##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
 For the transition period from  to
 Commission File Number: 000-50989
 INTERCHANGE CORPORATION
  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    33-0849123
(I.R.S. Employer
Identification No.)
 One Technology Drive, Building G
Irvine, CA 92618
 (949) 784-0800
 þ o
  o o þ
 o þ
 Number of shares outstanding at April 30, 2006:
    
    Common: 9,232,509
Preferred:      0




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##### 



INTERCHANGE CORPORATION
TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATIONItem 1.Financial Statements.Consolidated Balance Sheets as of March 31, 2006 (Unaudited) and December 31, 2005
    
    
    3Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 (Unaudited)
    
    
    4Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2006 and 2005 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    14Item 3.Quantitative and Qualitative Disclosures About Market Risk.
    
    
    17Item 4.Controls and Procedures.
    
    
    18PART II  OTHER INFORMATIONItem 1.Legal Proceedings.
    
    
    19Item 1A.Risk Factors.
    
    
    19Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    28Item 3.Defaults Upon Senior Securities.
    
    
    28Item 4.Submission of Matters to a Vote of Security Holders.
    
    
    28Item 5.Other Information.
    
    
    28Item 6.Exhibits
    
    
    28EXHIBIT 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 31,2006
    
    
    2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,752
    
    
    $
    1,075Restricted cash
    
    
    10
    
    
    
    10Marketable securities
    
    
    10,270
    
    
    
    13,244Accounts receivable, net of allowances of $15 and $30, respectively
    
    
    1,198
    
    
    
    1,138Prepaid expenses and other current assets
    
    
    376
    
    
    
    377Total current assets
    
    
    13,606
    
    
    
    15,844Property and equipment, net
    
    
    2,497
    
    
    
    2,772Intangible assets, net
    
    
    3,523
    
    
    
    3,760Goodwill
    
    
    12,445
    
    
    
    12,445Long-term restricted cash
    
    
    166
    
    
    
    166Deposits
    
    
    47
    
    
    
    47Total assets
    
    $
    32,284
    
    
    $
    35,034LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,552
    
    
    $
    1,798Accrued compensation
    
    
    386
    
    
    
    347Deferred rent
    
    
    543
    
    
    
    575Accrued royalties
    
    
    478
    
    
    
    496Other accrued liabilities
    
    
    776
    
    
    
    631Notes payable
    
    
    56
    
    
    
    84Deferred revenue
    
    
    332
    
    
    
    295Total liabilities, all current
    
    
    4,123
    
    
    
    4,226Minority interest
    
    
    (1
    )
    
    
    (1
    )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;
9,232,509 and 9,171,944 issued and outstanding, respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    49,826
    
    
    
    48,706Accumulated comprehensive loss
    
    
    (135
    )
    
    
    (151
    )Accumulated deficit
    
    
    (21,529
    )
    
    
    (17,746
    )Stockholders equity
    
    
    28,162
    
    
    
    30,809Total liabilities and stockholders equity
    
    $
    32,284
    
    
    $
    35,034
  3




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INTERCHANGE CORPORATION
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
   Three months endedMarch 31,2006
    
    
    2005Revenue
    
    $
    3,151
    
    
    $
    5,911Operating expenses:Search serving
    
    
    1,580
    
    
    
    3,176Sales and marketing
    
    
    2,467
    
    
    
    1,338General and administrative
    
    
    1,804
    
    
    
    961Research and development
    
    
    950
    
    
    
    556Amortization of intangibles
    
    
    237
    
    
    
    51Total operating expenses
    
    
    7,038
    
    
    
    6,082Operating loss
    
    
    (3,887
    )
    
    
    (171
    )Interest and other income
    
    
    105
    
    
    
    314Income (loss) before income taxes
    
    
    (3,782
    )
    
    
    143Provision for income taxes
    
    
    1
    
    
    
    12Net income (loss)
    
    $
    (3,783
    )
    
    $
    131Per share data:Basic net income (loss) per share
    
    $
    (0.41
    )
    
    $
    0.02Diluted net income (loss) per share
    
    $
    (0.41
    )
    
    $
    0.01Basic weighted average shares outstanding
    
    
    9,211,044
    
    
    
    7,989,608Diluted weighted average shares outstanding
    
    
    9,211,044
    
    
    
    9,765,291
  4




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INTERCHANGE CORPORATION
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
   Three months endedMarch 31,2006
    
    
    2005Net income (loss)
    
    $
    (3,783
    )
    
    $
    131Other comprehensive income (loss):Foreign currency translation adjustments
    
    
    (6
    )
    
    
    (1
    )Unrealized gain (loss) on marketable securities
    
    
    22
    
    
    
    (117
    )Total comprehensive income (loss)
    
    $
    (3,767
    )
    
    $
    13
  5




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##### Table of Contents



INTERCHANGE CORPORATION
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three months endedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net income (loss)
    
    $
    (3,783
    )
    
    $
    131Adjustments to reconcile net income (loss) to cash (used in ) provided
by operating activities:Depreciation and amortization
    
    
    522
    
    
    
    180Provision for doubtful accounts
    
    
    (15
    )
    
    
    5Non-cash stock based compensation
    
    
    915
    
    
    
    9Non-cash interest income
    
    
    (1
    )
    
    
    (3
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (45
    )
    
    
    70Prepaid expenses and other
    
    
    1
    
    
    
    (136
    )Other non-current assets
    
    
    
    
    
    
    (1
    )Accounts payable and accrued liabilities
    
    
    (112
    )
    
    
    270Deferred revenue
    
    
    37
    
    
    
    (12
    )Net cash (used in) provided by operating activities
    
    
    (2,481
    )
    
    
    513Cash flows from investing activities:Capital expenditures
    
    
    (10
    )
    
    
    (1,557
    )Purchases of marketable securities
    
    
    
    
    
    
    (6,982
    )Proceeds from sales of marketable securities
    
    
    2,997
    
    
    
    3,032Acquisition, net of cash acquired
    
    
    
    
    
    
    (13,743
    )Net cash provided by (used in) investing activities
    
    
    2,987
    
    
    
    (19,250
    )Cash flows from financing activities:Proceeds from issuance of common stock from exercise of options
    
    
    170
    
    
    
    218Proceeds from issuance of common stock from exercise of warrants
    
    
    38
    
    
    
    Payment of notes payable
    
    
    (28
    )
    
    
    Payment of financing related costs
    
    
    (3
    )
    
    
    (112
    )Net cash provided by financing activities
    
    
    177
    
    
    
    106Effect of currency changes on cash
    
    
    (6
    )
    
    
    (1
    )Net increase (decrease) in cash and cash equivalents
    
    
    677
    
    
    
    (18,632
    )Cash and cash equivalents, beginning of period
    
    
    1,075
    
    
    
    24,617Cash and cash equivalents, end of period
    
    $
    1,752
    
    
    $
    5,985Supplemental cash flow information:Interest paid
    
    $
    2
    
    
    $
    Income taxes paid
    
    $
    1
    
    
    $
    
  6




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INTERCHANGE CORPORATION
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  1. Basis of presentation
   2. Significant accounting policies
 Principles of consolidation
  Foreign currency translation
  Intangible assets
    Goodwill
 Goodwill and Other Intangible Assets
 7




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Stock-based compensation
 Share-Based Payment
 Accounting for Stock-Based Compensation
  Three months endedMarch 31, 2006Sales and marketing
    
    $
    172General and administrative
    
    
    670Research and development
    
    
    73Total stock-based compensation expense
    
    $
    915Basic and diluted net compensation expense per share
    
    $
    0.10
  Risk-free interest rate
    
    
    4.47
    %Expected lives (in years)
    
    
    8.3Expected dividend yield
    
    NoneExpected volatility
    
    
    83.83
    %
 Accounting for Stock Issued to Employees Accounting for Stock-Based Compensation  Transition and Disclosure
 8




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##### Table of Contents



Three months endedMarch 31, 2005Net income, as reported
    
    $
    131Add: Stock-based compensation expense
recorded in accordance with APB No. 25
    
    
    Deduct: Additional stock-based employee
compensation expense determined under the fair
value based method for all awards, net of tax effects
    
    
    (1,096
    )Pro forma net loss
    
    $
    (965
    )Net income (loss) per share:Basic  as reported
    
    $
    0.02Basic  pro forma
    
    $
    (0.12
    )Net income (loss) per share:Diluted  as reported
    
    $
    0.01Diluted  pro forma
    
    $
    (0.12
    )
 Net income (loss) per share
 Earnings per Share
   9




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##### Table of Contents



Three months endedMarch 31,2006
    
    
    2005Numerator:Net income (loss)
    
    $
    (3,783
    )
    
    $
    131Denominator:Denominator for basic calculation weighted
average shares
    
    
    9,211
    
    
    
    7,990Dilutive common stock equivalents:Options
    
    
    
    
    
    
    799Warrants
    
    
    
    
    
    
    976Denominator for diluted calculation weighted
average shares
    
    
    9,211
    
    
    
    9,765Net income (loss) per share:Basic net income (loss) per share
    
    $
    (0.41
    )
    
    $
    0.02Diluted net income (loss) per share
    
    $
    (0.41
    )
    
    $
    0.01
 3. Composition of certain balance sheet captions
  March 31,
    
    
    December 31,2006
    
    
    2005Furniture and fixtures
    
    $
    195
    
    
    $
    195Office equipment
    
    
    94
    
    
    
    93Computer equipment
    
    
    1,756
    
    
    
    1,754Computer software
    
    
    1,176
    
    
    
    1,169Leasehold improvements
    
    
    580
    
    
    
    5803,801
    
    
    
    3,791Less accumulated depreciation and amortization
    
    
    (1,304
    )
    
    
    (1,019
    )Property and equipment, net
    
    $
    2,497
    
    
    $
    2,772
  March 31,
    
    
    December 31,2006
    
    
    2005Developed technology
    
    $
    2,233
    
    
    
    2,233Non-compete agreements
    
    
    261
    
    
    
    261Purchased technology
    
    
    1,239
    
    
    
    1,239Domain name
    
    
    701
    
    
    
    7014,434
    
    
    
    4,434Less accumulated amortization
    
    
    (911
    )
    
    
    (674
    )Intangible assets, net
    
    $
    3,523
    
    
    $
    3,760
 10




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4. Operating segment information
 Disclosures about Segments of an Enterprise and Related Information
  Three month endedMarch 31,2006
    
    
    2005Revenue by segment:United States
    
    $
    3,092
    
    
    $
    5,810Europe
    
    
    59
    
    
    
    101Total revenue
    
    $
    3,151
    
    
    $
    5,911Operating income (loss) by segment:United States
    
    $
    (3,766
    )
    
    $
    (192
    )Europe
    
    
    (121
    )
    
    
    21Total operating income (loss)
    
    $
    (3,887
    )
    
    $
    (171
    )
 March 31,
    
    
    December 31,2006
    
    
    2005Total assets by segment:United States
    
    $
    32,111
    
    
    $
    34,843Europe
    
    
    173
    
    
    
    191Total assets
    
    $
    32,284
    
    
    $
    35,034
 5. Stock option plans
 1999 Plan
  2000 Plan
  11




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##### Table of Contents



2004 Plan
  2005 Plan
   Weight AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    1,339,360
    
    
    $
    5.95Granted
    
    
    327,417
    
    
    
    4.62Exercised
    
    
    (42,293
    )
    
    
    4.01Cancelled
    
    
    (104,643
    )
    
    
    6.49Outstanding at March 31, 2006
    
    
    1,519,841
    
    
    $
    5.68Exercisable at March 31, 2006
    
    
    804,298
    
    
    $
    5.06
 12




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageContractual
    
    
    Exercise
    
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    
    Life
    
    
    Price
    
    
    Shares
    
    
    Price$0.00  $1.00
    
    
    26,250
    
    
    
    1.8
    
    
    $
    0.40
    
    
    
    26,250
    
    
    $
    0.40$1.01  $2.00
    
    
    175,000
    
    
    
    6.8
    
    
    $
    2.00
    
    
    
    175,000
    
    
    $
    2.00$2.01  $3.00
    
    
    170,278
    
    
    
    7.7
    
    
    $
    2.25
    
    
    
    120,973
    
    
    $
    2.25$3.01  $4.00
    
    
    356,309
    
    
    
    6.9
    
    
    $
    3.93
    
    
    
    210,392
    
    
    $
    4.00$4.01  $5.00
    
    
    55,000
    
    
    
    9.9
    
    
    $
    4.21
    
    
    
    
    
    
    $
    $5.01  $6.00
    
    
    204,250
    
    
    
    9.5
    
    
    $
    5.63
    
    
    
    88,841
    
    
    $
    5.66$6.01  $7.00
    
    
    134,064
    
    
    
    9.5
    
    
    $
    6.39
    
    
    
    42,593
    
    
    $
    6.38$7.01  $8.00
    
    
    186,500
    
    
    
    9.4
    
    
    $
    7.52
    
    
    
    
    
    
    $
    $8.01  $10.00
    
    
    70,000
    
    
    
    9.2
    
    
    $
    9.17
    
    
    
    54,996
    
    
    $
    9.21$15.01  $16.59
    
    
    142,190
    
    
    
    8.2
    
    
    $
    15.49
    
    
    
    85,253
    
    
    $
    15.461,519,841
    
    
    
    8.1
    
    
    $
    5.68
    
    
    
    804,298
    
    
    $
    5.06
 6. Warrants
  Weight AverageShares
    
    
    Exercise PriceOutstanding at December 31, 2005
    
    
    1,279,575
    
    
    $
    8.13Exercised
    
    
    (34,099
    )
    
    
    3.77Expired
    
    
    (17,292
    )
    
    
    3.61Outstanding at March 31, 2006
    
    
    1,228,184
    
    
    $
    8.31Exercisable at March 31, 2006
    
    
    1,228,184
    
    
    $
    8.31
  Warrants Outstanding
    
    Warrants ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageContractual
    
    Exercise
    
    
    
    
    
    ExerciseRange of Exercise Prices
    
    Shares
    
    Life
    
    Price
    
    Shares
    
    Price$0.00  $2.99
    
    
    750
    
    
    
    0.1
    
    
    $
    2.00
    
    
    
    750
    
    
    $
    2.00$3.00  $3.99
    
    
    443,283
    
    
    
    2.3
    
    
    $
    3.56
    
    
    
    443,283
    
    
    $
    3.56$4.00  $5.99
    
    
    289,001
    
    
    
    1.2
    
    
    $
    4.00
    
    
    
    289,001
    
    
    $
    4.00$8.00  $9.99
    
    
    15,000
    
    
    
    1.5
    
    
    $
    8.00
    
    
    
    15,000
    
    
    $
    8.00$10.00  $19.99
    
    
    315,750
    
    
    
    3.6
    
    
    $
    10.00
    
    
    
    315,750
    
    
    $
    10.00$20.00  $25.53
    
    
    164,400
    
    
    
    3.8
    
    
    $
    25.53
    
    
    
    164,400
    
    
    $
    25.531,228,184
    
    
    
    2.5
    
    
    $
    8.31
    
    
    
    1,228,184
    
    
    $
    8.31
 13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Quarterly Report on Form 10-Q or certain information included or incorporated by reference in
this report, contains or may contain forward-looking statements that involve risks, uncertainties
and assumptions. All statements, other than statements of historical fact, are statements that
could be deemed forward- looking statements within the meaning of the federal securities laws.
In addition, important factors to consider in evaluating such forward-looking statements include
changes or developments in social, economic, market, legal or regulatory circumstances, changes in
our business or growth strategy or an inability to execute our strategy due to changes in our
industry or the economy generally, the emergence of new or growing competitors, the actions or
omissions of third parties, including customers, competitors and governmental authorities, and
various other factors. Should any one or more of these risks or uncertainties materialize, or the
underlying estimates or assumptions prove incorrect, our actual results could differ materially
from those expressed in the forward-looking statements and there can be no assurance that the
forward-looking statements contained in this report will in fact occur.
 The following discussion and analysis of our 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 consolidated financial statements and related notes thereto as of
December 31, 2005 and for the year ended December 31, 2005 included in our Annual Report on Form
10-KSB filed with the Securities and Exchange Commission on March 22, 2006.
 Overview
   Stock-based compensation
 Share-Based Payment
 Accounting for
Stock-Based Compensation
 14




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Three months endedMarch 31, 2006Sales and marketing
    
    $
    172General and administrative
    
    
    670Research and development
    
    
    73Total stock-based compensation expense
    
    $
    915Basic and diluted net compensation expense per share
    
    $
    0.10
 Results of Operations
  Three months endedMarch 31,2006
    
    
    2005Revenue
    
    
    100.0
    %
    
    
    100.0
    %Operating expenses:Search serving
    
    
    50.1
    
    
    
    53.7Sales and marketing
    
    
    78.3
    
    
    
    22.6General and administrative
    
    
    57.3
    
    
    
    16.3Research and development
    
    
    30.1
    
    
    
    9.4Amortization of intangibles
    
    
    7.5
    
    
    
    0.9Total operating expenses
    
    
    223.3
    
    
    
    102.9Operating loss
    
    
    (123.3
    )
    
    
    (2.9
    )Interest and other income
    
    
    3.3
    
    
    
    5.3Income (loss) before income taxes
    
    
    (120.0
    )
    
    
    2.4Provision for income taxes
    
    
    0.0
    
    
    
    0.2Net income (loss)
    
    
    (120.0
    )%
    
    
    2.2
    %
 Three months ended March 31, 2006 and 2005
 Revenue
     15




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##### Table of Contents



Search serving
  Sales and marketing
  General and administrative
  Research and development
  Amortization of intangibles
  Interest and other income
  16




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##### Table of Contents



Provision for income taxes
  Net income (loss)
  Liquidity and Capital Resources
      Inspire Infrastructure 2i AB acquisition
  Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  Interest Rate Risk
   17




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Foreign Currency Risk
  
 Item 4. Controls and Procedures
     18




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PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
 Investing in our common stock involves a high degree of risk. You should carefully consider the
risks described below with all of the other information included or incorporated by reference in
this Report when evaluating our business or making a decision to invest in our stock. If any of the
possible adverse events described below actually occur, our business, results of operations or
financial condition would likely suffer. In such an event, the market price of our common stock
could decline and you could lose all or part of your investment. The risks and uncertainties
described below are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial may also adversely affect our business,
results of operations or financial condition.
 If we are not successful with our transition from national search to local search, our financial
condition will be materially affected.
    If we are not successful with our Local.com initiative, our future financial performance may be
affected.
  We have historically incurred losses and expect to incur losses in the future, which may impact our
ability to implement our business strategy and adversely affect our financial condition.
  19




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##### Table of Contents



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.
   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 are dependent on our Distribution Network partners to provide us with search traffic, and if
they do not, our business could be harmed.
  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.
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The market for Internet and local 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.
  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.
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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.
  
    
    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 2iAB and Interchange; and
    
    consolidating other corporate and administrative functions.
  We may incur impairment losses related to goodwill and other intangible assets which could have a
material and adverse effect on our financial results.
  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.
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We may be exposed to risks associated with our international operations, which may adversely affect
our business.
  
    
    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;
    
    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.
  We may be subject to lawsuits for information displayed on our web sites and the web sites of our
advertisers, which may affect our business.
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Government and legal regulations may damage our business.
  If we do not deliver traffic that converts into revenue for advertisers, then the advertisers may
pay us less for their listing or discontinue listings with us.
  If we fail to detect click-through fraud, we could lose the confidence of our advertisers, thereby
causing our business to suffer.
  Failure to adequately protect our intellectual property and proprietary rights could harm our
competitive position.
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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.
  Two of our Advertiser Network partners have provided a substantial portion of our revenue; the loss
of either of these partners may have a material adverse effect on our operating results.
  Two customers account for a significant portion of our accounts receivable, and the failure to
collect from those customers would harm our financial condition and results of operations.
  Problems with our computer and communication systems may harm our business.
  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.
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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.
  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.
   
    
    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.
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Future sales of shares of our common stock that are eligible for sale by our stockholders may
decrease the price of our common stock.
  Anti-takeover provisions may limit the ability of another party to acquire us, which could cause
our stock price to decline.
  
    
    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 or 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.
  Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be
limited.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
 Item 3. Defaults upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 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
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SIGNATURES
  INTERCHANGE CORPORATIONMay 12, 2006
    
    /s/ Heath B. ClarkeDate
    
    Heath B. ClarkeChief Executive Officer and Chairman/s/ Douglas S. NormanDouglas S. NormanChief Financial Officer and Secretary
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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
 30