CurrentOfferings.com Story:

Web minnow plans IPO

David Shabelman, The Deal, July 30, 2004

Google Inc.'s initial public offering too rich for your blood? Have we got a deal for you.

Interchange Corp., which provides pay-per-click and local Internet search services through its epilot.com unit, said Wednesday, June 30, it has filed to go public in an offering that could raise up to $28.75 million.

Interchange and Google are both in the paid-search business, and both are based in California, but that's where the similarities end.

Whereas Google, by some accounts, was forced to go public to comply with securities disclosure regulations, Interchange needs the money to survive. As of March 31 the company had $61,000 in cash and a deficit of $12.8 million. Interchange's accounting firm also said the search provider's limited financing options raises "substantial doubt" about its ability to stay in business.

In 2003 Interchange recorded a slim profit, earning $60,000 on revenue of $8.8 million. In the first quarter, it and had net income of $17,000 on sales of $3.5 million.

"There's always going to be some portion of the Internet space to be too small for the big guys to go after, so there's going to be room for second-tier networks to monetize that traffic for the publisher, and that's what epilot does," said Kevin Lee, CEO of search engine marketing firm Did-it.com LLC in Rockville Centre, N.Y.

Interchange's "cost-per-click" advertising allows customers to pay to have their Web sites included in Internet searches. The company said its distribution network includes more than 200 search partners, though it derives more than 30% of its revenue through a partnership with LookSmart Ltd., a San Francisco provider of Internet search products.

In its prospectus, Interchange names both Mountain View, Calif.-based Google and Sunnyvale, Calif.-based Yahoo! Inc. as "primary competitors." But Lee said Interchange chiefly competes with other smaller search providers, such as Kanoodle.com Inc. of Amherst, N.Y.; Enhance Interactive Inc. of Provo, Utah; and FindWhat.com of Fort Myers, Fla.

"The biggest challenge for all these second-tier players is competing with themselves," Lee said. "Their growth will come from their business savvy and ability to negotiate with these second-tier publishers."

Interchange also is looking to capitalize on the stock market's infatuation with paid-search providers. But Tom Taulli, co-founder of CurrentOfferings.com, said that the diminutive Interchange is "pushing the envelope" for companies going public today.

"This company would not be going public if not for the incredible growth and high multiples in the search industry," Taulli said. "Investors are paying big premiums to own search engine stocks. I'm surprised we haven't seen more of these IPOs."

Roth Capital Partners LLC is underwriting the IPO for Interchange, whose outside counsel is Latham & Watkins LLP. Dorsey & Whitney LLP is representing Roth.