INCX Interchange

Interchange Corp. (Nasdaq:INCX), owner and operator of Local.com, a local-search engine, today reported its financial results for the third quarter ended Sept. 30, 2005. Third Quarter Results and Highlights: -- Revenue was $4.1 million for the third quarter of 2005, a 25% decrease from revenue of $5.4 million for the same period of 2004; -- GAAP net loss was $2,767,000 for the third quarter of 2005 compared to GAAP net income of $288,000 for the same period of 2004. GAAP basic and diluted net loss per share for the third quarter of 2005 was $0.31; -- Non-GAAP net loss for the third quarter of 2005 was $1,473,000, which was in line with company guidance. Non-GAAP basic and diluted net loss per share for the third quarter of 2005 was $0.16. Non-GAAP net loss for the quarter excludes $1,294,000 for the following non-recurring items: license fee with Overture ($664,000), a non-cash income tax provision ($527,000), and fixed asset write-off ($53,000) plus office sublet expense ($50,000) which were associated with the relocation of our corporate office and the sub-lease of the previous corporate office; -- Launched Local.com beta; -- Expanded partnership with Morris Publishing Group for a total of 19 online newspaper sites; and -- John Rehfeld and Norman Farra Jr. joined the board of directors. "Interchange launched Local.com in August and our results to date have exceeded our expectations. We are now generating material revenue while consolidating our position as a leading local-search engine," said Heath Clarke, Interchange CEO. "We believe consumers come to Local.com during the buying process to search for local businesses, products and services. As a result, those consumers are more likely to click on sponsored listings. We believe that the foundation is in place to improve the monetization of Local.com and we expect to derive a larger portion of our revenue in the future from local search." Clarke added: "Although our national search business has been in decline, we believe that this has now stabilized. We continue to explore new ways to grow our national search business." The company believes that non-GAAP net income can provide meaningful comparisons of the company's current operating performance with its historical results due to the significant non-recurring expenses during the third quarter of 2005. The company uses these non-GAAP financial measures for internal managerial purposes and as a means to evaluate period-to-period comparisons. These non-GAAP financial measures are used in addition to, and in conjunction with, results presented in accordance with GAAP. These non-GAAP financial measures reflect an additional way of viewing aspects of the company's operations that, when viewed with GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of factors and trends affecting our business. Non-GAAP measurements should not be considered a substitute for, or superior to, GAAP results. A reconciliation of net income to non-GAAP income is attached to the financial statements included in this press release. Recent Local.com Highlights: -- Achieved over 1.5 million unique visitors for the month of October; -- Achieved over 6 million page views for the month of October; -- Expect over 4 million unique visitors for the month of November; -- Expect over 16 million page views for the month of November; -- Currently monetizing Local.com at a rate of $8.00 per thousand page views; -- Signed the Yahoo/Overture distribution agreement in October; and -- Currently achieving a 75% return on advertising spend. Pertaining to its national search business, the company enhanced its filters to improve traffic quality as well as developed and tested new revenue-producing services with expected deployment in the fourth quarter of 2005. Financial Guidance In the fourth quarter, the company will continue to invest in marketing and technology initiatives to support Local.com, which the company successfully launched in August 2005. Also, the company believes that its national paid-search advertising business has stabilized and growth can be achieved by focusing on launching new advertising services and improving filtering capabilities. The company expects fourth quarter 2005 revenue to be between $3.5 million and $3.8 million, which includes $400,000 from Local.com. Operating expenses for the fourth quarter of 2005 will increase over the third quarter of 2005 in the following major categories: advertising for Local.com of $700,000, representing an increase of $500,000; research and development consulting of $450,000 for initiatives to improve monetization of our existing national traffic; and increased personnel costs of $400,000, primarily in research and development. Net loss for the quarter is expected to be between $2.9 million and $3.0 million, which is $0.32 and $0.33 per share, respectively. The loss per share forecast assumes 9.12 million outstanding shares. Conference Call and Webcast Information Chairman and CEO Heath Clarke, COO Bruce Crair, and CFO Doug Norman will participate in a conference call to discuss the results and outlook. The conference call will take place today, Nov. 10, 2005, at 5 p.m. ET. Investors and analysts can participate in the call by dialing 1-800-289-0569 or 1-913-981-5542, pass code #6304961. To listen to the webcast please visit the Investor Relations section of the Interchange website at: http://ir.interchangeusa.com. A replay of the webcast will be available for 90 days at the company's website, starting approximately one hour after the completion of the call. About Interchange Interchange Corp. (NASDAQ:INCX) owns and operates Local.com (www.local.com), a leading local-search engine powered by the company's proprietary Keyword DNA(TM) and local-web indexing technologies. The company serves local and national Internet, wireless and operator-assisted local-search markets in the United States and Europe. Interchange generates revenue principally from paid-search advertising. The company has headquarters in Irvine, with European headquarters in Stockholm, Sweden. For more information on Interchange, please visit: www.interchangeusa.com. Forward-Looking Statements: All statements other than statements of historical fact included in this document regarding our anticipated financial position, business strategy and plans and objectives of our management for future operations, are forward-looking statements. When used in this report, words such as "anticipate," "believe," "estimate," "plans," "expect," "intend" and similar expressions, as they relate to Interchange or our management, identify forward-looking statements. Any forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including, but not limited to, our ability to stabilize our national paid-search advertising business, our ability to operate, grow and monetize our local-search engine, Local.com, and incorporate our local-search technologies, market the Local.com domain as a destination for consumers seeking local-search results, grow our business by enhancing our local-search services, improve our filtering technologies expand our Advertiser and Distribution Networks, expand internationally, integrate the operations and effectively utilize the technology of Inspire, a Swedish Internet and wireless local-search technology company, which we recently acquired, integrate the operations and effectively utilize the technology of Inspire, develop our products and sales, marketing, finance and administrative functions and successfully integrate our expanded infrastructure, as well as our dependence on major advertisers, competitive factors and pricing pressures, changes in legal and regulatory requirements, and general economic conditions. Any forward-looking statements reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this paragraph. Our Annual Report on Form 10-KSB, subsequent Quarterly Reports on Form 10-QSB, recent Current Reports on Form 8-K, and other Securities and Exchange Commission filings discuss the foregoing risks as well as other important risk factors that could contribute to such differences or otherwise affect our business, results of operations and financial condition. The forward-looking statements in this release speak only as if the date they are made. We undertake no obligation to revise or update publicly any forward-looking statement for any reason. -0- *T INTERCHANGE CORP. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) Sept. 30, Dec. 31, 2005 2004 (Unaudited) ASSETS Current assets: Cash and cash equivalents $2,838 $24,617 Restricted cash 10 13 Marketable securities 14,232 10,388 Accounts receivable, net of allowances of $20 and $5, respectively 926 1,313 Deferred tax assets - 678 Prepaid expenses and other current assets 343 260 Total current assets 18,349 37,269 Property and equipment, net 2,429 791 Intangible assets, net 4,353 - Goodwill 12,401 - Long-term restricted cash 166 51 Deposits 37 37 Total assets $37,735 $38,148 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,655 $2,320 Accrued compensation 286 323 Payroll taxes payable 17 261 Accrued rent 607 38 Accrued royalties 664 - Other accrued liabilities 421 340 Deferred revenue 407 498 Total current liabilities 4,057 3,780 Long-term deferred tax liabilities - 151 Total liabilities 4,057 3,931 Minority interest (1) - Commitments and contingencies Stockholders' 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; 9,052,307 and 7,953,941 issued and outstanding, respectively - - Accumulated comprehensive loss (158) (36) Additional paid-in capital 48,545 45,497 Accumulated deficit (14,708) (11,244) Stockholders' equity 33,679 34,217 Total liabilities and stockholders' equity $37,735 $38,148 INTERCHANGE CORP. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) Three months ended Nine months ended Sept. 30, Sept. 30, 2005 2004 2005 2004 Revenue $4,058 $5,375 $14,722 $13,101 Operating expenses: Search serving 3,044 2,803 8,857 6,627 Sales and marketing 1,456 1,058 4,302 2,649 General and administrative 961 601 2,874 1,713 Research and development 654 374 1,669 843 Amortization of intangibles 257 - 485 - Non-cash equity based expense 22 2 102 11 Total operating expenses 6,394 4,838 18,289 11,843 Operating income (loss) (2,336) 537 (3,567) 1,258 Interest and other income (expense) 83 (239) 623 (843) Income (loss) before income taxes (2,253) 298 (2,944) 415 Provision for income taxes 514 10 520 29 Net income (loss) $(2,767) $288 $(3,464) $386 Per share data: Basic net income (loss) per share $(0.31) $0.15 $(0.42) $0.20 Diluted net income (loss) per share $(0.31) $0.06 $(0.42) $0.09 Basic weighted average shares outstanding 8,959,076 1,922,964 8,280,887 1,922,599 Diluted weighted average shares outstanding 8,959,076 4,444,170 8,280,887 4,443,805 INTERCHANGE CORP. RECONCILIATION OF NET INCOME (LOSS) TO NON-GAAP NET INCOME (LOSS) (in thousands, except per share amounts) (Unaudited) Three months ended Nine months ended Sept. 30, Sept. 30, 2005 2004 2005 2004 Net income (loss) $(2,767) $288 $(3,464) $386 Non-recurring items: License fee (664) - (664) - Provision for income taxes (527) - (527) - Fixed asset write-off (53) - (53) - Office sublet expense (50) - (50) - Non-GAAP net income (loss) $(1,473) $288 $(2,170) $386 Per share data: Basic net income (loss) per share $(0.31) $0.15 $(0.42) $0.20 Diluted net income (loss) per share $(0.31) $0.06 $(0.42) $0.09 Non-GAAP basic net income (loss) per share $(0.16) $0.15 $(0.26) $0.20 Non-GAAP diluted net income (loss) per share $(0.16) $0.06 $(0.26) $0.09 Basic weighted average shares outstanding 8,959,076 1,922,964 8,280,887 1,922,599 Diluted weighted average shares outstanding 8,959,076 4,444,170 8,280,887 4,443,805 *T