##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 March 31, 2005
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
 
 Commission File Number: 000-50989 INTERCHANGE CORPORATION  Delaware
    
    33-0849123(State or other jurisdiction of
    
    (IRS Employerincorporation or organization)
    
    Identification No.)
 24422 Avenida de la Carlota, Suite 120
Laguna Hills, CA 92653
(Address of principal executive offices) (949) 784-0800
Issuers telephone number Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ   No o Number of shares outstanding at May 11, 2005:
    
    Common:   8,557,507
Preferred:        0
 Transitional Small Business
Disclosure Format: Yes
o   No
þ




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INTERCHANGE CORPORATION
TABLE OF CONTENTS PagePART I  FINANCIAL STATEMENTSItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of March 31, 2005 (Unaudited) and December 31, 2004
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2005
and 2004 (Unaudited)
    
    
    4Consolidated Statements of Comprehensive Income for the three months ended
March 31, 2005 and 2004 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the three months ended March 31, 2005
and 2004 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    15Item 3.
    
    Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    29Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3.
    
    Defaults Upon Senior Securities
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    29Item 5.
    
    Other Information
    
    
    29Item 6.
    
    Exhibits
    
    
    29Signatures
    
    
    30Exhibits Filed with this Report
    
    
    31EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements INTERCHANGE CORPORATION 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2005
    
    
    2004(Unaudited)ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    5,985
    
    
    $
    24,617Restricted cash
    
    
    13
    
    
    
    13Marketable securities
    
    
    14,224
    
    
    
    10,388Accounts receivable, net of allowances of $15 and $5, respectively
    
    
    1,295
    
    
    
    1,313Prepaid expenses and other current assets
    
    
    418
    
    
    
    260Total current assets
    
    
    21,935
    
    
    
    36,591Property and equipment, net
    
    
    1,552
    
    
    
    791Intangible assets, net
    
    
    3,536
    
    
    
    Goodwill
    
    
    12,359
    
    
    
    Long term deferred tax assets
    
    
    678
    
    
    
    678Long-term restricted cash
    
    
    51
    
    
    
    51Deposits
    
    
    43
    
    
    
    37Total assets
    
    $
    40,154
    
    
    $
    38,148LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    2,561
    
    
    $
    2,320Accrued compensation
    
    
    402
    
    
    
    323Payroll taxes payable
    
    
    155
    
    
    
    261Accrued acquisition costs
    
    
    1,500
    
    
    
    Other accrued liabilities
    
    
    543
    
    
    
    378Deferred revenue
    
    
    497
    
    
    
    498Total current liabilities
    
    
    5,658
    
    
    
    3,780Long term deferred tax liabilities
    
    
    151
    
    
    
    151Total liabilities
    
    
    5,809
    
    
    
    3,931Minority interest
    
    
    
    
    
    
    Commitments and contingenciesStockholders equity:Convertible preferred stock, $0.00001 par value; 10,000,000 shares authorized;
none issued and outstanding for all periods presented
    
    
    
    
    
    
    Common stock, $0.00001 par value; 30,000,000 shares authorized;
8,106,724 and 7,953,941 issued and outstanding, respectively
    
    
    
    
    
    
    Accumulated comprehensive loss
    
    
    (154
    )
    
    
    (36
    )Additional paid-in capital
    
    
    45,613
    
    
    
    45,497Accumulated deficit
    
    
    (11,113
    )
    
    
    (11,244
    )Stockholders equity
    
    
    34,345
    
    
    
    34,217Total liabilities and stockholders equity
    
    $
    40,154
    
    
    $
    38,148
 See accompanying notes to the consolidated financial statements. 3




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INTERCHANGE CORPORATION 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended March 31,2005
    
    
    2004Revenue
    
    $
    5,911
    
    
    $
    3,462Operating Expenses:Search serving
    
    
    3,176
    
    
    
    1,744Sales and marketing
    
    
    1,338
    
    
    
    712General and administrative
    
    
    952
    
    
    
    473Research and development
    
    
    556
    
    
    
    199Amortization of intangibles
    
    
    51
    
    
    
    Non-cash equity based expense
    
    
    9
    
    
    
    8Total operating expenses
    
    
    6,082
    
    
    
    3,136Operating income (loss)
    
    
    (171
    )
    
    
    326Interest and other income (expense)
    
    
    314
    
    
    
    (300
    )Income before income taxes
    
    
    143
    
    
    
    26Provision for income taxes
    
    
    12
    
    
    
    9Net income
    
    $
    131
    
    
    $
    17Per share data:Basic net income per share
    
    $
    0.02
    
    
    $
    0.01Diluted net income per share
    
    $
    0.01
    
    
    $
    0.01Basic weighted average shares outstanding
    
    
    7,989,608
    
    
    
    1,921,864Diluted weighted average shares outstanding
    
    
    9,765,291
    
    
    
    3,159,237
 See accompanying notes to the consolidated financial statements. 4




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INTERCHANGE CORPORATION 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 Three months ended March 31,2005
    
    
    2004Net income
    
    $
    131
    
    
    $
    17Other comprehensive loss:Foreign currency translation adjustments
    
    
    (1
    )
    
    
    Unrealized loss on marketable securities
    
    
    (117
    )
    
    
    Total comprehensive income
    
    $
    13
    
    
    $
    17
 See accompanying notes to the consolidated financial statements. 5




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INTERCHANGE CORPORATION 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three months endedMarch 31,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    131
    
    
    $
    17Adjustments to reconcile net income to cash provided by operating activities:Depreciation and amortization
    
    
    180
    
    
    
    47Provision for doubtful accounts
    
    
    5
    
    
    
    3Non-cash equity based expense related to stock option and warrant issuances
    
    
    9
    
    
    
    8Non-cash interest expense
    
    
    
    
    
    
    31Non-cash interest income
    
    
    (3
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    70
    
    
    
    (266
    )Prepaid expenses and other
    
    
    (136
    )
    
    
    83Other non-current assets
    
    
    (1
    )
    
    
    Accounts payable and accrued liabilities
    
    
    270
    
    
    
    37Deferred revenue
    
    
    (12
    )
    
    
    86Net cash provided by operating activities
    
    
    513
    
    
    
    46Cash flows from investing activities:Capital expenditures
    
    
    (1,557
    )
    
    
    (38
    )Purchases of marketable securities
    
    

    (6,982
    )
    
    
    Proceeds from sales of marketable securities
    
    
    3,032
    
    
    
    Acquisition, net of cash acquired
    
    
    (13,743
    )
    
    
    Net cash used in investing activities
    
    
    (19,250
    )
    
    
    (38
    )Cash flows from financing activities:Proceeds from issuance of common stock from exercise of options
    
    
    218
    
    
    
    Payment of financing related costs
    
    
    (112
    )
    
    
    (5
    )Net cash provided by (used in) financing activities
    
    
    106
    
    
    
    (5
    )Effect of currency changes on cash
    
    
    (1
    )
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (18,632
    )
    
    
    3Cash and cash equivalents, beginning of period
    
    
    24,617
    
    
    
    699Cash and cash equivalents, end of period
    
    $
    5,985
    
    
    $
    702Supplemental cash flow information:Interest paid
    
    $
    
    
    
    $
    33Income taxes paid
    
    $
    
    
    
    $
    9Non-cash investing and financing transactions:Common stock issued in satisfaction of liabilities
    
    
    
    
    
    $
    200Insurance financing
    
    
    
    
    
    $
    17
 See accompanying notes to the consolidated financial statements. 6




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INTERCHANGE CORPORATION 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of presentation The unaudited interim consolidated financial statements as of March 31, 2005 and for the three
months ended March 31, 2005 and 2004, included herein, have been prepared by the Company, without
audit, pursuant to rules and regulations of the Securities and Exchange Commission, and, in the
opinion of management, reflect all adjustments (consisting of only normal recurring adjustments)
which are necessary for a fair presentation. The results of operations for the three months ended
March 31, 2005 are not necessarily indicative of the results for the full year. The accompanying
consolidated financial statements should be read in conjunction with the financial statements and
notes thereto for the year ended December 31, 2004 included in the Companys Form 10-KSB filed with
the Securities and Exchange Commission. Certain reclassifications have been made to the prior years consolidated financial statements to
confirm with current years presentation. Deferred tax assets previously classified as a current
asset is now classified as a long-term asset. 2. Significant accounting policies Principles of consolidation As a result of the acquisition that occurred in February 2005 (Note 8), the Companys consolidated
financial statements include the accounts of Interchange Corporation, its wholly owned
subsidiaries, Interchange Europe Holding Corporation, Inspire Infrastructure 2i AB, and Inspire
Infrastructure (UK) Limited, along with its majority owned subsidiary Inspire Infrastructure Espana
SL. All intercompany balances and transactions have been eliminated. Foreign currency translation The Company measures the financial statements for its foreign subsidiaries using the local currency
as the functional currency. Current assets and current liabilities of these subsidiaries are
translated at the exchange rate as of the balance sheet date, while long-term items are translated
at historical rates. Revenues, costs and expenses are translated at the rates prevailing during the
year. Translation adjustments from this process are included in stockholders equity. Any gains or
losses from foreign currency transactions are included in other income. Intangibles assets Developed technology arising from acquisitions (Note 8) is recorded at cost and amortized on a
straight-line basis over five years. Accumulated amortization at March 31, 2005 was $37,217. Customer contracts and relationships arising from acquisitions (Note 8) is recorded at cost and
amortized on a straight-line basis over five years. Accumulated amortization at March 31, 2005 was
$6,733. Non-compete agreement arising from acquisitions (Note 8) is recorded at cost and amortized on a
straight-line basis over three years. Accumulated amortization at March 31, 2005 was $6,917. Goodwill represents the excess of the purchase price over the fair value of the net tangible and
intangible assets arising from acquisitions (Note 8) and purchased domain name is recorded at cost.
Intangible assets, such as goodwill and domain name, which are determined to have an indefinite
life, are not amortized in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. The
Company will perform annual impairment reviews during the fourth fiscal quarter of each year, or
earlier if indicators of potential impairment exists. Future impairment reviews may result in
charges against earnings to write-down the value of intangible assets. Stock-based compensation The Company accounts for stock-based employee compensation under the recognition and measurement
principles of Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees(APB No. 25). Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation(SFAS No.123), established accounting and disclosure requirements using a fair value based method of
accounting for stock- 7




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based employee compensation plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply the intrinsic value based method of accounting described above, and
has adopted the disclosure requirements of SFAS No. 123 and related SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. The following table illustrates the effect on
net income (loss) and net income (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based compensation (in thousands, except per share
amounts): Three months ended March 31,2005
    
    
    2004Net income, as reported
    
    $
    131
    
    
    $
    17Add: Stock-based compensation expense recorded in accordance
with APB No. 25
    
    
    
    
    
    
    Deduct: Additional stock-based employee compensation expense
determined under fair value based method for all award,
net of tax effects
    
    
    (1,096
    )
    
    
    (124
    )Pro forma net loss
    
    $
    (965
    )
    
    $
    (107
    )Net income (loss) per share:Basic  as reported
    
    $
    0.02
    
    
    $
    0.01Basic  pro forma
    
    $
    (0.12
    )
    
    $
    (0.06
    )Net income (loss) per share:Diluted  as reported
    
    $
    0.01
    
    
    $
    0.00Diluted  pro forma
    
    $
    (0.12
    )
    
    $
    (0.06
    )
 The fair value of these options were estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions: Three months ended March 31,2005
    
    
    2004Risk-free interest rate
    
    
    4.70
    %
    
    
    4.81
    %Expected lives (in years)
    
    
    10
    
    
    
    10Expected dividend yield
    
    None
    
    
    NoneExpected volatility
    
    
    42.17
    %
    
    
    25
    %
 Net income (loss) per share SFAS No. 128, Earnings per Share, establishes standards for computing and presenting earnings per
share. Basic net income (loss) per share is calculated using the weighted average shares of common
stock outstanding during the periods. Diluted net income (loss) per share is calculated using the
weighted average number of common and potentially dilutive common shares outstanding during the
period, using the as-if converted method for convertible preferred stock, convertible secured
debentures and convertible secured promissory notes, and the treasury stock method for options and
warrants. For the three months ended March 31, 2005, potentially dilutive securities, which consist of
options to purchase 264,900 shares of common stock at prices ranging from $11.37 to $16.59 per
share and warrants to purchase 164,400 shares of common stock at $25.53 per share were not included
in the computation of diluted net income per share because such inclusion would be antidilutive. For the three months ended March 31, 2004, potentially dilutive securities, which consist of
options to purchase 812,822 shares of common stock at prices ranging from $2.00 to $4.00 per share,
warrants to purchase 1,778,902 shares of common stock at prices ranging from $2.00 to $20.00 per
share, convertible secured promissory notes including accrued interest that could convert into
733,962 shares of common stock and convertible debentures that could convert into 546,119 shares of common stock were not included in the computation of diluted
net income per share because such inclusion would be antidilutive. 8




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The following table sets forth the computation of basic and diluted net income (loss) per share for
the periods indicated (in thousands, except per share amounts): Three months endedMarch 31,2005
    
    
    2004Numerator:Net income
    
    $
    131
    
    
    $
    17Denominator:Denominator for basic calculation weighted average shares
    
    
    7,990
    
    
    
    1,922Dilutive common stock equivalents:Options
    
    
    799
    
    
    
    67Warrants
    
    
    976
    
    
    
    Convertible preferred stock
    
    
    
    
    
    
    1,170Denominator for diluted calculation weighted average shares
    
    
    9,765
    
    
    
    3,159Net income per share:Basic net income per share
    
    $
    0.02
    
    
    $
    0.01Diluted net income per share
    
    $
    0.01
    
    
    $
    0.01
 New accounting pronouncements In December 2004, the Financial Accounting Standard Board (FASB) issued SFAS No. 123R, Share-Based
Paymentwhich addresses the accounting for employee stock options. SFAS No. 123R requires that the
cost of all employee stock options, as well as other equity-based compensation arrangements, be
reflected in the financial statements based on the estimated fair value of the awards. That cost
will be recognized over the period during which an employee is required to provide service in
exchange for the awardthe requisite service period (usually the vesting period). For small
business issuers, SFAS No. 123R is effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. The Company will adopt SFAS No. 123R
beginning in the Companys first quarter of fiscal 2006. The Company cannot estimate the future
impact on its consolidated financial position or results of operation from the adoption of SFAS No.
123R. See Stock-based compensation elsewhere in this Note 2 for the impact the use of fair value
accounting would have had on the period presented. 3. Composition of certain balance sheet and statement of operations captions Property and equipment consisted of the following (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Furniture and fixtures
    
    $
    193
    
    
    $
    193Office equipment
    
    
    69
    
    
    
    55Computer equipment
    
    
    931
    
    
    
    592Computer software
    
    
    187
    
    
    
    315Idle assets (not depreciated)
    
    
    9
    
    
    
    91,389
    
    
    
    1,164Less accumulated depreciation and amortization
    
    
    (871
    )
    
    
    (373
    )Property and equipment, net
    
    $
    518
    
    
    $
    791
 9




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##### Table of Contents



Intangible assets consisted of the following (in thousands): March 31,
    
    
    December 31,2005
    
    
    2004Developed technology
    
    $
    2,233
    
    
    
    Customer contracts and relationships
    
    
    404
    
    
    
    Non-compete agreement
    
    
    249
    
    
    
    Domain name
    
    
    701
    
    
    
    3,587
    
    
    
    Less accumulated amortization
    
    
    (51
    )
    
    
    Intangible assets, net
    
    $
    3,536
    
    
    $
    
 Amounts recorded as non-cash equity based expense represent the fair value expense, utilizing the
Black-Scholes model at the date of grant, of warrants, and options issued to non-employees of the
Company for services and relate to the following statement of operations categories (in thousands): Three months endedMarch 31,2005
    
    
    2004General and administrative:Non-cash stock option expense
    
    $
    9
    
    
    $
    8
 10




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4. Operating segment information As a result of the February 2005 acquisition (Note 8), the Company manages its business in two
geographic segments: United States and Europe. Operating segments are defined as components of an
enterprise about which separate financial information is available that is evaluated regularly by
the Companys chief operating decision-maker, or decision-making group, in deciding how to allocate
resources and in assessing performance. Management believes that revenue and operating income are
appropriate measures of evaluating the operational performance of the Companys segments. The following table presents summary operating segment information (in thousands): Three month endedMarch 31,2005
    
    
    2004Revenue by segment:United States
    
    $
    5,810
    
    
    $
    3,462Europe
    
    
    101
    
    
    
    Total revenue
    
    $
    5,911
    
    
    $
    3,462Operating income by segment:United States
    
    $
    (192
    )
    
    $
    326Europe
    
    
    21
    
    
    
    Total operating income
    
    $
    (171
    )
    
    $
    326
 March 31,
    
    
    December 31,2005
    
    
    2004Total assets by segment:United States
    
    $
    39,916
    
    
    $
    38,148Europe
    
    
    238
    
    
    
    Total assets
    
    $
    40,154
    
    
    $
    38,148
 5. Stock option plans 1999 Plan In March 1999, the Company adopted the 1999 Incentive Equity Plan (1999 Plan). The 1999 Plan
provides for the grant of non-qualified and incentive stock options to employees, directors and
consultants of options to purchase share of the Companys stock. Options are granted at exercise
prices equal to the fair market value of the common stock on the date of grant. Generally,
twenty-five percent of the options are available for exercise at the end of nine months, while the
remainder of the grant is exercisable ratably over the next twenty-seven month period, provided the
optionee remains in service to the Company. The Company has reserved 500,000 shares for issuance
under the 1999 Plan, of which 449,239 were outstanding and 3,415 were available for future grant at
March 31, 2005. 2000 Plan In March 2000, the Company adopted the 2000 Incentive Equity Plan (2000 Plan). The 2000 Plan
provides for the grant of non-qualified and incentive stock options to employees, directors and
consultants of options to purchase share of the Companys stock. Options are granted at exercise
prices equal to the fair market value of the common stock on the date of grant. Generally,
twenty-five percent of the options are available for exercise at the end of nine months, while the
remainder of the grant is exercisable ratably over the next twenty-seven month period, provided the
optionee remains in service to the Company. The Company has reserved 500,000 shares for issuance under the
2000 Plan, of which 467,306 were outstanding and 32,694 were available for future grant at March
31, 2005. 11




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2004 Plan In January 2004, the Company adopted the 2004 Incentive Equity Plan (2004 Plan), in August 2004,
the Company amended the 2004 Plan and in September 2004, the stockholders of the Company approved
the 2004 Plan, as amended. The 2004 Plan provides for the grant of non-qualified and incentive
stock options to employees, directors and consultants of options to purchase share of the Companys
stock. Options are granted at exercise prices equal to the fair market value of the common stock on
the date of grant. Generally, twenty-five percent of the options are available for exercise at the
end of nine months, while the remainder of the grant is exercisable ratably over the next
twenty-seven month period, provided the optionee remains in service to the Company. The Company has
reserved 600,000 shares for issuance under the 2004 Plan, of which 471,933 were outstanding and
97,142 were available for future grant at March 31, 2005. Stock option activity under the plans during the three months ended March 31, 2005 is as follows: Weight AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2004
    
    
    1,292,947
    
    
    $
    3.19Granted
    
    
    247,500
    
    
    
    15.32Exercised
    
    
    (73,896
    )
    
    
    2.95Cancelled
    
    
    (78,073
    )
    
    
    5.89Outstanding at March 31, 2005
    
    
    1,388,478
    
    
    $
    5.21Exercisable at March 31, 2005
    
    
    927,679
    
    
    $
    3.34
 Stock option summary information for the plans at March 31, 2005 is as follows: Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life
    
    Price
    
    
    Shares
    
    
    Price$0.40 - $1.00
    
    
    79,500
    
    
    4.7
    
    $
    0.40
    
    
    
    79,500
    
    
    $
    0.40$1.01 - $2.00
    
    
    238,194
    
    
    6.0
    
    $
    2.00
    
    
    
    187,846
    
    
    $
    2.00$2.01 - $3.00
    
    
    275,533
    
    
    8.3
    
    $
    2.25
    
    
    
    126,907
    
    
    $
    2.25$3.01 - $4.00
    
    
    509,226
    
    
    4.4
    
    $
    4.00
    
    
    
    509,226
    
    
    $
    4.00$5.01 - $10.00
    
    
    21,125
    
    
    9.3
    
    $
    6.00
    
    
    
    868
    
    
    $
    6.00$10.01 - $15.00
    
    
    30,000
    
    
    9.6
    
    $
    11.37
    
    
    
    
    
    
    $
    $15.01 - $16.00
    
    
    196,000
    
    
    9.8
    
    $
    15.09
    
    
    
    17,499
    
    
    $
    15.08$16.01 - $20.00
    
    
    38,900
    
    
    9.8
    
    $
    16.59
    
    
    
    5,833
    
    
    $
    16.591,388,478
    
    
    6.6
    
    $
    5.21
    
    
    
    927,679
    
    
    $
    3.34
 12




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6. Warrants Warrant activity during the three months ended March 31, 2005 is as follows: Weight AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2004
    
    
    2,088,194
    
    
    $
    6.43Exercised
    
    
    (107,963
    )
    
    
    3.75Expired
    
    
    (31,250
    )
    
    
    20.00Outstanding at March 31, 2005
    
    
    1,948,981
    
    
    $
    6.36Exercisable at March 31, 2005
    
    
    1,938,981
    
    
    $
    6.35
 Warrant summary information at March 31, 2005 is as follows: Warrants Outstanding
    
    
    Warrants ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life
    
    Price
    
    
    Shares
    
    
    Price$0.00 - $2.99
    
    
    297,791
    
    
    2.0
    
    $
    2.00
    
    
    
    297,791
    
    
    $
    2.00$3.00 - $3.99
    
    
    663,678
    
    
    3.2
    
    $
    3.55
    
    
    
    663,678
    
    
    $
    3.55$4.00 - $5.99
    
    
    492,362
    
    
    2.2
    
    $
    4.00
    
    
    
    492,362
    
    
    $
    4.00$6.00 - $9.99
    
    
    15,000
    
    
    2.5
    
    $
    8.00
    
    
    
    5,000
    
    
    $
    8.00$10.00 - $19.99
    
    
    315,750
    
    
    4.6
    
    $
    10.00
    
    
    
    315,750
    
    
    $
    10.00$20.00 - $25.53
    
    
    164,400
    
    
    4.8
    
    $
    25.53
    
    
    
    164,400
    
    
    $
    25.531,948,981
    
    
    3.1
    
    $
    6.36
    
    
    
    1,938,981
    
    
    $
    6.35
 7. Payroll taxes From the three months ended June 30, 2000 through fiscal 2001 and 2002, the Company either failed
to pay or failed to pay timely, its federal payroll tax liabilities. As a result, the Company
incurred penalties and interest on the unpaid balances. The original amount of unpaid taxes was
approximately $1,100,000. On October 27, 2003, the Company entered into a secured installment agreement with the Internal
Revenue Service. Pursuant to the installment agreement, the Company agreed to pay $30,000 per month
through December 31, 2004 and $40,000 per month thereafter until the total liability is paid in
full. Penalties and interest, as provided by law, will continue to accrue until the total liability
is paid in full. The agreement with the Internal Revenue Service was based on the Companys then-current financial
condition, and it may be modified or terminated by the Internal Revenue Service at any time if
their information, including updated financial information that the Company must provide them upon
request, shows that the Companys ability to pay the amount owed has significantly changed. The
Internal Revenue Service can also terminate the agreement at any time if the Company does not make
the monthly installment payments as agreed upon, does not pay any other federal tax debt when due,
does not provide financial information if requested or if they find that collection of the taxes
the Company owes is in jeopardy. If the Internal Revenue Service terminates the agreement, they may
collect the entire amount the Company owes by levy on the Companys income, bank accounts or other
assets, by seizing the Companys property or by taking other legal action against the Company. During 2004, the Company filed an appeal with the Internal Revenue Service for abatement of certain
penalties and interest. As a result, the Company was granted an abatement of approximately $155,000
of accrued penalties and interest. In November 2004, the Company paid $1.4 million of the outstanding liability. In February
2005, the Company was granted an additional abatement of approximately $115,000 of accrued
penalties and interest. As of March 31, 2005, the outstanding liability was $145,000. 13




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8. Inspire Infrastructure 2i AB acquisition On February 28, 2005, the Company completed the acquisition, through a wholly owned subsidiary, of
all of the outstanding capital stock of Inspire Infrastructure 2i AB (Inspire), a Swedish Internet
and wireless local-search technology company for $15.0 million in cash and cash acquisition costs
of $323,000. Under the terms of the acquisition, Inspire shareholders can receive additional
consideration consisting of up to 447,067 shares of Interchange common stock, valued at $7.5
million based upon a 30-day moving average, which is payable upon the achievement of certain future
business performance criteria. The purchase price of $15,323,000 was allocated as follows (in
thousands): Current assets
    
    $
    159Fixed assets
    
    
    34Developed technology
    
    
    2,233Customer contracts and relationships
    
    
    404Non-compete agreement
    
    
    249Goodwill
    
    
    12,359Long-term assets
    
    
    5Liabilities assumed
    
    
    (120
    )Total purchase price
    
    $
    15,323
 Inspires operating results have been included in the Companys consolidated financial statements
from the date of acquisition. Developed technology is being amortized on a straight-ling basis over
five years. Customer contracts and relationships is being amortized on a straight-line basis over
five years. Non-compete agreement is being amortized on a straight-line basis over three years.
Goodwill, which is determined to have an indefinite life, is not amortized in accordance with SFAS
No. 142, Goodwill and Other Intangible Assets. The Company will perform annual impairment reviews
during the fourth fiscal quarter of each year or earlier if indicators of potential impairment
exists. Future impairment reviews may result in charges against earnings to write-down the value of
intangible assets. 14




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Item 2. Managements Discussion and Analysis or Plan of Operation This Quarterly Report on Form 10-QSB contains forward-looking statements that involve risks,
uncertainties and assumptions. Our actual results could differ materially from those anticipated in
the forward-looking statements as a result of certain factors discussed in Risk Factors and
elsewhere in this Report. The following discussion and analysis of financial condition and results of operations should be
read in conjunction with the attached consolidated financial statements and related notes thereto,
and with the audited financial statements and related notes thereto as of December 31, 2004 and for
the year ended December 31, 2004 included in our Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on March 9, 2005. Overview We provide paid-search services that enable businesses to reach consumers through targeted online
advertising. Our services enable businesses to advertise their products and services by listing
them in our distributed Internet search results. We supply these sponsored listings to our
Distribution Network in response to targeted keyword searches performed by Internet users.
Sponsored listings are generally compiled according to the advertisers bid price for a
click-through in connection with a specific keyword search. In February 2005, we established our European operation through the acquisition of Inspire
Infrastructure 2i AB. Our European operation provides local-search technology that enables our
European customers, mainly directory assistance and internet yellow page companies, to connect
consumers who search for businesses on wireless devices, over the Internet, or over the phone. Results of Operations The following table sets forth our historical operating results as a percentage of revenue for the
periods indicated and is derived from our unaudited financial statements, which, in the opinion of
our management, reflect all adjustments that are of normal recurring nature, necessary to present
such information fairly: Three months endedMarch 31,2005
    
    
    2004Revenue
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Search serving
    
    
    53.8
    
    
    
    50.4Sales and marketing
    
    
    22.6
    
    
    
    20.6General and administrative
    
    
    16.1
    
    
    
    13.7Research and development
    
    
    9.4
    
    
    
    5.7Amortization of intangibles
    
    
    0.9
    
    
    
    Non-cash equity based expense
    
    
    0.1
    
    
    
    0.2Total operating expenses
    
    
    102.9
    
    
    
    90.6Operating income (loss)
    
    
    (2.9
    )
    
    
    9.4Interest and other income (expense)
    
    
    5.3
    
    
    
    (8.7
    )Income before income taxes
    
    
    2.4
    
    
    
    0.7Provision for income taxes
    
    
    0.2
    
    
    
    0.2Net income
    
    
    2.2
    %
    
    
    0.5
    %
 15




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Three months ended March 31, 2005 and 2004 Revenue Revenue was $5.9 million and $3.5 million for the three months ended March 31, 2005 and 2004,
respectively, representing an increase of $2.4 million or 70.7%. The increase was primarily due to
an increased number of revenue-generating click-throughs, substantially all of which resulted from
an increase in the number of our Distribution Network partners from 170 at March 31, 2004 to 319 at
March 31, 2005. No Distribution Network partner represented greater than 10% of our revenue for the
three months ended March 31, 2005 and click-through revenue from our Distribution Network partner,
Okomura Digital Media IBX, represented 19.8% of our revenue for the three months ended March 31,
2004. We derived 57.1% of our revenue from direct advertisers and 42.9% of our revenue from our
Advertiser Network partners during the three months ended March 31, 2005, as compared to 48.6% of
our revenue from direct advertisers and 51.4% from Advertiser Network partners during the three
months ended March 31, 2004. Our Advertiser Network partner, LookSmart, represented 29.5% and 38.3%
of our revenue for the three months ended March 31, 2005 and 2004, respectively. Search serving Search serving expenses were $3.2 million and $1.7 million for the three months ended March 31,
2005 and 2004, respectively, representing an increase of $1.5 million or 82.1%. As a percentage of
revenue, search serving expenses were 53.8% and 50.4% for the three months ended March 31, 2005 and
2004, respectively. Substantially all of this increase represented increased payments to our
Distribution Network partners associated with our higher revenue in the current period. The
increase in percentage of revenue was due to increased revenue sharing arrangements with our
distribution network partners. We expect search serving expense to continue at approximately the
same percentage of revenue. Sales and marketing Sales and marketing expenses were $1.3 million and $712,000 for the three months ended March 31,
2005 and 2004, respectively, representing an increase of $626,000 or 87.9%. As a percentage of
revenue, sales and marketing expenses were 22.6% and 20.6% for the three months ended March 31,
2005 and 2004, respectively. The increase in absolute dollars was primarily due to an increase in
salaries and related personnel costs as a result of an increase in sales and marketing headcount,
an increase in sales commissions associated with higher direct advertiser deposits and higher
revenue, and an increase in advertising expense. General and administrative General and administrative expenses were $952,000 and $473,000 for the three months ended March 31,
2005 and 2004, respectively, representing an increase of $479,000 or 101.3%. As a percentage of
revenue, general and administrative expenses were 16.1% and 13.7% for the three months ended March
31, 2005 and 2004, respectively. The increase in absolute dollars was primarily due to an increase
in consulting, legal and accounting fees and a one-time expense for severance pay. Research and development Research and development expenses were $556,000 and $199,000 for the three months ended March 31,
2005 and 2004, respectively, representing an increase of $357,000 or 179.4%. As a percentage of
revenue, research and development expenses were 9.4% and 5.7% for the three months ended March 31,
2005 and 2004, respectively. The increase in absolute dollars was primarily due to an increase in
salaries and related personnel costs as a result of an increase in research and development
headcount. Amortization of intangibles Amortization of intangibles expense was $51,000 and zero for three months ended March 31, 2005 and
2004, respectively. This includes the amortization of developed technology, customer contracts and
relationships, and non-compete agreement associated with the Inspire acquisition. 16




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Non-cash equity based expense Non-cash equity based expense was $9,000 and $8,000 for the three months ended March 31, 2005 and
2004, respectively, representing an increase of $1,000 or 12.5%. As a percentage of revenue,
non-cash equity based expense was 0.1% and 0.2% for the three months ended March 31, 2005
and 2004, respectively. The increase in absolute dollars was a result of greater options and
warrants issued to non-employees. Interest and other income (expense) Interest and other income (expense) was $314,000 and $(300,000) for the three months ended March
31, 2005 and 2004, respectively, representing an increase in net
interest and other income of $614,000. This
increase was due to interest income from the cash we raised in our initial public offering and our
private placement in the fourth quarter of 2004, along with a one-time abatement of penalties and
interest from the IRS relating to our payroll tax liability. Net income (loss) We had a net income of $131,000 and $17,000 for the three months ended March 31, 2005 and 2004,
respectively. Liquidity and Capital Resources We have funded our business, to date, primarily from issuances of equity and debt securities. Cash
and cash equivalents were $6.0 million as of March 31, 2005 and $24.6 million as of December 31,
2004. Marketable securities were $14.2 million as of March 31, 2005 and $10.4 million as of
December 31, 2004. We had working capital of $16.3 million as of March 31, 2005 and $32.8 million
as of December 31, 2004. Net cash provided by operations was $513,000 and $46,000 for the three months ended March 31, 2005
and 2004, respectively. The increase in cash provided by operations was due to an increase in net
income, an increase in accounts payable and accrued liabilities, an increase in depreciation and
amortization, and a decrease in accounts receivable. Net cash used in investing activities was $19.3 million and $38,000 for the three months ended
March 31, 2005 and 2004, respectively. The increase in cash used in investing activities was due
to the acquisition of Inspire Infrastructure 2i AB, an increase in capital expenditures, computer
equipment and the purchase of the Local.com domain name. Net cash provided by (used in) financing activities was $106,000 and $(5,000) for the three months
ended March 31, 2005 and 2004, respectively. During the three months ended March 31, 2005, we
raised gross proceeds of $218,000 from the exercise of stock options. Inspire Infrastructure 2i AB Acquisition On February 28, 2005, we completed the acquisition, through a wholly owned subsidiary, of all of
the outstanding capital stock of Inspire Infrastructure 2i AB (Inspire), a Swedish Internet and
wireless local-search technology company for $15.0 million in cash and cash acquisition costs of
$323,000. Under the terms of the acquisition, Inspire shareholders can receive additional
consideration consisting of up to 447,067 shares of Interchange common stock, valued at $7.5
million based upon a 30-day moving average, which is payable upon the achievement of certain future
business performance criteria. Payroll Tax Liability In February 2005, we were granted an additional abatement of approximately $115,000 of accrued
penalties and interest of our outstanding federal payroll tax liability. As of March 31, 2005, the
outstanding liability was $145,000. New Facility Lease On March 18, 2005, we entered into a lease agreement with the Irvine Company. Under the terms of
the lease, our headquarters will move from its present location at 24422 Avenida de la Carlota,
Suite 120, Laguna Hills, California to 1G Technology Drive, Irvine, California. The new
headquarters will consist of approximately 23,352 square feet. The lease is for a period of sixty
months, plus such additional number of days as may be required to cause the lease to terminate on
the final day of the calendar month. The aggregate rent for the term of the lease is approximately 17




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##### Table of Contents



$1,793,436. In addition to rent, the lease requires us to pay certain taxes, insurance and
operating costs related to the leased building, in amounts yet to be determined. We are also
responsible for the costs of certain tenant improvements associated with the new facility but will
be entitled to reimbursement for certain costs from the landlord. Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital resources that are
material to our investors. New accounting pronouncements In December 2004, the Financial Accounting Standard Board (FASB) issued SFAS No. 123R, Share-Based
Paymentwhich addresses the accounting for employee stock options. SFAS No. 123R requires that the
cost of all employee stock options, as well as other equity-based compensation arrangements, be
reflected in the financial statements based on the estimated fair value of the awards. That cost
will be recognized over the period during which an employee is required to provide service in
exchange for the awardthe requisite service period (usually the vesting period). For small
business issuers, SFAS No. 123R is effective as of the beginning of the first interim or annual
reporting period that begins after December 15, 2005. We will adopt SFAS No. 123R beginning in our
first quarter of fiscal 2006. We cannot estimate the future impact on our consolidated financial
position or results of operation from the adoption of SFAS No. 123R. See Stock-based compensation
in Note 2 of the Notes to Consolidated Financial Statements located elsewhere in this Form 10-QSB
for the impact the use of fair value accounting would have had on the period presented. Risk Factors We have historically incurred losses and may expect to incur losses in the future, which may impact
our ability to implement our business strategy and adversely affect our financial condition. We have a history of losses. Although we achieved a net income of $1.5 million for the fiscal year
ended December 31, 2004 and a net income of $131,000 for the three months ended March 31, 2005, we
had an accumulated deficit of $11.1 million at March 31, 2005 and expect to have a net loss for the
next three quarters. We have significantly increased our operating expenses by expanding our
operations and increasing our level of capital expenditures in order to grow our business and
further develop and maintain our services. Such increases in operating expense levels and capital
expenditures may adversely affect our future operating results if we are unable to realize benefits
from such expenditures. We cannot assure you that we will be profitable or generate sufficient
profits from operations in the future. If we do not have revenue growth, we may experience a loss
in one or more future periods. We may not be able to reduce or maintain our expenses in response to
any decrease in our revenue, which may impact our ability to implement our business strategy and
adversely affect our financial condition. We face intense competition from larger, more established companies, as well as our own Advertiser
Network partners, and we may not be able to compete effectively, which could reduce demand for our
services. The online paid-search market is intensely competitive. Our primary current competitors include
Yahoo! Inc., Google Inc. and our own Advertiser Network partners. Although we currently pursue a
strategy that allows us to partner with a broad range of websites and search engines, our current
and future partners may view us as a threat to their own internal paid-search services. Nearly all
of our competitors have longer operating histories, larger customer bases, greater brand
recognition and significantly greater financial, marketing and other resources than we do. Our
competitors may secure more favorable revenue sharing arrangements with network distributors,
devote greater resources to marketing and promotional campaigns, adopt more aggressive growth
strategies and devote substantially more resources to website and systems development than we do.
In addition, the search industry has recently experienced consolidation, including the acquisitions
of companies offering paid-search services. Industry consolidation has resulted in larger, more
established and well-financed competitors with a greater focus on paid-search services. If these
industry trends continue, or if we are unable to compete in the paid-search market, our financial
results may suffer. Additionally, larger companies such as Google and Microsoft Corporation may implement technologies
into their search engines or software that make it less likely that consumers can reach, or execute
searches on, our Distribution Network partners websites and less likely to click-through on our
Advertiser Network partners sponsored listings. 18




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##### Table of Contents



The implementation of such technologies could result in a decline in click-throughs to our
advertisers sponsored listings, which would decrease our revenues. If we are unable to
successfully compete against current and future competitors or if our current Advertising Network
partners choose to rely more heavily on their own distribution networks in the future, our
operating results will be adversely affected. We rely on our Advertiser Network partners to provide us access to their advertisers, and if they
do not, it could have an adverse impact on our business. We rely on our Advertiser Network partners to provide us with advertiser listings so that we can
distribute these listings to our Distribution Network partners in order to generate revenue when a
consumer click-through occurs on our Advertiser Network partners sponsored listings. For the three
months ended March 31, 2005, 42.9% of our revenue was derived from our Advertiser Network partners.
Most of our agreements with our Advertiser Network partners are short-term, and, as a result, they
may discontinue their relationship with us or negotiate new terms that are less favorable to us, at
any time, with little or no notice. Our success depends, in part, on the maintenance and growth of
our Advertiser Network partners. If we are unable to develop or maintain relationships with these
partners, our operating results and financial condition will suffer. We are dependent on our Distribution Network partners to provide us with search traffic, and if
they do not, our business could be harmed. We rely on our Distribution Network partners, a network of more than 319 websites and search
engines with which we have contracts, to provide us with consumer search traffic. Historically,
nearly all of our search traffic has come from our Distribution Network partners, and we believe
this will continue in the future. Our Distribution Network partners are very important to our
revenue and results of operations. Any adverse change in our relationships with key Distribution
Network partners could have a material adverse impact on our revenue and results of operations
because our sponsored listings would be placed on fewer websites and search engines in response to
consumer search requests. Our agreements with these Distribution Network partners are short-term,
and as a result, our Distribution Network partners may discontinue their relationship with us or
negotiate new terms that are less favorable to us, at any time, with little or no notice. If we are
unable to maintain relationships with our current Distribution Network partners or develop
relationships with prospective Distribution Network partners, our operating results and financial
condition will suffer. In addition, if our Distribution Network does not grow and improve over
time, current and prospective advertisers may reduce or terminate their business with us. Any
decline in the number of our Distribution Network partners could adversely affect the value of our
services. We released our Local Direct platform in early 2004 and our future success will depend upon the
continued development and enhancement of our services and technologies. In early 2004, we released Local Direct, which is based upon our Keyword DNA technology. We have
not generated significant revenue from this service to date. We intend to invest significant
additional amounts of time and resources to the enhancement and deployment of our Local Direct
search and advertising platform. Although we believe that the majority of our revenue will continue
to come from our own advertisers and the advertisers of our Advertiser Network partners, we believe
that our newly developed Local Direct platform will contribute a larger percentage of our revenue
as the local paid-search sector grows. The Internet and online commerce industries are characterized by rapid technological change,
changing market conditions and customer demands. Our future success will substantially depend on
our ability to enhance our existing services, develop new services and proprietary technology (such
as Local Direct) and respond to technological advances in a timely and cost-effective manner. The
development of our systems and other proprietary technologies entails significant technical and
business risk. If we are unable to capitalize on our new services and continue to enhance our
existing services in a cost-effective manner, our business could be materially adversely affected. If we are not
successful with our Local.com initiative, our future financial performance may be
affected. In March 2005, we
purchased the Local.com domain name. We plan on developing the Local.com website
into a local-search destination site. This site will be our first consumer facing business and we
intend to invest significant amounts of time and resources on Local.com. We cannot assure you that
we will be successful in attracting consumers or advertisers to Local.com, or that the initiative
will have a positive impact on our operational and financial performance. If we are unable to
attract consumers and/or advertisers to Local.com, our financial performance may be adversely
affected. 19




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##### Table of Contents



Our executive officers and certain key personnel are critical to our success, and the loss of these
officers and key personnel could harm our business. Our performance is substantially dependent on the continued services and performance of our
executive officers and other key personnel. We only have employment agreements with our two
executive officers: Heath B. Clarke (Chief Executive Officer and Chairman of the Board) and Douglas
S. Norman (Chief Financial Officer and Secretary). Each of Messrs. Clarke and Normans employment
agreements may be terminated with 30 days notice by either the executive or us. No key man life
insurance has been purchased on either of Messrs. Clarke or Norman. Our performance also depends on
our ability to retain and motivate our officers and key employees. The loss of the services of any
of our officers or other key employees, including the recent resignation of Michael A. Sawtell, as
President and Chief Operations Officer, effective March 31, 2005, could have a material adverse
effect on our business, prospects, financial condition and results of operations. Our future
success also depends on our ability to identify, attract, hire, train, retain and motivate other
highly skilled technical, managerial and marketing personnel. Competition for such personnel is
intense, and we cannot assure you that we will be successful in attracting and retaining such
personnel. The failure to attract and retain our officers or the necessary technical, managerial
and marketing personnel could have a material adverse effect on our business, prospects, financial
condition and results of operations. The market for Internet and paid-search advertising services is in the early stages of development,
and if the market for our services decreases it will have a material adverse effect on our
business, prospects, financial condition and results of operations. Internet marketing and advertising, in general, and paid-search, in particular, are in the early
stages of development. Our future revenue and profits are substantially dependent upon the
continued widespread acceptance, growth, and use of the Internet and other online services as
effective advertising mediums. Many of the largest advertisers have generally relied upon more
traditional forms of media advertising and have only limited experience advertising on the
Internet. Paid-search, in particular, is still in an early stage of development and may not be
accepted by consumers for many reasons including, among others, that consumers may conclude that
paid-search results are less relevant and reliable than non-paid-search results, and may view
paid-search results less favorably than search results generated by non-paid-search engines. If
consumers reject our paid-search services, or commercial use of the Internet generally, and the
number of click-throughs on our sponsored listings decreases, the commercial utility of our search
services could be adversely affected. We expect that our anticipated future growth including through potential acquisitions, may strain
our management, administrative, operational and financial infrastructure, which could adversely
affect our business. We anticipate that significant expansion of our present operations will be required to capitalize
on potential growth in market opportunities. This expansion has placed, and is expected to continue
to place, a significant strain on our management, operational and financial resources. We expect to
add a significant number of additional key personnel in the future, including key managerial and
technical employees who will have to be fully integrated into our operations. In order to manage
our growth, we will be required to continue to implement and improve our operational and financial
systems, to expand existing operations, to attract and retain superior management, and to train,
manage and expand our employee base. We cannot assure you that we will be able to effectively
manage the expansion of our operations, that our systems, procedures or controls will be adequate
to support our operations or that our management will be able to successfully implement our
business plan. If we are unable to manage growth effectively, our business, financial condition and
results of operations could be materially adversely affected. On February 28, 2005, we completed the acquisition, through a wholly owned subsidiary, of all of
the outstanding capital stock of Inspire Infrastructure 2i AB, a Swedish Internet and wireless
local-search technology company. In the future, we may choose to expand our operations or market
presence by pursuing acquisitions of complementary business, services or technologies or engage in
other strategic alliances with third parties. Any such transactions would be accompanied by the
risks commonly encountered in such transactions, including, among others, the difficulty of
assimilating operations, technology and personnel of the combined companies, the potential
disruption of our ongoing business, the inability to retain key technical and managerial personnel,
the inability of management to maximize our financial and strategic position through the successful
integration of acquired businesses, additional expenses associated with amortization of acquired
intangible assets, the maintenance of uniform standards, controls and policies and the impairment
of relationships with existing employees and customers. We have limited experience in these types
of acquisitions, and we may not be successful in overcoming these risks or any other potential
problems. As a result, any acquisition may have a material adverse effect on our business, prospects, financial condition
and results of operations. 20




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##### Table of Contents



On February 28, 2005, we completed the acquisition, through a wholly-owned subsidiary, of all of
the outstanding capital stock of Inspire Infrastructure 2i AB, a Swedish Internet and wireless
local-search technology company. We may not be able to successfully integrate Inspire
Infrastructure 2i ABs operations with our own or realize the anticipated benefits of the
transaction. On February 28, 2005, we acquired Inspire Infrastructure 2i AB in a share purchase transaction.
Under the terms of the agreement, we paid Inspire shareholders $15 million in cash plus additional
consideration consisting of up to 447,067 shares of Interchange common stock which are payable upon
the achievement of certain business performance criteria in the future. Achieving the benefits we
expect from the acquisition will depend in large part on integrating our technology, operations and
personnel in a timely and efficient manner to minimize the impact on customers, employees and
management. Integrating Inspire Infrastructure 2i AB into our business will be a complex, time
consuming and costly process. Failure to timely and successfully integrate the two companies may
have a material adverse effect on the combined companys business, financial condition and results
of operations. The difficulties of combining the companies will present challenges to the combined
companys management, including:  
    coordinating expanded business operations in additional geographic areas;
    integrating personnel with diverse backgrounds and organizational cultures;
    coordinating sales and marketing functions;
    retaining key employees, customers or suppliers;
    preserving the other important relationships of Inspire Infrastructure 2i AB and Interchange; and
    consolidating other corporate and administrative functions. The combined company will also be exposed to other risks that are commonly associated with
transactions similar to the acquisition, such as unanticipated liabilities and costs, some of which
may be material, and diversion of managements attention. As a result, we cannot assure you that
we will realize any of the anticipated benefits of the acquisition, including anticipated cost
savings, and failure to do so could adversely affect the business of the combined company. We many incur impairment losses related to goodwill and other intangible assets which could have a
material and adverse affect on our financial results. As a result of our acquisition of Inspire Infrastructure 2i AB and the purchase of the Local.com
domain name, we have recorded substantial goodwill and intangible assets in our consolidated
financial statements. We are required to perform impairment reviews of our goodwill and other
intangible assets, which are determined to have an indefinite life and are not amortized. Such
reviews are performed annually or earlier if indicators of potential impairment exist. Future
impairment reviews may result in charges against earnings to write-down the value of intangible
assets. We may be subject to intellectual property claims that create uncertainty about ownership of
technology essential to our business and divert our managerial and other resources. There has been a substantial amount of litigation in the technology industry regarding intellectual
property rights. We cannot assure you that third parties will not, in the future, claim
infringement by us with respect to our current or future services, trademarks or other proprietary
rights. Our success depends, in part, on our ability to protect our intellectual property and to
operate without infringing on the intellectual property rights of others in the process. There can
be no guarantee that any of our intellectual property will be adequately safeguarded, or that it
will not be challenged by third parties. We may be subject to patent infringement claims or other
intellectual property infringement claims that would be costly to defend and could limit our
ability to use certain critical technologies. For example, Overture Services, Inc., acquired by Yahoo!, which operates in certain competitive
areas with us and owns U.S. Patent No. 6,269,361, which purports to give Overture rights to certain
bid-for-placement services and pay-per-performance search technologies. Overture is currently
involved in litigation with FindWhat.com relating to this 21




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patent. FindWhat.com is contesting Overtures patent and on May 12, 2005, FindWhat.com announced
that a judge declared a mistrial after a jury was unable to reach a verdict in its patent dispute
with Overture. FindWhat.com noted that another hearing is scheduled for June 24, 2005. Google Inc.
recently paid a significant settlement amount to Yahoo in order to settle multiple pending claims
asserted by Yahoo and its wholly-owned subsidiary, Overture. One of the claims asserted by Overture
was a claim for patent infringement by Google of U.S. Patent No. 6,269,361. As
part of the settlement, Overture dismissed its patent lawsuit against Google and granted Google a
fully-paid, perpetual license to the patent and several related patent applications held by
Overture. As the settlement related to multiple claims, the settlement amount related directly to
U.S. Patent No. 6,269,361 is unclear. The settlement may, however, increase the likelihood that
Overture may further seek to enforce any rights it may have relating to U.S. Patent No. 6,269,361
and pursue further action against us. In February 2004, we received correspondence from Overture advising us that it is willing to
license its patent to us and requesting that we provide an explanation if we are not interested in
a license; however, we have not had any discussions with Overture regarding any license terms or
otherwise relating to that matter. If Overture construes any of our current services or business
model as infringing upon the above-referenced patent, then we could be sued or asked to obtain a
license, re-engineer our services or revise our business model according to terms that could be
expensive and/or unreasonable. Additionally, if we were to acquire or develop a new service or
business model that Overture construes as infringing upon the above-referenced patent, then we
could be sued or asked to obtain a license, re-engineer our services or revise our business model
according to terms that may be expensive and/or unreasonable. It is also possible that we may not
be permitted to obtain a license from Overture, in which case we may be required to stop using our
technology if it is found to be infringing. We may also be required to pay damages, including
damages for past infringements and treble damages if we were found to have willfully infringed
Overtures patent. If we cannot develop non-infringing technology or business models or if we
cannot obtain a license, our service offerings may be severely limited and we may not be able to
compete effectively in our industry. Any of these risks, if they occur, could adversely affect our
business and financial performance. We may also become subject to interference proceedings conducted in the patent and trademark
offices of various countries to determine the priority of inventions. The defense and prosecution,
if necessary, of intellectual property suits, interference proceedings and related legal and
administrative proceedings is costly and may divert our technical and management personnel from
their normal responsibilities. We may not prevail in any of these suits. An adverse determination
of any litigation or defense proceedings could cause us to pay substantial damages, including
treble damages if we willfully infringe, and, also, could put our patent applications at risk of
not being issued. Furthermore, because of the substantial amount of discovery required in connection with
intellectual property litigation, there is a risk that some of our confidential information could
be compromised by disclosure during this type of litigation. In addition, during the course of this
kind of litigation, there could be public announcements of the results of hearings, motions or
other interim proceedings or developments in the litigation. If investors perceive these results to
be negative, it could have an adverse effect on the trading price of our common stock. Any patent litigation could negatively impact our business by diverting resources and management
attention away from other aspects of our business and adding uncertainty as to the ownership of
technology and services that we view as proprietary and essential to our business. In addition, a
successful claim of patent infringement against us and our failure or inability to obtain a license
for the infringed or similar technology on reasonable terms, or at all, could have a material
adverse effect on our business. We may be exposed to risks associated with our international operations, which may adversely affect
our business. Our business strategy includes expanding our operations internationally, particularly relating to
our Local Direct platform. We have very limited prior experience operating in foreign
jurisdictions. Conducting international operations subjects us to new risks that we have not
generally faced in the United States. These risks and uncertainties include:  
    localization of our services, including translation into foreign languages;
    unexpected changes in foreign regulatory requirements, including Internet and technology regulations;
    longer accounts receivable payment cycles and difficulties in collecting accounts receivable;
    difficulties managing and staffing international operations; 22




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
    potentially adverse tax consequences, including foreign tax systems and restrictions on
the repatriation of earnings;
    maintaining and servicing computer hardware in distant locations;
    complying with a wide variety of foreign laws and different legal standards; and
    reduced or varied protection for intellectual property rights in some countries. The occurrence of any one of these risks could negatively affect our proposed international
business and, consequently, our results of operations. We may be subject to lawsuits for information displayed on our websites and the websites of our
advertisers, which may affect our business. Laws relating to the liability of providers of online services, for activities of their advertisers
and for the content of their advertisers listings are currently unsettled. It is unclear whether
we could be subjected to claims for defamation, negligence, copyright or trademark infringement or
claims based on other theories relating to the information we
publish on our websites or the information that is published across our Distribution Network. These
types of claims have been brought, sometimes successfully, against online services as well as other
print publications in the past. We may not successfully avoid civil or criminal liability for
unlawful activities carried out by our advertisers. Our potential liability for unlawful activities
of our advertisers or for the content of our advertisers listings could require us to implement
measures to reduce our exposure to such liability, which may require us, among other things, to
spend substantial resources or to discontinue certain service offerings. Our insurance may not
adequately protect us against these types of claims and the defense of such claims may divert the
attention of our management from our operations. If we are subjected to such lawsuits, it may
adversely affect our business. Government and legal regulations may damage our business. We are not currently subject to direct regulation by any government agency, other than regulations
generally applicable to Internet businesses, and there are currently few significant laws or
regulations directly applicable to access to or commerce on the Internet. It is possible, however,
that a number of laws and regulations may be adopted with respect to the Internet, covering issues
such as the positioning of sponsored listings on search results pages. For example, the Federal
Trade Commission, or FTC, has recently reviewed the way in which search engines disclose
paid-search practices to Internet users. In 2002, the FTC issued guidance recommending that all
search engine companies ensure that all paid-search results are clearly distinguished from non-paid
results, that the use of paid-search is clearly and conspicuously explained and disclosed and that
other disclosures are made to avoid misleading users about the possible effects of paid-search
listings on search results. The adoption of laws or regulations relating to placement of paid
search advertisements or user privacy, defamation or taxation may inhibit the growth in use of the
Internet, which in turn, could decrease the demand for our services and increase our cost of doing
business or otherwise have a material adverse effect on our business, prospects, financial
condition and results of operations. Any new legislation or regulation, or the application of
existing laws and regulations to the Internet or other online services, could have a material
adverse effect on our business, prospects, financial condition and results of operations. If we do not deliver traffic that converts into revenue for advertisers, then the advertisers may
pay us less for their listings or discontinue listings with us. For our services to be successful, we need to deliver consumers to advertisers websites that
convert into sales for the advertiser. If we do not meet the advertisers expectations by
delivering quality traffic, then they may reduce their bid prices or cease doing business with us
which may adversely affect our business and financial results. If we fail to detect click-through fraud, we could lose the confidence of our advertisers, thereby
causing our business to suffer. We are exposed to the risk of fraudulent or illegitimate clicks on our sponsored listings. If
fraudulent clicks are not detected, the affected advertisers may experience a reduced return on
their investment in our advertising programs because the fraudulent clicks will not lead to revenue
for the advertisers. As a result, our advertisers may become dissatisfied with our advertising
programs, which could lead to loss of advertisers and revenue. 23




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Failure to adequately protect our intellectual property and proprietary rights could harm our
competitive position. Our success is substantially dependent upon our proprietary technology, which relates to a variety
of business and transactional processes associated with our paid-search advertising model, our
Keyword DNA technology and our Local Direct search and advertising platform. We rely on a
combination of patent, trademark, copyright and trade secret laws, as well as confidentiality
agreements and technical measures, to protect our proprietary rights. Although we have filed patent
applications and provisional patents on certain parts of our technology, much of our proprietary
information may not be patentable, and we do not currently possess any patents. We cannot assure
you that we will develop proprietary technologies that are patentable or that any pending patent
applications will be issued or that their scope is broad enough to provide us with meaningful
protection. We have applied for trademark registration of the ePilot, Assured Response, Network
Advantage, Paid Search Plus and Local Direct trademarks in the United States and may claim
trademark rights in, and apply for trademark registrations in the United States for a number of
other marks. We cannot assure you that we will be able to secure significant protection for these
marks. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our services or to obtain and use information that we regard as proprietary. We
cannot assure you that our means of protecting our proprietary rights will be adequate or that our
competitors will not independently develop similar technology or duplicate our services or design
around patents issued to us or our other intellectual property rights. If we are unable to
adequately protect our intellectual property and proprietary rights, our business and our
operations could be adversely affected. We may experience downward pressure on our bid prices if advertisers do not obtain a competitive
return on investment, which could have a material and adverse effect on our financial results. We may experience downward pressure on our bid prices if advertisers do not obtain a favorable
return on investment from our paid-search services in comparison to our competitors services or
other advertising methods. We compete with other web search services, online publishers and
high-traffic web sites, as well as traditional media such as television, radio and print, for a
share of our advertisers total advertising expenditures. Many potential advertisers and
advertising agencies have only limited experience advertising on the Internet and have not devoted
a significant portion of their advertising expenditures to paid-search. Acceptance of paid-search
marketing among advertisers will depend, to a large extent, on its perceived effectiveness and the continued growth of commercial
usage of the Internet. If we experience downward pricing pressure for our services in the future,
our financial results may suffer. One Advertiser Network partner has provided a substantial portion of our revenue; the loss of this
partner may have a material adverse effect on our operating results. Our Advertiser Network partner, LookSmart, Ltd., represented 29.5% of our total revenue for the
three months ended March 31, 2005. It is difficult to predict whether LookSmart will continue to
represent such a significant portion of our revenue in the future. LookSmart may choose not to
renew our agreement in the future or may choose to reduce the use of our paid-search services.
Although we believe that other advertisers within our Advertiser Network could replace a
substantial portion of LookSmarts sponsored listings, we cannot assure you that we would receive
the same number of revenue-generating click-throughs or that we could service the same breadth of
search requests, in which case our business and financial results may be harmed. One of our customers accounts for a significant portion of our accounts receivable, and the failure
to collect from that customer would harm our financial condition and results of operations. While most of our customers pay for our services in advance, some do not. One of our customers that
does not pay in advance, LookSmart, has and will likely continue for the foreseeable future to
account for a significant portion of our accounts receivable. At March 31, 2005, LookSmart
represented 35%, of our total accounts receivable. LookSmarts accounts have been, and will likely
continue to be, unsecured and any failure to collect on those accounts would harm our financial
condition and results of operations. Problems with our computer and communication systems may harm our business. A key element of our strategy is to generate a high volume of traffic across our network
infrastructure to and from our Advertiser and Distribution Network partners. Accordingly, the
satisfactory performance, reliability and availability of our software systems, transaction
processing systems and network infrastructure are critical to our reputation and our ability to
attract and retain advertising customers, as well as maintain adequate customer service levels. We
may experience periodic systems interruptions. Any substantial increase in the volume of traffic on
our software systems or network infrastructure will require us to expand and upgrade our
technology, transaction-processing systems and 24




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network infrastructure. We cannot assure you that we will be able to accurately project the rate or
timing of increases, if any, in the use of our network infrastructure or timely expand and upgrade
our systems and infrastructure to accommodate such increases. We rely on third party technology, server and hardware providers, and a failure of service by these
providers could adversely affect our business and reputation. We rely upon third party data center providers to host our main servers and expect to continue to
do so. In the event that these providers experience any interruption in operations or cease
operations for any reason or if we are unable to agree on satisfactory terms for continued hosting
relationships, we would be forced to enter into a relationship with other service providers or
assume hosting responsibilities ourselves. If we are forced to switch hosting facilities, we may
not be successful in finding an alternative service provider on acceptable terms or in hosting the
computer servers ourselves. We may also be limited in our remedies against these providers in the
event of a failure of service. In the past, we have experienced short-term outages in the service maintained by one of our current
co-location providers. We also rely on third party providers for components of our technology
platform, such as hardware and software providers, credit card processors and domain name
registrars. A failure or limitation of service or available capacity by any of these third party
providers could adversely affect our business and reputation. State and local governments may be able to levy additional taxes on Internet access and electronic
commerce transactions, which could result in a decrease in the level of usage of our services. Beginning in 1998, the federal government imposed a moratorium on state and local governments
imposition of new taxes on Internet access and eCommerce transactions, which has now expired. State
and local governments may be able to levy additional taxes on Internet access and eCommerce
transactions unless the moratorium is reinstituted. Any increase in applicable taxes may make
eCommerce transactions less attractive for businesses and consumers, which could result in a
decrease in eCommerce activities and the level of usage of our services. Our business could be substantially harmed if we fail to pay taxes we owe. During 2000 and through 2002, we either failed to pay or failed to pay timely our federal payroll
tax liabilities. As a result, we incurred penalties and interest on the unpaid balances. The
original amount of unpaid taxes was approximately $1.1 million. In October 2003, we entered into an
installment agreement with the Internal Revenue Service whereby we agreed to pay $30,000 per month
through December 2004 and $40,000 per month thereafter until the liability is paid in full. Our
agreement with the Internal Revenue Service was based on our then-current financial condition, and
it may be modified or terminated by the Internal Revenue Service at any time if their information,
including updated financial information that we must provide them upon request, shows that our
ability to pay the amount owed has significantly changed. The Internal Revenue Service can also
terminate our agreement at any time if we do not make the monthly installment payments as agreed
upon, do not pay any other federal tax debt when due, do not provide financial information if
requested or if they find that collection of the taxes we owe is in jeopardy. If the Internal
Revenue Service terminates our agreement, they may collect the entire amount we owe by levy on our
income, bank accounts or other assets, by seizing our property or by taking other legal action
against us. Penalties and interest, as provided by law, will continue to accrue until the liability
is paid in full. During 2004, we filed an appeal with the Internal Revenue Service for abatement of
certain penalties and interest. As a result, we were granted an abatement of approximately $155,000
of accrued penalties and interest. In November 2004, we paid $1.4 million of the outstanding
liability. In February 2005, we were granted an additional abatement of approximately $115,000 of
accrued penalties and interest. As of March 31, 2005, the outstanding liability was $145,000. We
are presently in compliance with the terms of our agreement with the Internal Revenue Service, but
our business could be substantially harmed if in the future we fail to pay the taxes we owe and the
Internal Revenue Service asserts its rights against us. The market price of our common stock has been and is likely to continue to be highly volatile,
which could cause investment losses for our stockholders and result in stockholder litigation with
substantial costs, economic loss and diversion of our resources. Prior to our initial public offering which was completed on October 22, 2004, there was no public
trading market for our common stock. We cannot predict the extent to which investor interest will
support an active and liquid trading market for our common stock. In addition, the trading price of our common stock has been and is likely to continue to be highly
volatile and could be subject to wide fluctuations as a result of various factors, many of which
are beyond our control, including: 25




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
    developments concerning proprietary rights, including patents, by us or a competitor;
    market acceptance of our new and existing services and technologies;
    announcements by us or our competitors of significant contracts, acquisitions,
commercial relationships, joint ventures or capital commitments;
    actual or anticipated fluctuations in our operating results;
    continued growth in the Internet and the infrastructure for providing Internet access
and carrying Internet traffic;
    introductions of new services by us or our competitors;
    enactment of new government regulations affecting our industry;
    changes in the number of our Advertising and Distribution Network partners;
    seasonal fluctuations in the level of Internet usage;
    loss of key employees;
    institution of intellectual property litigation by or against us;
    success of our international expansion;
    changes in the market valuations of similar companies; and
    changes in our industry and the overall economic environment. Due to the short-term nature of our Advertiser Network and Distribution Network partner agreements
and the emerging nature of the paid-search market, we may not be able to accurately predict our
operating results on a quarterly basis, if at all, which may lead to volatility in the trading
price of our common stock. In addition, the stock market in general, and the Nasdaq SmallCap Market
and the market for online commerce companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the operating performance
of the listed companies. These broad market and industry factors may seriously harm the market
price of our common stock, regardless of our operating performance. In the past, following periods
of volatility in the market, securities class action litigation has often been instituted against
these companies. Litigation against us, whether or not a judgment is entered against us, could
result in substantial costs, and potentially, economic loss, and a diversion of our managements
attention and resources. As a result of these and other factors, you may not be able to resell your
shares above the price you paid and may suffer a loss on your investment. Future sales of shares of our common stock that are eligible for sale by our stockholders may
decrease the price of our common stock. We had 8,106,724 shares of common stock outstanding on March 31, 2005. Of these shares, 1,534,404
are held by directors, executive officers and other affiliates and will be subject to volume
limitations under Rule 144 under the Securities Act. In addition, there were outstanding options to
purchase 1,388,478 shares of our common stock and warrants to purchase 1,948,981 shares of our
common stock. Actual sales, or the prospect of sales by our present stockholders or by future
stockholders, may have a negative effect on the market price of our common stock. 26




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Anti-takeover provisions may limit the ability of another party to acquire us, which could cause
our stock price to decline. Our amended and restated certificate of incorporation, our amended and restated bylaws and Delaware
law contain provisions that could discourage, delay or prevent a third party from acquiring us,
even if doing so may be beneficial to our stockholders. In addition, these provisions could limit
the price investors would be willing to pay in the future for shares of our common stock. The
following are examples of such provisions in our amended and restated certificate of incorporation
and in our amended and restated bylaws:  
    special meetings of our stockholders may be called only by our Chief Executive Officer,
by a majority of the members of our board of directors and by the holders of shares
entitled to cast not less than 10% of the votes at the meeting;
    stockholder proposals to be brought before any meeting of our stockholders must comply
with advance notice procedures;
    our board of directors is classified into three classes, as nearly equal in number as
possible;
    newly-created directorships and vacancies on our board of directors may only be filled
by a majority of remaining directors, and not by our stockholders;
    a director may be removed from office only for cause by the holders of at least 75% of
the voting power entitled to vote at an election of directors;
    our amended and restated bylaws may be further amended by our stockholders only upon a
vote of at least 75% of the votes entitled to be cast by the holders
of all outstanding shares then entitled to vote generally in the election of directors, voting together as a
single class; and
    our board of directors is authorized to issue, without further action by our
stockholders, up to 10,000,000 shares of undesignated preferred stock with rights and
preferences, including voting rights, designated from time to time by our board of
directors. We are also subject to Section 203 of the Delaware General Corporation Law, which provides, subject
to enumerated exceptions, that if a person acquires 15% or more of our voting stock, the person is
an interested stockholder and may not engage in business combinations with us for a period of
three years from the time the person acquired 15% or more of our voting stock. Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be
limited. Under Section 382 of the Internal Revenue Code, if a corporation undergoes an ownership change
(generally defined as a greater than 50% change (by value) in its equity ownership over a
three-year period), the corporations ability to use its pre-change net operating loss
carryforwards and other pre-change tax attributes against its post-change income may be limited. We
believe that with our initial public offering, our recent private placement and other transactions
that have occurred over the past three years, we have triggered an ownership change limitation.
We have performed an analysis to determine to what extent our ability to utilize our net operating
loss carryforwards might be limited. We determined that our Section 382 limitation is $1.3 million
a year. We may also experience ownership change in the future as a result of subsequent shifts in
our stock ownership. As of December 31, 2004 we have net operating loss carryforwards of
approximately $10.6 million and $10.0 million for federal and state income tax purposes,
respectively. 27




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Item 3. Controls and Procedures We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified in the SECs rules and forms, and that such
information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that
any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and that our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures. As required by Rule 13a-15(b) and 15d-15(b) under the Exchange Act, we carried out an evaluation,
under the supervision and with the participation of our management, including the Companys Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the fiscal quarter covered by this report.
Based upon the foregoing, the Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures were effective in reaching a level of reasonable assurance
in achieving our desired control objectives. The acquisition of Inspire Infrastructure 2i AB, as detailed in Note 8 in the notes to the
consolidated financial statements, has resulted in the consolidation of financial information from
a different financial recordation and reporting system. We are taking appropriate steps to ensure
the reliability of our financial reporting. 28




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PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings None 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In January 2005, we issued 34,287 shares of common stock for the net issuance exercise of
45,719 warrants held by various accredited and sophisticated investors. In February 2005, we issued 7,365 shares of common stock for the net issuance exercise of 11,063
warrants held by various accredited and sophisticated investors. In March 2005, we issued 37,235 shares of common stock for the net issuance exercise of 51,181
warrants held by an accredited investor. The issuances of securities in the transactions described above were deemed exempt from
registration under the Securities Act in reliance on Section 4(2). 
 Item 3. Defaults upon Senior Securities None 
 Item 4. Submission of Matters to a Vote of Security Holders None 
 Item 5. Other Information None 
 Item 6. Exhibits ExhibitNumber
    
    Description31.1
    
    Certification of Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 29




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SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized. INTERCHANGE CORPORATIONMay 13, 2005
    

    /s/ Heath B. ClarkeDate
    

    Heath B. ClarkeChief Executive Officer and Chairman/s/ Douglas S. NormanDouglas S. NormanChief Financial Officer and Secretary 30




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EXHIBITS FILED WITH THIS REPORT ExhibitNumber
    
    Description31.1
    
    Certification of Principal Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of Principal Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 31