2006
		----		----
Interest	$	89,641	$	98,854
Income taxes	$	-0-	$	-0-

F-7

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost.  Maintenance, repairs and renewals are expensed as incurred.  Depreciation of property and equipment is provided for on the straight line and 200% declining balance basis over their estimated useful lives as follows:

Equipment	5 years
Furniture and fixtures	7 years
Leaseholds	10 years (the life of the lease)

Depreciation expense for the year ended December 31, 2007 and 2006 was $141,145 and $59,348, respectively.

INCOME TAXES

Before December 4, 2003 the date of the share exchange with Synreal, the Company had elected to be taxed under the provisions of Sub-chapter S of the Internal Revenue Code.  Under these provisions, the Company does not pay federal or state corporation taxes on its taxable income.  Instead, the shareholders are liable for individual federal and state income taxes on the Company's taxable income. There are no differences in accounting for tax and book.  After December 4, 2003 the Company is taxed as a Sub-chapter C corporation under the Internal Revenue Code.

The estimated tax provision at December 31, 2007 and 2006 consists of the following:

	2007		2006
Federal	$	-0-	$	-0-
State		-0-		-0-
	$	-0-	$	-0-

F-8

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

The Company has net loss carry forwards of approximately $2,575,961 that begin to expire  in  2020  for  federal  taxes  and  2017  for  state  taxes.

USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

CONCENTRATION OF CREDIT RISKS

During 2007 and 2006 and at December 31, 2007 and 2006, the Company had deposits in banks  in  excess  of  the  FDIC  insurance  limit.

INTANGIBLE IMPAIRMENT

In the fourth quarter of 2007 and 2006, management reviewed the value of its intangible assets.  This review resulted in the write down of the intangible asset Deferred Taxes.  The balance in this account represented an estimate of the cash value of the Company’s net operating loss carry forward.   Management found no impairment of its intangible assets at December 31, 2007.  Impairment was tested as required by SFAS No 142 Goodwill and Other Intangible Assets, SFAS No 144 Accounting for the Impairment or Disposal of Long-term Assets, and FAS 141-1 a staff interpretation of Goodwill.

NOTE 2 – PREPAID INTEREST

Discount on Convertible Notes Payable represents costs the Company incurred in connection with the convertible promissory notes.  These costs will be amortized over  the  life  of  the  notes (24  months)  on  a  straight-line  basis.

F-9

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 2 – PREPAID INTEREST - CONTINUED

In connection with the August 8, September 26, October 23, 2006 and June 2007, notes, the Discount on Convertible Notes Payable represents costs the Company incurred in connection with the new convertible promissory notes.  These costs will be amortized over the life of the notes on a straight-line basis.

Amortization expense for the year ended December 31, 2007 and 2006 was $212,853 and $167,493, respectively.

NOTE 3 - NOTES PAYABLE

LINE OF CREDIT - On August 12, 2004, the Company entered into a Line of Credit agreement with a bank for $750,000.  The note was due September 30, 2006.  Interest varies at 0.25% over the Bank's prime rate.  The Company's assets secure the note.  The draws are based on a borrowing base formula at 75% of eligible accounts receivable less 90 days past due accounts.  The agreement required the payment of a $5,000 commitment fee.  The balance outstanding under this  agreement  at  December 31,  2007  and  2006  was  $0  and  $0,  respectively.

On June 1, 2006, the Company converted $800,000 of its line of credit to a construction loan.  The line of credit agreement was amended to $750,000.  The Company is in violation of one of the negative covenants of this loan concerning profitability.  The lender is aware of the violation and has taken no action to date.  The loan is due December 1, 2007.  The balance outstanding on these agreements was $0 and $800,000 at December 31, 2007 and 2006, respectively.

On June 30, 2007, the Company entered into a Line of Credit agreement with a bank for $600,000.  The note was due October 15, 2007.  Interest varies at 2.25% over the Bank's prime rate.  The balance outstanding at December 31, 2007 and 2006 was $0 and $0, respectively.

On June 30, 2007, the Company entered into a Line of Credit agreement with a bank for $266,672.  Interest varies at 2.25% over the Bank’s prime rate.  The balance outstanding at December 31, 2007 and 2006 was $0 and $0, respectively.

On July 31, 2007, the Company entered into a Line of Credit agreement with a bank for $837,940.  Interest varies at 2.25% over the Bank’s prime rate.  The balance outstanding at December 31, 2007 and 2006 was $837,904 and $0, respectively.

F-10

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 3 - NOTES PAYABLE - CONTINUED

LONG TERM DEBT - On June 29, 2004 the Company entered into a Convertible Promissory Note agreement with 5 unrelated entities.  The terms of the 5 notes are identical. The interest rate is 6%.  The notes are convertible into the Company's common stock at a conversion rate of $2.00 per share.  Conversion is at the Company's option.  However, if the Company requests conversion it must convert with registered stock.  The holder also received Class A and Class B Warrants (Note4) and purchased an additional $1,250,000 of convertible promissory notes on September 13, 2004.  The June 29, 2004 note was paid in full on August 8, 2006. The balance of these notes was paid in  2006.

On September 13, 2004, note holders with $267,500 due converted these notes into 1,076,693 pre-reverse split shares of the Company's common stock in accordance with the note agreement.  On November 1, 2004, note holders with $200,000 due converted these notes into 811,533 pre-reverse split shares of the Company's common stock in accordance with the note agreement.  The September 13, 2004 note was paid in 2006.  The balance outstanding was $0 and $2,032,500 at December 31, 2007 and 2006, respectively.

On June 26, 2006, the Company entered into a Securities Purchase Agreement with a group of  venture capital lenders and sold 11% Senior Subordinated Secured Convertible Promissory Notes in the amount of $1,250,000, five year warrants at an  exercise  price  of $1.10 per share and a conversion feature.  The exercise price of the warrants was changed in June 2007 to $0.30 per share.  In accordance with EITF 00-27 the estimated value of the conversion feature is $193,483.  The value  was  determined using the Black-Scholes pricing model under the following assumptions:  life  of  15  months,  risk free interest rate of 5.0%, a dividend yield  of  0%  and  volatility  of  11%.   The notes are secured by all the assets of the Company and are due November 8, 2007.  The balance outstanding at December 31, 2007 and 2006 was $1,250,000 and $0, respectively.

On September 26, 2006, the Company entered into a Securities Purchase Agreement with a group of venture capital lenders and sold 11% Senior Subordinated Secured Convertible Promissory Notes in the amount of $1,450,000, five year warrants at an exercise price of $1.10 per share and a conversion feature.  The exercise price of the warrants was changed in June 2007 to $0.30 per share.  In accordance with EITF 00-27 the estimated value of the conversion feature is $16,155.  The value was determined using the Black-Scholes pricing  model under the following assumptions:  life  of  15  months,  risk free interest rate of 5.0%, a dividend yield  of  0%  and  volatility  of  11%.  The notes are secured by a second position on all the assets of the Company with $200,000 due December 26, 2007.  The due date was extended in June 2007 to  June 2008.  The balance outstanding at December 31, 2007 and 2006 was $200,000 and $0, respectively.

F-11

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 3 - NOTES PAYABLE - CONTINUED

On October 23, 2006, the Company entered into a Securities Purchase Agreement with a group of venture capital lenders and sold 11% Senior Subordinated Secured Convertible Promissory Notes in the amount of $1,250,000, five year warrants at an exercise price of $1.10 per share and a conversion feature.  The exercise price of the warrants was changed in June 2007 to $0.30 per share.  In accordance with EITF 00-27 the estimated value of the conversion feature is $100,967.  The value was determined using the Black-Scholes pricing  model under the following assumptions:  life  of  15  months,  risk free interest rate of 5.0%, a dividend yield  of  0%  and  volatility  of  0.1%.  The notes are secured by a second position on all the assets of the Company with $1,250,000 due January 23, 2008.  The due date was extended in June 2007 to June 2008.  The balance outstanding at December 31, 2007 and 2006 was $1,250,000 and $0, respectively.

The notes will automatically convert to shares of common stock at the conversion price when the Company completes a private offering of its equity securities and receives  gross  proceeds  of no less than $3,000,000, with a effective purchase price of $1.50 per share and the Company has completed an effective registration statement  covering  the  resale  of  the  conversion  shares.

On June 11, 22 and 29, 2007, the Company entered into a Securities Purchase Agreement with two individuals and two venture capital groups and sold 11% Senior Subordinated Secured Convertible Promissory Notes in the total amount of $450,000, five year warrants at an exercise price of $0.30 per share and a conversion factor.  In accordance with EITF 00-27 the estimated value of the conversion feature is $400,068.  The value was determined using the Black-Scholes pricing  model under the following assumptions:  life  of  12  months,  risk free interest rate of 5.0%, a dividend yield  of  0%  and  volatility  of  0.1%.  The notes are secured by a first position on all the assets of the Company with $1,250,000 due in June 2008.  The balance outstanding at December 31, 2007 and 2006 was $450,000 and $0, respectively.

On December 21, 2007, the Company entered into a Securities Purchase Agreement with a venture capital group and sold 11% Senior Subordinated Secured Convertible Promissory Notes in the total amount of $400,000, five year warrants at an exercise price of $0.30 per share and a conversion factor.  In accordance with EITF 00-27 the estimated value of the conversion feature was $0.  The value was determined using the Black-Scholes pricing  model under the following assumptions:  life  of  12  months,  risk free interest rate of 5.0%, a dividend yield  of  0%  and  volatility  of  0.1%.  The notes are secured by a first position on all of the assets of the Company

F-12

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 3 - NOTES PAYABLE - CONTINUED

with $1,250,000 due in June 2008.  The balance outstanding at December 31, 2007 and 2006 was $400,000 and $0, respectively.

Total Long-Term debt at December 31, 2007, is as follows:

Total term debt	$	3,550,000
Less Current portion		(3,550,000	)
Long-term debt	$	-0-

NOTE 4 - EQUITY

PREFERRED STOCK

On December 27, 2004, the Board of Directors, with shareholder approval, issued 3 shares,  of the  authorized 10,000,000 shares of "blank check" preferred, as Series  A  Preferred  Shares.  The Series A Preferred Shares have a par value of $.001  per  share,  have  no  rights to dividends, no liquidation preference, no conversion  rights  and  no redemption rights.  The holders thereof, voting as a class, shall have the right to vote on all shareholder matters equal to fifty-one percent of the total vote.   On May 22, 2006, the Company purchased and retired one share of preferred stock for $7,500.  In January 2007, the Company formally retired the remaining two shares.

COMMON STOCK

On December 19, 2005 the shareholders of the Company increased the total authorized shares of common stock to 20,000,000 with a par value of $.001 per share.  The Company had 3,977,250 and 3,952,250 shares outstanding at December 31, 2007 and 2006, respectively.

STOCK WARRANTS

The Company has issued warrants to the now retired 6% note holders for 250,000 shares of common stock.  The purchase price of the shares is $9.60.  The warrants expire June 30, 2008.  These warrants remain outstanding at December 31, 2007.

The Company has issued warrants to its employees for 490,000 shares of common stock.  The purchase price of the shares is $0.34.  The warrants expire June 19, 2009.  These warrants remain outstanding at December 31, 2007.

The Company has issued warrants to the June 26, September 26, and October 23, 2006 Convertible securities for 433,333 shares of common stock at $0.30 and for 392,500 shares of common stock at $1.10, which were re-priced in June 2007, to $0.30 per share.  The warrants expire in August and November 2011.  These warrants remain outstanding at December 31, 2007.

F-13

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

STOCK WARRANTS - CONTINUED

The Company has issued warrants during 2006 in connection with services rendered for 766,667 shares of common stock at $0.30.  The warrants expire in August and November 2011.  These warrants remain outstanding at December 31, 2007.

The Company has issued warrants during 2006 to two of its executives for 1,500,000 shares of common stock at $0.75 per share.  These warrants have a vesting schedule and start vesting 12 months after the filing of an effective registration statement covering the resale of the common stock the 11% notes are convertible into.  These warrants remain outstanding at December 31, 2007.

The Company has issued warrants to the June 11, 22, 29, 2007 Convertible securities for 450,000 shares of common stock at $0.30.  The warrants expire in June 2012.  These warrants remain outstanding at December 31, 2007.

The Company has issued warrants to the December 21, 2007 Convertible securities for 400,000 shares of common stock at $0.30.  The warrants expire in June 2012.  These warrants remain outstanding at December 31, 2007.

F-14

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 5 - COMMITMENTS

On February 1, 2001, the Company entered into a seven-year lease agreement for office space in Chicago.  The lease terminates March 31, 2008.  Lease payments are on a sliding scale as follows:

Period	Monthly Rent
Year 1	$	11,032
Year 2	$	11,319
Year 3	$	11,614
Year 4	$	11,918
Years 5 & 6	$	12,231
Year 7	$	12,886

The lease was terminated by the Company in July of 2004.

On August 20, 2003, the Company entered into a five-year lease agreement for shared office space in New York.  The lease terminates August 1, 2008.  The lease calls for monthly payments of $1,250 per month.

April 1, 2003, the Company entered into an equipment lease with a finance company.  The  lease  is  for  60  months  with  monthly  payments  of  $1,383.

On November 20, 2001, the Company entered into a vehicle lease with a finance company.  The  lease  is  for  39  months  with  monthly  payments  of  $1,099.

On January 15, 2004, the Company entered into a four year and seven month shared office space agreement in Los Angeles.  The lease begins May 1, 2004 and has an option for one 60-month extension.  The Company's portion of the monthly rent is $1,820 per month.

On February 17, 2004, the Company entered into an equipment lease with a finance company.  The  lease  is  for  60  months  with  monthly  payments  of  $239.

On June 14, 2004, the Company entered into an equipment lease with a finance company.  The lease is for 60 months with monthly payments of $389.

On June 30, 2004 the Company entered into an eight-year lease for office space in Chicago.  The lease terminates June 30, 2012.  Lease payments are on a sliding scale as follows:

F-15

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 5- COMMITMENTS - CONTINUED

Period	Monthly Rent		Period	Monthly Rent
Year 1	$	9,590	Year 5	$	11,508
Year 2	$	10,069	Year 6	$	11,987
Year 3	$	10,549	Year 7	$	12,466
Year 4	$	11,028	Year 8	$	12,946

On June 30, 2004, the Company entered into a five-year lease for retail/office space in Chicago.  The lease terminates August 31, 2008.  Lease payments are on a sliding scale as follows:

Period	Monthly Rent
Year 1	$	5,250
Year 2	$	5,408
Year 3	$	5,570
Year 4	$	5,736
Year 5	$	5,909

On August 1, 2004, the Company entered into an equipment lease with a finance company.  The  lease  is  for  60  months  with  monthly  payments  of  $613.

On December 23, 2005, the Company entered into a ten-year lease for office, event and production space in New York City.  The lease payments are $21,667 per month  and  increase  3%  per  year  each  year  after  the  first  year.

On August 7, 2006 the Company entered into a 60 month lease for equipment.  The lease payments are $704 per month.

On August 7, 2006 the Company entered into a 60 month lease for equipment.  The lease payments are $168 per month.

On August 7, 2006 the Company entered into a 12 month lease for an apartment in New York City.  The lease payments are $3,025 per month.

On August 30, 2006 the Company entered into a 36 month lease for warehouse space in Chicago.  The lease payments are $4,750 per month.

On October 5, 2007 the Company entered into a 48 month lease for equipment.  The lease payments are $555 per month.

F-16

XA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 5- COMMITMENTS - CONTINUED

Future minimum payments due under these lease agreements are as follows:

2007	$	618,789
2008	$	558,594
2009	$	531,717
2010	$	502,240
2011	$	450,321

NOTE 6 – GOING CONCERN

The Company has suffered significant losses.  This combined with the secured and subordinated notes payable due dates raise substantial doubts concerning its ability to continue as a going concern.The Company’s continuation as a going concern depends upon its ability to generate sufficient cash flow to conduct its operations and its ability to obtain additional sources of capital and financing.  Management has plans to increase revenues over the next year which should increase cash flows from operations.  It also feels it can raise additional capital, and meet the conditions that will allow the 11% notes to be converted into common stock.  The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-17

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2007. Based on such evaluation, we have concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

• Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, the Company’s management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, we believe that, as of December 31, 2007, the Company’s internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

None.

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND OFFICERS

The Directors and Officers of the Company are as follows:

Name	Age	Position	Since
Joseph Wagner	41	President,	August 2004
		Chief Executive Officer,
		Secretary and Chairman
Jean Wilson	46	Chief Operating Officer,	August 2004
		Chief Accounting Officer,
		Treasurer and Director
Christopher Spencer	38	Director	December 2005
Darren Andereck	42	President of The Experiential Agency, Inc.	June 2007

Joseph Wagner

Joseph Wagner was appointed Chief Executive Officer of the Company on February 17, 2005. Mr. Wagner has served as a consultant to the Company performing the functions of President and Secretary and as a Director of the Company since August 2004. Since February 23, 2007, Mr. Wagner has served as Chairman of our Board of Directors. Mr. Wagner has worked for the Company since February 2003. Mr. Wagner may engage in business activities or interests outside of the Company which are not adverse or competitive to the Company. Mr. Wagner concurrently serves as President of LSC Capital Advisers ("LSC Capital"). Mr. Wagner has worked for LSC Capital since October 1997. From March of 2000 to October 2004, Mr. Wagner served as Managing Director of LSC Associates, LLC. Mr. Wagner has advised public and private companies in the areas of strategic planning, international project development, international finance, project management, logistics, and business development. Mr. Wagner has served as an officer and/or director of emerging growth companies and has been responsible for operational oversight in the areas of mergers and acquisitions, corporate governance, business development, strategic financial planning and SEC audits. Mr. Wagner earned a Bachelor of Arts in Law & Society from Purdue University, highest distinction, Phi Beta Kappa; and he earned a Master of Arts from Northern Illinois University.

Jean Wilson

Jean Wilson was appointed Chief Operating Officer of the Company on February 17, 2005. Ms. Wilson has served as the Company's Treasurer and as a Director of the Company since August 2004. Ms. Wilson has worked for XA since July 2002. From January 1999 to July 2002, Ms. Wilson held a management position with ESM Association. From September 1982 to January 1999, Ms. Wilson worked in operations for The Meetinghouse Companies. Ms. Wilson brings more than twenty years of full time experience in event and meeting planning to the Company. During her career, Ms. Wilson has been responsible for every facet of producing, selling and coordinating corporate special events, trade shows, conventions and seasonal decorating programs for a host of clients. Ms. Wilson earned a Bachelors degree with honors in Recreation/Leisure Studies from Eastern Illinois University.

-39-

Christopher Spencer

Christopher Spencer has served as a Director of the Company since December 19, 2005. He has not previously and does not currently serve as an officer or employee of the Company. Since approximately February 1996, Mr. Spencer has served as the Chief Executive Officer, President, Treasurer and as a Director of Wizzard Software Corp. a company which is publicly traded on the OTC Bulletin Board under the symbol [WIZD] and which specializes in speech recognition software and text-to-speech technology. From approximately May 1994 to approximately February 1996, Mr. Spencer served as the Chief Executive Officer of Chinawire, Inc. which provided money transfer services between high population Chinese areas in the United States and mainland China. From approximately July 1992 to approximately April 1994, he served as Chief Executive Officer of Lotto USA, which provided lottery ticket brokerage services that allowed persons in one state to purchase a different state's lottery tickets through Lotto USA. Mr. Spencer has his IBM certification in speech recognition.

Darren Andereck

Darren Andereck has served as President of the Company’s wholly owned subsidiary, The Experiential Agency, Inc. (“Experiential), since June 2007.  Since July 2004, Mr. Andereck has served as Creative Director of Experiential.  Prior to being employed by Experiential, Mr. Andereck was a co-owner of Alice’s Garden, one of Chicago’s most prestigious floral and event décor providers for approximately 10 years.  Mr. Andereck does not have a consulting or employment agreement with the Company.  Mr. Andereck received a Bachelor of Science degree in Finance and Economics from The University of Missouri.

All directors of the Company will hold office until the next annual meeting of the shareholders, and until their successors have been elected and qualified. Officers of the Company are elected by the Board of Directors and hold office at the pleasure of the Board.

EMPLOYMENT AND

CONSULTING AGREEMENTS

Joseph Wagner

In August 2006, Joseph Wagner, our Chief Executive Officer, President and Director entered into a Consulting Agreement with us effective August 1, 2006, which Consulting Agreement replaced a prior Consulting Agreement entered into between the parties with an effective date of August 1, 2004.

Pursuant to the Consulting Agreement, Mr. Wagner is to serve as our Chief Executive Officer, President and Secretary for a period of sixty (60) months from the effective date of the Consulting Agreement, August 1, 2006. Upon the expiration of the initial term of the Consulting Agreement, the Consulting Agreement shall automatically renew for successive one (1) year terms unless either party provides the other of its intent not to renew, at least thirty (30) days, but not more than sixty (60) days prior to the end of the term. Additionally, pursuant to the Consulting Agreement, Mr. Wagner will devote such time as the Company may reasonably deem to be necessary and beneficial to the efficient and effective operation of the Company's business. Mr. Wagner may engage in business activities or interests outside of the Company which are not adverse or competitive to the Company. Mr. Wagner will receive $200,000 per year as compensation as well as thirty (30) days of paid time off ("PTO") pursuant to the Consulting Agreement. Additionally, pursuant to the Consulting Agreement, Mr. Wagner was granted an aggregate of 850,000 stock options, which options shall vest to Mr. Wagner as provided in the Option Agreement which evidences the options and expire on the fifth anniversary of their grant date August 2, 2006, if unexercised, or as otherwise provided in the option agreement, which Options are described in greater detail. The Company is obligated to maintain a director and officer insurance policy of at least $1,000,000 during the term of Mr. Wagner's Consulting Agreement. The Company may terminate the Consulting Agreement; however, in the event of termination for good reason by Mr. Wagner or without cause, the Company is obligated to pay Mr. Wagner a severance payment of $250,000 in addition to all unpaid payments of salary through the end of the term of the Consulting Agreement in one lump sum payment and all unvested options shall vest to Mr. Wagner immediately.

-40-

Jean Wilson

In August 2006, Jean Wilson, our Chief Operating Officer, Treasurer and Director entered into an Employment Agreement with us effective August 1, 2006, which Employment Agreement replaced a prior Employment Agreement entered into between the parties with an effective date of August 1, 2004.

Pursuant to the Employment Agreement, Ms. Wilson is to serve as our Chief Operating Officer and Treasurer for a period of sixty (60) months from the effective date of the Employment Agreement, August 1, 2006. Upon the expiration of the initial term of the Employment Agreement, the Employment Agreement shall automatically renew for successive one (1) year terms unless either party provides the other of its intent not to renew, at least thirty (30) days, but not more than sixty (60) days prior to the end of the term. Additionally, pursuant to the Employment Agreement, Ms. Wilson will devote such time as the Company may reasonably deem to be necessary and beneficial to the efficient and effective operation of the Company's business. Ms. Wilson will receive $150,000 per year as compensation as well as thirty (30) days of PTO pursuant to the Employment Agreement. Pursuant to the Employment Agreement, Ms. Wilson was granted an aggregate of 650,000 stock options, which options shall vest to Ms. Wilson as provided in the Option Agreement which evidences the options and expire on the fifth anniversary of their grant date August 2, 2006, if unexercised, or as otherwise provided in the option agreement, which Options are described in greater detail below. The Company is obligated to maintain a director and officer insurance policy of at least $1,000,000 during the term of Ms. Wilson's Employment Agreement. The Company may terminate the Employment Agreement; however, in the event of termination for good reason by Ms. Wilson or without cause, the Company is obligated to pay Ms. Wilson a severance payment of $250,000 in addition to all payments of salary earned through the end of the term of the Employment Agreement in one lump sum payment and all unvested options shall vest to Ms. Wilson immediately.

Christopher Spencer

Christopher Spencer entered into a one year, renewable consulting agreement with us to serve as our Director on December 19, 2005. The consulting agreement was for a period of twelve (12) months. Pursuant to the consulting agreement, Mr. Spencer was paid $2,000 per month and received an aggregate of 100,000 restricted shares of our common stock while employed under the consulting agreement, one for each quarter he is employed under the consulting agreement, which shares have been issued to date. The Company is obligated to maintain a director and officer policy of at least $1,000,000 during the term of Mr. Spencer's consulting agreement. The consulting agreement is terminated by Mr. Spencer's disability or his death. Mr. Spencer can terminate the consulting agreement for good reason and the Company can terminate the consulting agreement with cause (as described in the consulting). Additionally, Mr. Spencer's consulting agreement is terminated if the Company's voting shareholders vote to remove him as a Director or if he fails to be re-elected upon the termination of his current term as Director. Also the consulting agreement may be terminated by the mutual agreement of the parties. Upon Mr. Spencer's termination for any reason, he is entitled to receive only the compensation earned by him (including shares of stock) up to the date of the termination. The Consulting Agreement was renewed for the year ending December 31, 2007, with Mr. Spencer receiving $1,000 per month for his services as Director instead of $2,000 per month as was his consideration for the initial one year term of the agreement.  The Consulting Agreement has not been further renewed since December 31, 2007.

Joseph Wagner and Jean Wilson Options

On June 19, 2006, the Company's Board of Directors approved the issuance of 650,000 Incentive Stock Options to the Company's Chief Executive Officer, President, Secretary and Director, Joseph Wagner and 550,000 Incentive Stock Options to Jean Wilson, the Company's Chief Operating Officer, Treasurer and Director, who both also own more than 10% of the Company's outstanding voting shares (the "10% Shareholder Options") pursuant to the Plan. The 10% Shareholder Options had an exercise price of $0.38 per share, which was equal to 110% of the mean of the highest and lowest quoted selling prices of the Company's common stock on the Over-The-Counter Bulletin Board on the Valuation Date. The 10% Shareholder Options were evidenced by Option Agreements, pursuant to the Plan. The 10% Shareholder Options shall vest three (3) years from the Valuation Date (June 19, 2009), and terminated if unexercised on June 19, 2011, unless terminated earlier pursuant to the terms of the Option Agreements; provided however, that the 10% Shareholder Options shall vest immediately upon the occurrence of a Change in Control of the Company. The 10% Shareholder Options were later rescinded by the Company in connection with the Funding and the grant of the JJ Options, as described in greater detail below.

-41-

On August 2, 2006 (the "Valuation Date"), the Directors granted 850,000 options to purchase shares of our common stock ("Options") to Joseph Wagner, the Company's Chief Executive Officer and Director of the Company and 650,000 Options to Jean Wilson, the Company's Chief Operating Officer and Director, who are both greater than 10% shareholders of the Company (the "JJ Options"). The exercise price of the JJ Options is $0.75 per share (which exercise price was greater than 110% of the mean of the highest ($0.31) and lowest ($0.31) quoted selling prices of the Company's common stock on the Valuation Date). The JJ Options expire if unexercised on the fifth anniversary of the Vesting Date, or as otherwise provided in the Option Agreements.

Mr. Wagner shall vest 283,333 of the Options upon the twelve (12) month anniversary of the date the United States Securities and Exchange Commission declares effective a registration statement covering the resale of the shares of common stock which the 11% Senior Secured Convertible Promissory Notes which we sold in August, September and October 2006 to certain third party purchasers (the "Purchasers") are convertible into and the shares of common stock which the Warrants granted to such Purchasers are exercisable for (the "Effectiveness Date"); Mr. Wagner shall vest 283,333 of the Options upon the twenty-four (24) month anniversary of the Effectiveness Date; and Mr. Wagner shall vest the remaining 283,334 options upon the thirty-six (36) month anniversary of the Effectiveness Date, provided however that all of the options shall vest immediately upon a Change in Control of the Company (as defined below).

Ms. Wilson shall vest 216,667 of the Options upon the twelve (12) month anniversary of the Effectiveness Date; Ms. Wilson shall vest 216,666 of the Options upon the twenty-four (24) month anniversary of the Effectiveness Date; and Ms. Wilson shall vest the remaining 216,666 options upon the thirty-six (36) month anniversary of the Effectiveness Date, provided that all of the options shall vest immediately upon a Change in Control of the Company (as defined below).

A "Change in Control" includes the adoption of a plan of merger or consolidation of the Company with any other corporation or association as a result of which the holders of the voting capital stock of the Company as a group would receive less than 50% of the voting capital stock of the surviving or resulting corporation; the approval by the Board of Directors of the Company of an agreement providing for the sale or transfer of substantially all the assets of the Company; or in the absence of a prior expression of approval by the Board of Directors, the acquisition of more than 20% of the Company's voting capital stock by any person within the meaning of Rule 13d-3 under the Securities Act of 1933 (the "Act," other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company).

-42-

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS						STOCK AWARDS
Name (a)	Number of Securities Underlying Unexercised Options (#) Exercisable (b)	Number of Securities Underlying Unexercised Options (#) Unexercisable (c)	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (d)	Option Exercise Price ($) (e)	Option Expiration Date (f)	Number of Shares or Units of Stock That Have Not Vested (#) (g)	Market Value of Shares or Units of Stock That Have Not Vested ($) (h)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) (i)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#) (j)
Joseph Wagner	-	850,000(1)	-	$0.75	August 2, 2011
Jean Wilson	-	650,000(1)	-	$0.75	August 2, 2011
Chris Spencer	150,000	-	-	$0.34	June 19, 2016

(1) An aggregate of 850,000 options to purchase shares of our common stock were granted to Joe Wagner and an aggregate of 650,000 options to purchase shares of our common stock at $0.75 per share, were granted to Jean Wilson in August 2006, which options vest at the rate of 1/3 per year, beginning one year from the date the Registration Statement we are contractually obligated to file to register the shares of common stock issuable in connection with the conversion of the Purchasers’ 11% Senior Secured Convertible Notes is declared effective with the Commission (the "Effectiveness Date") and/or upon a Change in Control (as defined in the options), as described in greater detail above.

Section 16 (A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and persons who own more than 10% of a class of the Company's equity securities which are registered under the Exchange Act to file with the Commission initial reports of ownership and reports of changes of ownership of such registered securities. Such executive officers, directors and greater than 10% beneficial owners are required by the Commission to furnish the Company with copies of all Section 16(a) forms filed by such reporting persons.

To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and on representations that no other reports were required, no person required to file such a report failed to file on a timely basis during the most recent fiscal year or prior fiscal years. Based on stockholder filings with the SEC, Joseph Wagner, Jean Wilson, Vision Opportunity Master Fund, Ltd.,  and Christopher Spencer are subject to Section 16(a) filing requirements.

-43-

Code Of Ethics

The Board of Directors adopted a Code of Ethics in February 2004, meeting the requirements of Section 406 of the Sarbanes-Oxley Act of 2002. The Company will provide to any person without charge, upon request, a copy of such Code of Ethics. Persons wishing to make such a request should contact Joseph Wagner, President, 875 North Michigan Avenue, Suite 2626, Chicago, Illinois 60611, telephone: (312) 397-9100.

Audit Committee

As of the date of this filing, the Company has no Audit Committee in place nor any immediate plans to form one. However, if or when the Company is required to maintain an Audit Committee pursuant to the Sarbanes-Oxley act of 2002, the Company plans to comply with such requirement.

ITEM 10. EXECUTIVE COMPENSATION

The table that follows presents the annual compensation of our Chief Executive Officer, and other executive officers who made more than $100,000 per year for the last three fiscal years ending December 31, 2007.

SUMMARY COMPENSATION TABLE

Annual Compensation*

					All Other
Name & Principal			Stock	Stock	Compen-	Total
Position	Year	Salary ($)	Awards	Options	sation	Compen- sation
Joseph Wagner (1)	2007	$200,000	-	-	-	$200,000
CEO, President,	2006	$200,000	$49,167(3)	(5)	-	$249,167
Secretary,	2005	$203,666	$28,333(3)	-	-	$231,999
and Chairman of
the Board of Directors
Jean Wilson (2)	2007	$150,000	-	-	-	$150,000
Chief Operating	2006	$150,000	$15,297(4)	(5)	-	$165,297
Officer,	2005	$143,699	$ 8,815(4)	-	-	$152,514
Principal
Accounting Officer,
Treasurer,
and Director
Christopher Spencer	2007	$12,000	-	-	-	$12,000
Director
Darren Andereck	2007	$148,000	-	-	-	$148,000
President of Experiential
Frank Goldstin(6)	2005	$189,246	$50,000(6)	-	-	$239,246
Former CEO

* Does not include perquisites and other personal benefits in aggregate amounts less than 10% of the total annual salary and other compensation. No Executive Officer received any Bonuses, Non-Equity Incentive Plan Compensation, or Nonqualified Deferred Compensation Earnings, during the three years ended December 31, 2007.

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(1) Joseph Wagner, has served as our President Secretary and Treasurer since August 1, 2004, and served as our Chief Operating Officer from August 1, 2004 until February 17, 2005, at which time he resigned as Chief Operating Officer and was appointed Chief Executive Officer entered into a thirty-six (36) month consulting agreement with the Company effective August 1, 2004, pursuant to which Mr. Wagner will receive compensation of $200,000 per year.

(2) Jean Wilson has served as our Chief Accounting Officer and Treasurer since August 1, 2004. Between August 1, 2004 and February 17, 2005, Mrs. Wilson served as our Vice President of operations and on February 17, 2005, was appointed Chief Operating Officer. In August 2006, Ms. Wilson entered into a (60) month employment agreement with the Company, effective August 1, 2006, which employment agreement replaced a prior employment agreement entered into on August 1, 2004.  Pursuant to the agreement, Ms. Wilson will receive $150,000 per year as compensation.

(3) In August 2004, Mr. Wagner also received as additional consideration 225,000 restricted shares of the Company's common stock subject to a risk of forfeiture. On December 31, 2004, 75,000 shares became fully vested and on December 31, 2005 an additional 75,000 shares became fully vested. The risk of forfeiture covering the remaining 75,000 shares ceased to exist in August 2006, in connection with our entry into a sixty (60) month Consulting Agreement with Mr. Wagner pursuant to which he will continue to receive $200,000 per year for his services to us (described in greater detail below). Mr. Wagner may engage in business activities or interests outside of the Company which are not adverse or competitive to the Company. The values listed in the table above represent the amortized amounts of the vested shares for each year presented.  The values above were calculated pursuant to FAS 123R.

(4) In August 2004, Ms. Wilson also received as additional consideration 70,000 restricted shares of the Company's common stock subject to a risk of forfeiture. On December 31, 2004, 25,000 shares became fully vested and on December 31, 2005, 22,500 shares became fully vested. The risk of forfeiture covering the remaining 22,500 shares ceased to exist in August 2006, in connection with Ms. Wilson's entry into a sixty (60) month Executive Employment Agreement, pursuant to which she received a pro rata amount of her salary payable under the Executive Employment Agreement for the months between August and December 2006, and will receive $150,000 per year for her services to us, during the remaining years of the Executive Employment Agreement (described in greater detail below). The values listed in the table above represent the amortized amounts of the vested shares for each year presented. The values above were calculated pursuant to FAS 123R.

(5) Joseph Wagner and Jean Wilson were granted 850,000 and 650,000 options to purchase shares of our common stock at an exercise price of $0.75 per share, respectively in August 2006. A Black - Scholes computation pursuant to FAS 123R of those options indicated that neither grant had material value, due to the fact that they have not vested yet (the options are described in greater detail under "Employment and Consulting agreements above.")

(6) Frank Goldstin served as our Chief Executive Officer from December 2003 to February 17, 2005, when Mr. Wagner was elected as our Chief Executive Officer. Effective August 1, 2004, Mr. Goldstin entered into a thirty-six (36) month employment agreement with the Company effective August 1, 2004, pursuant to which Mr. Goldstin would have received compensation of $360,000 per year. On or about February 17, 2005, Mr. Goldstin entered into a Twenty-Four (24) month employment agreement with the Company which superseded the previous agreement he had with the Company, and which would have paid him $100,000 per year as the Chairman of the Company's Board of Directors. Mr. Goldstin's employment agreement was terminated effective December 19, 2005, due to the fact that he was not elected a Director of the Company at our annual meeting of shareholders on the same day. In connection with the termination of Mr. Goldstin's employment, and pursuant to a "Severance Agreement and Release in Full" (the "Severance Agreement"), he was provided a lump sum payment in the amount of $50,000, less applicable tax withholding, and a payment of $5,538.43, less applicable tax withholding, in connection with amounts previously owed to Mr. Goldstin in connection with his employment (collectively the "Severance Pay").

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Pursuant to the Severance Agreement, Mr. Goldstin agreed to release and forever discharge us, our former, present and future officers, directors, employees, agents, administrators, persons and corporations who may be liable for the conduct of any of the aforesaid parties, from any and all debts, demands, promises, actions, claims, liabilities, damages, and causes of action of any nature, known or unknown, both in law and equity, which have accrued or may ever accrue to Mr. Goldstin, his heirs, executors, legal administrator, successors, or assigns by reason of his employment with us. Mr. Goldstin's release included all claims whether arising in tort, contract or statute. Additionally, pursuant to the Severance Agreement, Mr. Goldstin agreed to repay us the Severance Pay if he violates the Severance Agreement in any material respect.

Additionally, we had two other employees who made between $100,000 and $129,999 per year for the year ended December 31, 2007, and one other employee who made more than $150,000 per year for the year ended December 31, 2007. While these individuals perform various tasks for us, we do not believe these individuals perform any functions as executive officers of the Company.

Severance and Change in Control Payouts:

We grant change in control and severance arrangements to our executive officers on a case-by-case basis. Currently Joseph Wagner, our Chief Executive Officer, Secretary and Chairman of the Board, and Jean Wilson, our Chief Financial Officer, Chief Operating Officer, and Treasurer are the only executive officers with whom we have any change in control and severance arrangements. We believe that granting these arrangements to certain key employees is an important element in the retention of such employees.

In Mr. Wagner’s case, his severance arrangement takes effect pursuant to his Consulting Agreement, if he is terminated without cause by us, or he terminates his employment by giving ten (10) days written notice for “good reason,” defined as if he is assigned, without his express written consent to any duties materially inconsistent with his positions, duties, responsibilities or status with us as of the date of his Consulting Agreement, or a change in his reporting responsibilities or titles as in effect as of the date of the Consulting Agreement; if his compensation is reduced; or if we do not pay him any material amount of compensation due under the Consulting Agreement within ten (10) days of the date he gives us notice that such amount has not been paid (each a “Severance Event”). In the event of a Severance Event, Mr. Wagner shall be entitled to receive as severance pay, an amount equal to $250,000 in addition to all of the unpaid payments of salary that he would had earned assuming that he had provided services to us for the full term of the Consulting Agreement. For instance, if he terminated his service to us pursuant to a Severance Event on August 1, 2007 (the one year anniversary of his entry into the Consulting Agreement), he would receive as severance compensation, $250,000 plus the remaining amount of payments he would be due under the Consulting Agreement, $800,000 (four (4) years at $200,000 per year), so he would therefore be due a total of $1,050,000 in a lump sum payment. Additionally, all 850,000 of the options to purchase shares of our common stock which he was granted in August 2006, would vest to him immediately.

In Ms. Wilson’s case, her severance arrangement takes effect pursuant to the same Severance Events as defined above for Mr. Wagner. In the event of a Severance Event, Ms. Wilson shall be entitled to receive as severance pay, an amount equal to $250,000 in addition to all of the unpaid payments of salary that she has earned as of her termination date pursuant to the Employment Agreement. For instance, if she terminated her service to us pursuant to a Severance Event after August 1, 2007 (the one year anniversary of her entry into the Employment Agreement), she would receive as severance compensation, $250,000 plus the remaining amount of payments she had earned prior to the termination of the Employment Agreement. Additionally, all 650,000 of the options to purchase shares of our common stock which she was granted in August 2006, would vest to her immediately.

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Mr. Wagner’s and Ms. Wilson’s options also contain change of control provisions, whereby in the event of the adoption of a plan of merger or consolidation of the Company with any other corporation or association as a result of which the holders of the voting capital stock of the Company as a group would receive less than 50% of the voting capital stock of the surviving or resulting corporation; the approval by the Board of Directors of the Company of an agreement providing for the sale or transfer of substantially all the assets of the Company; or in the absence of a prior expression of approval by the Board of Directors, the acquisition of more than 20% of the Company's voting capital stock by any person within the meaning of Rule 13d-3 under the Securities Act of 1933 (the "Act," other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company), all of the options which they currently hold shall vest to them immediately.

Additionally, all of the options granted to employees in June 2006, as described herein, shall immediately vest to those employees upon a Change in Control.

COMPENSATION DISCUSSION AND ANALYSIS

Director Compensation

Joseph Wagner, the Chairman of our Board of Directors and Jean Wilson a Director of the Company do not receive any separate consideration from the Company other than the compensation they are paid as the Company’s executives for their services on the Board of Directors. The Board of Directors reserves the right in the future to award the members of the Board of Directors cash (or additional cash in the case of Mr. Spencer) or stock based consideration for their services to the Company, which awards, if granted shall be in the sole determination of the Board of Directors.

Executive Compensation Philosophy

Our Board of Directors, consisting of Joseph Wagner, who also serves as the Chairman of the Board of Directors, Jean Wilson and Christopher Spencer, determine the compensation provided to our executive officers in their sole determination. Our executive compensation program is designed to attract and retain talented executives to meet our short-term and long-term business objectives. In doing so, we attempt to align our executives’ interests with the interests of our shareholders by providing an adequate compensation package to such executives. This compensation package includes a base salary, which we believe is competitive with other companies of our relative size. In addition, we have previously granted certain options to our executive and non-executive employees as part of our compensation package, and our Board of Directors reserves the right to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance in the future. This package may also include long-term, stock based compensation to certain executives which is intended to align the performance of our executives with our long-term business strategies, which may be similar to our previous stock options granted during the year ended December 31, 2006.

Base Salary

The base salary of our executive officers, Joseph Wagner, our Chief Executive Officer, President, Secretary and Chairman of the Board of Directors, was established by our entry into a sixty month Consulting Agreement entered into with Mr. Wagner in August 2006, which has since been amended, currently totals a base salary of $200,000 per year and Jean Wilson, our Chief Operating Officer, Principal Accounting Officer, Treasurer and Director, was established by our entry into a sixty month Employment Agreement with Ms. Wilson in August 2006, currently totals a base salary of $150,000 per year, were established by evaluating the range of responsibilities of their positions, as well as the anticipated impact that Mr. Wagner and Ms. Wilson could have in meeting our strategic objectives. The established base salary of each individual was then benchmarked to comparable positions with that of our industry and similarly sized companies. Base salaries are adjusted to reflect the varying levels of position responsibilities and individual executive performance.

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Incentive Bonus

Along with our executives’ base salaries, the Board of Directors reserves the right to give incentive bonuses to our executive officers, which bonuses the Board of Directors may grant in its sole discretion, if the Board of Directors believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives in the sole discretion of the Board of Directors.

As of the date of this filing, Joseph Wagner holds 850,000 incentive options to purchase shares of our common stock and Jean Wilson holds 650,000 incentive options to purchase shares of our common stock at an exercise price of $0.75 per share, which options vest to those individuals and are exercisable as provided above under “Certain Relationships and Related Transactions.”

Long-term, Stock Based Compensation

In order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we may award certain executives with long-term, stock based compensation in the future, in the sole discretion of our Board of Directors, which we do not currently have any immediate plans to award.

Criteria for Compensation Levels

The Company has always sought to attract and retain qualified executives and employees able to positively contribute to the success of the Company for the benefit of its various stakeholders, the most important of which is its shareholders, but also including its customers, its employees, and the communities in which the Company operates.

The Board of Directors (in establishing compensation levels for the Chief Executive Officer and Chief Operating Officer, as well as other executive positions) and the Company (in establishing compensation levels for all executives of the Company) may consider many factors, including, but not limited to, the individual’s abilities and executed performance that results in: the advancement of corporate goals of the Company, execution of the Company’s business strategies, contributions to positive financial results, contributions to the Company’s overall image and reputation in the Company’s industry, and contributions to the development of the management team and other employees. An officer must demonstrate his or her ability to deliver results in his or her areas of responsibility, which can include, among other things: business development with new and existing customers, development of new products, efficient management of operations and systems, implementation of appropriate changes and improvements to operations and systems, personnel management, financial management, and strategic decision making. In determining compensation levels, the Board of Directors may also consider: competitiveness of compensation packages relative to other comparable companies, both inside and outside of the event planning industry, and the experience level of each particular individual.

Compensation levels for executive officers are generally reviewed upon the expiration of such executive’s employment and/or consulting agreements (if any), or annually, but may be reviewed more often as deemed appropriate.

Compensation Philosophy and Strategy

In addition to the “Criteria for Compensation Levels” set forth above, the Company has a “Compensation Philosophy” for all employees of the Company (set forth below), and a “Compensation Strategy for Key Management Personnel” (set forth below), a substantial portion of which also applies to all employees of the Company.

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Compensation Philosophy

The Company’s compensation philosophy is as follows:

· The Company believes that compensation is an integral component of its overall business and human resource strategies. The Company’s compensation plans will strive to promote the hiring and retention of personnel necessary to execute the Company’s business strategies and achieve its business objectives.

· The Company’s compensation plans will be strategy-focused, competitive, and recognize and reward individual and group contributions and results. The Company’s compensation plans will strive to promote an alignment of the interests of employees with the interests of the shareholders by having a portion of compensation based on financial results and actions that will generate future shareholder value.

· In order to reward financial performance over time, the Company’s compensation programs generally will consist of: base compensation, and may also consist of short-term variable incentives and long-term variable incentives, as appropriate.

· The Company’s compensation plans will be administered consistently and fairly to promote equal opportunities for the Company’s employees.

Compensation Strategy for Key Management Personnel

The Company’s compensation strategy for its key management personnel is as follows:

· Total compensation may include base salary and short-term and long-term variable incentives based on annual and long term performance, and long-term variable incentives, in each case, where appropriate.

· Compensation will be comparable to general and industry-specific compensation practices.

· Generally, base compensation, and targeted short and long-term variable compensation, if any, will be established within the range of compensation of similarly situated companies in the Company’s industry. The Company’s organization size and complexity will be taken into account, and therefore similarly situated companies include companies of similar size and complexity whether or not such companies are in the Company’s industry or not.

· When determining compensation for officers, managers and consultants, the Company takes into account the employee’s (and/or consultant’s) knowledge, experience, past employment history and connections in the industry, including industry specific knowledge and experience, to the extent such knowledge and experience contributes to the Company’s ability to achieve its business objectives.

· The Company reserves the right to adjust annual base salaries of employees and/or to award performance based bonuses if individual performance is at or above pre-established performance expectations.

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth information as of April 14, 2008, with respect to the beneficial ownership of the Common Stock by (i) each director and officer of the Company, (ii) all directors and officers as a group and (iii) each person known by the Company to own beneficially 5% or more of the Common Stock:

Name and Address	Shares beneficially owned (1)		Percent (2)
Joe Wagner	385,201	(3)(4)(5)	9.7%
CEO, President, Secretary and Director
875 North Michigan Avenue Suite 2626 Chicago, Illinois 60611
Jean Wilson	96,000	(5)	2.4%
CFO, COO, Treasurer and Director
875 North Michigan Avenue Suite 2626 Chicago, Illinois 60611
Chris Spencer	100,000		2.5%
Director
875 North Michigan Avenue Suite 2626 Chicago, Illinois 60611
David M. Loev	379,933	(6)	9.2%	(7)
6300 West Loop South Bellaire, Texas 77401
Vision Opportunity Master Fund, Ltd.	393,748	(9)	9.9%	(10)
(8) 20 West 55th Street 5th Floor New York, New York 10019-5373
Paul M. Higbee	393,748	(11)	9.9%	(12)
175 Elmsley Court Ridgewood, New Jersey 07450

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G. Chris Andersen	393,748	(11)	9.9%	(12)
430 Park Avenue Suite 701 New York, New York 10022
Sands Brothers Venture Capital II LLC	393,748	(14)	9.9%	(15)
(13) 90 Park Ave. 31st Floor New York, New York 10016
Sands Brothers Venture Capital III LLC	393,748	(17)	9.9%	(18)
(16) 90 Park Ave. 31st Floor New York, New York 10016
Sands Brothers Venture Capital IV LLC	393,748	(20)	9.9%	(21)
(19) 90 Park Ave. 31st Floor New York, New York 10016
Katie & Adam Bridge Partners, L.P.	393,748	(23)	9.9%	(24)
(22) 90 Park Ave. 31st Floor New York, New York 10016
Mastodon Ventures, Inc.	194,885	(26)	4.9%	(27)
(25) 600 Congress Avenue Suite 1220 Austin, Texas 78701
All  officers  and  directors as a group (3 persons)	581,201	(3)(4)(5)	14.6%

* Approximate.

(1) The number of shares of common stock owned are those "beneficially owned" as determined under the rules of the Securities and Exchange Commission, including any shares of common stock as to which a person has sole or shared voting or investment power and any shares of common stock which the person has the right to acquire within 60 days through the exercise of any option, warrant or right. Shares of common stock subject to a Convertible Note or Warrant currently convertible or exercisable, or convertible or exercisable within 60 days are deemed outstanding for computing the percentage of the person holding such Convertible Note or Warrant, but are not deemed outstanding for computing the percentage of any other person.

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(2) Using 3,977,252 shares of common stock outstanding as of March 26, 2007, unless otherwise stated.

(3) Includes 35,201 shares held personally by Joseph Wagner.

(4) Includes 350,000 shares of common stock held by Sandra M. Wagner, the wife of Joseph Wagner.

(5) Does not include an aggregate of 850,000 options to purchase shares of our common stock held by Joe Wagner and 650,000 options to purchase shares of our common stock at $0.75 per share, held by Jean Wilson, which shares vest at the rate of 1/3 per year, beginning one year from the date the Registration Statement we are contractually obligated to file to register the shares of common stock issuable in connection with the conversion of the Purchasers’ 11% Senior Secured Convertible Notes is declared effective with the Commission (the "Effectiveness Date") and/or upon a Change in Control (as defined in the options), as such options do not vest to Mr. Wager and Ms. Wilson until one year from such Effectiveness Date and/or upon a Change of Control.

(6) Includes 225,000 shares of common stock and 154,933 warrants to purchase shares of our common stock at an exercise price of $0.30 per share. Mr. Loev beneficially owns an aggregate of 154,933 warrants to purchase shares of our common stock at an exercise price of $0.30 per share and an aggregate of 225,000 shares of common stock held in the name of The Loev Family Partnership, Ltd., which Mr. Loev is deemed to beneficially own. Mr. Loev has agreed not to hold more than 9.9% of our common stock at any one time,

(7) Based on 4,087,250 shares outstanding, assuming the exercise of 135,000 warrants beneficially owned by Mr. Loev, which would result in Mr. Loev owning approximately 9.9% of our common stock.

(8) The beneficial owner of Vision Master Fund, Ltd. ("Vision") is Adam Benowitz, its Portfolio manager.

(9) Although Vision has agreed to not hold more than 9.9% of our outstanding common stock at anyone time unless they provide us sixty-one (61) days prior notice, Vision has the ability to convert its outstanding 11% Senior Secured Convertible Notes ("Notes") into approximately 6,600,000 shares of common stock at a conversion price of $0.25 per share (which exercise price varies as provided in the Notes); and can exercise its 920,833 warrants at an exercise price of $0.30 per share for that same number of shares, providing it the ability to own 7,520,833 shares of our common stock, which if Vision provides us notice of their intent to hold more than the 9.9% share limit and converts and exercises all of the shares in connection with the conversion of the Notes it holds and the shares underlying the warrants would represent 65.4% of our outstanding common stock based on 11,498,085 shares then outstanding.

(10) Based on 4,371,000 shares then outstanding assuming the conversion and/or exercise of 393,748 shares, which represents approximately 9.9% of our outstanding shares of common stock.

(11) Although Mr. Higbee and Mr. Andersen have agreed to not hold more than 9.9% of our outstanding common stock at anyone time unless they provide us sixty-one (61) days prior notice, they each have the ability to convert their outstanding 11% Senior Secured Convertible Notes ("Notes") into approximately 500,000 shares of common stock at a conversion price of $0.25 per share (which exercise price varies as provided in the Notes); and can exercise their 40,000 warrants at an exercise price of $0.30 per share for that same number of shares, providing each of them the ability to own 540,000 shares of our common stock, which if either provides us notice of their intent to hold more than the 9.9% share limit and converts and exercises all of the shares in connection with the conversion of the Notes it holds and the shares underlying the warrants would represent 12.0% of our outstanding common stock based on 4,517,252 shares then outstanding.

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(12) Based on 4,371,000 shares then outstanding assuming the conversion and/or exercise of 393,748 shares, which represents approximately 9.9% of our outstanding shares of common stock.

(13) The manager of Sands Brothers Venture Capital II LLC is Sands Brothers Venture Capital Management LLC, which is managed by Scott Baily. Scott Baily, Steven Sands and Martin Sands have voting and/or investment control over shares held by Sands Brothers Venture Capital II LLC.

(14) Although Sands Brothers Venture Capital II LLC has agreed to not hold more than 9.9% of our outstanding common stock at anyone time unless it provides us sixty-one (61) days prior notice, it has the ability to convert its outstanding 11% Senior Secured Convertible Notes ("Notes") into approximately  464,000 shares of common stock at a conversion price of $0.25 per share (which exercise price varies as provided in the Notes); and can exercise its 46,000 warrants at an exercise price of $0.30 per share for that same number of shares, providing it the ability to own 510,000 shares of our common stock, which if it provides us notice of its intent to hold more than the 9.9% share limit and converts and exercises all of the shares in connection with the conversion of the Notes it holds and the shares underlying the warrants would represent 11.4% of our outstanding common stock based on 4,487,252 shares then outstanding.

(15) Based on 4,371,000 shares then outstanding assuming the conversion and/or exercise of 393,748 shares, which represents approximately 9.9% of our outstanding shares of common stock.

(16) The manager of Sands Brothers Venture Capital III LLC is Sands Brothers Venture Capital Management LLC, which is managed by Scott Baily. Scott Baily, Steven Sands and Martin Sands have voting and/or investment control over shares held by Sands Brothers Venture Capital III LLC.

(17) Although Sands Brothers Venture Capital III LLC has agreed to not hold more than 9.9% of our outstanding common stock at anyone time unless it provides us sixty-one (61) days prior notice, it has the ability to convert its outstanding 11% Senior Secured Convertible Notes ("Notes") into approximately  4,396,000 shares of common stock at a conversion price of $0.25 per share (which exercise price varies as provided in the Notes); can exercise its 556,500 warrants at an exercise price of $0.30 per share for that same number of shares, and currently holds 50,000 shares of common stock, providing it the ability to own 8,929,752 shares of our common stock, which if it provides us notice of its intent to hold more than the 9.9% share limit and converts and exercises all of the shares in connection with the conversion of the Notes it holds and the shares underlying the warrants would represent 56% of our outstanding common stock based on 8,929,752 shares then outstanding.

(18) Based on 4,371,000 shares then outstanding assuming the conversion and/or exercise of 393,748 shares, which represents approximately 9.9% of our outstanding shares of common stock.

(19) The manager of Sands Brothers Venture Capital IV LLC is Sands Brothers Venture Capital Management LLC, which is managed by Scott Baily. Scott Baily, Steven Sands and Martin Sands have voting and/or investment control over shares held by Sands Brothers Venture Capital IV LLC.

(20) Although Sands Brothers Venture Capital IV LLC has agreed to not hold more than 9.9% of our outstanding common stock at anyone time unless it provides us sixty-one (61) days prior notice, it has the ability to convert its outstanding 11% Senior Secured Convertible Notes ("Notes") into approximately  1,160,000 shares of common stock at a conversion price of $0.25 per share (which exercise price varies as provided in the Notes); can exercise its 114,999 warrants at an exercise price of $0.30 per share for that same number of shares, and currently holds 33,333 shares of common stock, providing it the ability to own 1,308,332 shares of our common stock, which if it provides us notice of its intent to hold more than the 9.9% share limit and converts and exercises all of the shares in connection with the conversion of the Notes it holds and the shares underlying the warrants would represent 24.9% of our outstanding common stock based on 5,252,251 shares then outstanding.

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(21) Based on 4,371,000 shares then outstanding assuming the conversion and/or exercise of 393,748 shares, which represents approximately 9.9% of our outstanding shares of common stock.

(22) The manager of Katie & Adam Bridge Partners L.P. is Katie & Adam Bridge Partners Management L.P., which is managed by Scott Baily. Scott Baily, Steven Sands and Martin Sands have voting and/or investment control over shares held by Sands Brothers Venture Capital III LLC.

(23) Although Katie & Adam Bridge Partners L.P. has agreed to not hold more than 9.9% of our outstanding common stock at anyone time unless it provides us sixty-one (61) days prior notice, it has the ability to convert its outstanding 11% Senior Secured Convertible Notes ("Notes") into approximately  464,000 shares of common stock at a conversion price of $0.25 per share (which exercise price varies as provided in the Notes); and can exercise its 46,001 warrants at an exercise price of $0.30 per share for that same number of shares, providing it the ability to own 510,001 shares of our common stock, which if it provides us notice of its intent to hold more than the 9.9% share limit and converts and exercises all of the shares in connection with the conversion of the Notes it holds and the shares underlying the warrants would represent 11.4% of our outstanding common stock based on 4,487,253 shares then outstanding.

(24) Based on 4,371,000 shares then outstanding assuming the conversion and/or exercise of 393,748 shares, which represents approximately 9.9% of our outstanding shares of common stock.

(25) The beneficial owner of Mastodon Ventures, Inc. (“MVI”) is Robert S. Hersch, its President.

(26) Although MVI can exercise its 779,334 warrants to purchase shares of common stock which it beneficially owns for that same number of shares, which shares if exercised would represent approximately 16.4% of our then outstanding common stock based on 4,756,586 shares of common stock then outstanding, MVI has contractually agreed not to own 5% or more of our common stock at any one time.

(27) Based on 4,172,137 shares then outstanding assuming the exercise of 194,885 warrants, which represents 4.9% of our outstanding shares of common stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On June 19, 2006, the Company's Board of Directors approved the issuance of 650,000 Incentive Stock Options to the Company's Chief Executive Officer, President, Secretary and Director, Joseph Wagner and 550,000 Incentive Stock Options to Jean Wilson, the Company's Chief Operating Officer, Treasurer and Director, who both also own more than 10% of the Company's outstanding voting shares (the "10% Shareholder Options") pursuant to the Plan. The 10% Shareholder Options had an exercise price of $0.38 per share, which was equal to 110% of the mean of the highest and lowest quoted selling prices of the Company's common stock on the Over-The-Counter Bulletin Board on the Valuation Date. The 10% Shareholder Options were evidenced by Option Agreements, pursuant to the Plan. The 10% Shareholder Options shall vest three (3) years from the Valuation Date (June 19, 2009), and terminated if unexercised on June 19, 2011, unless terminated earlier pursuant to the terms of the Option Agreements; provided however, that the 10% Shareholder Options shall vest immediately upon the occurrence of a Change in Control of the Company. The 10% Shareholder Options were later rescinded by the Company in connection with the Funding and the grant of the JJ Options, as described in greater detail below.

On August 2, 2006 (the "Valuation Date"), the Directors granted 850,000 options to purchase shares of our common stock ("Options") to Joseph Wagner, the Company's Chief Executive Officer and Director of the Company and 650,000 Options to Jean Wilson, the Company's Chief Operating Officer and Director, who are both greater than 10% shareholders of the Company (the "JJ Options"). The exercise price of the JJ Options is $0.75 per share (which exercise price was greater than 110% of the mean of the highest ($0.31) and lowest ($0.31) quoted selling prices of the Company's common stock on the Valuation Date). The JJ Options expire if unexercised on the fifth anniversary of the Vesting Date, or as otherwise provided in the Option Agreements.

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Mr. Wagner shall vest 283,333 of the Options upon the twelve (12) month anniversary of the date the United States Securities and Exchange Commission declares effective a registration statement covering the resale of the shares of common stock which the 11% Senior Secured Convertible Promissory Notes which we sold in August, September and October 2006 to certain third party purchasers (the "Purchasers") are convertible into (as described in greater detail in our most recent periodic filings) and the shares of common stock which the Warrants granted to such Purchasers are exercisable for (the "Effectiveness Date"); Mr. Wagner shall vest 283,333 of the Options upon the twenty-four (24) month anniversary of the Effectiveness Date; and Mr. Wagner shall vest the remaining 283,334 options upon the thirty-six (36) month anniversary of the Effectiveness Date, provided however that all of the options shall vest immediately upon a Change in Control of the Company (as defined below).

Ms. Wilson shall vest 216,667 of the Options upon the twelve (12) month anniversary of the Effectiveness Date; Ms. Wilson shall vest 216,666 of the Options upon the twenty-four (24) month anniversary of the Effectiveness Date; and Ms. Wilson shall vest the remaining 216,666 options upon the thirty-six (36) month anniversary of the Effectiveness Date, provided that all of the options shall vest immediately upon a Change in Control of the Company (as defined below).

A "Change in Control" includes the adoption of a plan of merger or consolidation of the Company with any other corporation or association as a result of which the holders of the voting capital stock of the Company as a group would receive less than 50% of the voting capital stock of the surviving or resulting corporation; the approval by the Board of Directors of the Company of an agreement providing for the sale or transfer of substantially all the assets of the Company; or in the absence of a prior expression of approval by the Board of Directors, the acquisition of more than 20% of the Company's voting capital stock by any person within the meaning of Rule 13d-3 under the Securities Act of 1933 (the "Act," other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company).

In February 2007, pursuant to an “Agreement Regarding the Cancellation of the Series A Preferred Stock of XA, Inc.,” Joseph Wagner and Jean Wilson, our Directors agreed to cancel the two (2) shares of Series A Preferred Stock which they held for aggregate consideration of $1.00.

On February 23, 2007, at our 2007 Annual Meeting of Stockholders, Joseph Wagner, Jean Wilson and Christopher Spencer were re-elected as Directors of the Company and Joseph Wagner was additionally appointed as Chairman of the Company’s Board of Directors.

In March 2007, XA Interactive Inc., one of our wholly owned subsidiaries, entered into a strategic alliance with Wizzard Media, which is part of Wizzard Software Corporation, to enhance the podcasting service offerings of Wizzard Media. Christopher Spencer, one of our directors, is the Chief Executive Officer, President and a director of Wizzard Software Corporation.

On March 8, 2007, with an effective date of August 1, 2006, Joseph Wagner, our Chief Executive Officer, President, Chairman and Secretary entered into a First Amendment to Consulting Agreement with us, which amended and replaced his sixty (60) month Consulting Agreement entered into with us in August 2006, effective as of August 1, 2006, which Consulting Agreement replaced a prior Consulting Agreement entered into between us and Mr. Wagner with an effective date of August 1, 2004. The main amendments to the Consulting Agreement were the inclusion of the position of Chairman in the prior provision which stated that in the event Mr. Wagner is terminated for good reason by Mr. Wagner or without cause by us, from his employment under any position he held with us, that he would receive a lump sum payment of $250,000 and any and all unpaid payments of salary he would have been owed pursuant to the amended Consulting Agreement, and the inclusion of a tie-breaking vote for Mr. Wagner, as described below. The terms of the Consulting Agreement, as amended are discussed below.

The Consulting Agreement, as amended, also provides for Mr. Wagner to have an additional tie-breaking vote on any matters to come before the Board of Directors, which end in a tie or deadlock between the then voting members of the Board of Directors (including Mr. Wagner’s vote in such tie or deadlock vote), while Mr. Wagner is Chairman of the Board of Directors. For instance, if there are four voting members of the Board of Directors present at a Board of Directors meeting (one of which is Mr. Wagner), and two members vote to approve a resolution which has come before the Board of Directors and two members (including Mr. Wagner) vote not to approve the resolution, the approval or non-approval of the resolution will be decided by a tie-breaking vote to be cast by Mr. Wagner as Chairman of the Board of Directors in his sole discretion (which shall in effect give Mr. Wagner, while serving as the Chairman of the Board of Directors a second vote on any tied or deadlocked vote to come before the Board of Directors).

During the years ended December 31, 2006 and 2007, the Company sold various Notes to the Purchasers (as defined above) and granted such Purchasers and affiliated parties various Warrants in connection with the sale of such Notes.  The transactions with the Purchasers are described above in greater detail under “Business History”.

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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

a) EXHIBITS

Exhibit Number	Description of Exhibit
10.1(1)	Common Stock Purchase Warrant A
10.2(2)	Voting Agreement between Joseph Wagner and Frank Goldstin
10.3(2)	Voting Agreement between Jean Wilson and Frank Goldstin
10.4(3)	Fiori Asset Purchase Agreement
10.5(4)	Asset Acquisition Agreement with Musters & Company, Inc.
10.6(4)	Waiver Agreement
10.7(5)	Christopher Spencer Consulting Agreement
10.8(6)	Waiver of Rights Agreement
10.9(7)	Securities Purchase Agreement Dated August 8, 2006
10.10(7)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital LLC
10.11(7)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital II LLC
10.12(7)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital III LLC
10.13(7)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital IV LLC
10.14(7)	11% Senior Secured Convertible Promissory Note with Katie & Adam Bridge Partners L.P.
10.15(7)	Warrant with Sands Brothers Venture Capital LLC ($1.10 initial exercise price)
10.16(7)	Warrant with Sands Brothers Venture Capital II LLC ($1.10 initial exercise price)
10.17(7)	Warrant with Sands Brothers Venture Capital III LLC ($1.10 initial exercise price)
10.18(7)	Warrant with Sands Brothers Venture Capital IV LLC ($1.10 initial exercise price)
10.19(7)	Warrant with Katie & Adam Bridge Partners L.P. ($1.10 initial exercise price)
10.20(7)	Warrant with Sands Brothers Venture Capital LLC ($0.30 initial exercise price)
10.21(7)	Warrant with Sands Brothers Venture Capital II LLC ($0.30 initial exercise price)
10.22(7)	Warrant with Sands Brothers Venture Capital III LLC ($0.30 initial exercise price)

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10.23(7) Warrant with Sands Brothers Venture Capital IV LLC ($0.30 initial exercise price)

10.24(7)	Warrant with Katie & Adam Bridge Partners L.P. ($0.30 initial exercise price)
10.25(7)	Warrant with Mastodon Ventures, Inc. ($0.30 initial exercise price)
10.26(7)	Registration Rights Agreement
10.27(7)	Security Agreement
10.28(7)	Joseph Wagner 60 Month Consulting Agreement Effective August 1, 2006
10.29(7)	Jean Wilson 60 Month Employment Agreement Effective August 1, 2006
10.30(7)	Joseph Wagner Stock Option Agreement to Purchase 850,000 Shares at an Exercise Price of $0.75 Per Share
10.31(7)	Jean Wilson Stock Option Agreement to Purchase 650,000 Shares at an Exercise Price of $0.75 Per Share
10.32(8)	Second Funding Waiver of Rights Agreement
10.33(9)#	Securities Purchase Agreement Effective September 26, 2006 with G. Chris Andersen
10.34(9)#	11% Senior Secured Convertible Promissory Note with G. Chris Andersen
10.35(9)#	Warrant with G. Chris Andersen ($1.10 initial exercise price)
10.36(9)#	Registration Rights Agreement with G. Chris Andersen
10.37(9)#	Security Agreement with G. Chris Andersen
10.38(9)	Securities Purchase Agreement Dated October 23, 2006 with Vision Opportunity Master Fund, Ltd.
1039(9)	11% Senior Secured Convertible Promissory Note with Vision Opportunity Master Fund, Ltd. (1)
10.40(9)	Warrant with Vision Opportunity Master Fund, Ltd. ($1.10 initial exercise price)
10.41(9)	Warrant with Vision Opportunity Master Fund, Ltd. ($0.30 initial exercise price)
10.42(9)	Registration Rights Agreement with Vision Master Fund, Ltd.
10.43(9)	Security Agreement with Vision Master Fund, Ltd.
10.44(9)	Third Waiver of Rights Agreement with the 6% Purchasers
10.45(9)	Consulting Agreement with MVI
10.46(10)	Agreement Regarding the Cancellation of the Series A Preferred Stock of XA, Inc.

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10.47(10)	Legal Services Agreement with David M. Loev
10.48(11)	Securities Purchase Agreement With the Sands Brothers Purchasers (June 22, 2007)
10.49(11)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital LLC (June 22, 2007)
10.50(11)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital II LLC (June 22, 2007)
10.51(11)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital III LLC (June 22, 2007)
10.52(11)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital IV LLC (June 22, 2007)
10.53(11)	11% Senior Secured Convertible Promissory Note with Katie & Adam Bridge Partners L.P. (June 22, 2007)
10.54(11)	Warrant with Sands Brothers Venture Capital LLC ($0.30 initial exercise price) (June 22, 2007)
10.55(11)	Warrant with Sands Brothers Venture Capital II LLC ($0.30 initial exercise price) (June 22, 2007)
10.56(11)	Warrant with Sands Brothers Venture Capital III LLC ($0.30 initial exercise price) (June 22, 2007)
10.57(11)	Warrant with Sands Brothers Venture Capital IV LLC ($0.30 initial exercise price) (June 22, 2007)
10.58(11)	Warrant with Katie & Adam Bridge Partners L.P. ($0.30 initial exercise price) (June 22, 2007) (June 22, 2007)
10.59(11)	Registration Rights Agreement with the Sands Brothers Purchasers (June 22, 2007)
10.60(11)	Security Agreement with the Sands Brothers Purchasers (June 22, 2007)
10.61(11)	Securities Purchase Agreement Dated June 29, 2007 with Vision Opportunity Master Fund, Ltd.
10.62(11)	11% Senior Secured Convertible Promissory Note with Vision Opportunity Master Fund, Ltd. (June 29, 2007)
10.63(11)	Warrant with Vision Opportunity Master Fund, Ltd. ($0.30 initial exercise price) (June 29, 2007)
10.64(11)	Registration Rights Agreement with Vision Master Fund, Ltd. (June 29, 2007)
10.64(11)	Security Agreement with Vision Master Fund, Ltd. (June 29, 2007)
10.65(11)	Securities Purchase Agreement effective June 11, 2007 with G. Chris Andersen

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10.66(11)	11% Senior Secured Convertible Promissory Note with G. Chris Andersen (effective June 11, 2007)
10.67(11)	Warrant with G. Chris Andersen ($0.30 initial exercise price) (effective June 11, 2007)
10.68(11)	Registration Rights Agreement with G. Chris Andersen (effective June 11, 2007)
10.69(11)	Security Agreement with G. Chris Andersen (effective June 11, 2007)
10.70(11)	Securities Purchase Agreement effective June 11, 2007 with Paul M. Higbee
10.71(11)	11% Senior Secured Convertible Promissory Note with Paul M. Higbee (effective June 11, 2007)
10.72(11)	Warrant with Paul M. Higbee ($0.30 initial exercise price) (effective June 11, 2007)
10.73(11)	Registration Rights Agreement with Paul M. Higbee (effective June 11, 2007)
10.74(11)	Security Agreement with Paul M. Higbee (effective June 11, 2007)
10.75(11)	Waiver of Rights Agreement Dated On Or Around June 22, 2007 with the Purchasers
10.76(11)	First Amendment to Consulting Agreement with Joseph Wagner
10.77(11)	First Amendment to 11% Senior Secured Convertible Promissory Note with the Sands Brothers Purchasers
10.78(11)	First Amendment to 11% Senior Secured Convertible Promissory Note with Vision Master Fund, Ltd.
10.79(11)	First Amendment to 11% Senior Secured Convertible Promissory Note with Paul M. Higbee
10.80(11)	First Amendment to 11% Senior Secured Convertible Promissory Note with G. Chris Andersen
10.81(12)	Securities Purchase Agreement with Sands Brothers Venture Capital III LLC (December 21, 2007)
10.82(12)	11% Senior Secured Convertible Promissory Note with Sands Brothers Venture Capital III LLC (December 21, 2007)
10.83(12)	Warrant with Sands Brothers Venture Capital III LLC ($0.30 initial exercise price) (December 21, 2007)
10.84(12)	Registration Rights Agreement with Sands Brothers Venture Capital III LLC (December 21, 2007)
10.85(12)	Security Agreement with Sands Brothers Venture Capital III LLC (December 21, 2007)
10.86(12)	Securities Purchase Agreement with Vision Opportunity Master Fund, Ltd. (December 21, 2007)
10.87(12)	11% Senior Secured Convertible Promissory Note with Vision Opportunity Master Fund, Ltd. (December 21, 2007)

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10.88(12)	Warrant with Vision Opportunity Master Fund, Ltd. ($0.30 initial exercise price) (December 21, 2007)
10.89(12)	Registration Rights Agreement with Vision Master Fund, Ltd. (December 21, 2007)
10.90(12)	Security Agreement with Vision Master Fund, Ltd. (December 21, 2007)
10.91(12)	Forbearance Agreement
10.92(13)	Revolving Line of Credit Agreement with Sands Brothers Venture Capital III LLC (February 29, 2008) and Promissory Note with Sands Brothers Venture Capital III LLC (February 29, 2008)
10.93(14)	Promissory Note with Sands Brothers Venture Capital III LLC (March 27, 2008)
21.1*	Subsidiaries
31.1*	Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certificate of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certificate of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)  Filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.5, 10.6, and 10.7 to the Company's Form SB-2 Registration Statement filed with the Securities and Exchange Commission on August 17, 2004, and incorporated herein by reference.

(2)  Filed as Exhibit 10.1 and 10.2 to our Form 8-K filed with the Securities and Exchange Commission on August 6, 2004, and incorporated herein by reference.

(3)  Filed as Exhibit 1.1 to the Company's Form 8-K filed with the Securities and Exchange Commission on August 9, 2004, and incorporated herein by reference.

(4)  Filed as Exhibits to our Form 8-K filed with the Commission on March 11, 2005, and incorporated herein by reference.

(5)  Filed as an Exhibit to our Report on Form 10-KSB for the year ended December 31, 2005, which was filed with the Commission on March 24, 2006, and incorporated herein by reference.

(6)  Filed as an Exhibit to our Form 8-K filed with the Commission on July 24, 2006, and incorporated by reference herein.

(7)  Filed as Exhibits to our Form 8-K filed with the Commission on August 15, 2006, and incorporated herein by reference.

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(8)  Filed as an Exhibit to our Form 8-K filed with the Commission September 14, 2006 and incorporated herein by reference.

(9)  Filed as Exhibits to our Form 8-K filed with the Commission on November 1, 2006, and incorporated herein by reference.

(10) Filed as Exhibits to our Form SB-2 Registration Statement filed with the Commission on March 26, 2007, and incorporated herein by reference.

(11) Filed as Exhibits to our Report on Form 8-K filed with the Commission on July 12, 2007, and incorporated herein by reference.

(12)  Filed as Exhibits to our Form 8-K filed with the Commission on January 25, 2008, and incorporated herein by reference.

(13)  Filed as an Exhibit to our Form 8-K filed with the Commission on March 4, 2008, and incorporated herein by reference.

(14) Filed as an Exhibit to our Report on Form 8-K filed with the Commission on April 7, 2008, and incorporated herein by reference.

* Filed Herein.

# The September 2006 closing documents including the Securities Purchase Agreement, 11% Senior Secured Convertible Promissory Note, Registration Rights Agreement and Security Agreement with G. Chris Andersen and Paul M. Higbee are identical except for their respective names and addresses, and as such, we have only included those documents relating to Mr. Andersen. Both the closing documents with Mr. Andersen and Mr. Higbee, including the Securities Purchase Agreements, Registration Rights Agreements, Senior Notes and Warrants (but not the Security Agreement), were re-executed by Mr. Andersen and Mr. Higbee on or about October 23, 2006, to be effective as of September 26, 2006, to conform to the Vision Opportunity Master Fund, Ltd. closing documents, which October 2006 closing documents replaced and superseded the prior executed September 2006 documents.

(B) Reports on Form 8-K

The Company filed the following report on Form 8-K during the period covered by this report:

	o	The Company filed a report on Form 8-K on December 17, 2007 to report the Company being in default on a promissory note with LaSalle Bank National Association in connection  with a line of credit agreement.
The Company filed the following reports on Form 8-K subsequent to the period covered by this Report:
	o	The Company filed a report on Form 8-K on January 25, 2008 to report the closing of the sale of $400,000 Senior Subordinated Secured Convertible Notes and warrants to two purchasers and related agreements and transactions.
	o	The Company filed a report on Form 8-K on March 4, 2008 to report the entry into a revolving line of credit agreement with Sands Brothers Venture Capital III LLC and the initial advance on the line of credit.
	o	The Company filed a report on Form 8-K on April 7, 2008, to report the entry into a Promissory Note with Sands Brothers Venture Capital III LLC in connection with the Line of Credit

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed for each of the fiscal years ended December 31, 2007 and 2006 for professional services rendered by the principal accountant for the audit of the Company's annual financial statements and for review of the financial statements included in the registrant's Form 10-QSB or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was approximately $35,000 and $34,000, respectively.

Audit Related Fees

None.

Tax Fees

None.

All Other Fees

None.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	XA, INC.
DATED:   August 12, 2008	By: /s/ Joseph Wagner
	Joseph Wagner
	Chief Executive Officer
DATED:   August 12, 2008	By: /s/ Jean Wilson
	Jean Wilson
	Principal Financial Officer
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
NAME	TITLE	DATE
/s/ Joseph Wagner
Joseph Wagner	Chief Executive Officer,	August 12, 2008
	President, Secretary and
	Chairman of the Board of Directors
/s/ Jean Wilson
Jean Wilson	Principal Financial Officer,	August 12, 2008
	Treasurer, Chief Operating Officer
	and Director

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