ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

CERTAIN STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-QSB (THIS "FORM 10-QSB"), 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. ("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-QSB, UNLESS ANOTHER DATE IS STATED, ARE TO JUNE 30, 2006.

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.

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, 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.

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) which could be converted into approximately 1,016,250 shares of Common Stock as of June 30, 2006. 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.

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

On or about May 23, 2006, XA, Inc. we entered into an agreement with our former Chief Executive Officer and former Director, Frank Goldstin, whereby we agreed to purchase one (1) share of Series A Preferred Stock from Mr. Goldstin ("Series A Preferred Stock" and the "Preferred Stock Agreement"). Pursuant to the Preferred Stock Agreement, we purchased Mr. Goldstin's share of Series A Preferred Stock in consideration for $7,500, which share we have cancelled.

On or about May 22, 2006, our Chief Executive Officer and Director Joseph Wagner and our Chief Operating Officer and Director Jean Wilson entered into a Voting Agreement, to memorialize a verbal understanding that they had since January 2006, to vote together on all shareholder matters. The Voting Agreement provides that until March 31, 2007, Mr. Wagner and Ms. Wilson agree to vote their shares of Series A Preferred Stock together on all shareholder matters requiring shareholder approval.

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 "Purchaser" and collectively the "Purchasers"), pursuant to which we sold the 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 "Funding"). Our repayment of the Senior 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 at the Closing. We also granted the Purchasers, Venture and Mastodon (as defined below) registration rights in connection with the shares of common stock issuable in connection with the conversion of the Senior Notes and the exercise of the Warrants, the Mastodon Warrants and the Venture Warrants (as defined below, collectively the "Underlying Shares"), pursuant to our entry into a Registration Rights Agreement (the "Registration Rights Agreement"), which we entered into at the Closing.

In connection with the Closing, we agreed to pay certain fees to the placement agent of the funding, Laidlaw & Company (UK) Ltd. ("Laidlaw") and certain other fees to the Purchasers, including $80,000 to the Purchasers in due diligence fees and $35,000 in connection with legal expenses; and a finders fee to Laidlaw in the amount of $80,000 in connection with the Funding, as well as various attorney's fees of Laidlaw amounting to $5,500; and a five-year warrant to purchase fifteen percent (15%) of all of the Underlying Shares, which have the same rights as the Warrants.

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 the 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 consummation of the Funding, we received waivers from LaSalle Bank National Association to approve the Funding, whom we currently owe $800,000 pursuant to a revolving line of credit. 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.

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 Mastodon Ventures, Inc. ("Mastodon" and the "Mastodon Warrants") in consulting fees, pursuant to the Purchaser Agreement. Both the Venture Warrants and the Mastodon Warrants are exercisable for five (5) years from the date of the Closing.

The Senior Notes, warrants, closing and related agreements are described in greater detail in our Form 8-K filing, which will be filed subsequent to this report.

REGISTRATION RIGHTS AGREEMENT

Pursuant to the Registration Rights Agreement, we agreed to register the Underlying Shares on a Form SB-2 registration statement with the Securities and Exchange Commission (the "Commission" and the "Registration Statement"). We agreed that in the event that the Private Offering has not occurred within six
(6) months of the Closing, we will file the Registration Statement with the

Commission within forty-five days of the six (6) month anniversary of the Closing, March 25, 2007, and that we would obtain effectiveness of the Registration Statement no more than sixty (60) days after the date we are required to file such Registration Statement, or May 24, 2007 (the "Mandatory Filing Deadlines"). Provided that the Private Offering does occur within six
(6) months of the Closing, the Purchasers have demand registration rights pursuant to the Registration Rights Agreement, whereby the holders of 50.1% of the Senior Notes can demand that we file the Registration Statement at any time beginning on the nine (9) month anniversary date of the Closing, May 8, 2007. If the Purchasers demand that we file a Registration Statement, we are required to file the Registration Statement with the Commission within forty-five days of the date such demand is given, and we are required to obtain effectiveness of the Registration Statement no more than sixty (60) days after the date we are required to file such Registration Statement (collectively with the Mandatory Filing Deadlines the "Registration Deadlines").

If we fail to file or obtain effectiveness of the Registration Statement by the applicable Registration Deadlines or after such effectiveness the Purchasers are unable to sell the Underlying Shares, we are obligated, pursuant to the Registration Rights Agreement, to pay the Purchasers an amount in cash equal to two (2%) of the total principal amount of the Senior Notes, for each thirty (30) day period which the Registration Deadlines are not met or the 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.

We also agreed to provide the Purchasers piggy-back registration rights in connection with any registration agreement we may choose to file prior to the six (6) or nine (9) month anniversary of the Closing, when the Purchasers' mandatory and demand registration rights kick in, respectively.

We immediately used $1,047,000 of the funds received through the Funding along with approximately $40,000 in cash 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 "June 2004" tranche") and $1,250,000 on September 13, 2004 (the "September 2004" tranche"), however, the 6% 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 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. As a result, the remaining balance under the June 2004 portion 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 June 2004 portion of the 6% Notes and the September 2004 portion of the 6% Notes. We still owe approximately $1,012,434 in principal on the September 2004 portion of the 6% Notes, which we hope to repay prior to the September 13, 2006 due date in connection with funds raised from the Subsequent Funding, as described above, of which there can be no assurance.

The remaining amount of the Funding equal to approximately $203,000 was paid to Laidlaw, Venture and to Laidlaw's legal counsel in connection with attorney's fees and finder's fees in connection with the Funding.

As a result of the funds paid to the 6% Note Purchasers and the funds paid in finder's fees and attorney's fees, as well as the cash we paid to the 6% Note Purchasers, the Funding cost us approximately $40,000 in cash; however, we were able to repay the June 2004 tranche of funds due to the 6% Note Purchasers, which funds we did not previously have, and which payment we would otherwise be in default of. Additionally, as stated above, we anticipate receiving approximately $1,250,000 in Subsequent Funding during August or September 2006, which funds we will use to repay the September 2004 tranche of funds owed to the 6% Note Purchasers, of which there can be no assurance.

CONSULTING AND EMPLOYMENT AGREEMENTS

In connection with the Closing, 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.

In connection with the Closing, 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.

BUSINESS OPERATIONS

The Company, through its wholly-owned subsidiary, Experiential, is 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.

For seventeen (17) 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, 2005, XA planned and executed over one hundred and fifty (150) events that were attended by more than an aggregate of approximately thirty thousand (30,000) people in the United States and foreign markets. XA's clients during the year ended December 31, 2005 included L'Oreal USA, Barnes & Noble (NYSE:BKS), Cargo Magazine, VH1, W Hotels, Walt Disney Co. (NYSE:DIS), ABN AMRO (NYSE:ABN), Finesse, Kenneth Cole (NYSE:KCP), McDonald's Corporation (NYSE:MCD), Starbucks Corp. (NASDQ:SBUX), UNICEF, Royal Caribbean (NYSE:RCL), discovery networks, British Telecom, Heineken Light and the Wella Corporation. Additionally, XA planned Lennox Louis' wedding in Jamaica during the year ended 2005. During the six months ended June 30, 2006, XA planned approximately fifty (50) events, attended by over 25,500 people, for clients including McDonald's Corporation (NYSE:MCD), HBO, VH1, the Wella Corporation, the Ritz Carlton, Barnes and Noble, UNICEF, Discovery, Home & Garden Magazine, GLAAD, Universal Pictures, Goldman Sachs and Sports Illustrated.

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 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 Marketing); 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.

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.

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.

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 d cor elements for events and storage of production inventory.

Growth Strategy

The major focus of XA's 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. XA's 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. XA's targeted acquisitions are intended to add geographic coverage to XA's existing businesses as well as broaden XA's service offerings. The initial acquisitions will be focused 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.

XA will also fuel growth through a broader, carefully designed growth strategy that includes extending relationships with existing clients, building new client relationships, expanding its international client base, making selected infrastructure acquisitions, and expanding its media services. The Company is currently performing due diligence on a number of potential acquisitions, but has not entered into a formal Letter of Intent with any potential acquisition targets.

XA believes that substantial opportunities exist to expand relationships with existing clients by cross-selling the full range of XA's services, building out its national office network and expanding XA's service offerings, particularly with respect to XA events, multimedia and corporate branding capabilities. XA seeks to capitalize on the services provided to one division or operation of a client by selling its services to other divisions or operations, including their foreign operations. XA initiated advertising and public relations programs to enhance its brand recognition in the marketplace.

As organizations focus on their core competencies and seek to improve the professionalism, creativity and cost-efficiency of their events, XA believes they will continue to outsource the management of events. XA believes that many opportunities exist to add new clients with large-scale business communications and event management needs. XA seeks relationship-building opportunities through client referrals and its internal sales force.

XA believes 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. XA's international client base continues to grow and in order to better serve these organizations, XA plans to aggressively expand its international client base over the next 12 to 24 months.

XA believes that as the event industry continues to consolidate there will be many domestic and international acquisition opportunities. XA may acquire or affiliate with select additional companies to expand its client base, further build out its infrastructure, add new service applications or provide additional operating efficiencies and synergies.

XA currently provides digital communications and multimedia services to clients in such areas as exhibition promotion, training programs and Internet home pages. XA designs and develops websites, CD-ROM / DVD-ROM materials, promotional videos, targeted marketing presentations and other multimedia products. XA believes that continued technological advances, coupled with the growing need of organizations to more effectively tailor their messages, will create opportunities for XA to develop new services for clients, particularly for business communications and event management services.

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 forty (40) employees, of whom thirty (30) 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.

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.

MARKETING STRATEGY

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.

The Company believes 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, the Company believes that it 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.

The Company differentiates itself from its 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, centralizing its administration and purchasing functions.

COMPARISON OF OPERATING RESULTS

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2005

We had sales of $2,350,319 for the three months ended June 30, 2006, compared to sales of $2,467,231 for the three months ended June 30, 2005, a decrease in sales from the prior period of $116,912 or 4.7%. The decrease in sales was due to the fact that we had less projects during the three months ended June 30,

2006, compared to the three months ended June 30, 2005, and because our revenues are booked on a project basis and several of our clients chose to delay the timing of the their events during the three months ended June 30, 2006, compared to the three months ended June 30, 2005, which had the effect of postponing those sales.

We had cost of goods sold relating to direct production costs of $1,316,218 for the three months ended June 30, 2006, compared to cost of goods sold relating to direct production costs of $1,517,673 for the three months ended June 30, 2005, a decrease in cost of goods sold from the prior period of $201,455 or 13.3%. This decrease was mainly attributable to the greater focus of our management on increasing our margins and decreasing our direct production costs and was also directly related to our 4.7% decrease in sales during the three months ended June 30, 2006, compared to the prior period.

Cost of goods sold as a percentage of sales was 56% for the three months ended June 30, 2006, compared to 61.5% for the three months ended June 30, 2005, a decrease in costs of goods sold as a percentage of sales of 5.5% from the prior period. This decrease was mainly attributable to the greater focus of our management on increasing our margins and decreasing our direct production costs.

We had gross profit of $1,034,102 for the three months ended June 30, 2006, compared to gross profit of $949,558 for the three months ended June 30, 2005, an increase in gross profit of $84,544 or 8.9% from the prior period. The increase in gross profit was due to the 13.3% decrease in cost of goods sold, coupled with only a 4.7% decrease in sales.

We had administrative expenses of $1,155,550 for the three months ended June 30, 2006, compared to administrative expenses of $1,014,691 for the three months ended June 30, 2005, an increase in administrative expenses of $140,859 or 13.9% from the prior period. The increase in administrative expenses was due to additional costs associated with our two new business development employees, which were added during the fourth quarter of fiscal 2005, as well as the increased expenses related to New York venue operations.

We had a loss from operations of $121,448 for the three months ended June 30, 2006, compared to a loss from operations of $65,133 for the three months ended June 30, 2005, an increase in loss from operations of $56,315 or 86.5% from the prior period. The increase in loss from operations was mainly attributable to the 13.9% increase in administrative expenses for the three months ended June 30, 2006, compared to the prior period.

We had other expenses for the three months ended June 30, 2006 of $97,122, compared to other expenses of $81,252 for the three months ended June 30, 2005, an increase in other expenses of $15,870 or 19.5% from the prior period.

We had a loss before taxes of $218,571 for the three months ended June 30, 2006, compared to a loss before taxes of $146,385, an increase in loss before taxes of $72,186 or 49.3% from the prior period.

We had tax provisions of $-0- for the three months ended June 30, 2006, compared to tax provisions of $29,000 for the three months ended June 30, 2005.

We had a net loss of $218,571 for the three months ended June 30, 2006, compared to a net loss of $117,385 for the three months ended June 30, 2005, an increase in net loss of $101,186 or 86.2% from the prior period. The increase in net loss was mainly attributable to the 13.9% increase in administrative expenses, the 19.5% increase in other expenses and the 4.7% decrease in sales, which was not sufficiently offset by the 13.3% decrease in direct production costs for the three months ended June 30, 2006, compared to the three months ended June 30, 2005.

SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005

We had sales of $5,391,070 for the six months ended June 30, 2006, compared to sales of $5,131,953 for the six months ended June 30, 2005, an increase in sales from the prior period of $259,117 or 5%. The increase in sales was due to increased business development activities during the six months ended June 30, 2006, as well as the efforts of our two additional business development employees, who were added during the year ended December 31, 2005.

We had cost of goods sold relating to direct production costs of $3,152,348 for the six months ended June 30, 2006, compared to cost of goods sold relating to direct production costs of $3,452,622 for the six months ended June 30, 2005, a decrease in cost of goods sold from the prior period of $300,274 or 8.7%. This decrease was mainly attributable to the greater focus of our management on increasing our margins and decreasing our direct production costs.

Cost of goods sold as a percentage of sales was 58.5% for the six months ended June 30, 2006, compared to 67.3% for the six months ended June 30, 2005, a decrease in costs of goods sold as a percentage of sales of 8.8% from the prior period. This decrease was mainly attributable to the greater focus of our management on increasing our margins and decreasing our direct production costs.

We had gross profit of $2,238,722 for the six months ended June 30, 2006, compared to gross profit of $1,679,331 for the six months ended June 30, 2005, an increase in gross profit of $559,391 or 33.3% from the prior period. The increase in gross profit was due to the 5% increase in sales coupled with the 8.7% decrease in direct production costs.

We had administrative expenses of $2,343,517 for the six months ended June 30, 2006, compared to administrative expenses of $1,591,804 for the six months ended June 30, 2005, an increase in administrative expenses of $751,713 or 47.2% from the prior period. The increase in administrative expenses was due to additional costs associated with our two new business development employees, which were added during the fourth quarter of 2005, as well as the increased expenses related to our launch of XA Scenes and our New York venue.

We had a loss from operations of $104,795 for the six months ended June 30, 2006, compared to income from operations of $87,527 for the six months ended June 30, 2005, a decrease in income from operations of $192,322 or 219.7% from the prior period. The decrease in income from operations was mainly attributable to the 47.2% increase in administrative expenses for the six months ended June 30, 2006, compared to the prior period.

We had other expenses for the six months ended June 30, 2006, of $178,401, compared to other expenses of $160,669 for the six months ended June 30, 2005, an increase in other expenses of $17,732 or 11% from the prior period.

We had a loss before taxes of $283,196 for the six months ended June 30, 2006, compared to a loss before taxes of $73,142, an increase in loss before taxes of $210,054 or 287.2% from the prior period.

We had a net loss of $283,196 for the six months ended June 30, 2006, compared to a net loss of $73,142 for the six months ended June 30, 2005, a decrease in net income of $210,196 or 287.2% from the prior period. The decease in net income was mainly attributable to the 47.2% increase in administrative expenses and the 287.2% increase in other expenses, which was not sufficiently offset by the 5% increase in sales and 8.7% decrease in direct production costs for the six months ended June 30, 2006, compared to the six months ended June 30, 2005.

LIQUIDITY AND CAPITAL RESOURCES

We had total current assets of $2,086,526 as of June 30, 2006, which included cash of $530,065; accounts receivable of $981,346; work in process at cost of $493,501; prepaid expenses of $35,721; and prepaid employment contract of $45,893. This represented a decrease in current assets of $46,906 or 2.2% from current assets of $2,133,432 as of June 30, 2005. The prepaid employment contract consisted of 225,000 shares of the Company's Common Stock which were issued to the Company's Chief Executive Officer, Joseph Wagner and 70,000 shares of the Company's restricted Common Stock which were issued to the Company's Chief Operating Officer, Jean Wilson, in August 2004, in consideration of their services to the Company. Of Mr. Wagner's 225,000 restricted shares, 75,000 became fully vested as of December 31, 2004, and 75,000 shares became fully vested as of December 31, 2005. The remaining 75,000 shares vested immediately on August 1, 2006, in connection with our entry into a Consulting Agreement with Mr. Wagner, which Consulting Agreement replaced his previous Consulting Agreement with us. Of Ms. Wilson's 70,000 restricted shares, 25,000 became fully vested as of December 31, 2004, and 22,500 shares became fully vested as of December 31, 2005. The remaining 22,500 shares vested immediately on August 1, 2006, in connection with our entry into an Employment Agreement with Ms. Wilson, which Employment Agreement replaced her previous Employment Agreement with us.

The main factor leading to the decrease in current assets as of June 30, 2006, compared to current assets as of June 30, 2005 was a $523,113 or 49.7% decrease in cash and a $122,632 or 19.9% decrease in work in process at cost due to certain of our clients pushing back the planned dates of their events during the three months ended June 30, 2006, which resulted in a decrease of our work in progress as of June 30, 2006, which was offset by a $609,693 or 164% increase in accounts receivable due to our increased sales for the six months ended June 30, 2006, compared to the six months ended June 30, 2005, as detailed above.

We had total fixed assets of $961,080 as of June 30, 2006, which included equipment of $221,726; furniture and fixtures of $59,753; and leasehold improvements of $679,000; which was offset by $178,176 of accumulated deprecation for net total fixed assets of $782,904. This represented an increase in fixed assets of $651,687 or 496.6% from total fixed assets of $131,217 as of June 30, 2005. The main reason for the increase in fixed assets from the prior year was a $638,865 or 1,568.4% increase in leasehold improvements, which increase was mainly due to the acquisition of and improvements on our XA Scenes office space and venue rental in New York and a $4,682 or 25% increase in equipment, which increase in equipment was in connection with the purchase of equipment in connection with the XA Scenes venue.

We had other assets of $1,655,387 as of June 30, 2006, which included $110,732 of discount on convertible notes payable; $540,000 of deferred taxes; $75,000 of prepaid employment bonus; $64,346 of deposit; and $865,309 of goodwill, which represented a decrease in other assets of $159,650 or 8.8% from other assets of $1,815,037 as of June 30, 2005. The main reason for the decrease in other assets was a $133,228 or 54.6% decrease in discount on convertible notes payable and a $98,055 or 56.7% decrease in prepaid employment bonus. The prepaid employment bonus consisted of prepaid employment bonuses in the form of common stock with the Company's senior management, which shares became fully vested on August 1, 2006, in connection with the Company's entry into a new Employment Agreement with the Company's Chief Operating Officer, Jean Wilson and a new Consulting Agreement with the Company's Chief Executive Officer, Joseph Wagner, which agreements superseded the prior agreements with those individuals and provided that all shares of common stock subject to forfeiture would be immediately earned and not subject to forfeiture (as described above).

We had total assets of $4,524,817 as of June 30, 2006, compared to total assets of $4,079,686 as of June 30, 2005, an increase in total assets of $445,131 or 10.9% from the prior period, which increase was mainly due to the increase in accounts receivable and the increase in leasehold improvements as explained above.

We had total current liabilities of $3,991,221 as of June 30, 2006, which included $423,244 of accounts payable; $8,500 of accrued payroll; $82,800 of interest payable, which represents accrued and unpaid interest on the 6% Notes; $4,704 of withheld and accrued taxes; $639,472 of unearned revenues which were attributable to us better matching our revenues and costs according to GAAP, which caused a corresponding increase in unearned revenues for the three months

ended June 30, 2006; $800,000 of line of credit; and $2,032,500 of current portion of long term debt in connection with amounts owed to the 6% Note Purchasers under the 6% Notes (described below). This represented a $1,880,378 or 89.1% increase in current liabilities from current liabilities of $2,110,843 as of June 30, 2005. The main reasons for the increase in current liabilities were the addition of the $1,150,000 in current portion of long term debt, which moved from long-term debt as of June 30, 2005 to a current liability as of June 30, 2006, due to the fact that the convertible notes were due and payable in June and September 2006 and the addition of $800,000 under our line of credit.

We had negative working capital of $1,904,695 as of June 30, 2006, compared to positive working capital of $22,589 as of June 30, 2005. The change from positive working capital to negative working capital was mainly due to the $2,032,500 in 6% Notes becoming a current liability and the $800,000 owed pursuant to our line of credit.

We had net cash used by operating activities of $193,478 for the six months ended June 30, 2006, which was mainly due to a $582,757 decrease in unearned revenues and $283,196 of net loss offset by a decrease of $277,061 in work in progress and a $233,147 decrease in accounts receivable.

We had $671,929 of net cash used by investing activities for the six months ended June 30, 2006, which was due to $672,795 of purchase of fixed assets and a $7,500 purchase of preferred stock offset by an $8,366 of decrease in deposits.

We had $800,000 of net cash used by financing activities during the six months ended June 30, 2006, which included an increase in our line of credit of $800,000. The Company has a line of credit agreement which it entered into on August 12, 2004, with a bank for $750,000 (the "Line of Credit"). The Line of Credit was due August 12, 2005, and the interest varies at 0.25% over the prime rate (currently 8.5%, with the prime rate at 8.25% as of August 2, 2006). 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, which Line of Credit currently has a due date of December 1, 2007. The Company borrowed $500,000 pursuant to this Line of Credit during the three months ended June 30, 2006, and the balance outstanding under this Line of Credit at June 30, 2006, was $800,000.

On June 1, 2006, we entered into a business loan for a loan of up to $750,000 with LaSalle Bank National Association ("LaSalle"), which loan bears interest at the prime rate plus 0.25% until paid, currently equal to 8.5%, with the prime rate at 8.25% as of August 2, 2006. We have borrowed $0 in funds pursuant to the business loan with LaSalle to date. Any amounts borrowed under the business loan are due and payable on June 30, 2007.

On August 8, 2006 (the "Closing"), we entered into a Securities Purchase Agreement (the "Purchase Agreement") with various "Purchasers," pursuant to which we sold the Purchasers 11% Senior Subordinated Secured Convertible Promissory Notes in the aggregate principal amount of $1,250,000 (the "Senior Note") 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"). Our repayment of the Senior 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 at the Closing. We also granted the Purchasers, Venture and Mastodon (as defined above) registration rights in connection with the shares of common stock issuable in connection with the conversion of the Senior Notes and the exercise of the Warrants, the Mastodon Warrants and the Venture Warrants (as defined above, collectively the "Underlying Shares"), pursuant to our entry into a Registration Rights Agreement (the "Registration Rights Agreement"), which we entered into at the Closing.

We immediately used $1,047,000 of the funds received through the Funding 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 "June 2004" tranche") and $1,250,000 on September 13, 2004 (the "September 2004" tranche"), however, the 6% 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 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. As a result, the remaining balance under the June 2004 portion 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 June 2004 portion of the 6% Notes and the September 2004 portion of the 6% Notes. We still owe approximately $1,012,434 in principal on the September 2004 portion of the 6% Notes, which we hope to repay prior to the September 13, 2006 due date in connection with funds raised from the Subsequent Funding, as described above, of which there can be no assurance.

The remaining amount of the Funding equal to approximately $203,000 was paid to Laidlaw, Venture and to Laidlaw's legal counsel in connection with attorney's fees and finder's fees in connection with the Funding.

As a result of the funds paid to the 6% Note Purchasers and the funds paid in finder's fees and attorney's fees, as well as the cash we paid to the 6% Note Purchasers, the Funding cost us approximately $40,000 in cash; however, we were able to repay the June 2004 tranche of funds due to the 6% Note Purchasers, which funds we did not previously have, and which payment we would otherwise be in default of. Additionally, as stated above, we anticipate receiving

approximately $1,250,000 in Subsequent Funding during August or September 2006, which funds we will use to repay the $1,024,750 owed under the September 2004 tranche of funds, which is due on September 13, 2006, of which there can be no assurance.

In addition to the additional funding we will require prior to September 13, 2006, to repay the September 2004 tranche of funding, as well as approximately $800,000 which we owe under the Line of Credit, which amount is due on December 1, 2007, 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.

A substantial portion of the Company's investment capital, other than those amounts used to repay the September 2004 tranche of funds owed to the 6% Note Purchasers and the amounts owed under our Line of Credit will be used to finance the expansion of the Company's business in accordance with its acquisition strategy. 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.

While the Company is 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 the Company 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. The Company has 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 Note holders if we are unable to repay the September 2004 tranche of 6% Notes when due and/or the Senior 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. 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 remaining amount of the 6% Notes and/or the Senior Notes when due. 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.

We currently have a commitment from Laidlaw to arrange for additional purchasers to purchase an additional $1,500,000 in a Funding similar to our August 8, 2006, Funding transaction, which funds, assuming they are received will be used to repay the September 2004 tranche of the 6% Notes, which we anticipate closing in August or September 2006; however we can provide no assurances that such

financing will close prior to the September 13, 2006 due date of the 6% Notes, if at all. Additionally, assuming the outstanding Warrants are exercised, we will receive $192,500 in additional funds in connection with such exercise and if the Venture Warrants and Mastodon Warrants are exercised, we will receive $300,000 in additional funds; however there is no assurance that such warrants will be exercised prior the due date of the 6% Notes, the Senior Notes, and/or the Line of Credit.

RISKS RELATING TO THE COMPANY

WE HAVE A PRESENT NEED FOR CAPITAL IN ADDITION TO $1.25 MILLION ALREADY RAISED IN AUGUST 2006.

It is imperative that we raise $1 to $5 million of financing to pursue additional acquisitions if the opportunity arises, which is in addition to $1.25 million already raised in August 2006, and the $1,024,750, not including any accrued or unpaid interest, which we still owe to the 6% Note holders, which amount is due on September 13, 2006. Furthermore, the currently outstanding $1,250,000 Senior Notes are due on November 8, 2007, if such Senior Notes are not converted into shares of our common stock prior to such due date and we have approximately $800,000 which is due on December 1, 2007, pursuant to our Line of Credit. 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 6% Note Purchasers, the Senior Note holders and the Line of Credit, as a result, we may seek to enter into acquisitions or mergers in the future, which 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 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, pursuant to which Mr. Wagner serves as the Company's, Chief Executive Officer, President and Secretary. Mr. Wagner is also a director 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.

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.

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. The Senior Notes and interest on such notes are convertible into shares of our common stock, however, if we fail to register the shares which the Senior Notes are convertible into or 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 $1,250,000, not including any accrued interest, on the due date of such Senior Notes, November 8, 2007. If we default in our repayment of the Senior Notes when due, the Purchasers can take control of substantially all of our assets due to the fact that the repayment of the Senior Notes are secured by a Security Agreement, pursuant to which we granted the Purchasers a security interests in substantially all of our assets. As a result, if we default in the repayment of the Senior 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.

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 companies business, results of operations and financial condition.

WE CURRENTLY HAVE A PENDING LAWSUIT WITH ONE OF OUR FORMER LANDLORDS, WHICH LANDLORD ALLEGED APPROXIMATELY $309,710 IN DAMAGES AS WELL AS A LAWSUIT WITH A FORMER EMPLOYEE WHO ALLEGES APPROXIMATELY $133,329 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. Our former employee, Lara Shipp filed a lawsuit against us (described in greater detail under "Legal Proceedings," below) claiming approximately $133,329 in damages, plus punitive damages, which amount may increase after the discovery phase of the trial, if any. 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, and/or if we are forced to pay the $133,329 or more which our former employee alleges she is due, 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.

JOSEPH WAGNER AND JEAN WILSON CAN VOTE AN AGGREGATE OF 71.2% OF OUR COMMON STOCK AND CAN EXERCISE CONTROL OVER CORPORATE DECISIONS.

Joseph Wagner and Jean Wilson can vote an aggregate of 5,527,125 shares (or 71.2%) of our outstanding voting shares which includes 3,957,444 votes due to their aggregate ownership of two shares of Series A Preferred Stock. Frank Goldstin, our former Director and former Chief Executive Officer entered into voting agreements with Joseph Wagner and Jean Wilson with respect to a total of 1,088,480 shares of Common Stock owned by Mr. Goldstin. The general affect of the voting agreements is that Mr. Wagner and Ms. Wilson can vote 544,240 and 544,240 shares, respectively, out of approximately 1,485,282 shares of Common Stock owned by Mr. Goldstin in addition to Common Stock that Mr. Wagner and Ms. Wilson otherwise respectively own. Additionally, on December 28, 2004, the Company's Board of Directors approved the issuance of Three (3) shares of Series A Preferred Stock, One (1) each to Frank Goldstin, Jean Wilson, and Joseph Wagner for services rendered. The Preferred Stock share issued to Mr. Goldstin was subsequently returned to the Company and cancelled. The two remaining shares of Series A Preferred Stock have the right, voting in aggregate, to vote on all shareholder matters equal to fifty-one percent (51%) of the total vote. Accordingly, Joseph Wagner and Jean Wilson will exercise control in determining the outcome of all corporate transactions or other matters, including the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. The interests of Mr. Wagner and Ms. Wilson may differ from the interests of the other stockholders and thus result in corporate decisions that are adverse to other shareholders.

ASSUMING THE CANCELLATION OF THE OUTSTANDING SHARES OF SERIES A PREFERRED STOCK, OUR OFFICERS AND DIRECTORS WILL NOT EXERCISE MAJORITY VOTING CONTROL OVER US AND AS SUCH, WE MAY FACE A CHANGE IN CONTROL.

Assuming the closing of the Subsequent Funding and the cancellation of our two outstanding shares of Series A Preferred Stock, which can vote in aggregate 51% of our outstanding common stock, our Chief Executive Officer and Director Joseph Wagner and our Chief Operation Officer, Jean Wilson, will not exercise majority voting control over us. As a result, our shareholders who are not officers and Directors of us will be able to obtain a majority of voting shares, which will allow such shareholders, should they so choose, to re-elect new Directors who may then appoint different individuals as officers of us. Because of this, Mr. Wagner, Ms. Wilson or Mr. Spencer, may not be reappointed by our shareholders when they are up for re-election and/or may be replaced by other individuals. 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, to decline or become worthless.

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. On December 28, 2004, the Company's Board of Directors approved the issuance of Three (3) shares of Series A Preferred Stock, One (1) each to Frank Goldstin, Jean Wilson, and Joseph Wagner for services rendered. The Preferred Stock share issued to Mr. Goldstin was subsequently returned to the Company and cancelled. The two remaining shares of Series A Preferred Stock, which we have agreed to cancel for nominal consideration assuming the closing of the Subsequent Funding, have the right, voting in aggregate, to vote on all

shareholder matters equal to fifty-one percent (51%) of the total vote. For example, if there are 10,000,000 shares of the Company's common stock issued and outstanding at the time of a shareholder vote, the holders of Series A Preferred Stock, voting separately as a class, will have the right to vote an aggregate of 10,400,000 shares, out of a total number of 20,400,000 shares voting. 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. Because of the shares of Series A Preferred Stock, the holders of the two shares of Series A Preferred Stock will exercise voting control over the Company. As a result of this, the Company's shareholders will have less control over the designations and preferences of the preferred stock and as a result the operations of the Company.

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

We had 3,802,250 shares of common stock outstanding as of August 8, 2006. Assuming a conversion price of $0.75 per share (which conversion price and therefore the number of shares issuable in connection with the conversion of the Senior Notes is subject to adjustment as provided in the Senior Notes), the principal amount of the Senior Notes will convert into 1,666,667 shares of common stock and the outstanding Warrants, Mastodon Warrants and Venture Warrants can be exercised for 1,175,000 shares of common stock. As such, the conversion of the Senior Notes and exercise of the Warrants, Venture Warrants and Mastodon Warrants will cause substantial dilution to our existing shareholders.

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 $4.00 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 $4.00 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.

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.

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 new 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.

IF THERE IS A MARKET FOR OUR COMMON STOCK, OUR STOCK PRICE MAY BE VOLATILE.

If there is a market for our common stock, we anticipate that such market will 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.