UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

--------------------------------

FORM 10-Q

--------------------------------

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended December 31, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Transition Period from __________ To _________

Commission file number: 000-52394

LIFE EXCHANGE, INC.

(Exact name of registrant business issuer as specified in its charter)

Nevada 20-2602277

(State or other jurisdiction (IRS Employer Identification No.)

of incorporation or organization)

2001 Biscayne Blvd., Suite 2102, Miami, FL 33137

(Address of principal executive offices) (zip code)

(866) 907-9766

(Registrant’s telephone number, including area code)

(Former Name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller reporting company [X]

(Do not check if a smaller reporting company)

Indicate by check mark whether the issuer is a shell company (as defined in rule 12b-2 of the Exchange Act) Yes [ ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court

Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of February 13, 2009, there were 178,315,000 shares of the Registrant's Common Stock, $0.001 par value per share, outstanding.

LIFE EXCHANGE, INC.

For The Quarterly Period Ended December 31, 2008

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements -------------------------------------------------------------------------------

Item 2. Management’s Discussion and Analysis of Financial Condition and Results

of Operations-----------------------------------------------------------------------------------------

Item 3. Quantitative and Qualitative Disclosures About Market Risk-----------------------N/A

Item 4. Controls and Procedures--------------------------------------------------------------------------

PART II - OTHER INFORMATION

Item 1. Legal Proceedings---------------------------------------------------------------------------------

Item 1A. Risk Factors----------------------------------------------------------------------------------N/A

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----------------------------------------------------------------------------------------------

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH STATEMENTS ARE BASED ON CURRENT EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT THE COMPANY AND ITS INDUSTRY. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE, ACHIEVEMENTS AND PROSPECTS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LIFE EXCHANGE, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

		December 31,		June 30,
		2008		2008
ASSETS		(Unaudited)		(Audited)

CURRENT ASSETS
Cash	$	54,316	$	26 3,263
Accounts receivables		23,084		106,752
Prepaid expenses		27,750		2,750
TOTAL CURRENT ASSETS		105,150		372,765

PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET		12,883		15,964
OTHER ASSETS, NET		12,427		12,760
OTHER ASSETS, NET

TOTAL ASSETS	$	130,460	$	401,489
TOTAL ASSETS	$		$


LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Trade accounts payable	$	172,491	$	27,899
Accrued expenses, payroll, related taxes and interest		97,637		238,996
Other current liabilities		2,100		-
TOTAL CURRENT LIABILITIES		272,228		266,895

NOTE PAYABLE RELATED PARTY		455,000		455,000
NOTE PAYABLE RELATED PARTY

TOTAL LIABILITIES		727,228		721,895

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT
Preferred stock $.001 par value
Authorized 20,000,00 shares; No shares issued and outstanding
Common stock $.001 par value
Authorized 250,000,00 shares; 176,715,000 shares issued and
outstanding as of December 31, 2008 and June 30, 2008		176,715		176,715
Additional paid-in capital		329,982		185,764
Accumulated deficit		(1,103,465)		(682,885)
Accumulated deficit
TOTAL SHAREHOLDERS' DEFICIT		(596,768)		(320,406)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	130,460	$	401,489
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$		$
The accompanying notes are an integral part of these consolidated financial statements
F-2

LIFE EXCHANGE, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES

(Unaudited)


		Three Months Ended December 31,				Six Months Ended December 31,
		2008		2007		2008		2007


NET REVENUE	$	13,644	$	308,276	$	117,477	$	692,267

COSTS AND EXPENSES
Cost of net revenue:
Product development				5,000				5,000
Internet hosting		10,070		6,089		19,357		11,757
Other costs of net revenue		6,593		1,400		9,512		2,400
		16,663		12,489		28,869		19,157
Sales and marketing expense:
Travel and entertainment		6,796		15,842		20,525		22,678
Telephone and communication		1,545		3,755		3,704		6,249
Dues, subscriptions and memberships		1,090		6,517		14,000		7,208
Other costs of sales and marketing		4,226		45,684		39,111		58,563
		13,657		71,798		77,340		94,698
Administration expense:
Legal and professional fees		124,533		52,169		184,258		72,387
Payroll expenses		40,220		94,088		168,202		177,383
Office expenses		17,457		16,595		33,500		27,249
Insurance		1,150		10,867		2,296		11,351
Other cost of administration		12,742		8,455		27,764		9,872
		196,102		182,174		416,020		298,242

TOTAL COSTS AND EXPENSES		226,422		266,461		522,229		412,097

OPERATING INCOME (LOSS)		(212,778)		41,815		(404,752)		280,170

OTHER INCOME (EXPENSE)
Refunds received and other fees		35		-		1,035
Interest income				236		168		236
Interest expense		(8,240)		(8,776)		(17,031)		(17,267)
		(8,205)		(8,540)		(15,828)		(17,031)

NET INCOME (LOSS)	$	220,983)	$	33,275	$	(420,580)	$	263,139


Net Earnings (Loss) Per Share
Basic and Fully Diluted	$	(0.001)	$	0.000	$	(0.002)	$	0.001


Weighted Average Shares Outstaning
Basic and Fully Diluted		176,715,000		176,715,000		176,715,000		176,715,000


The accompanying notes are an integral part of these consolidated financial statements
F-3

LIFE EXCHANGE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
For the Six Months Ended December 31, 2008 and the Year Ended June 30, 2008





			Common Stock				Additional		Accumulated		Shareholders'
			Shares		$		Paid In Capital		Deficit		Deficit

BALANCE AT JUNE 30, 2007			176,715,000	$	176,715	$	185,764	$	(1,059,354	$	(696,875)

Net Loss for the year ended June 30, 2008									376,469		376,469

BALANCE AT JUNE 30, 2008			176,715,000		176,715		185,764		(682,885)		(320,406)

Forgiven Accrued Salaries							144,218				144,218

Net Income for the six months ended December 31, 2008									(420,580)		(420,580)

BALANCE AT DECEMBER 31, 2008 (Unaudited)		$	176,715,000	$	176,715	$	329,982	$	(1,103,465)	$	(596,768)


	The accompanying notes are an integral part of these consolidated financial statements
	F-4

LIFE EXCHANGE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)

		Six Months Ended December 31,
		2008		2007

Cash Flows From Operating Activities:
NET INCOME (LOSS)	$	(420,580)	$	263,139
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation		3,081		1,958
Amortization of intangible assets		333		334
Allowance for bad debts		5,777		4,731
Net cash used by operations before change in working capital		(411,389)		270,162
Changes in operating assets and liabilities:
Trade accounts receivable		77,892		(180,313)
Prepaid expenses		(25,000)		-
Trade accounts payable		144,592		(3,473)
Accrued expenses, payroll,related taxes and interest		2,858		44,105
Other current liabilities		2,100		-
Net cash provided by (used in) operating activities		(208,947)		130,481

Cash Flow From Investing Activities:
Purchases of property, equipment and improvements		-		(4,873)
Purchases of other assets		-		-
Net cash used in investing activities		-		(4,873)

Cash Flow From Financing Activities:
Net proceeds related party		-		5,000
Net cash provided by financing activities		-		5,000

NET INCREASE IN CASH AND EQUIVILANTS		(208,947)		130,608
Cash and cash equiviliants at beginning of the period		263,263		13,197

CASH AND CASH EQUIVILANTS AT END OF PERIOD	$	54,316	$	143,805
SUPPLEMENTARY INFORMATION
Interest paid	$	-	$	-
Income taxes paid	$	-	$	-
NONCASH INVESTING AND FINANCING ACTIVITIES
Forgiven accrued salaries	$	144,218	$	-
The accompanying notes are an integral part of these consolidated financial statements F-5

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Terms and Definitions

Company or LFXG Life-Exchange, Inc. and subsidiary

APB Accounting Principles Board

ARB Accounting Review Board

EITF Emerging Issues Task Force

FASB Financial Accounting Standards Board

FSP FASB Staff Position

FIN FASB Interpretation Number

GAAP Generally Accepted Accounting Principles

PCAOB Public Accounting Oversight Board

SAB Staff Accounting Bulletin

SEC Securities Exchange Commission

SFAS or FAS Statement of Financial Accounting Standards

QTR-2009 the three months ended December 31, 2008

YTD-2009 the six months ended December 31, 2008

Company Background

On January 19, 2005 (“date of inception”), Life-Exchange, Inc. (“the Company”) was organized under the laws of the State of Delaware as a corporation. Life-Exchange, Inc. was established for the purposes of servicing the life settlement industry by creating an on-line business-to-business exchange platform, which will facilitate the brokering of secondary life insurance.

On January 29, 2006, the Company began to trade publicly under the name Life Exchange, Inc. (OTC pink sheets: LFXG.PK).

On September 27, 2007, the Company formed LFX Insurance Services, LLC (“LFXIS”) a Nevada limited liability corporation as a wholly-owned subsidiary. LFXIS was formed to process “structured finance” transactions related to the Company’s core life settlement business. Structured finance transactions involve an extension of the services provided to customer base for customer driven transactions executed through the Company’s exchange platform. Structured finance transactions involve utilizing the skill sets of the Company’s personnel to both advise and structure an appropriate transaction that accommodates the goals of the parties involved. The Company incurred minimal expenses in establishing the subsidiary.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

In July 2008, the Company formed four additional subsidiaries to facilitate its plans to further expand its service offerings. Filings with the State of Nevada began on June 3, 2008, however the organization activities were not completed until July 2008. The newly formed subsidiaries are as follows:

LFX Brokerage LLC - This company was formed to facilitate deeper market penetration into life settlement sell-side participants. This entity will hold life settlement brokerage licenses and life insurance general agency licenses allowing us to offer expanded services as they relate to our core business of operating a life settlement exchange. These licenses also give us the flexibility to interact directly with policy owners and more efficiently address their market needs.

LFX Acquisitions LLC - This company was formed to facilitate deeper market penetration into life settlement buy-side participants. This entity will hold life settlement provider licenses and provide better market access to financial institutions like banks and pension funds to our life settlement exchange. This entity will also allow us the ability to provide ongoing asset servicing to clients that require these services.

LFX Capital Markets LLC - This company was formed in anticipation of further regulatory developments that could bring greater oversight by FINRA to the life settlement market place. This entity will be licensed as a broker/dealer and will also be designed for providing trades in more advanced structured life settlement products that will be classified as securities. Having a broker/dealer license will also allow us to accept variable life insurance contracts, a sector of the market that we have not yet tapped.

LFX Trading, LLC- This company was formed to hold all the technology related to our life settlement auction platform as well as the intellectual property we will be developing related to our electronic trading platform. This new entity will ultimately be responsible for receiving all transaction fees as they relate to auctions or trades through our systems.

Going Concern

After realizing four consecutive profitable quarters in fiscal 2008, the first two quarters of 2009 have produced operating losses as a result of decreased revenues. Therefore, it is uncertain whether the Company can consistently generate sufficient revenues to fund its operational costs. As shown in the accompanying financial statements, the Company realized a net loss from operations of $420,580 for the six months ended December 31, 2008 and a shareholders’ deficit of $596,768, which is an increase from a shareholders’ deficit of $320,406 as of June 30, 2008. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Management’s plans in regard to this matter are to continue to pursue structured finance transactions and if necessary to raise equity capital, seek debt financing and to form strategic relationships and alliances in order to continue the commercialization of its online exchange platform in an effort to generate sustainable positive cash flow. Until its online exchange platform becomes commercially viable or the newly formed structured finance transactions prove sustainable and continue to generate sufficient revenues, the Company must continue to rely upon debt and/or equity infusions in order to provide adequate liquidity to sustain its operations. However, there can be no assurance that management’s plans will be successful.

The financial statements have been prepared on a “going concern” basis and accordingly do not include any adjustments that might result from the outcome of this uncertainty.

Principles of Consolidation and Basis of Accounting

The consolidated financial statements include the accounts of Life-Exchange, Inc. and its wholly owned subsidiary LFX Insurance Services, LLC, LFX Brokerage, LLC, LFX Trading, LLC, LFX Capital Markets, LLC and LFX Acquisitions, LLC. The consolidated financial statements are prepared using the accrual basis of accounting where revenues and expenses are recognized in the period in which they were incurred. The basis of accounting conforms to accounting principles generally accepted in the United States of America. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made in the 2008 results to conform to the presentation used in YTD-2009.

Management’s Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Interim Presentation

The interim financial statements presented herein have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The interim financial statements should be read in conjunction with the Company’s annual financial statements, notes and accounting policies included in the Company’s Annual Report. In the opinion of management, all adjustments which are necessary to provide a fair presentation of

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

financial position as of December 31, 2008 and the related operating results and cash flows for the interim period presented have been made. All adjustments are of a normal recurring nature. The results of operations, for the period presented are not necessarily indicative of the results to be expected for the year ended June 30, 2009.

Revenue Recognition

The Company recognizes revenue in accordance with the provisions of SAB 104, “Revenue Recognition”, which states that revenue is realized and earned when all of the following criteria are met:

(a) persuasive evidence of the arrangement exists,

(b) delivery has occurred or services have been rendered,

(d) collectability is reasonably assured.

The Company’s accounting policy for revenue recognition will have a substantial impact on its reported results and relies on certain estimates that require difficult, subjective and complex judgments on the part of management. The Company will recognize revenue when substantially all the risks and rewards of life settlement transactions have transferred (will transfer) from the seller to the buyer. A life settlement transaction is defined by the Company as “the sale of an in-force life insurance policy that is issued on the life of a person that is not considered terminally ill, for a lump sum amount; the amount is more than the cash surrender value of the policy but less than the face value of the policy”. Revenue associated with life settlement transactions will be recognized when title (ownership) passes to the customer (purchaser), either immediately or within a fixed time schedule that is reasonable and customary in the industry.

In addition to settlement transactions, the Company also recognizes revenue from distributing industry related news and information; annual license fees and setup fees. All these fees are non-refundable and earned upon delivery of the related service.

Cash and Cash Equivalents

The Company considers liquid investments with an original maturity of three months or less to be cash equivalents.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable.

The Company has had in the past and may have in the future, cash deposits that exceeded federally insured limits, which potentially subjects the Company to a concentration risk. Although the Company believes that it maintains its cash deposits at high quality financial institutions, the Company periodically evaluates the quality of its financial depository’s and if appropriate, distribute its deposits across several financial institutions, to mitigate this concentration risk. No cash deposits exceeded the federally insured limits at December 31, 2008.

The Company performs ongoing credit evaluations of its customers’ financial condition and maintains an appropriate allowance for uncollectible accounts receivable based upon the expected collectability of all accounts receivable.

Accounts Receivable

The Company carries its accounts receivable at net realizable value. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on its history of past write-offs, collections and current credit conditions. During YTD-2009, the Company reflected an allowance for doubtful accounts of $5,777, related to the amounts due from specific customers that were deemed by management to be uncollectible.

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method. Maintenance and repair costs are expensed as incurred. Major replacements and betterments are capitalized and depreciated over the remaining useful lives of the assets.

Intangible Assets

Intangible assets consist of patent costs covering the exchange platform concept and associated technology. The patent has a carrying value of $10,000 and is being amortized on the straight-line basis over 15 years. Accumulated amortization as of December 31, 2008 was $2,333. Amortization expense was $167 (QTR-2009) and $333 (YTD-2009). Amortization expense is estimated to be $667 per year in each of the years ended June 30, 2009 through 2013.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Income Tax Benefit

The income tax benefit consists of taxes currently refundable due to net operating loss carry back provisions for federal and state governments. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effect of changes in tax laws and rates on the date of enactment.

Product Development Costs

Product and development costs consist of the costs to develop and operate the online exchange platform’s web based application and transaction database and are expensed as incurred.

Fair Value of Financial Instruments

Cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued expenses, as reflected in the financial statements, approximate fair value because of the short-term maturity of these instruments. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates arte subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Impairment of Long-lived Assets

The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. If an asset or asset group is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. We assess the recoverability of the intangible assets by determining whether the unamortized balances can be recovered through undiscounted future net cash flows of the related assets. The amount of impairment, if any, is measured based on projected discounted future net cash flows using a discount rate reflecting our average cost of capital, or other appropriated methods of determining fair value. In 2008/2009, the Company believes that there has been no impairment of its long-lived assets.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Research and Development Costs

Research and development costs are expensed as incurred.

Earnings (Loss) Per Share

The Company reports earnings (loss) per share in accordance with SFAS 128. This statement requires dual presentation of basic and diluted earnings (loss) with a reconciliation of the numerator and denominator of the loss per share computations. Basic earnings per share amounts are based on the weighted average shares of common stock outstanding. If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share.

Comprehensive Income (Loss)

The Company adopted SFAS 130, “Reporting Comprehensive Income”, which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the year covered in the financial statements.

Segment Reporting

SFAS 131, “Disclosures about Segments of an Enterprise and Related Information” requires companies to report information about operating segments in interim and annual financial statements. It also requires segment disclosures about products and services, geographic areas and major customers. The Company determined that it did not have any separately reportable operating segments.

Recent Accounting Pronouncements

Recent accounting pronouncements that the Company has adopted or that will be required to adopt in the future are summarized below.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Employers’ Disclosures about Postretirement Benefit Plan Assets

In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP amends SFAS 132(R), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSP FAS 132(R)-1 also includes a technical amendment to SFAS 132(R) that requires a nonpublic entity to disclose net periodic benefit cost for each annual period for which a statement of income is presented. The required disclosures about plan assets are effective for fiscal years ending after December 15, 2009. The technical amendment was effective upon issuance of FSP FAS 132(R)-1. The Company is currently assessing the impact of FSP FAS 132(R)-1 on its consolidated financial position and results of operations.

Effective Date of FASB Interpretation 48 for Certain Nonpublic Enterprises

In December 2008, the FASB issued FSP FIN 48-3, “Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises.” FSP FIN 48-3 defers the effective date of FIN 48, “Accounting for Uncertainty in Income Taxes,” for certain nonpublic enterprises as defined in SFAS 109, “Accounting for Income Taxes.” However, nonpublic consolidated entities of public enterprises that apply U.S. GAAP are not eligible for the deferral. FSP FIN 48-3 was effective upon issuance. The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.

Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R) -8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” This FSP amends SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to require public entities to provide additional disclosures about transfers of financials assets. FSP FAS 140-4 also amends FIN 46(R)-8, “Consolidation of Variable Interest Entities,” to require public enterprises, including sponsors that have a variable interest entity, to provide additional disclosures about their involvement with a variable interest entity. FSP FAS 140-4 also requires certain additional disclosures, in regards to variable interest entities, to provide greater transparency to financial statement users. FSP FAS 140-4 is effective for the first reporting period (interim or annual) ending after December 15, 2008, with early application encouraged. The Company is currently assessing the impact of FSP FAS 140-4 on its consolidated financial position and results of operations.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary

In November 2008, the FASB issued FSP EITF 08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary.” EITF 08-8 clarifies whether a financial instrument for which the payoff to the counterparty is based, in whole or in part, on the stock of an entity’s consolidated subsidiary is indexed to the reporting entity’s own stock. EITF 08-8 also clarifies whether or not stock should be precluded from qualifying for the scope exception of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” or from being within the scope of EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” EITF 08-8 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company is currently assessing the impact of EITF 08-8 on its consolidated financial position and results of operations.

Accounting for Defensive Intangible Assets

In November 2008, the FASB issued EITF 08-7, “Accounting for Defensive Intangible Assets.” EITF 08-7 clarifies how to account for defensive intangible assets subsequent to initial measurement. EITF 08-7 applies to all defensive intangible assets except for intangible assets that are used in research and development activities. EITF 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the impact of EITF 08-7 on its consolidated financial position and results of operations.

Equity Method Investment Accounting Considerations

In November 2008, the FASB issued EITF 08-6 “Equity Method Investment Accounting Considerations.” EITF 08-6 clarifies accounting for certain transactions and impairment considerations involving the equity method. Transactions and impairment dealt with are initial measurement, decrease in investment value, and change in level of ownership or degree of influence. EITF 08-6 is effective on a prospective basis for fiscal years beginning on or after December 15, 2008. The Company is currently assessing the impact of EITF 08-6 on its consolidated financial position and results of operations.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active

In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.” This FSP clarifies the application of SFAS 157, “Fair Value Measurements,” in a market that is not active. The FSP also provides examples for determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued. The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.

Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement

In September 2008, the FASB issued EITF 08-5 “Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement.” This FSP determines an issuer’s unit of accounting for a liability issued with an inseparable third-party credit enhancement when it is measured or disclosed at fair value on a recurring basis. FSP EITF 08-5 is effective on a prospective basis in the first reporting period beginning on or after December 15, 2008. The Company is currently assessing the impact of FSP EITF 08-5 on its consolidated financial position and results of operations.

Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of SFAS 133 and FIN 45; and Clarification of the Effective Date of SFAS 161

In September 2008, the FASB issued FSP FAS 133-1, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.” This FSP amends SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. The FSP also amends SFAS 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to require and additional disclosure about the current status of the payment/performance risk of a guarantee. Finally, this FSP clarifies the Board’s intent about the effective date of SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities.” FSP FAS 133-1 is effective for fiscal years ending after November 15, 2008. The Company is currently assessing the impact of FSP FAS 133-1 on its consolidated financial position and results of operations.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The FSP affects entities that accrue dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. This FSP is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of FSP EITF 03-6-1 on its consolidated financial position and results of operations.

Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own Stock

In June 2008, the FASB ratified EITF 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock". EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of EITF 07-5 on its consolidated financial position and results of operations.

Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)

In May 2008, the FASB issued FSP APB 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statement of operations. The FSP requires retrospective application to the terms of instruments as they existed for all periods presented. The FSP is effective for us as of January 1, 2009 and early adoption is not permitted. The Company is currently evaluating the potential impact of FSP APB 14-1 upon its consolidated financial statements.

The Hierarchy of Generally Accepted Accounting Principles

In May 2008, the FASB issued SFAS 162, "The Hierarchy of Generally Accepted Accounting Principles". SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". The implementation of this standard will not have a material impact on the Company's consolidated financial position and results of operations.

Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS 142 “Goodwill and Other Intangible Assets”. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of the expected cash flows used to measure the fair value of the asset under SFAS 141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles. The Company does not expect that the adoption of FSP FAS 142-3 will have a material impact on the Company’s consolidated financial statements.

Disclosure about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS 161, “Disclosure about Derivative Instruments and Hedging Activities, an amendment of SFAS No.133”. This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The Company is required to adopt SFAS 161 on January 1, 2009. The Company does not expect that the adoption of SFAS 161 will have a material impact on the Company’s consolidated financial statements.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

Noncontrolling Interests in Consolidated Financial Statements

In December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in Consolidated FinancialStatements”, which amends ARB 51, “Consolidated Financial Statements”, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the noncontrolling owners of a subsidiary. SFAS 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS 160 to have a material impact on its financial statements.

Business Combinations

In December 2007, the FASB issued SFAS 141(R) “Business Combinations”. This Statement replaces the original SFAS 141. This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting (which SFAS 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. The objective of SFAS 141(R) is to improve the relevance, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, SFAS 141(R) establishes principles and requirements for how the acquirer:

Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree.
Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.
Determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 and may not be applied before that date. The Company is unable at this time to determine the effect that its adoption of SFAS 141(R) will have on its consolidated results of operations and financial condition.

Fair Value Option for Financial Assets and Liabilities

In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, which provides companies with an option to report selected financial assets and liabilities at fair value with the changes in fair value recognized in earnings at each subsequent reporting date. SFAS 159 provides an opportunity to mitigate potential volatility in earnings caused by measuring related assets and liabilities differently, and it may reduce the need for applying complex hedge accounting provisions. If elected, SFAS 159 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact that this statement may have on the Company results of operations and financial position, and has yet to make a decision on the elective adoption of SFAS 159.

Fair Value Measurements

In September 2006, the FASB issued SFAS 157, “Fair Value Measurements”. SFAS 157 provides guidance for using fair value to measure assets and liabilities. SFAS 157 addresses the requests from investors for expanded disclosure about the extent to which Companies measure assets and liabilities at fair value, the information used to measure fair value and the effect of fair value measurements on earnings. SFAS 157 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value, and does not expand the use of fair value in any new circumstances. In February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157”. This FSP delays the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. SFAS 157 will be adopted by the Company in the first quarter of fiscal year beginning July 2009. The Company is does not expect the adoption of SFAS 157 to have a material impact on its consolidated results of operations and financial condition.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE B – PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET

		December 31,	June 30,
Description	Life	2008	2008

Office Equipment	4 yrs	$ 20,731	$ 20,731
Furniture & Fixtures	7 yrs	2,085	2,085
Leasehold Improvements	1 yr	5,775	5,775
Vehicles	3 yrs	2,123	2,123

		30,714	30,714
Less: Accumulated Depreciation		(17,831)	(14,750)

		$ 12,883	$ 15,964

Depreciation expense for the three months ended December 31, 2008 and 2007 was $1,541 and $976, respectively and for the six months ended December 31, 2008 and 2007 was $3,081 and $1,958, respectively

NOTE C – OTHER ASSETS

	December 31,	June 30,
	2008	2008

Patent costs, net of amortization of $2,333	$ 7,667	$ 8,000

Lease security deposits	4,760	4,760

	$ 12,427	$ 12,760

Patent costs consist of accumulated legal costs associated with a patent application covering the exchange platform concept and associated technology. Patent costs amortization expense is $667 annually, for each fiscal year ended June 30, through 2020

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE D – NOTE PAYABLE – RELATED PARTIES

On July 5, 2006, the Company entered into a note agreement with Vantage Group Ltd. to provide $300,000 of additional financing (“Note 1”). The terms of Note 1, as modified by subsequent amendments, provide for 7% interest payable at maturity. Note 1 is unsecured and matures on April 15, 2010 with quarterly interest installments due through April 15, 2010. Note 1 also provides Vantage with conversion rights based on the Company attaining certain performance criteria as follows. The Holder of this Note 1 is entitled, at its option, to convert the principal amount of Note 1 or any portion thereof, together with accrued but unpaid interest, into shares of Common Stock of the Company (“Conversion Shares”) based on the Company attaining certain performance criteria measured during December, 2006. The Company did not meet the performance criteria and accordingly, no shares were converted.

On April 2, 2007, the Company entered into a note agreement with Vantage Group Ltd. to provide $150,000 of additional financing (“Note 2”). The terms of Note 2, as modified by subsequent amendments, provide for 7% interest payable at maturity. Note 2 is unsecured and matures on April 15, 2010. Note 2 also provides Vantage with conversion rights based on the Company attaining certain performance criteria as follows. Note 2 may be converted into shares of the Company’s common stock at (i) $0.10 or (ii) fifty percent (50%) of the three lowest closing prices of the Company’s Common Stock on the Pink Sheets (or such other principal market or exchange where the Common Stock is listed or traded at the time of conversion) immediately preceding the date of conversion.

On August 2, 2007, the Company was advanced an additional $5,000 under the same terms as Note 2.

NOTE E – LEASES and COMMITTMENTS

The Company currently leases its primary office facilities under a one-year, non-cancelable real estate operating lease with a minimum annual rental commitment of $33,000. The lease expires on June 1, 2009 and may be renewed.

LIFE-EXCHANGE, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Three and Six Months Ended December 31, 2008 and 2007

NOTE F – SUBSEQUENT EVENTS

On January 9, 2009, the Company’s board of directors approved the Company’s 2009 Employee Stock Option Plan (the “2009 Stock Plan”). Under the 2009 Stock Plan, incentive stock options, nonstatutory stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, performance units and performance shares as the Administrator may determine, may be granted to officers, employees and service providers of the Company including our subsidiaries.

The administrative terms of the 2009 Stock Plan provide the following;

Maximum Award - the maximum aggregate number of shares that may be awarded and sold under the 2009 Stock Plan is 35,343,000 shares
Eligibility – non-statutory stock options, stock appreciation rights (SARs), restricted stock, restricted stock units, performance units and performance shares and such other cash or stock awards as the Administrator determines may be granted to service providers. Incentive stock options may be granted only to employees.
Term - The Administrator will determine the term of each option in its sole discretion; provided, however, that the term will be no more than ten (10) years from the date of grant thereof. Moreover, in the case of an incentive stock option granted to a participant who, at the time the incentive stock option is granted, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the incentive stock option will be five (5) years from the date of grant or such shorter term as may be provided in the award agreement.
Exercise Price - The per share exercise price for the shares to be issued pursuant to exercise of an option will be determined by the Administrator, but will be no less than 100% of the fair market value per share on the date of grant. In addition, in the case of an incentive stock option granted to an employee who, at the time the incentive stock option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per share exercise price will be no less than 110% of the fair market value per share on the date of grant. Notwithstanding the foregoing provisions, options may be granted with a per share exercise price of less than 100% of the fair market value per share on the date of grant pursuant to a transaction described in, and in a manner consistent with, Section 424(a) of the Code.

No stock option awards have yet been made under the 2009 Stock Plan and accordingly no expenses or compensation has been charged to operations.

On January 9, 2009, the Company issued 1,600,000 shares to employees. The employee shares are registered under Form S-8. The Company’s shares traded at $0.12 per share on January 9, 2009.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS AND OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS REPORT.

OVERVIEW

On January 19, 2005, Life-Exchange, Inc. (the “Company” or “we” or “our” or “us”) was incorporated under the laws of the State of Delaware for the purposes of servicing the life settlement industry by creating an on-line business-to-business exchange platform. This platform was designed to facilitate the brokering of life insurance policies in the secondary market. On January 29, 2006, our common stock began trading publicly on the NASDAQ Pink Sheets under the symbol “LFXG.PK”.

We are an Internet-based, business-to-business exchange for the life settlement industry. By providing a secure, efficient and neutral electronic trading platform specifically designed for life settlements, we address many of the inefficiencies and difficulties currently facing the industry.

Both viatical and life settlement transactions involve the sale of an existing life insurance policy to a third party. By selling the policy, the policyholder receives an immediate cash payment to use as he or she wishes. The purchaser takes an ownership interest in the policy at a discount to its face value and receives the death benefit under the policy when the insured dies. The insurance industry generally uses the term “viatical settlement” to refer to a transaction involving the terminally or chronically ill insured and the term “life settlement” to refer to a transaction involving an insured who is not terminally or chronically ill, but generally over the age of sixty five (65).

After a policy has been registered and submitted to auction, the policy enters a preview period which allows all potential buyers the opportunity to underwrite the policy. After this preview period expires, the policy enters a live auction period whereby providers are able to bid against each other for the right to purchase the life insurance policy in a real-time, online auction.

Our operating revenues are derived from fees for facilitating viatical and life settlement transactions associated with successful policy auctions. Transactions fees are based on a percentage of the face amount of the life insurance policy. This fee arrangement is non-commission based and therefore it allows us to remain neutral in a life settlement transaction as we are not incentivized by either a high or a low sales price. Furthermore, because of our role in the life settlement transaction and as validated by the neutrality of our fee structure, we do not represent or negotiate on behalf of the policy owners and accordingly do not have a fiduciary responsibility to the policy owner as a life settlement broker would.

In addition to the transaction fees described above, we also generate news distribution fees. The secondary life insurance market is a niche marketplace with a unique blend of participants. And while this marketplace is experiencing tremendous growth, it is still difficult to target the most active firms and individuals. To address this need, we maintain a large database of influential readers focused on life settlements. For news distribution fees ranging from $500 to $2000 per press release, we will distribute press releases to our subscriber base.

Our automated exchange and auction system has modernized the life settlement industry by introducing buyers to sellers (and vice versa) in a virtual, online marketplace. Our features and functionality are specifically designed to improve regulatory compliance, increase customer value, reduce transaction costs, create new revenue models, and add efficiency to an inefficient market.

On September 27, 2007, we formed LFX Insurance Services, LLC, a Nevada limited liability company. LFX was formed to process “structured finance” transactions related to our core life settlement business. Structured finance transactions involve an extension of the services provided to customer base for customer driven transactions executed through our exchange platform. Structured finance transactions utilize the skill sets of our personnel to both advise and structure an appropriate transaction that accommodates the goals of the parties involved.

Recent developments. As part of our plan to expand operations, in July 2008 we formed four (4) new Nevada limited liability company subsidiaries, none of which are currently operational. The newly formed subsidiaries are as follows:

LFX Brokerage LLC was formed to facilitate deeper market penetration into life settlement sell-side participants. This entity will hold life settlement brokerage licenses and life insurance general agency licenses allowing us to offer expanded services as they relate to our core business of operating a life settlement exchange. These licenses also give us the flexibility to interact directly with policy owners and more efficiently address their market needs.

LFX Acquisitions LLC was formed to facilitate deeper market penetration into life settlement buy-side participants. This entity will hold life settlement provider licenses and provide better market access to financial institutions like banks and pension funds to our life settlement exchange. This entity will also allow us the ability to provide ongoing asset servicing to clients that require these services.

LFX Capital Markets LLC was formed in anticipation of further regulatory developments that could bring greater oversight by FINRA to the life settlement market place. This entity will be licensed as a broker/dealer and will also be designed for providing trades in more advanced structured life settlement products that will be classified as securities. Having a broker/dealer license will also allow us to accept variable life insurance contracts, a sector of the market that we have not yet tapped.

LFX Trading, LLC was formed to hold all the technology related to our life settlement auction platform as well as the intellectual property we will be developing related to our electronic trading platform. This new entity will ultimately be responsible for receiving all transaction fees as they relate to auctions or trades through our systems.

We operate two websites: www.life-exchange.com and www.life-exchange.net.

Life settlements have become a more popular investment for many institutional lenders, including life insurance companies such as AIG. Although we currently have several pending contracts involving AIG policies, we fully expect the current market situation to have little impact on the underlying insurance policies we exchange, or the volume related thereto.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2008 (Q2 2009)

COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2008 (Q2 2008)

Results of Operations

Three Months Ended December 31, 2008 (QTR 2009) Compared to Three Months Ended December 31, 2007 (QTR 2008)

Revenues decreased $294,632 (95.6%) to $13,644 (QTR 2009) from $308,276 (QTR 2008). The decrease is attributable to the worsening economy through the second quarter ended December 31, 2008. The Company currently operates three service lines, its original exchange transaction platform service line, specialty auctions and a new service line of brokerage services, which commenced operations during the first quarter of fiscal 2009. Approximately $8,400 (61.6%) and $290,302 (94.2%) of the revenue were generated through specialty auctions in YTD 2009 and YTD 2008, respectively.

Costs of Revenue increased $4,174 (33.4%) to $16,663 (QTR 2009) from $12,489 (QTR 2008). Cost of revenues consists of product development expenses, internet hosting services and related expenses. The increase was primarily due to a $9,174 combined increase in Internet Hosting costs and other cost, which were partially offset by a $5,000 reduction in development costs.

Sales and Marketing Expense decreased $58,141 (81.0%) to $13,657 (QTR 2009) from $71,798 (QTR 2008). Sales and marketing expenses consist of travel, communications, subscriptions and memberships. The decrease was directly due to decreased expenditures for all categories as result of efforts to reduced costs in response to the deteriorating economy.

Administration Expense increased $13,928 (7.6%) to $196,102 (QTR 2009) from $182,174 (QTR 2008). Administration expenses consist of payroll expenses, professional fees, office expenses and other general and administrative expenses. The increase was primarily due to increases in:

professional fees (legal and accounting) of $72,364 due to legal and licensing matters related to establishing additional companies;
office expense and other administration expense of $5,149 also caused by our expansion and new subsidiaries.

These increases were partially offset by decreases in:

payroll of $53,868 as a result of salary reductions in response to the weakening economy;
insurance of $9,717 as a result of discontinuing certain non-operational insurance coverage.

Other Income (Expense) reported a decreased expense of $335 (3.9%) to $8,205 expense (QTR 2009) from an $8,540 expense (QTR 2008). Other income (expense) consists of refunds received, interest income and interest expense. The decreased expense is primarily due to a refund.

Net Income (Loss) increased $254,258 (764.1%) to a $220,983 net loss (QTR 2009) from $33,275 net income (QTR 2008). The decrease is primarily due to a decrease in exchange revenue due to disruptions in the economy during this quarter.

Six Months Ended December 31, 2008 (YTD 2009) Compared to Six Months Ended December 31, 2007 (YTD 2008)

Revenues decreased $574,790 (83%) to $117,477 (YTD 2009) from $692,267 (YTD 2008). The decrease is attributable to the financial uncertainty of AIG during the quarter ended September 30, 2008 and the worsening economy through the second quarter ended December 31, 2008. The Company currently operates three service lines, its original exchange transaction platform service line, specialty auctions and a new service line of brokerage services, which commenced operations during the first quarter of fiscal 2009. Approximately $96,415 (82.1%) and $571,937 (82.6%) of the revenue were generated through specialty auctions in YTD 2009 and YTD 2008, respectively.

Costs of Revenue increased $9,712 (50.7%) to $28,869 (YTD 2009) from $19,157 (YTD 2008). Cost of revenues consists of product development expenses, internet hosting services and related expenses. The increase was primarily due to a $14,712 combined increase in Internet Hosting costs and other cost, which were partially offset by a $5,000 reduction in development costs.

Sales and Marketing Expense decreased $17,358 (18.3%) to $77,340 (YTD 2009) from $94,698 (YTD 2008). Sales and marketing expenses consist of travel, communications, subscriptions and memberships. The decrease was directly due to reduced expenditures for in all categories except dues, subscriptions and memberships which increased $6,792 (94.2%) as part of the company’s strategic plan to increase the Company’s national exposure.

Administration Expenses increased $117,778 (39.5%) to $416,020 (YTD 2009) from $298,242 (YTD 2008). Administration expenses consist of payroll expenses, professional fees, office expenses and other general and administrative expenses. The increase was primarily due to increases in:

professional fees (legal and accounting) of $111,871 due to establishing and operating additional companies with additional service offerings;
office expense and other administration expenses of $24,143 also caused by our expansion and new subsidiaries.

These increases were partially offset by decreases in:

payroll of $9,181 caused by the salary reductions in Q2 2009 which offset the hiring of additional staff in Q1 2009;
insurance of $9,055 as a result of discontinuing certain non-operational insurance coverage.

Other Income (Expense) reported a decreased expense of $1,203 (7.1%) to $15,828 expense (YTD 2009) from an $17,031 expense (YTD 2008). Other income (expense) consists of refunds received, interest income and interest expense. The decreased expense is primarily due to a refund.

Net Income (Loss) decreased $683,719 (259.8%) to a $420,580 net loss (YTD 2009) from $263,139 net income (YTD 2008). The decrease is primarily due to a decrease in exchange revenue as a result disruptions in the economy which began during Q1 2009 and worsened during Q2 2009.

Liquidity and Capital Resources and Plan of Operations

Overview The Company’s net working capital decreased $272,948 (163.4%) to a $167,078 deficit at December 31, 2008 from a $105,870 surplus at June 30, 2008. The Company reported $54,316 in cash at December 31, 2008, which represents collections of earned revenue primarily from specialty auction fees, one of our additional service lines.

It is still uncertain whether the Company can consistently generate sufficient revenues to fund its operational costs, although the Company realized four profitable quarters in fiscal 2008. As shown in the accompanying financial statements, the Company realized net loss from operations of $420,580 for the six months ended December 31, 2008 and a shareholders’ deficit of $596,768. It will take several quarters of revenues at volumes consistent with 2007 average quarterly revenue to offset the accumulated deficit, which will be challenging in a recessed economy. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to this matter are to continue to raise equity capital and seek strategic relationships and alliances in order to further enhance the commercialization of its exchange platform in an effort to generate positive cash flow. Until its technologies become fully commercially viable and marketing efforts generate sufficient transaction volume, the Company may need to seek additional equity infusions in order to provide adequate liquidity to sustain its operations.

Cash Flows for the YTD 2009

Cash Flows From Operating Activities Net cash used in operating activities was $208,947 (YTD 2009). Net cash used by operating activities resulted from a net loss, adjusted for non-cash reconciling items, of $411,389, which was partially offset by net cash provided by changes in working capital components of $202,442. Significant working capital components that provided net cash were $77,892 from decreased accounts receivables as a result of reduced sales; $144,592 from increased accounts payable due to increased professional fees funded by increased vendor credit lines. Significant working capital components that used net cash were $25,000 from increase prepaid expenses as a result of a refundable advance paid to a law firm.

Cash Flows From Investing Activities No cash was used or provided by investing activities.

Cash Flows From Financing Activities No cash was used or provided by financing activities.

NonCash Investing and Financing Activities The Company realized a $144,618 contribution to equity as a result of management’s decision to forgive prior salaries accrued but unpaid.

Financing The Company has obtained its financing from Vantage Group Ltd., a significant shareholder, through two note agreements, one for $300,000 dated July 7, 2006 and one for $150,000 dated April 2, 2007 and a $5,000 advance made under the same terms as the second note. Vantage Group Ltd. has provided $455,000 of financing in aggregate. The terms of the notes provide for 7% interest payable at maturity. The notes are unsecured and mature on April 15, 2010.

The $300,000 note provides that the Holder, at its option, may convert the principal amount of this Note or any portion thereof, together with accrued but unpaid interest, into shares of Common Stock of the Company (“Conversion Shares”) based on the Company attaining certain performance criteria measured during December 2006. Company did not meet the performance criteria and accordingly, no shares were converted.

The $150,000 note also provides the Holder with conversion rights based on the Company attaining certain performance criteria.

As part of our plan to expand operations, in July 2008 we formed four (4) new Nevada limited liability company subsidiaries, none of which are currently operational. The newly formed subsidiaries are as follows:

FX Capital Markets LLC was formed in anticipation of further regulatory developments that could bring greater oversight by FINRA to the life settlement market place. This entity will be licensed as a broker/dealer and will also be designed for providing trades in more advanced structured life settlement products that will be classified as securities. Having a broker/dealer license will also allow us to accept variable life insurance contracts, a sector of the market that we have not yet tapped.

Off Balance Sheet Transactions

As of December 31, 2008, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we were engaged in such relationships.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

               We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

Item 4. Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements and that receipts and expenditures of company assets are made in accordance with management authorization; and (iii) provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.

For the period ending December 31, 2008, the Company carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation was conducted by David Dorr, our President and Principal Executive Officer and Brian Dorr, our Principal Financial Officer. Based upon their evaluation, they concluded that the Company’s disclosure controls and procedures are effective.

This Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this quarterly Report.”

Lack of Segregation of Duties

Management is aware that there is a lack of segregation of duties at the Company due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the abilities of the employees now involved and the control procedures in place, the risks associated with such lack of segregation are low and the potential benefits of adding employees to clearly segregate duties do not justify the substantial expenses associated with such increases. Management will periodically reevaluate this situation.

Lack of Independent Board of Directors and Audit Committee

Management is aware that there is a lack of an independent board of directors and audit committee due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the cost of maintaining independent board members and the direct involvement of the existing officers and board members in the company’s daily transactions, the risks associated with such lack of an independent board of directors are low and the potential benefits of adding independent directors to enhance corporate governance duties do not justify the substantial expenses associated with such additions. Management has begun the interview process for several potential additions to the board. Management will periodically reevaluate this situation.

Changes in Internal Controls

During the fiscal quarter ended December 31, 2008, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based upon their evaluation as of the end of December 31, 2008, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.

Evaluation of and Report on Internal Control over Financial Reporting

The management of the Registrant is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

Based on its assessment, management concluded that, as of December 31, 2008, the Company’s internal control over financial reporting is effective based on those criteria.

This quarterly report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Quarterly report.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting identified in connection with the requisite evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management has taken steps to correct previously disclosed material weaknesses in the preparation, review, presentation and disclosures in our Consolidated Financial Statements. We are continuing to monitor, evaluate and test the operating effectiveness of these controls.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any pending legal proceedings nor is any of our property the subject of any pending legal proceedings.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

Item 2. Unregistered Sales Of Equity Securities And Use Of Proceeds.

none

Item 3. Defaults Upon Senior Securities

none

Item 4. Submission of Matters to a Vote of Security Holders

none

Item 5. Other Information

On December 3, 2008, we filed a Current Report on Form 8-K wherein we reported the conclusion of our relationship with a former officer and member of the board of directors

Item 6. Exhibits

EXHIBIT

NUMBER DESCRIPTION

--------------- ----------------------

31.1 Certification of Principal Executive Officer pursuant to Sarbanes-Oxley Section 302

31.2 Certification of Principal Financial Officer pursuant to Sarbanes-Oxley Section 302

32.1 Certification of Chief Executive Officer pursuant to Sarbanes-Oxley Section 906

32.2 Certification of Chief Financial Officer pursuant to Sarbanes-Oxley Section 906

SIGNATURES

-------------------------

By: David Dorr

Chief Executive Officer, President, Director

Date: __________

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

/s/ David Dorr

By: David Dorr

Chief Executive Officer, President, Director, Chief Financial Officer

Date: ____________

/s/ Brian Dorr

By: Brian Dorr

Secretary, Director, Treasurer

Date: ____________

Exhibit 31.1

RULE 13a-14(a) CERTIFICATION

I, David Dorr, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Life Exchange, Inc.;