##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31, 2005                                                 
|          
|OR        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-31376


ZIPREALTY, INC.


(Exact name of registrant as specified in its charter)


|                                                                                        |  |                                         
|--------------------------------------------------------------------------------------- |  | ----------------------------------------
|DELAWARE                                                                                |  | 94-3319956                              
|(State of incorporation)                                                                |  | (IRS employer
    identification number)
|2000 POWELL STEET, SUITE 300
    EMERYVILLE, CA(Address of principal executive offices) |  | 94608(Zip Code)                         

(510) 735-2600


(Registrants telephone number)


Securities registered pursuant to section 12(b) of the
Act:


None


Securities registered pursuant to section 12(g) of the
Act:


Shares of Common Stock, $0.001 par value


o þ


o þ


þ o


S-K 10-K 10-K. o


12b-2


o þ o


12b-2 o þ






DOCUMENTS INCORPORATED BY REFERENCE












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TABLE OF CONTENTS


|              |  |                                                                                                        |    |      |    | 
|------------- |  | ------------------------------------------------------------------------------------------------------ | -- | ---- | -- | 
|              |  |                                                                                                        |    | Page |   
|              |  |                                                                                                        |    |      |   
|PART I       
|Item 1.       |  | Business                                                                                               |    |      | 4  | 
|Item 1A.      |  | Risk Factors                                                                                           |    |      | 18 | 
|Item 1B.      |  | Unresolved Staff Comments                                                                              |    |      | 31 | 
|Item 2.       |  | Properties                                                                                             |    |      | 31 | 
|Item 3.       |  | Legal Proceedings                                                                                      |    |      | 31 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                |    |      | 31 | 
|             
|PART II      
|Item 5.       |  | Market for Our Common Stock, Related
    Stockholder Matters and Issuer Purchases of Equity Securities |    |      | 32 | 
|Item 6.       |  | Selected Financial Data                                                                                |    |      | 33 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of
    Operations          |    |      | 34 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                         |    |      | 51 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                        |    |      | 52 | 
|Item 9.       |  | Changes in and Disagreements with
    Accountants on Accounting and Financial
    Disclosure           |    |      | 81 | 
|Item 9A.      |  | Controls and Procedures                                                                                |    |      | 81 | 
|Item 9B.      |  | Other Information                                                                                      |    |      | 82 | 
|             
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                 |    |      | 82 | 
|Item 11       |  | Executive Compensation                                                                                 |    |      | 82 | 
|Item 12.      |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters     |    |      | 82 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                     |    |      | 83 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                 |    |      | 83 | 
|             
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                         |    |      | 83 | 
|Signatures    |  |                                                                                                        | 85 |     
|EXHIBIT 10.12
|EXHIBIT 10.13
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



2



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Statement regarding forward-looking statements






| |   |                                                     
| | - | ----------------------------------------------------
| |  | our future financial results;                       
|
| |  | our future growth and expansion into new markets;   
|
| |  | our future advertising and marketing activities; and
|
| |  | our future investment in technology.                





®


Internet Site


www.ziprealty.com 10-K, 10-Q, 8-K, 10-K.


Where You Can Find Additional Information


10-K, 1-800-SEC-0330.


3



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PART I







|        |          
|------- | ---------
|Item 1. | Business:

OVERVIEW


®


word-of


®




INDUSTRY BACKGROUND




| |                                        
| | ---------------------------------------
| | The U.S. residential real estate market

Trends


4



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Trends Trends


Trends


Trends




| |                                            
| | -------------------------------------------
| | Traditional real estate transaction process









| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Increasing use of the Internet in the residential real
    estate transaction process



5



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| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Challenges and limitations of the traditional residential
    real estate process





| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Challenges for home buyers and sellers. We believe that
    the traditional residential real estate industry is
    characterized by low levels of client satisfaction. Some
    contributing factors include:



| |   |                                                       
| | - | ------------------------------------------------------
| |  | limited access to, and transparency of, information;  
|
| |  | high commissions;                                     
|
| |  | lack of client control over the process; and          
|
| |  | low levels of agent responsiveness and accountability.



| |                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Challenges for agents. Agents often have difficulty
    generating consistent transaction volume, resulting in
    inconsistent earnings. Some contributing factors include:



| |   |                                                                                             
| | - | --------------------------------------------------------------------------------------------
| |  | need to spend considerable personal time and money generating
    potential clients;        
|
| |  | limited resources to properly manage client relationships and
    transaction processes; and
|
| |  | responsibility for other business expenses and personal benefits.                           



| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Challenges for brokerage firms. Traditional brokerage
    firms have difficulty differentiating their services and
    effectively managing agents and ensuring client satisfaction.
    Some contributing factors include:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | independent contractor nature of agent relationship limits
    accountability and managerial effectiveness;
|
| |  | ownership and management of client relationships resides with
    the agents; and                          
|
| |  | low levels of client and agent loyalty.                                                                    

OUR BUSINESS MODEL






| |                                                  
| | -------------------------------------------------
| | Addressing challenges for home buyers and sellers

We use the Internet to empower consumers.


We focus on delivering high-quality service with a
client-centric approach.


6



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We offer a compelling consumer value proposition.




| |                                                         
| | --------------------------------------------------------
| | Addressing challenges for agents and brokerage
    firms

We use proprietary business management technologies and
processes to increase operational efficiency and provide
excellent client service.


We offer a compelling value proposition to agents.




| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our ZipAgents receive a steady flow of qualified leads without
    individual marketing efforts, allowing them to rapidly develop a
    good pipeline of clients;                                                            
|
| |  | our ZAP technology, with its proprietary CRM tools, allows our
    ZipAgents to remain organized and communicate and sell
    effectively with numerous clients at the same time; and                                        
|
| |  | our system includes closing support infrastructure that allows
    our ZipAgents to spend less time on closing tasks and more time
    on new clients than they would otherwise be able to without this
    support in place.



7



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OUR STRATEGY






| |                                                    
| | ---------------------------------------------------
| | Broaden and deepen our presence in existing markets





| |                            
| | ---------------------------
| | Enhance the ZipRealty brand

word-of




| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Continue to invest in technology and our people to
    increase operational efficiency





| |                                              
| | ---------------------------------------------
| | Expand operations into new geographic markets



8



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| |                                          
| | -----------------------------------------
| | Continue to improve the client experience



OUR CONSUMER WEBSITE AND SERVICES


easy-to




| |                                                
| | -----------------------------------------------
| | Comprehensive MLS access for home listings data





| |          
| | ---------
| | ZipNotify



9



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| |                                          
| | -----------------------------------------
| | Neighborhood data and related information





| |                                
| | -------------------------------
| | Online images and virtual tours





| |                
| | ---------------
| | Schedule visits





| |            
| | -----------
| | Home offers





| |                       
| | ----------------------
| | Financing pre-approval

E-LOAN, E-LOAN E-LOAN


ZIPAGENT PLATFORM




10



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##### Table of Contents





ZIPAGENTS






| |                       
| | ----------------------
| | Compensation structure





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Commissions. As is customary in the real estate brokerage
    industry, ZipAgents earn a portion of the commissions they
    generate for us, which is known as their split. Industry
    commission splits vary widely, but frequently range from 70% to
    80% to the agent and the balance to the brokerage firm.
    Currently, our commission splits to ZipAgents vary from as low
    as 35% to as high as 80% of our net revenues, after deducting
    certain other items.
|
| |  | Expense reimbursement. All California and other eligible
    ZipAgents (including, where applicable, ZipAgents who have met
    certain levels of productivity) receive expense reimbursement.
    This reimbursement covers many expenses typically related to
    their business, such as automobile usage, cell phone usage and
    Internet connectivity.                                                                                                                      
|
| |  | Company-paid marketing expenses. In the traditional
    independent contractor model, agents are typically responsible
    for covering all of their own marketing expenses, including the
    cost of lead generation, advertising and marketing costs
    associated with selling homes and production of collateral
    materials. In our model, we cover these costs for all of our
    ZipAgents.                                                                             
|
| |  | Benefits. One of the advantages of our employee-based
    model for our ZipAgents is that we provide them with a broad
    array of benefits that are uncommon in the real estate brokerage
    industry, including company-sponsored health, welfare and 401(k)
    plans. In addition, ZipAgents have the ability to earn stock
    options in connection with annual performance reviews and in
    some cases based upon transaction volume.                                   



| |                        
| | -----------------------
| | Recruiting and training



11



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CLIENT ACQUISITION




| |                
| | ---------------
| | Lead generation







PRODUCT DEVELOPMENT AND ENGINEERING








12



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around-the back-up back-up


REGULATORY MATTERS






| |                      
| | ---------------------
| | Government regulation



State regulation.


Federal regulation.


13



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Local regulation.


Federal and state labor regulation.








| |                       
| | ----------------------
| | Third-party regulation

® ®




14



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®


®


COMPETITION


Trends Trends


15



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| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | quality of the home data available to clients;                            
|
| |  | quality of the agents;                                                    
|
| |  | level of client responsiveness;                                           
|
| |  | level of commissions charged sellers or incentives provided to
    buyers;
|
| |  | local knowledge;                                                          
|
| |  | ease of product usability; and                                            
|
| |  | overall client service.                                                   



INTELLECTUAL PROPERTY






EMPLOYEES




EXECUTIVE OFFICERS




|                         |  |     |    |  |          |                                                              
|------------------------ |  | --- | -- |  | -------- | -------------------------------------------------------------
|Name                     |  | Age |    |  | Position
|                         |  |     |    |  |         
|Eric A. Danziger         |  |     | 51 |  |          | President, Chief Executive Officer and Director              
|Gary M. Beasley          |  |     | 40 |  |          | Executive Vice President and Chief Financial Officer         
|William C. Sinclair      |  |     | 57 |  |          | Executive Vice President, Operations and Business Development
|Joseph Patrick Lashinsky |  |     | 39 |  |          | Senior Vice President, Product Strategy and Development      
|Jeffrey G. Wagoner       |  |     | 46 |  |          | Senior Vice President, Sales                                 
|David A. Rector          |  |     | 60 |  |          | Vice President, Controller and Chief Accounting Officer      
|Richard H. Roberts       |  |     | 41 |  |          | Vice President, Marketing                                    
|Karen B. Seto            |  |     | 41 |  |          | Vice President, General Counsel and Secretary                

16



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Eric A. Danziger


Gary M. Beasley


William C. Sinclair


Joseph Patrick Lashinsky


Jeffrey G. Wagoner


David A. Rector


Richard H. Roberts


17



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e-commerce


Karen B. Seto cum
laude







|         |              
|-------- | -------------
|Item 1A. | Risk Factors:

RISK FACTORS




RISKS RELATED TO OUR BUSINESS AND INDUSTRY




| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have been profitable in only eight quarters and may
    incur losses in the future, and our limited operating history
    makes our future financial performance difficult to
    assess.









| |                                                                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business model requires access to real estate listing
    services provided by third parties that we do not control, and
    the demand for our services may be reduced if our ability to
    display listings on our website is restricted.



18



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®




| |                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business could be harmed by transitions in the real
    estate markets and economic events that are out of our control
    and may be difficult to predict.



19



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| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | Our business model is new and unproven, and we cannot
    guarantee our future success.





| |                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to recruit, hire and retain qualified agents,
    we may be unable to service our clients and our growth could be
    impaired.







20



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| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to effectively manage the growth of our
    ZipAgents and our information and control systems could
    adversely affect our ability to service our clients.







| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating results are subject to seasonality and vary
    significantly among quarters during each calendar year, making
    meaningful comparisons of successive quarters difficult.

45-day






| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | timing of widely observed holidays and vacation periods and
    availability home buyers and sellers, real estate agents and
    related service providers during these periods;
|
| |  | a desire to relocate prior to the start of the school year;                                                                                                                     
|
| |  | inclement weather which can influence consumers desire or
    ability to visit properties;                                                                                     
|
| |  | timing of employment compensation changes, such as raises and
    bonuses;                                                                                                      
|
| |  | the time between entry into a purchase contract for real estate
    and closing of the transaction; and                                                                         
|
| |  | the levels of housing inventory available for sale.                                                                                                                             

21



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| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Interest rates have been at historic lows for the past
    several years, and increases in interest rates have the
    potential to negatively impact the housing market.





| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If consumers do not continue to use the Internet as a tool
    in their residential real estate buying or selling process, we
    may be unable to attract new clients and our growth and
    financial results may suffer.

face-to




| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Our success depends in part on our ability to successfully
    expand into additional real estate markets.





| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the economic conditions and demographics of a market;                                                                                                                   
|
| |  | the general prices of real estate in a market;                                                                                                                          
|
| |  | Internet use in a market;                                                                                                                                               
|
| |  | competition within a market from local and national brokerage
    firms;                                                                                                
|
| |  | rules and regulations governing a market;                                                                                                                               
|
| |  | the ability and capacity of our organization to manage expansion
    into additional geographic areas, additional headcount and
    increased organizational complexity;
|
| |  | the existence of local MLSs; and                                                                                                                                        
|
| |  | state laws governing cash rebates and other regulatory
    restrictions.                                                                                                

start-up


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| |                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------
| | Unless we develop, maintain and protect a strong brand
    identity, our business may not grow and our financial results
    may suffer.







| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | We have numerous competitors, many of which have valuable
    industry relationships and access to greater resources than we
    do.



Trends


23



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| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in federal and state real estate laws and
    regulations, and rules of industry organizations such as the
    National Association of
    REALTORS®,
    could adversely affect our business.





| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We derive a significant portion of our leads through third
    parties, and if any of our significant lead generation
    relationships are terminated, impaired or become more expensive,
    our ability to attract new clients and grow our business may be
    adversely affected.





| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Our ability to expand our business may be limited by state
    laws governing cash rebates to home buyers.



24



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| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may be unable to integrate our technology with each MLS
    on a cost-effective basis, which may harm our operating results
    and adversely affect our ability to service clients.





| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to comply with real estate brokerage laws and
    regulations, we may incur significant financial penalties or
    lose our license to operate.





| |                                                                                 
| | --------------------------------------------------------------------------------
| | We may have liabilities in connection with real estate
    brokerage activities.

standard-of




| |                                                                             
| | ----------------------------------------------------------------------------
| | We may be subject to liability for the Internet content
    that we publish.



25



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| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We monitor and evaluate the use of our website by our
    registered users, which could raise privacy concerns.





| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | We may need to change the manner in which we conduct our
    business if government regulation of the Internet
    increases.









| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | Our reputation and client and agent service offerings may
    be harmed by system failures and computer viruses.

back-up


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| |                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our business is geographically concentrated, which makes
    us more susceptible to business interruption and financial loss
    due to natural disasters, inclement weather, economic or market
    conditions or other regional events outside of our
    control.





| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Our intellectual property rights are valuable and our
    failure to protect those rights could adversely affect our
    business.





| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We may in the future be subject to intellectual property
    rights disputes, which could divert management attention, be
    costly to defend and require us to limit our service
    offerings.



27



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| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | pay damages;                                                                     
|
| |  | stop using the technology found to be in violation of a third
    partys rights;
|
| |  | seek a license for the infringing technology; or                                 
|
| |  | develop alternative non-infringing technology.                                   





| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to attract and retain our key personnel, our
    ability to meet our business goals will be impaired and our
    financial condition and results of operations will
    suffer.





| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We intend to evaluate acquisitions or investments in
    complementary technologies and businesses and we may not realize
    the anticipated benefits from, and may have to pay substantial
    costs related to, any acquisitions or investments that we
    undertake.





| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | our inability to successfully integrate acquired technologies or
    operations;                             
|
| |  | diversion of managements attention;                                                                         
|
| |  | problems maintaining uniform standards, procedures, controls and
    policies;                               
|
| |  | potentially dilutive issuances of equity securities or the
    incurrence of debt or contingent liabilities; 
|
| |  | expenses related to amortization of intangible assets;                                                       
|
| |  | risks associated with operating a business or in a market in
    which we have little or no prior experience;
|
| |  | potential write offs of acquired assets;                                                                     
|
| |  | loss of key employees of acquired businesses; and                                                            
|
| |  | our inability to recover the costs of acquisitions or
    investments.                                       



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Accounting for employee stock options using the fair value
    method, could significantly reduce our net income in future
    periods.



28



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| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | The value of our services could be diminished if anti-spam
    software filters out an increasing portion of the emails we
    send.





| |                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because our marketing relationship with E-LOAN represents
    a source of revenue for us and funding for our clients, we could
    be harmed if this relationship became impaired.



OTHER RISKS RELATED TO OUR STOCK PRICE




| |                                 
| | --------------------------------
| | Our stock price may be volatile.





| |   |                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------
| |  | variations in our quarterly results of operations;                                                                
|
| |  | announcements by us or our competitors or lead source providers;                                                  
|
| |  | the relatively low level of public float and average daily
    trading volumes of our common stock;               
|
| |  | changes in estimates of our performance or recommendations, or
    termination of coverage by securities analysts;
|
| |  | inability to meet quarterly or yearly estimates or targets of
    our performance;                                
|
| |  | the hiring or departure of key personnel, including agents or
    groups of agents or key executives;             
|
| |  | changes in our reputation;                                                                                        
|
| |  | acquisitions or strategic alliances involving us or our
    competitors;                                          
|
| |  | changes in the legal and regulatory environment affecting our
    business; and                                   
|
| |  | market conditions in our industry and the economy as a whole.                                                     



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| |                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------
| | Our share price could decline due to the large number of
    outstanding shares of our common stock eligible for future
    sale.





lock-up




| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our principal stockholders, executive officers and
    directors own a significant percentage of our stock, and as a
    result, the trading price for our shares may be depressed and
    these stockholders can take actions that may be adverse to your
    interests.





| |                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our charter documents and Delaware law could prevent a
    takeover that stockholders consider favorable and could also
    reduce the market price of our stock.





| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | providing for a classified board of directors with staggered,
    three-year terms;                                           
|
| |  | not providing for cumulative voting in the election of directors;                                                             
|
| |  | authorizing the board to issue, without stockholder approval,
    preferred stock with rights senior to those of common stock;
|
| |  | prohibiting stockholder action by written consent;                                                                            
|
| |  | limiting the persons who may call special meetings of
    stockholders; and                                                   
|
| |  | requiring advance notification of stockholder nominations and
    proposals.                                                  

30



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|         |                           
|-------- | --------------------------
|Item 1B. | Unresolved Staff Comments:








|        |            
|------- | -----------
|Item 2. | Properties:








|        |                   
|------- | ------------------
|Item 3. | Legal Proceedings:

Sullivan,
et al v. ZipRealty









|        |                                                         
|------- | --------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders:



31



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PART II







|        |                                                                                                        
|------- | -------------------------------------------------------------------------------------------------------
|Item 5. | Market for Our Common Stock, Related Stockholder Matters
    and Issuer Purchases of Equity Securities:



| |                   
| | ------------------
| | Market information



|                   |                                                   |      |   |       |     |  |   |       | 
|------------------ | ------------------------------------------------- | ---- | - | ----- | --- |  | - | ----- | 
|                   |                                                   | High |   |       | Low | 
|                   |                                                   |      |   |       |     | 
|2004 Calendar year |                                                   |      |   |       |     |  |   |      
|                   | Fourth Quarter (November 10 to December 31, 2004) |      | $ | 19.20 |     |  | $ | 14.75 | 
|2005 Calendar year |                                                   |      |   |       |     |  |   |      
|                   | First Quarter                                     |      | $ | 18.34 |     |  | $ | 13.35 | 
|                   | Second Quarter                                    |      | $ | 15.92 |     |  | $ | 12.30 | 
|                   | Third Quarter                                     |      | $ | 14.17 |     |  | $ | 12.13 | 
|                   | Fourth Quarter                                    |      | $ | 13.73 |     |  | $ | 7.87  | 





| |                
| | ---------------
| | Dividend policy





| |                
| | ---------------
| | Use of proceeds

S-1 333-115657)








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|        |                         
|------- | ------------------------
|Item 6. | Selected Financial Data:



|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |         |        |        |   |         |       |        |  
|-------------------------------------------------- | ---------------------------------- | ------------------------------------ | ------- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | ---- | ------- | ------ | ------ | - | ------- | ----- | ------ | -
|                                                   |                                    | Year Ended December 31,              |        
|                                                   |                                    |                                      |        
|Statements of Operations Data                      |                                    | 2005                                 |         |        | 2004   |   |        | 2003   |        |   | 2002   |        |        | 2001 |        
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|                                                   |                                    | (In thousands except per share data) |        
|Net transaction revenues                           |                                    | $                                    | 91,082  |        |        | $ | 60,749 |        |        | $ | 32,679 |        |        | $    | 16,795  |        |        | $ | 3,907   |      
|Referral and other revenues                        |                                    |                                      | 2,323   |        |        |   | 1,539  |        |        |   | 1,128  |        |        |      | 368     |        |        |   | 56      |      
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|                                                   | Net revenues                       |                                      |         | 93,405 |        |   |        | 62,288 |        |   |        | 33,807 |        |      |         | 17,163 |        |   |         | 3,963 |       
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|Operating expenses:                                |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |         |        |        |   |         |      
|                                                   | Cost of revenues                   |                                      |         | 51,084 |        |   |        | 33,858 |        |   |        | 19,929 |        |      |         | 13,450 |        |   |         | 6,969 |       
|                                                   | Product development                |                                      |         | 2,749  |        |   |        | 2,245  |        |   |        | 1,717  |        |      |         | 1,559  |        |   |         | 1,899 |       
|                                                   | Marketing and business development |                                      |         | 12,303 |        |   |        | 8,821  |        |   |        | 5,003  |        |      |         | 4,451  |        |   |         | 3,225 |       
|                                                   | General and administrative         |                                      |         | 21,939 |        |   |        | 14,342 |        |   |        | 9,464  |        |      |         | 10,378 |        |   |         | 5,447 |       
|                                                   | Stock-based compensation           |                                      |         | 140    |        |   |        | 159    |        |   |        | 85     |        |      |         | 84     |        |   |         | 185   |       
|                                                   | Litigation                         |                                      |         | 4,164  |        |   |        |       |        |   |        |       |        |      |         |       |        |   |         |      |       
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|                                                   |                                    | Total operating expenses             |         |        | 92,379 |   |        |        | 59,425 |   |        |        | 36,198 |      |         |        | 29,922 |   |         |       | 17,725 |  
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|Income (loss) from operations                      |                                    |                                      | 1,026   |        |        |   | 2,863  |        |        |   | (2,391 | )      |        |      | (12,759 | )      |        |   | (13,762 | )    
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|Other income (expense):                            |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |         |        |        |   |         |      
|                                                   | Interest expense                   |                                      |         |       |        |   |        |       |        |   |        | (2,273 | )      |      |         | (2,118 | )      |   |         | (226  | )     
|                                                   | Interest income                    |                                      |         | 2,741  |        |   |        | 411    |        |   |        | 60     |        |      |         | 126    |        |   |         | 193   |       
|                                                   | Other income (expense), net        |                                      |         | (14    | )      |   |        | (1     | )      |   |        | 21     |        |      |         | (14    | )      |   |         | 3     |       
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|                                                   |                                    | Total other income (expense), net    |         |        | 2,727  |   |        |        | 410    |   |        |        | (2,192 | )    |         |        | (2,006 | ) |         |       | (30    | )
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|Income (loss) before income taxes                  |                                    |                                      | 3,753   |        |        |   | 3,273  |        |        |   | (4,583 | )      |        |      | (14,765 | )      |        |   | (13,792 | )    
|Provision for (benefit from) income taxes          |                                    |                                      | (16,714 | )      |        |   | 89     |        |        |   |       |        |        |      |        |        |        |   |        |      
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|Net income (loss)                                  |                                    | $                                    | 20,467  |        |        | $ | 3,184  |        |        | $ | (4,583 | )      |        | $    | (14,765 | )      |        | $ | (13,792 | )    
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|Cumulative preferred stock dividends               |                                    |                                      |        |        |        |   | 552    |        |        |   | 631    |        |        |      | 631     |        |        |   | 385     |      
|Amount allocated to participating preferred shares |                                    |                                      |        |        |        |   | 2,632  |        |        |   |       |        |        |      |        |        |        |   |        |      
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|Net income (loss) available to common stockholders |                                    | $                                    | 20,467  |        |        | $ |       |        |        | $ | (5,214 | )      |        | $    | (15,396 | )      |        | $ | (14,177 | )    
|                                                   |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |        
|Net income (loss) per share:                       |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |         |        |        |   |         |      
|                                                   | Basic                              |                                      | $       | 1.02   |        |   | $      |       |        |   | $      | (3.57  | )      |      | $       | (10.63 | )      |   | $       | (9.96 | )     
|                                                   | Diluted                            |                                      | $       | 0.82   |        |   | $      |       |        |   | $      | (3.57  | )      |      | $       | (10.63 | )      |   | $       | (9.96 | )     
|Weighted average common shares outstanding:        |                                    |                                      |         |        |        |   |        |        |        |   |        |        |        |      |         |        |        |   |         |      
|                                                   | Basic                              |                                      |         | 20,089 |        |   |        | 3,798  |        |   |        | 1,459  |        |      |         | 1,448  |        |   |         | 1,424 |       
|                                                   | Diluted                            |                                      |         | 25,080 |        |   |        | 3,798  |        |   |        | 1,459  |        |      |         | 1,448  |        |   |         | 1,424 |       

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|                                                    |  |                |         |  |      |   |        |      |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------- |  | -------------- | ------- |  | ---- | - | ------ | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                    |  | December 31,   |        
|                                                    |  |                |        
|Balance Sheet Data                                  |  | 2005           |         |  | 2004 |   |        | 2003 |  |   | 2002    |   |  | 2001 |        
|                                                    |  |                |         |  |      |   |        |      |  |   |         |   |  |      |        
|                                                    |  | (In thousands) |        
|Cash, cash equivalents and short-term investments   |  | $              | 88,909  |  |      | $ | 83,497 |      |  | $ | 10,357  |   |  | $    | 8,961   |   |  | $ | 931     |  
|Working capital                                     |  |                | 84,047  |  |      |   | 80,923 |      |  |   | 8,183   |   |  |      | 7,817   |   |  |   | (171    | )
|Total assets                                        |  |                | 113,953 |  |      |   | 88,126 |      |  |   | 12,430  |   |  |      | 12,047  |   |  |   | 4,018   |  
|Total long-term liabilities                         |  |                | 38      |  |      |   | 90     |      |  |   | 157     |   |  |      | 17,082  |   |  |   | 316     |  
|Total liabilities                                   |  |                | 10,172  |  |      |   | 5,855  |      |  |   | 3,535   |   |  |      | 19,827  |   |  |   | 1,962   |  
|Redeemable convertible preferred stock and warrants |  |                |        |  |      |   |       |      |  |   | 63,556  |   |  |      | 42,392  |   |  |   | 37,554  |  
|Total stockholders equity (deficit)                |  |                | 103,781 |  |      |   | 82,271 |      |  |   | (54,660 | ) |  |      | (50,172 | ) |  |   | (35,497 | )






|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations:

The following discussion should be read together with our
financial statements and related notes appearing elsewhere in
this report. This discussion contains forward-looking statements
based upon current expectations that involve numerous risks and
uncertainties. Our actual results could differ materially from
those anticipated in these forward-looking statements for many
reasons, including but not limited to those set forth in
Risk Factors in Item 1A of Part I of this
report and elsewhere in this report. We undertake no obligation
to update any information contained in these forward-looking
statements.


OVERVIEW




| |        
| | -------
| | General



E-LOAN,






| |                       
| | ----------------------
| | Trends in our business



34



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35



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| |                                                                 
| | ----------------------------------------------------------------
| | Market seasonality, cyclicality and interest rate
    influences

45-day






36



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES








| |                    
| | -------------------
| | Revenue recognition

E-LOAN




| |                                                    
| | ---------------------------------------------------
| | Internal-use software and website development costs

Accounting for the Cost of Computer Software Developed
or Obtained for Internal Use 00-02, Accounting for Website Development Costs


37



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| |                                  
| | ---------------------------------
| | Deferred stock-based compensation

Accounting for Stock Issued to Employees Accounting for Certain
Transactions Involving Stock Compensation  an
Interpretation of APB No. 25 Accounting for Stock-Based
Compensation Accounting for
Stock-Based Compensation  Transaction and
Disclosure Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services Share-Based Payment








| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | comparable values of similar companies and the pricing of recent
    rounds of financing;
|
| |  | revenue growth and profitability milestones achieved and as
    measured to budget;      
|
| |  | continued growth in experience of our management team;                                   
|
| |  | marketplace activity and competition;                                                    
|
| |  | barriers to entry; and                                                                   
|
| |  | status of capital markets.                                                               

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| |             
| | ------------
| | Income taxes











39



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RESULTS OF OPERATIONS




|                                                   |                                    |                                   |         |        |        |   |        |        |        |   |        |        |        |  
|-------------------------------------------------- | ---------------------------------- | --------------------------------- | ------- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | -
|                                                   |                                    | Year Ended December 31,           |        
|                                                   |                                    |                                   |        
|Statements of Operations Data                      |                                    | 2005                              |         |        | 2004   |   |        | 2003   |       
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|                                                   |                                    | (In thousands)                    |        
|Net transaction revenues                           |                                    | $                                 | 91,082  |        |        | $ | 60,749 |        |        | $ | 32,679 |       
|Referral and other revenues                        |                                    |                                   | 2,323   |        |        |   | 1,539  |        |        |   | 1,128  |       
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|                                                   | Net revenues                       |                                   |         | 93,405 |        |   |        | 62,288 |        |   |        | 33,807 |       
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|Operating expenses:                                |                                    |                                   |         |        |        |   |        |        |        |   |        |       
|                                                   | Cost of revenues                   |                                   |         | 51,084 |        |   |        | 33,858 |        |   |        | 19,929 |       
|                                                   | Product development                |                                   |         | 2,749  |        |   |        | 2,245  |        |   |        | 1,717  |       
|                                                   | Marketing and business development |                                   |         | 12,303 |        |   |        | 8,821  |        |   |        | 5,003  |       
|                                                   | General and administrative         |                                   |         | 21,939 |        |   |        | 14,342 |        |   |        | 9,464  |       
|                                                   | Stock-based compensation           |                                   |         | 140    |        |   |        | 159    |        |   |        | 85     |       
|                                                   | Litigation                         |                                   |         | 4,164  |        |   |        |       |        |   |        |       |       
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|                                                   |                                    | Total operating expenses          |         |        | 92,379 |   |        |        | 59,425 |   |        |        | 36,198 |  
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|Income (loss) from operations                      |                                    |                                   | 1,026   |        |        |   | 2,863  |        |        |   | (2,391 | )     
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|Other income (expense):                            |                                    |                                   |         |        |        |   |        |        |        |   |        |       
|                                                   | Interest expense                   |                                   |         |       |        |   |        |       |        |   |        | (2,273 | )     
|                                                   | Interest income                    |                                   |         | 2,741  |        |   |        | 411    |        |   |        | 60     |       
|                                                   | Other income (expense), net        |                                   |         | (14    | )      |   |        | (1     | )      |   |        | 21     |       
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|                                                   |                                    | Total other income (expense), net |         |        | 2,727  |   |        |        | 410    |   |        |        | (2,192 | )
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|Income (loss) before income taxes                  |                                    |                                   | 3,753   |        |        |   | 3,273  |        |        |   | (4,583 | )     
|Provision (benefit) for income taxes               |                                    |                                   | (16,714 | )      |        |   | 89     |        |        |   |       |       
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|Net income (loss)                                  |                                    | $                                 | 20,467  |        |        | $ | 3,184  |        |        | $ | (4,583 | )     
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|Cumulative preferred stock dividends               |                                    |                                   |        |        |        |   | 552    |        |        |   | 631    |       
|Amount allocated to participating preferred shares |                                    |                                   |        |        |        |   | 2,632  |        |        |   |       |       
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|Net income (loss) available to common stockholders |                                    | $                                 | 20,467  |        |        | $ |       |        |        | $ | (5,214 | )     
|                                                   |                                    |                                   |         |        |        |   |        |        |       
|Net income (loss) per share:                       |                                    |                                   |         |        |        |   |        |        |        |   |        |       
|Basic                                              |                                    | $                                 | 1.02    |        |        | $ |       |        |        | $ | (3.57  | )     
|Diluted                                            |                                    | $                                 | 0.82    |        |        | $ |       |        |        | $ | (3.57  | )     
|Weighted average common shares outstanding:        |                                    |                                   |         |        |        |   |        |        |        |   |        |       
|Basic                                              |                                    |                                   | 20,089  |        |        |   | 3,798  |        |        |   | 1,459  |       
|Diluted                                            |                                    |                                   | 25,080  |        |        |   | 3,798  |        |        |   | 1,459  |       



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| |                                 
| | --------------------------------
| | Other financial data (unaudited)



| |                                      
| | -------------------------------------
| | Pro forma net income (loss) per share





|                                       |                                                                     |                                                    |                                                 |        |      |       |   |        |       |        |   |        |     |       | 
|-------------------------------------- | ------------------------------------------------------------------- | -------------------------------------------------- | ----------------------------------------------- | ------ | ---- | ----- | - | ------ | ----- | ------ | - | ------ | --- | ----- | 
|                                       |                                                                     | Year Ended December 31,                            |                                                
|                                       |                                                                     |                                                    |                                                
|                                       |                                                                     | 2005                                               |                                                 |        | 2004 |       |   | 2003   |      
|                                       |                                                                     |                                                    |                                                 |        |      |       |   |        |      
|                                       |                                                                     | (In thousands except per share                     |                                                
|                                       |                                                                     | data)                                              |                                                
|Numerator (for basic and diluted)      |                                                                     |                                                    |                                                 |        |      |       |   |        |       |        |   |       
|                                       | Net income (loss) available to common stockholders                  |                                                    | $                                               | 20,467 |      |       | $ |       |       |        | $ | (5,214 | )  
|                                       | Add:                                                                |                                                    |                                                 |        |      |       |   |        |       |        |   |        |    
|                                       |                                                                     | Cumulative preferred stock dividends               |                                                 |        |     |       |   |        | 552   |        |   |        | 631 |      
|                                       |                                                                     | Amount allocated to participating preferred shares |                                                 |        |     |       |   |        | 2,632 |        |   |        |    |      
|                                       |                                                                     |                                                    |                                                 |        |      |       |   |        |      
|                                       | Numerator (for basic and diluted)  pro forma net
    income (loss) |                                                    |                                                 | 20,467 |      |       |   | 3,184  |       |        |   | (4,583 | )  
|                                       |                                                                     |                                                    |                                                 |        |      |       |   |        |      
|Denominator                            |                                                                     |                                                    |                                                 |        |      |       |   |        |       |        |   |       
|                                       | Weighted average common shares outstanding                          |                                                    |                                                 | 20,089 |      |       |   | 3,798  |       |        |   | 1,459  |    
|                                       | Add:                                                                |                                                    |                                                 |        |      |       |   |        |       |        |   |        |    
|                                       |                                                                     |                                                    | Weighted average of convertible preferred stock |        |      |      |   |        |       | 10,324 |   |        |     | 7,934 | 
|                                       |                                                                     |                                                    |                                                 |        |      |       |   |        |      
|                                       | Pro forma denominator for basic calculation:                        |                                                    |                                                 | 20,089 |      |       |   | 14,122 |       |        |   | 9,393  |    
|                                       |                                                                     |                                                    |                                                 |        |      |       |   |        |      
|                                       | Effect of dilutive securities                                       |                                                    |                                                 |        |      |       |   |        |       |        |   |        |    
|                                       | Add:                                                                |                                                    |                                                 |        |      |       |   |        |       |        |   |        |    
|                                       |                                                                     |                                                    | Weighted average of warrants outstanding        |        |      | 3,273 |   |        |       | 3,272  |   |        |     |      | 
|                                       |                                                                     |                                                    | Weighted average of stock options outstanding   |        |      | 1,718 |   |        |       | 1,968  |   |        |     |      | 
|                                       |                                                                     |                                                    |                                                 |        |      |       |   |        |      
|                                       | Pro forma denominator for diluted calculation:                      |                                                    |                                                 | 25,080 |      |       |   | 19,362 |       |        |   | 9,393  |    
|Pro forma net income (loss) per share: |                                                                     |                                                    |                                                 |        |      |       |   |        |       |        |   |       
|                                       | Basic                                                               |                                                    | $                                               | 1.02   |      |       | $ | 0.23   |       |        | $ | (0.49  | )  
|                                       | Diluted                                                             |                                                    | $                                               | 0.82   |      |       | $ | 0.16   |       |        | $ | (0.49  | )  

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|                                     |                                    |                                   |       |      |      |  |       |      |      |  |       |      |       |  
|------------------------------------ | ---------------------------------- | --------------------------------- | ----- | ---- | ---- |  | ----- | ---- | ---- |  | ----- | ---- | ----- | -
|                                     |                                    | Year Ended December 31,           |      
|                                     |                                    |                                   |      
|Statements of Operations Data        |                                    | 2005                              |       |      | 2004 |  |       | 2003 |     
|                                     |                                    |                                   |       |      |      |  |       |      |     
|Net transaction revenues             |                                    |                                   | 97.5  | %    |      |  | 97.5  | %    |      |  | 96.7  | %   
|Referral and other revenues          |                                    |                                   | 2.5   |      |      |  | 2.5   |      |      |  | 3.3   |     
|                                     |                                    |                                   |       |      |      |  |       |      |     
|Net revenues                         |                                    |                                   | 100.0 |      |      |  | 100.0 |      |      |  | 100.0 |     
|                                     |                                    |                                   |       |      |      |  |       |      |     
|Operating expenses:                  |                                    |                                   |       |      |      |  |       |      |      |  |       |     
|                                     | Cost of revenues                   |                                   |       | 54.7 |      |  |       | 54.4 |      |  |       | 58.9 |      
|                                     | Product development                |                                   |       | 2.9  |      |  |       | 3.6  |      |  |       | 5.1  |      
|                                     | Marketing and business development |                                   |       | 13.2 |      |  |       | 14.2 |      |  |       | 14.8 |      
|                                     | General and administrative         |                                   |       | 23.5 |      |  |       | 23.0 |      |  |       | 28.0 |      
|                                     | Stock-based compensation           |                                   |       | 0.1  |      |  |       | 0.3  |      |  |       | 0.3  |      
|                                     | Litigation                         |                                   |       | 4.5  |      |  |       |     |      |  |       |     |      
|                                     |                                    |                                   |       |      |      |  |       |      |     
|                                     |                                    | Total operating expenses          |       |      | 98.9 |  |       |      | 95.5 |  |       |      | 107.1 |  
|                                     |                                    |                                   |       |      |      |  |       |      |     
|Income (loss) from operations        |                                    |                                   | 1.1   |      |      |  | 4.5   |      |      |  | (7.1  | )   
|                                     |                                    |                                   |       |      |      |  |       |      |     
|Other income (expense):              |                                    |                                   |       |      |      |  |       |      |      |  |       |     
|                                     | Interest expense                   |                                   |       |     |      |  |       |     |      |  |       | (6.7 | )    
|                                     | Interest income                    |                                   |       | 2.9  |      |  |       | 0.7  |      |  |       | 0.2  |      
|                                     | Other income (expense)             |                                   |       |     |      |  |       |     |      |  |       | 0.1  |      
|                                     |                                    |                                   |       |      |      |  |       |      |     
|                                     |                                    | Total other income (expense), net |       |      | 2.9  |  |       |      | 0.7  |  |       |      | (6.4  | )
|                                     |                                    |                                   |       |      |      |  |       |      |     
|Income (loss) before income taxes    |                                    |                                   | 4.0   |      |      |  | 5.2   |      |      |  | (13.5 | )   
|Provision (benefit) for income taxes |                                    |                                   | (17.9 | )    |      |  | 0.1   |      |      |  |      |     
|                                     |                                    |                                   |       |      |      |  |       |      |     
|Net income (loss)                    |                                    |                                   | 21.9  | %    |      |  | 5.1   | %    |      |  | (13.5 | )%  
|                                     |                                    |                                   |       |      |      |  |       |      |     

|                                                                               |  |                         |        |  |      |   |       |      |  |   |       | 
|------------------------------------------------------------------------------ |  | ----------------------- | ------ |  | ---- | - | ----- | ---- |  | - | ----- | 
|                                                                               |  | Year Ended December 31, |       
|                                                                               |  |                         |       
|Other Operating Data                                                           |  | 2005                    |        |  | 2004 |   |       | 2003 | 
|                                                                               |  |                         |        |  |      |   |       |      | 
|Number of ZipAgents at end of period                                           |  |                         | 1,366  |  |      |   | 914   |      |  |   | 440   | 
|Total value of real estate transactions closed during period (in
    billions) |  | $                       | 4.4    |  |      | $ | 3.0   |      |  | $ | 1.6   | 
|Number of transactions closed during period(1)                                 |  |                         | 12,317 |  |      |   | 8,500 |      |  |   | 5,394 | 
|Average net revenue per transaction during period(2)                           |  | $                       | 7,395  |  |      | $ | 7,147 |      |  | $ | 6,058 | 






|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The term transaction refers to each representation
    of a buyer or seller in a real estate purchase or sale.                          
|   
|(2) | Average net revenue per transaction equals net transaction
    revenues divided by number of transactions with respect to each
    period.



| |                                                                          
| | -------------------------------------------------------------------------
| | Comparison of the years ended December 31, 2005 and
    December 31, 2004



| |             
| | ------------
| | Net revenues

|             |  |                |        |  |          |   |        |            |  |   |        |  |  |  |      |  
|------------ |  | -------------- | ------ |  | -------- | - | ------ | ---------- |  | - | ------ |  |  |  | ---- | -
|             |  | Year Ended     |        |  |          |   |       
|             |  | December 31,   |        |  |          |   |       
|             |  |                |        |  | Increase |   |        | Percent    | 
|             |  | 2005           |        |  | 2004     |   |        | (Decrease) |  |   | Change | 
|             |  |                |        |  |          |   |        |            |  |   |        | 
|             |  | (In thousands) |       
|Net revenues |  | $              | 93,405 |  |          | $ | 62,288 |            |  | $ | 31,117 |  |  |  | 50.0 | %

42



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| |                 
| | ----------------
| | Cost of revenues

|                 |  |                |        |  |          |   |        |            |  |   |        |  |  |  |      |  
|---------------- |  | -------------- | ------ |  | -------- | - | ------ | ---------- |  | - | ------ |  |  |  | ---- | -
|                 |  | Year Ended     |        |  |          |   |       
|                 |  | December 31,   |        |  |          |   |       
|                 |  |                |        |  | Increase |   |        | Percent    | 
|                 |  | 2005           |        |  | 2004     |   |        | (Decrease) |  |   | Change | 
|                 |  |                |        |  |          |   |        |            |  |   |        | 
|                 |  | (In thousands) |       
|Cost of revenues |  | $              | 51,084 |  |          | $ | 33,858 |            |  | $ | 17,226 |  |  |  | 50.9 | %









| |                    
| | -------------------
| | Product development

|                    |  |                |       |  |          |   |       |            |  |   |        |  |  |  |      |  
|------------------- |  | -------------- | ----- |  | -------- | - | ----- | ---------- |  | - | ------ |  |  |  | ---- | -
|                    |  | Year Ended     |       |  |          |   |      
|                    |  | December 31,   |       |  |          |   |      
|                    |  |                |       |  | Increase |   |       | Percent    | 
|                    |  | 2005           |       |  | 2004     |   |       | (Decrease) |  |   | Change | 
|                    |  |                |       |  |          |   |       |            |  |   |        | 
|                    |  | (In thousands) |      
|Product development |  | $              | 2,749 |  |          | $ | 2,245 |            |  | $ | 504    |  |  |  | 22.4 | %





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| |                                   
| | ----------------------------------
| | Marketing and business development

|                                   |  |                |        |  |          |   |       |            |  |   |        |  |  |  |      |  
|---------------------------------- |  | -------------- | ------ |  | -------- | - | ----- | ---------- |  | - | ------ |  |  |  | ---- | -
|                                   |  | Year Ended     |        |  |          |   |      
|                                   |  | December 31,   |        |  |          |   |      
|                                   |  |                |        |  | Increase |   |       | Percent    | 
|                                   |  | 2005           |        |  | 2004     |   |       | (Decrease) |  |   | Change | 
|                                   |  |                |        |  |          |   |       |            |  |   |        | 
|                                   |  | (In thousands) |       
|Marketing and business development |  | $              | 12,303 |  |          | $ | 8,821 |            |  | $ | 3,482  |  |  |  | 39.5 | %









| |                           
| | --------------------------
| | General and administrative

|                           |  |                |        |  |          |   |        |            |  |   |        |  |  |  |      |  
|-------------------------- |  | -------------- | ------ |  | -------- | - | ------ | ---------- |  | - | ------ |  |  |  | ---- | -
|                           |  | Year Ended     |        |  |          |   |       
|                           |  | December 31,   |        |  |          |   |       
|                           |  |                |        |  | Increase |   |        | Percent    | 
|                           |  | 2005           |        |  | 2004     |   |        | (Decrease) |  |   | Change | 
|                           |  |                |        |  |          |   |        |            |  |   |        | 
|                           |  | (In thousands) |       
|General and administrative |  | $              | 21,939 |  |          | $ | 14,342 |            |  | $ | 7,597  |  |  |  | 53.0 | %







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| |                         
| | ------------------------
| | Stock-based compensation

|                         |  |                |     |  |          |   |     |            |  |   |        |   |  |  |       |   
|------------------------ |  | -------------- | --- |  | -------- | - | --- | ---------- |  | - | ------ | - |  |  | ----- | --
|                         |  | Year Ended     |     |  |          |   |    
|                         |  | December 31,   |     |  |          |   |    
|                         |  |                |     |  | Increase |   |     | Percent    | 
|                         |  | 2005           |     |  | 2004     |   |     | (Decrease) |  |   | Change |  
|                         |  |                |     |  |          |   |     |            |  |   |        |  
|                         |  | (In thousands) |    
|Stock-based compensation |  | $              | 140 |  |          | $ | 159 |            |  | $ | (19    | ) |  |  | (12.1 | )%



Recent Accounting
Pronouncements




| |           
| | ----------
| | Litigation

|           |  |                |       |          |      |   |            |  |  |        |       |  |  |  |       |  
|---------- |  | -------------- | ----- | -------- | ---- | - | ---------- |  |  | ------ | ----- |  |  |  | ----- | -
|           |  | Year Ended     |       |          |      |  
|           |  | December 31,   |       |          |      |  
|           |  |                |       | Increase |      |   | Percent    | 
|           |  | 2005           |       |          | 2004 |   | (Decrease) |  |  | Change |      
|           |  |                |       |          |      |   |            |  |  |        |      
|           |  | (In thousands) |      
|Litigation |  | $              | 4,164 |          |      | $ |           |  |  | $      | 4,164 |  |  |  | 100.0 | %





| |                
| | ---------------
| | Interest income

|                |  |                |       |  |          |   |     |            |  |   |        |  |  |  |       |  
|--------------- |  | -------------- | ----- |  | -------- | - | --- | ---------- |  | - | ------ |  |  |  | ----- | -
|                |  | Year Ended     |       |  |          |   |    
|                |  | December 31,   |       |  |          |   |    
|                |  |                |       |  | Increase |   |     | Percent    | 
|                |  | 2005           |       |  | 2004     |   |     | (Decrease) |  |   | Change | 
|                |  |                |       |  |          |   |     |            |  |   |        | 
|                |  | (In thousands) |      
|Interest income |  | $              | 2,741 |  |          | $ | 411 |            |  | $ | 2,330  |  |  |  | 566.8 | %





| |                            
| | ---------------------------
| | Other income (expense), net

|                            |  |                |     |   |          |   |    |            |  |   |        |   |  |  |         |  
|--------------------------- |  | -------------- | --- | - | -------- | - | -- | ---------- |  | - | ------ | - |  |  | ------- | -
|                            |  | Year Ended     |     |   |          |   |   
|                            |  | December 31,   |     |   |          |   |   
|                            |  |                |     |   | Increase |   |    | Percent    | 
|                            |  | 2005           |     |   | 2004     |   |    | (Decrease) |  |   | Change |  
|                            |  |                |     |   |          |   |    |            |  |   |        |  
|                            |  | (In thousands) |    
|Other income (expense), net |  | $              | (14 | ) |          | $ | (1 | )          |  | $ | (13    | ) |  |  | 2,410.3 | %



45



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| |                           
| | --------------------------
| | Provision for income taxes

|                                     |  |                |         |   |          |   |    |            |  |   |         |   |  |  |           |   
|------------------------------------ |  | -------------- | ------- | - | -------- | - | -- | ---------- |  | - | ------- | - |  |  | --------- | --
|                                     |  | Year Ended     |         |   |          |   |   
|                                     |  | December 31,   |         |   |          |   |   
|                                     |  |                |         |   | Increase |   |    | Percent    | 
|                                     |  | 2005           |         |   | 2004     |   |    | (Decrease) |  |   | Change  |  
|                                     |  |                |         |   |          |   |    |            |  |   |         |  
|                                     |  | (In thousands) |        
|Provision (benefit) for income taxes |  | $              | (16,714 | ) |          | $ | 89 |            |  | $ | (16,803 | ) |  |  | (18,837.1 | )%





| |                                                                          
| | -------------------------------------------------------------------------
| | Comparison of the years ended December 31, 2004 and
    December 31, 2003



| |             
| | ------------
| | Net revenues

|             |  |                |        |  |          |   |        |            |  |   |        |  |  |  |      |  
|------------ |  | -------------- | ------ |  | -------- | - | ------ | ---------- |  | - | ------ |  |  |  | ---- | -
|             |  | Year Ended     |        |  |          |   |       
|             |  | December 31,   |        |  |          |   |       
|             |  |                |        |  | Increase |   |        | Percent    | 
|             |  | 2004           |        |  | 2003     |   |        | (Decrease) |  |   | Change | 
|             |  |                |        |  |          |   |        |            |  |   |        | 
|             |  | (In thousands) |       
|Net revenues |  | $              | 62,288 |  |          | $ | 33,807 |            |  | $ | 28,481 |  |  |  | 84.2 | %





| |                 
| | ----------------
| | Cost of revenues

|                 |  |                |        |  |          |   |        |            |  |   |        |  |  |  |      |  
|---------------- |  | -------------- | ------ |  | -------- | - | ------ | ---------- |  | - | ------ |  |  |  | ---- | -
|                 |  | Year Ended     |        |  |          |   |       
|                 |  | December 31,   |        |  |          |   |       
|                 |  |                |        |  | Increase |   |        | Percent    | 
|                 |  | 2004           |        |  | 2003     |   |        | (Decrease) |  |   | Change | 
|                 |  |                |        |  |          |   |        |            |  |   |        | 
|                 |  | (In thousands) |       
|Cost of revenues |  | $              | 33,858 |  |          | $ | 19,929 |            |  | $ | 13,929 |  |  |  | 69.9 | %





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| |                    
| | -------------------
| | Product development

|                    |  |                |       |  |          |   |       |            |  |   |        |  |  |  |      |  
|------------------- |  | -------------- | ----- |  | -------- | - | ----- | ---------- |  | - | ------ |  |  |  | ---- | -
|                    |  | Year Ended     |       |  |          |   |      
|                    |  | December 31,   |       |  |          |   |      
|                    |  |                |       |  | Increase |   |       | Percent    | 
|                    |  | 2004           |       |  | 2003     |   |       | (Decrease) |  |   | Change | 
|                    |  |                |       |  |          |   |       |            |  |   |        | 
|                    |  | (In thousands) |      
|Product development |  | $              | 2,245 |  |          | $ | 1,717 |            |  | $ | 528    |  |  |  | 30.8 | %







| |                                   
| | ----------------------------------
| | Marketing and business development

|                                   |  |                |       |  |          |   |       |            |  |   |        |  |  |  |      |  
|---------------------------------- |  | -------------- | ----- |  | -------- | - | ----- | ---------- |  | - | ------ |  |  |  | ---- | -
|                                   |  | Year Ended     |       |  |          |   |      
|                                   |  | December 31,   |       |  |          |   |      
|                                   |  |                |       |  | Increase |   |       | Percent    | 
|                                   |  | 2004           |       |  | 2003     |   |       | (Decrease) |  |   | Change | 
|                                   |  |                |       |  |          |   |       |            |  |   |        | 
|                                   |  | (In thousands) |      
|Marketing and business development |  | $              | 8,821 |  |          | $ | 5,003 |            |  | $ | 3,818  |  |  |  | 76.3 | %







| |                           
| | --------------------------
| | General and administrative

|                           |  |                |        |  |          |   |       |            |  |   |        |  |  |  |      |  
|-------------------------- |  | -------------- | ------ |  | -------- | - | ----- | ---------- |  | - | ------ |  |  |  | ---- | -
|                           |  | Year Ended     |        |  |          |   |      
|                           |  | December 31,   |        |  |          |   |      
|                           |  |                |        |  | Increase |   |       | Percent    | 
|                           |  | 2004           |        |  | 2003     |   |       | (Decrease) |  |   | Change | 
|                           |  |                |        |  |          |   |       |            |  |   |        | 
|                           |  | (In thousands) |       
|General and administrative |  | $              | 14,342 |  |          | $ | 9,464 |            |  | $ | 4,878  |  |  |  | 51.5 | %





47



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| |                         
| | ------------------------
| | Stock-based compensation

|                         |  |                |     |  |          |   |    |            |  |   |        |  |  |  |      |  
|------------------------ |  | -------------- | --- |  | -------- | - | -- | ---------- |  | - | ------ |  |  |  | ---- | -
|                         |  | Year Ended     |     |  |          |   |   
|                         |  | December 31,   |     |  |          |   |   
|                         |  |                |     |  | Increase |   |    | Percent    | 
|                         |  | 2004           |     |  | 2003     |   |    | (Decrease) |  |   | Change | 
|                         |  |                |     |  |          |   |    |            |  |   |        | 
|                         |  | (In thousands) |    
|Stock-based compensation |  | $              | 159 |  |          | $ | 85 |            |  | $ | 74     |  |  |  | 86.0 | %





| |                 
| | ----------------
| | Interest expense

|                 |  |                |   |      |          |   |            |         |  |        |        |   |  |  |        |   
|---------------- |  | -------------- | - | ---- | -------- | - | ---------- | ------- |  | ------ | ------ | - |  |  | ------ | --
|                 |  | Year Ended     |   |      |          |   |           
|                 |  | December 31,   |   |      |          |   |           
|                 |  |                |   |      | Increase |   |            | Percent | 
|                 |  | 2004           |   | 2003 |          |   | (Decrease) |         |  | Change |       
|                 |  |                |   |      |          |   |            |         |  |        |       
|                 |  | (In thousands) |  
|Interest expense |  | $              |  |      |          | $ | (2,273     | )       |  | $      | (2,273 | ) |  |  | (100.0 | )%





| |                
| | ---------------
| | Interest income

|                |  |                |     |  |          |   |    |            |  |   |        |  |  |  |       |  
|--------------- |  | -------------- | --- |  | -------- | - | -- | ---------- |  | - | ------ |  |  |  | ----- | -
|                |  | Year Ended     |     |  |          |   |   
|                |  | December 31,   |     |  |          |   |   
|                |  |                |     |  | Increase |   |    | Percent    | 
|                |  | 2004           |     |  | 2003     |   |    | (Decrease) |  |   | Change | 
|                |  |                |     |  |          |   |    |            |  |   |        | 
|                |  | (In thousands) |    
|Interest income |  | $              | 411 |  |          | $ | 60 |            |  | $ | 351    |  |  |  | 583.6 | %





| |                            
| | ---------------------------
| | Other income (expense), net

|                            |  |                |    |   |          |   |    |            |  |   |        |   |  |  |        |   
|--------------------------- |  | -------------- | -- | - | -------- | - | -- | ---------- |  | - | ------ | - |  |  | ------ | --
|                            |  | Year Ended     |    |   |          |   |   
|                            |  | December 31,   |    |   |          |   |   
|                            |  |                |    |   | Increase |   |    | Percent    | 
|                            |  | 2004           |    |   | 2003     |   |    | (Decrease) |  |   | Change |  
|                            |  |                |    |   |          |   |    |            |  |   |        |  
|                            |  | (In thousands) |   
|Other income (expense), net |  | $              | (1 | ) |          | $ | 21 |            |  | $ | (22    | ) |  |  | (102.7 | )%





| |                           
| | --------------------------
| | Provision for income taxes

|                           |  |                |    |          |      |   |            |  |  |        |    |  |  |  |       |  
|-------------------------- |  | -------------- | -- | -------- | ---- | - | ---------- |  |  | ------ | -- |  |  |  | ----- | -
|                           |  | Year Ended     |    |          |      |  
|                           |  | December 31,   |    |          |      |  
|                           |  |                |    | Increase |      |   | Percent    | 
|                           |  | 2004           |    |          | 2003 |   | (Decrease) |  |  | Change |   
|                           |  |                |    |          |      |   |            |  |  |        |   
|                           |  | (In thousands) |   
|Provision for income taxes |  | $              | 89 |          |      | $ |           |  |  | $      | 89 |  |  |  | 100.0 | %

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LIQUIDITY AND CAPITAL RESOURCES








| |                     
| | --------------------
| | Operating activities











| |                     
| | --------------------
| | Investing activities



49



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| |                     
| | --------------------
| | Financing activities







| |             
| | ------------
| | Future needs



CONTRACTUAL OBLIGATIONS AND COMMITMENTS




|                            |  |                        |       |  |        |   |       |        |  |   |           |  |  |       |     |  |  |   |       | 
|--------------------------- |  | ---------------------- | ----- |  | ------ | - | ----- | ------ |  | - | --------- |  |  | ----- | --- |  |  | - | ----- | 
|                            |  | Payments Due by Period |      
|                            |  |                        |      
|                            |  | Less than              |       |  | 1 to 3 |   |       | 3 to 5 |  |   | More than |  |  |      
|                            |  | 1 Year                 |       |  | Years  |   |       | Years  |  |   | 5 Years   |  |  | Total |    
|                            |  |                        |       |  |        |   |       |        |  |   |           |  |  |       |    
|                            |  | (In thousands)         |      
|Operating lease commitments |  | $                      | 1,333 |  |        | $ | 2,373 |        |  | $ | 1,364     |  |  | $     | 777 |  |  | $ | 5,847 | 

50



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OFF-BALANCE SHEET ARRANGEMENTS




EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS









|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk:



| |                          
| | -------------------------
| | Interest rate sensitivity







| |                          
| | -------------------------
| | Exchange rate sensitivity



51



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|        |                                             
|------- | --------------------------------------------
|Item 8. | Financial Statements and Supplementary Data:

Financial Statements Table of Contents


|                                                                                            |  |        |    | 
|------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                            |  | Page   |   
|                                                                                            |  | Number |   
|                                                                                            |  |        |   
|Report of Independent Registered Public
    Accounting Firm                                 |  |        | 53 | 
|Balance Sheets                                                                              |  |        | 55 | 
|Statements of Operations                                                                    |  |        | 56 | 
|Statements of Redeemable Convertible
    Preferred Stock and Stockholders Equity (Deficit) |  |        | 57 | 
|Statements of Cash Flows                                                                    |  |        | 58 | 
|Notes to Financial Statements                                                               |  |        | 59 | 
|Financial Statement Schedule 
    Valuation and Qualifying Accounts                        |  |        | 84 | 

52



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM










| |                                                           
| | ----------------------------------------------------------
| | Financial statements and financial statement
    schedules





| |                                          
| | -----------------------------------------
| | Internal control over financial reporting

Internal Control  Integrated Framework Internal Control 
Integrated Framework




53



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54



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ZIPREALTY, INC.





BALANCE SHEETS


|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |   |        |         |        | 
|---------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- | - | ------ | ------- | ------ | 
|                                                                                                     |                                                                                                                                                                | December 31,                               |        
|                                                                                                     |                                                                                                                                                                |                                            |        
|                                                                                                     |                                                                                                                                                                | 2005                                       |         |         | 2004    |  
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|                                                                                                     |                                                                                                                                                                | (In thousands)                             |        
|ASSETS                                                                                              
|Current assets                                                                                       |                                                                                                                                                                |                                            |         |         |         |   |        |        
|Cash and cash equivalents                                                                            |                                                                                                                                                                | $                                          | 6,868   |         |         | $ | 11,525 |        
|Short-term investments                                                                               |                                                                                                                                                                |                                            | 82,041  |         |         |   | 71,972 |        
|Accounts receivable, net of allowance of $42 and $29 at
    December 31, 2005 and 2004, respectively |                                                                                                                                                                |                                            | 1,634   |         |         |   | 1,089  |        
|Prepaid expenses and other current assets                                                            |                                                                                                                                                                |                                            | 3,138   |         |         |   | 2,102  |        
|Current and deferred income taxes                                                                    |                                                                                                                                                                |                                            | 500     |         |         |   |       |        
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|Total current assets                                                                                 |                                                                                                                                                                |                                            | 94,181  |         |         |   | 86,688 |        
|Restricted cash                                                                                      |                                                                                                                                                                |                                            | 90      |         |         |   | 190    |        
|Property and equipment, net                                                                          |                                                                                                                                                                |                                            | 2,538   |         |         |   | 1,236  |        
|Deferred tax assets, net                                                                             |                                                                                                                                                                |                                            | 17,053  |         |         |   |       |        
|Other assets                                                                                         |                                                                                                                                                                |                                            | 91      |         |         |   | 12     |        
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|Total assets                                                                                         |                                                                                                                                                                | $                                          | 113,953 |         |         | $ | 88,126 |        
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|                                                                                                    
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                
|Current liabilities                                                                                  |                                                                                                                                                                |                                            |         |         |         |   |        |        
|Accounts payable                                                                                     |                                                                                                                                                                | $                                          | 1,631   |         |         | $ | 1,478  |        
|Accrued expenses                                                                                     |                                                                                                                                                                |                                            | 8,503   |         |         |   | 4,287  |        
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|Total current liabilities                                                                            |                                                                                                                                                                |                                            | 10,134  |         |         |   | 5,765  |        
|Other long-term liabilities                                                                          |                                                                                                                                                                |                                            | 38      |         |         |   | 90     |        
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|Total liabilities                                                                                    |                                                                                                                                                                |                                            | 10,172  |         |         |   | 5,855  |        
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|Commitments and contingencies (Note 6)                                                               |                                                                                                                                                                |                                            |         |         |         |   |        |        
|Stockholders equity                                                                                 |                                                                                                                                                                |                                            |         |         |         |   |        |        
|                                                                                                     | Common stock: $0.001 par value; 100,000 shares
    authorized; 20,273 and 19,880 shares issued and outstanding
    at December 31, 2005 and 2004, respectively |                                            |         | 20      |         |   |        | 20      |       
|                                                                                                     | Additional paid-in capital                                                                                                                                     |                                            |         | 130,077 |         |   |        | 128,555 |       
|                                                                                                     | Common stock warrants                                                                                                                                          |                                            |         | 6,094   |         |   |        | 6,369   |       
|                                                                                                     | Deferred stock-based compensation                                                                                                                              |                                            |         | (257    | )       |   |        | (438    | )     
|                                                                                                     | Accumulated other comprehensive loss                                                                                                                           |                                            |         | (490    | )       |   |        | (105    | )     
|                                                                                                     | Accumulated deficit                                                                                                                                            |                                            |         | (31,663 | )       |   |        | (52,130 | )     
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|                                                                                                     |                                                                                                                                                                | Total stockholders equity                 |         |         | 103,781 |   |        |         | 82,271 | 
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  
|                                                                                                     |                                                                                                                                                                | Total liabilities and stockholders equity |         | $       | 113,953 |   |        | $       | 88,126 | 
|                                                                                                     |                                                                                                                                                                |                                            |         |         |         |  



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ZIPREALTY, INC.





STATEMENTS OF OPERATIONS


|                                                            |         |                         |         |        |      |   |        |       |  |   |        |       |  
|----------------------------------------------------------- | ------- | ----------------------- | ------- | ------ | ---- | - | ------ | ----- |  | - | ------ | ----- | -
|                                                            |         | Year Ended December 31, |        
|                                                            |         |                         |        
|                                                            |         | 2005                    |         |        | 2004 |   |        | 2003  | 
|                                                            |         |                         |         |        |      |   |        |       | 
|                                                            |         | (In thousands, except   |        
|                                                            |         | per share amounts)      |        
|Net transaction revenues                                    |         | $                       | 91,082  |        |      | $ | 60,749 |       |  | $ | 32,679 |      
|Referral and other revenues                                 |         |                         | 2,323   |        |      |   | 1,539  |       |  |   | 1,128  |      
|                                                            |         |                         |         |        |      |   |        |       | 
|Net revenues                                                |         |                         | 93,405  |        |      |   | 62,288 |       |  |   | 33,807 |      
|                                                            |         |                         |         |        |      |   |        |       | 
|Operating expenses                                          |         |                         |         |        |      |   |        |       |  |   |        |      
|Cost of revenues                                            |         |                         | 51,084  |        |      |   | 33,858 |       |  |   | 19,929 |      
|Product development                                         |         |                         | 2,749   |        |      |   | 2,245  |       |  |   | 1,717  |      
|Marketing and business development                          |         |                         | 12,303  |        |      |   | 8,821  |       |  |   | 5,003  |      
|General and administrative                                  |         |                         | 21,939  |        |      |   | 14,342 |       |  |   | 9,464  |      
|Stock-based compensation                                    |         |                         | 140     |        |      |   | 159    |       |  |   | 85     |      
|Litigation                                                  |         |                         | 4,164   |        |      |   |       |       |  |   |       |      
|                                                            |         |                         |         |        |      |   |        |       | 
|Total operating expenses                                    |         |                         | 92,379  |        |      |   | 59,425 |       |  |   | 36,198 |      
|                                                            |         |                         |         |        |      |   |        |       | 
|Income (loss) from operations                               |         |                         | 1,026   |        |      |   | 2,863  |       |  |   | (2,391 | )    
|                                                            |         |                         |         |        |      |   |        |       | 
|Other income (expense)                                      |         |                         |         |        |      |   |        |       |  |   |        |      
|Interest expense                                            |         |                         |        |        |      |   |       |       |  |   | (2,273 | )    
|Interest income                                             |         |                         | 2,741   |        |      |   | 411    |       |  |   | 60     |      
|Other income (expense), net                                 |         |                         | (14     | )      |      |   | (1     | )     |  |   | 21     |      
|                                                            |         |                         |         |        |      |   |        |       | 
|Total other income (expense), net                           |         |                         | 2,727   |        |      |   | 410    |       |  |   | (2,192 | )    
|                                                            |         |                         |         |        |      |   |        |       | 
|Income (loss) before income taxes                           |         |                         | 3,753   |        |      |   | 3,273  |       |  |   | (4,583 | )    
|Provision for (benefit from) income taxes                   |         |                         | (16,714 | )      |      |   | 89     |       |  |   |       |      
|                                                            |         |                         |         |        |      |   |        |       | 
|Net income (loss)                                           |         | $                       | 20,467  |        |      | $ | 3,184  |       |  | $ | (4,583 | )    
|                                                            |         |                         |         |        |      |   |        |       | 
|Cumulative preferred stock dividends                        |         | $                       |        |        |      | $ | 552    |       |  | $ | 631    |      
|Amount allocated to participating preferred stockholders    |         |                         |        |        |      |   | 2,632  |       |  |   |       |      
|                                                            |         |                         |         |        |      |   |        |       | 
|Net income (loss) available to common stockholders          |         | $                       | 20,467  |        |      | $ |       |       |  | $ | (5,214 | )    
|                                                            |         |                         |         |        |      |   |        |       | 
|Net income (loss) per share:                                |         |                         |         |        |      |   |        |       |  |   |        |      
|                                                            | Basic   |                         | $       | 1.02   |      |   | $      |      |  |   | $      | (3.57 | )
|                                                            | Diluted |                         | $       | 0.82   |      |   | $      |      |  |   | $      | (3.57 | )
|Weighted average common shares outstanding:                 |         |                         |         |        |      |   |        |       |  |   |        |      
|                                                            | Basic   |                         |         | 20,089 |      |   |        | 3,798 |  |   |        | 1,459 |  
|                                                            | Diluted |                         |         | 25,080 |      |   |        | 3,798 |  |   |        | 1,459 |  
|Stock-based compensation can be allocated to the following: |         |                         |         |        |      |   |        |       |  |   |        |      
|Cost of revenues                                            |         | $                       | 38      |        |      | $ | 45     |       |  | $ | 8      |      
|Product development                                         |         |                         | 5       |        |      |   | 12     |       |  |   | 23     |      
|Marketing and business development                          |         |                         | 3       |        |      |   | 6      |       |  |   | 18     |      
|General and administrative                                  |         |                         | 94      |        |      |   | 96     |       |  |   | 36     |      
|                                                            |         |                         |         |        |      |   |        |       | 
|Total stock-based compensation                              |         | $                       | 140     |        |      | $ | 159    |       |  | $ | 85     |      
|                                                            |         |                         |         |        |      |   |        |       | 



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ZIPREALTY, INC.





STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS EQUITY (DEFICIT)


|                                                                                                 |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |   |  |   |         |       |  |   |         |       |  |   |        |       | 
|------------------------------------------------------------------------------------------------ | ---------------------------------- | --------------- | ------- | ----- | ----------- | - | ------- | ------------ |  | - | ---------- | - |  | ------ | ------ | ----------- | --------------- | - | -- | ------------- |  |  | ------------ | - | ----- | ------------- | ----- | ------------- | ------- | - | ---- | ---------------- |  | - | ------ | - |  | - | ------- | ----- |  | - | ------- | ----- |  | - | ------ | ----- | 
|                                                                                                 |                                    | Redeemable      |         |       | Redeemable  |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |  
|                                                                                                 |                                    | Convertible     |         |       | Convertible |   |         |              |  |   |            |   |  |        |        | Accumulated |                 |   |    |               |  |  |             
|                                                                                                 |                                    | Preferred Stock |         |       | Preferred   |   |         | Common Stock |  |   | Additional |   |  | Common |        |             | Deferred Stock- |   |    | Other         |  |  |              |   | Total |               |       | Comprehensive |        
|                                                                                                 |                                    |                 |         |       | Stock       |   |         |              |  |   | Paid-in    |   |  | Stock  |        |             | Based           |   |    | Comprehensive |  |  | Accumulated  |   |       | Stockholders |       |               | Income  |  
|                                                                                                 |                                    | Shares          |         |       | Amount      |   |         | Warrants     |  |   | Shares     |   |  | Amount |        |             | Capital         |   |    | Warrants      |  |  | Compensation |   |       | Loss          |       |               | Deficit |   |      | Equity (Deficit) |  |   | (Loss) |  
|                                                                                                 |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |  
|                                                                                                 |                                    | (In thousands)  |        
|Balance at December 31, 2002                                                                     |                                    |                 | 4,918   |       |             | $ | 35,866  |              |  | $ | 6,526      |   |  |        | 1,454  |             |                 | $ | 2  |               |  |  | 665          |   |       |               |      |               |         | $ | (107 | )                |  |   |       |   |  | $ | (50,731 | )     |  | $ | (50,171 | )     |  |   |        |      
|Issuance of common stock upon exercise of stock options                                          |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        | 15     |             |                 |   |   |               |  |  | 9            |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   | 9       |       |  |   |        |      
|Deferred stock-based compensation                                                                |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  | 259          |   |       |               |      |               |         |   | (259 | )                |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Amortization of deferred stock-based compensation                                                |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   | 85   |                  |  |   |       |   |  |   |        |       |  |   | 85      |       |  |   |        |      
|Reversal of deferred stock-based compensation upon employee
    terminations                     |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  | (5           | ) |       |               |      |               |         |   | 5    |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Issuance of Series F preferred stock warrants in
    conjunction with notes payable              |                                    |                 |        |       |             |   |        |              |  |   | 409        |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Conversion of notes payable and accrued interest into
    Series E and                           |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |   |  |   |         |       |  |   |         |       |  |   |        |      
|                                                                                                 | Series F preferred stock           |                 |         | 5,887 |             |   |         | 20,304       |  |   |            |  |  |        |        |            |                 |   |    |              |  |  |              |  |       |               |       |              |         |   |      |                 |  |   |        |  |  |   |         |      |  |   |         |      |  |   |        |       | 
|Issuance of Series E-1 preferred stock warrants in
    conjunction with notes payable conversion |                                    |                 |        |       |             |   |        |              |  |   | 94         |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Issuance of Series F preferred stock warrants in
    conjunction with notes payable conversion   |                                    |                 |        |       |             |   |        |              |  |   | 357        |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Net loss                                                                                         |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   | (4,583  | )     |  |   | (4,583  | )     |  | $ | (4,583 | )    
|                                                                                                 |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |  
|Balance at December 31, 2003                                                                     |                                    |                 | 10,805  |       |             |   | 56,170  |              |  |   | 7,386      |   |  |        | 1,469  |             |                 |   | 2  |               |  |  | 928          |   |       |               | 0     |               |         |   | (276 | )                |  |   | 0      |   |  |   | (55,314 | )     |  |   | (54,660 | )     |  |   |        |      
|Issuance of common stock upon exercise of stock options                                          |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        | 152    |             |                 |   |   |               |  |  | 177          |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   | 177     |       |  |   |        |      
|Issuance of common stock upon exercise of common stock warrants                                  |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        | 1      |             |                 |   |   |               |  |  | 2            |   |       |               | (2    | )             |         |   |     |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Issuance of preferred stock upon exercise of Series E-1
    preferred stock warrants             |                                    |                 | 2,221   |       |             |   | 9,573   |              |  |   | (1,015     | ) |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Conversion of preferred stock to common stock                                                    |                                    |                 | (13,026 | )     |             |   | (65,743 | )            |  |   | (6,371     | ) |  |        | 13,026 |             |                 |   | 13 |               |  |  | 65,730       |   |       |               | 6,371 |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   | 72,114  |       |  |   |        |      
|Issuance of common stock-Initial Public Offering                                                 |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        | 5,232  |             |                 |   | 5  |               |  |  | 61,397       |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   | 61,402  |       |  |   |        |      
|Deferred stock-based compensation                                                                |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  | 430          |   |       |               |      |               |         |   | (430 | )                |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Amortization of deferred stock-based compensation                                                |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   | 159  |                  |  |   |       |   |  |   |        |       |  |   | 159     |       |  |   |        |      
|Reversal of deferred stock-based compensation upon employee
    terminations                     |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  | (109         | ) |       |               |      |               |         |   | 109  |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Comprehensive income:                                                                            |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |      |                  |  |   |       |   |  |   |        |       |  |   |         |       |  |   |        |      
|                                                                                                 | Net income                         |                 |         |      |             |   |         |             |  |   |            |  |  |        |        |            |                 |   |    |              |  |  |              |  |       |               |       |              |         |   |      |                 |  |   |        |  |  |   |         | 3,184 |  |   |         | 3,184 |  |   | $      | 3,184 | 
|                                                                                                 | Other comprehensive income (loss): |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |   |  |   |         |       |  |   |         |       |  |   |        |       | 
|Unrealized loss on available-for-sale securities, net of tax                                     |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   | (105   | ) |  |   |        |       |  |   | (105    | )     |  |   | (105   | )    
|                                                                                                 |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |  
|Total comprehensive income                                                                       |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |   |  |   |         |       |  |   |         |       |  | $ | 3,079  |      
|                                                                                                 |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |  
|Balance at December 31, 2004                                                                     |                                    |                 | -       |       |             |   |        |              |  |   |           |   |  |        | 19,880 |             |                 |   | 20 |               |  |  | 128,555      |   |       |               | 6,369 |               |         |   | (438 | )                |  |   | (105   | ) |  |   | (52,130 | )     |  |   | 82,271  |       |  |   |        |      
|Issuance of common stock upon exercise of stock options                                          |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        | 239    |             |                 |   |   |               |  |  | 571          |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   | 571     |       |  |   |        |      
|Issuance of common stock upon exercise of common stock warrants                                  |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        | 154    |             |                 |   |   |               |  |  | 285          |   |       |               | (275  | )             |         |   |     |                  |  |   |       |   |  |   |        |       |  |   | 10      |       |  |   |        |      
|Amortization of deferred stock-based compensation                                                |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   | 140  |                  |  |   |       |   |  |   |        |       |  |   | 140     |       |  |   |        |      
|Reversal of deferred stock-based compensation upon employee
    terminations                     |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  | (41          | ) |       |               |      |               |         |   | 41   |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Tax benefit from employee stock plans                                                            |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  | 707          |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   | 707     |       |  |   |        |      
|Comprehensive income:                                                                            |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   |        |       |  |   |        |       |  |   |        |      
|Net income                                                                                       |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   |       |   |  |   | 20,467  |       |  |   | 20,467  |       |  | $ | 20,467 |      
|Unrealized loss on available-for-sale securities, net of tax                                     |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        |       |             |                 |   |   |               |  |  |             |   |       |               |      |               |         |   |     |                  |  |   | (385   | ) |  |   |        |       |  |   | (385    | )     |  |   | (385   | )    
|                                                                                                 |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |  
|Total comprehensive income                                                                       |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |   |  |   |         |       |  |   |         |       |  | $ | 20,082 |      
|                                                                                                 |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |  
|Balance at December 31, 2005                                                                     |                                    |                 |        |       |             |   |        |              |  |   |           |   |  |        | 20,273 |             |                 | $ | 20 |               |  |  | 130,077      |   |       | $             | 6,094 |               |         | $ | (257 | )                |  | $ | (490   | ) |  | $ | (31,663 | )     |  | $ | 103,781 |       |  |   |        |      
|                                                                                                 |                                    |                 |         |       |             |   |         |              |  |   |            |   |  |        |        |             |                 |   |    |               |  |  |              |   |       |               |       |               |         |   |      |                  |  |   |        |  



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##### Table of Contents



ZIPREALTY, INC.





STATEMENTS OF CASH FLOWS


|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |        |         |        |     |     |       |  
|------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------------- | ------- | ------ | ------- | ------- | ---- | ------ | ------- | ------ | --- | --- | ----- | -
|                                                                                                                                                       |                                                                            | Year Ended December 31,                   |                                                    
|                                                                                                                                                       |                                                                            |                                           |                                                    
|                                                                                                                                                       |                                                                            | 2005                                      |                                                     |         | 2004   |         |         | 2003 |       
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|                                                                                                                                                       |                                                                            | (In thousands)                            |                                                    
|Cash flows from operating activities                                                                                                                   |                                                                            |                                           |                                                     |         |        |         |         |      |        |         |        |    
|Net income (loss)                                                                                                                                      |                                                                            | $                                         | 20,467                                              |         |        | $       | 3,184   |      |        | $       | (4,583 | )  
|Adjustments to reconcile net income (loss) to net cash provided
    by (used in) operating activities                                                  |                                                                            |                                           |                                                     |         |        |         |         |      |        |         |        |    
|                                                                                                                                                       | Deferred income tax benefit                                                |                                           |                                                     | (17,496 | )      |         |         |     |        |         |        |    |    
|                                                                                                                                                       | Tax benefit from employee stock plans                                      |                                           |                                                     | 707     |        |         |         |     |        |         |        |    |    
|                                                                                                                                                       | Depreciation and amortization                                              |                                           |                                                     | 1,518   |        |         |         | 847  |        |         |        | 856 |    
|                                                                                                                                                       | Amortization of convertible notes payable discount to interest
    expense |                                           |                                                     |        |        |         |         |     |        |         |        | 935 |    
|                                                                                                                                                       | Amortization of deferred stock-based compensation                          |                                           |                                                     | 140     |        |         |         | 159  |        |         |        | 85  |    
|                                                                                                                                                       | Provision for doubtful accounts                                            |                                           |                                                     | 19      |        |         |         | 9    |        |         |        | 13  |    
|                                                                                                                                                       | Amortization of short-term investment premium                              |                                           |                                                     | 630     |        |         |         | 71   |        |         |        |    |    
|                                                                                                                                                       | Non-cash interest expense                                                  |                                           |                                                     |        |        |         |         |     |        |         |        | 853 |    
|                                                                                                                                                       | Amortization of warrants issued in connection with equipment
    lease     |                                           |                                                     |        |        |         |         |     |        |         |        | 10  |    
|                                                                                                                                                       | Non-cash expense in connection with note payable conversion                |                                           |                                                     |        |        |         |         |     |        |         |        | 451 |    
|                                                                                                                                                       | Changes in operating assets and liabilities                                |                                           |                                                     |         |        |         |         |      |        |         |        |     |    
|                                                                                                                                                       |                                                                            | Accounts receivable,                      |                                                     |         | (564   | )       |         |      | (591   | )       |        |     | 49  |      
|                                                                                                                                                       |                                                                            | Prepaid expenses and other current assets |                                                     |         | (1,093 | )       |         |      | (1,406 | )       |        |     | 178 |      
|                                                                                                                                                       |                                                                            | Other assets                              |                                                     |         | (79    | )       |         |      |       |         |        |     | 78  |      
|                                                                                                                                                       |                                                                            | Accounts payable                          |                                                     |         | 153    |         |         |      | 502    |         |        |     | 202 |      
|                                                                                                                                                       |                                                                            | Accrued expenses                          |                                                     |         | 4,216  |         |         |      | 1,885  |         |        |     | 670 |      
|                                                                                                                                                       |                                                                            | Other long-term liabilities               |                                                     |         | (52    | )       |         |      | (66    | )       |        |     | (15 | )    
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|                                                                                                                                                       |                                                                            |                                           | Net cash provided by (used in) operating activities |         |        | 8,566   |         |      |        | 4,594   |        |     |     | (218  | )
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|Cash flows from investing activities                                                                                                                   |                                                                            |                                           |                                                     |         |        |         |         |      |        |         |        |    
|Restricted cash                                                                                                                                        |                                                                            |                                           | 100                                                 |         |        |         |        |      |        |         | 252    |    
|Purchases of short-term investments                                                                                                                    |                                                                            |                                           | (37,550                                             | )       |        |         | (72,148 | )    |        |         |       |    
|Purchases of property and equipment                                                                                                                    |                                                                            |                                           | (2,820                                              | )       |        |         | (1,415  | )    |        |         | (571   | )  
|Proceeds from sale and maturity of short-term investments                                                                                              |                                                                            |                                           | 26,465                                              |         |        |         |        |      |        |         |       |    
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|                                                                                                                                                       |                                                                            |                                           | Net cash used in investing activities               |         |        | (13,805 | )       |      |        | (73,563 | )      |     |     | (319  | )
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|Cash flows from financing activities                                                                                                                   |                                                                            |                                           |                                                     |         |        |         |         |      |        |         |        |    
|Proceeds from stock option exercises                                                                                                                   |                                                                            |                                           | 571                                                 |         |        |         | 176     |      |        |         | 10     |    
|Issuance costs in connection with note payable conversion                                                                                              |                                                                            |                                           |                                                    |         |        |         |        |      |        |         | (16    | )  
|Proceeds from issuance of warrants in conjunction with
    convertible notes payable                                                                   |                                                                            |                                           |                                                    |         |        |         |        |      |        |         | 22     |    
|Proceeds from issuance of convertible notes payable                                                                                                    |                                                                            |                                           |                                                    |         |        |         |        |      |        |         | 2,157  |    
|Repayment of capital lease obligations                                                                                                                 |                                                                            |                                           |                                                    |         |        |         |        |      |        |         | (240   | )  
|Proceeds from common stock warrant exercises                                                                                                           |                                                                            |                                           | 11                                                  |         |        |         |        |      |        |         |       |    
|Proceeds from Series E-1 preferred stock warrant exercises                                                                                             |                                                                            |                                           |                                                    |         |        |         | 8,558   |      |        |         |       |    
|Proceeds from issuance of common stock-Initial Public Offering,
    net of issuance costs                                                              |                                                                            |                                           |                                                    |         |        |         | 61,403  |      |        |         |       |    
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|                                                                                                                                                       |                                                                            |                                           | Net cash provided by financing activities           |         |        | 582     |         |      |        | 70,137  |        |     |     | 1,933 |  
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|                                                                                                                                                       |                                                                            |                                           | Net increase in cash and cash equivalents           |         |        | (4,657  | )       |      |        | 1,168   |        |     |     | 1,396 |  
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|Cash and cash equivalents at beginning of period                                                                                                       |                                                                            |                                           | 11,525                                              |         |        |         | 10,357  |      |        |         | 8,961  |    
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|Cash and cash equivalents at end of period                                                                                                             |                                                                            | $                                         | 6,868                                               |         |        | $       | 11,525  |      |        | $       | 10,357 |    
|                                                                                                                                                       |                                                                            |                                           |                                                     |         |        |         |         |      |       
|Supplemental cash flow information                                                                                                                     |                                                                            |                                           |                                                     |         |        |         |         |      |        |         |        |    
|Cash paid for interest                                                                                                                                 |                                                                            | $                                         |                                                    |         |        | $       |        |      |        | $       | 34     |    
|Non-cash investing and financing activities                                                                                                            |                                                                            |                                           |                                                     |         |        |         |         |      |        |         |        |    
|Series F preferred stock warrants issued in connection with
    convertible notes payable                                                              |                                                                            | $                                         |                                                    |         |        | $       |        |      |        | $       | 409    |    
|Reversal of deferred stock-based compensation upon employee
    terminations                                                                           |                                                                            | $                                         | 41                                                  |         |        | $       | 109     |      |        | $       | 5      |    
|Conversion of convertible notes payable into preferred stock                                                                                           |                                                                            | $                                         |                                                    |         |        | $       |        |      |        | $       | 21,703 |    
|Conversion of preferred stock into common stock                                                                                                        |                                                                            | $                                         |                                                    |         |        | $       | (65,743 | )    |        | $       |       |    
|Conversion of preferred stock warrants into common stock warrants                                                                                      |                                                                            | $                                         |                                                    |         |        | $       | (6,371  | )    |        | $       |       |    
|Debt issuance costs converted to preferred stock                                                                                                       |                                                                            | $                                         |                                                    |         |        | $       |        |      |        | $       | 148    |    
|Recognition of preferred stock additional paid-in capital from
    preferred stock warrants due to exercise of Series E-1
    preferred stock warrants |                                                                            | $                                         |                                                    |         |        | $       | 1,015   |      |        | $       |       |    
|Recognition of common stock additional paid-in capital from
    common stock warrants due to exercise of common stock warrants                         |                                                                            | $                                         | 275                                                 |         |        | $       | 2       |      |        | $       |       |    
|Deferred stock-based compensation                                                                                                                      |                                                                            | $                                         |                                                    |         |        | $       | 430     |      |        | $       | 260    |    



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ZIPREALTY, INC.





NOTES TO FINANCIAL STATEMENTS




|   |                                                           
|-- | ----------------------------------------------------------
|1. | THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



| |                     
| | --------------------
| | Nature of operations





| |            
| | -----------
| | Stock split



Initial public
offering


S-1 333-115657)








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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                  
| | -----------------
| | Reclassifications





| |                        
| | -----------------------
| | Risks and uncertainties





| |   |                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | regulatory changes;                                                                                                                                                                                                          
|
| |  | the continued use and adoption of the Internet by consumers
    which allows the Company to compete with established real estate
    firms, many of which have long operating histories and
    substantial client bases; and
|
| |  | entry into market of companies attempting to replicate the
    Companys business model.                                                                                                                                     



| |                            
| | ---------------------------
| | Net income (loss) per share





| |                 
| | ----------------
| | Use of estimates





| |                    
| | -------------------
| | Revenue recognition



E-LOAN


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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                    
| | -------------------
| | Expense recognition





| |                 
| | ----------------
| | Cost of revenues





| |                          
| | -------------------------
| | Cash and cash equivalents





| |                       
| | ----------------------
| | Short-term investments





| |                
| | ---------------
| | Restricted cash





| |                                    
| | -----------------------------------
| | Fair value of financial instruments





| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Concentration of credit risk, significant customers and
    significant suppliers







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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










| |                       
| | ----------------------
| | Property and equipment



|                                  |  |                                                     
|--------------------------------- |  | ----------------------------------------------------
|Computer hardware and software    |  | 1-3 years                                           
|Furniture, fixtures and equipment |  | 4-5 years                                           
|Leasehold improvements            |  | Shorter of the lease period or estimated useful life





| |                                
| | -------------------------------
| | Impairment of Long-Lived Assets

Accounting for the Impairment or Disposal of
Long-Lived Assets




| |                         
| | ------------------------
| | Stock-Based Compensation

Accounting for Stock
Issued to Employees Accounting for Certain Transactions Involving Stock
Compensation  an Interpretation of APB No. 25 Accounting for Stock-Based Compensation


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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Accounting for Stock-Based Compensation 
Transaction and Disclosure


Accounting for
Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services




|                                                                                                                                          |                                           |                         |        |   |      |   |       |      |   |   |        |   |       |  
|----------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ----------------------- | ------ | - | ---- | - | ----- | ---- | - | - | ------ | - | ----- | -
|                                                                                                                                          |                                           | Year Ended December 31, |       
|                                                                                                                                          |                                           |                         |       
|                                                                                                                                          |                                           | 2005                    |        |   | 2004 |   |       | 2003 |  
|                                                                                                                                          |                                           |                         |        |   |      |   |       |      |  
|                                                                                                                                          |                                           | (In thousands)          |       
|Net income (loss) as reported                                                                                                             |                                           | $                       | 20,467 |   |      | $ | 3,184 |      |   | $ | (4,583 | )
|Add: Stock-based compensation expense included in reported net
    income (loss), net of taxes                                            |                                           |                         | 126    |   |      |   | 159   |      |   |   | 85     |  
|Deduct: Total stock-based employee compensation expense
    determined under the fair value based method for all awards, net
    of taxes |                                           |                         | (1,238 | ) |      |   | (538  | )    |   |   | (378   | )
|                                                                                                                                          |                                           |                         |        |   |      |   |       |      |  
|Pro forma net income (loss)                                                                                                               |                                           | $                       | 19,355 |   |      | $ | 2,805 |      |   | $ | (4,876 | )
|                                                                                                                                          |                                           |                         |        |   |      |   |       |      |  
|                                                                                                                                          | Net income (loss) per share, as reported: |                         |        |   |      |   |       |      |   |   |        |   |      
|                                                                                                                                          |                                           | Basic                   |        | $ | 1.02 |   |       | $    |  |   |        | $ | (3.57 | )
|                                                                                                                                          |                                           | Diluted                 |        | $ | 0.82 |   |       | $    |  |   |        | $ | (3.57 | )
|                                                                                                                                          | Pro forma income (loss) per share:        |                         |        |   |      |   |       |      |   |   |        |   |      
|                                                                                                                                          |                                           | Basic                   |        | $ | 0.96 |   |       | $    |  |   |        | $ | (3.77 | )
|                                                                                                                                          |                                           | Diluted                 |        | $ | 0.77 |   |       | $    |  |   |        | $ | (3.77 | )





|                        |  |                         |             |      |      |  |             |      |  |  |             |     
|----------------------- |  | ----------------------- | ----------- | ---- | ---- |  | ----------- | ---- |  |  | ----------- | ----
|                        |  | Year Ended December 31, |            
|                        |  |                         |            
|                        |  | 2005                    |             |      | 2004 |  |             | 2003 | 
|                        |  |                         |             |      |      |  |             |      | 
|Expected volatility     |  |                         | 33 - 61     | %(2) |      |  | 21 - 50     | %(2) |  |  | 0           | %(1)
|Risk-free interest rate |  |                         | 3.82 - 4.43 | %    |      |  | 2.51 - 3.70 | %    |  |  | 1.86 - 3.01 | %   
|Expected life           |  |                         | 4 years     |      |      |  | 4 years     |      |  |  | 4 years     |     
|Expected dividend yield |  |                         | 0           | %    |      |  | 0           | %    |  |  | 0           | %   






|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal years 2002 and 2003, the Company was a non-public
    Company and, therefore, used the minimum value method under
    which volatility is not considered.

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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|    |                                                                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | The Company used the minimum value method until the initial
    Form S-1 was filed
    on May 20, 2004. The Company used a 50% volatility from
    May 20, 2004 until the effective date of the initial public
    offering on November 9, 2004. After this date the Company
    used historical volatility rates.







| |                                       
| | --------------------------------------
| | Software and Website Development Costs

Accounting for Website
Development Costs. 00-02 Accounting for the Cost of Computer Software Developed or
Obtained for Internal Use,






| |                  
| | -----------------
| | Advertising Costs





| |             
| | ------------
| | Income Taxes



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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |                            
| | ---------------------------
| | Comprehensive Income (Loss)





| |                  
| | -----------------
| | Segment Reporting

Disclosures about Segments of an Enterprise and Related
Information




| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

Share-Based Payment




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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)










|   |                         
|-- | ------------------------
|2. | BALANCE SHEET COMPONENTS



| |                       
| | ----------------------
| | Short-term investments



|                                     |  |                   |        |  |                   |   |      |           |  |   |           |  |  |            |        |  |            |   |   |           |  |   |      |   |  |   |        | 
|------------------------------------ |  | ----------------- | ------ |  | ----------------- | - | ---- | --------- |  | - | --------- |  |  | ---------- | ------ |  | ---------- | - | - | --------- |  | - | ---- | - |  | - | ------ | 
|                                     |  | December 31, 2005 |        |  | December 31, 2004 |  
|                                     |  |                   |        |  |                   |  
|                                     |  | Gross             |        |  | Gross             |   |      | Estimated |  |   | Gross     |  |  | Gross      |        |  | Gross      |   |   | Estimated | 
|                                     |  | Amortized         |        |  | Unrealized        |   |      | Fair      |  |   | Amortized |  |  | Unrealized |        |  | Unrealized |   |   | Fair      | 
|                                     |  | Cost              |        |  | Losses            |   |      | Value     |  |   | Cost      |  |  | Gains      |        |  | Losses     |   |   | Value     | 
|                                     |  |                   |        |  |                   |   |      |           |  |   |           |  |  |            |        |  |            |   |   |           | 
|                                     |  | (In thousands)    |        |  | (In thousands)    |  
|Money market securities              |  | $                 | 2,462  |  |                   | $ |     |           |  | $ | 2,462     |  |  | $          | 2,069  |  |            | $ |  |           |  | $ |     |   |  | $ | 2,069  | 
|Repurchase agreements                |  |                   | 300    |  |                   |   |     |           |  |   | 300       |  |  |            | 5,396  |  |            |   |  |           |  |   |     |   |  |   | 5,396  | 
|Asset backed                         |  |                   | 9,056  |  |                   |   | (25  | )         |  |   | 9,031     |  |  |            | 9,159  |  |            |   |  |           |  |   | (10  | ) |  |   | 9,149  | 
|Corporate obligations                |  |                   | 38,187 |  |                   |   | (214 | )         |  |   | 37,973    |  |  |            | 29,512 |  |            |   |  |           |  |   | (61  | ) |  |   | 29,451 | 
|US Government and agency obligations |  |                   | 35,288 |  |                   |   | (251 | )         |  |   | 35,037    |  |  |            | 36,706 |  |            |   | 2 |           |  |   | (36  | ) |  |   | 36,672 | 
|                                     |  |                   |        |  |                   |   |      |           |  |   |           |  |  |            |        |  |            |   |   |           | 
|Total short-term investments         |  | $                 | 85,293 |  |                   | $ | (490 | )         |  | $ | 84,803    |  |  | $          | 82,842 |  |            | $ | 2 |           |  | $ | (107 | ) |  | $ | 82,737 | 
|                                     |  |                   |        |  |                   |   |      |           |  |   |           |  |  |            |        |  |            |   |   |           | 

|                       |  |                   |        |  |                   |   |        | 
|---------------------- |  | ----------------- | ------ |  | ----------------- | - | ------ | 
|                       |  | December 31, 2005 |        |  | December 31, 2004 |  
|                       |  |                   |        |  |                   |  
|                       |  | (In thousands)    |        |  | (In thousands)    |  
|Recorded as:           |  |                   |        |  |                   |   |        | 
|Cash equivalents       |  | $                 | 2,762  |  |                   | $ | 10,765 | 
|Short-term investments |  |                   | 82,041 |  |                   |   | 71,972 | 
|                       |  |                   |        |  |                   |  
|                       |  | $                 | 84,803 |  |                   | $ | 82,737 | 
|                       |  |                   |        |  |                   |  



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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|                                       |  |                |        | 
|-------------------------------------- |  | -------------- | ------ | 
|                                       |  | December 31,   |       
|                                       |  | 2005           |       
|                                       |  |                |       
|                                       |  | (In thousands) |       
|Due within one year or less            |  | $              | 50,105 | 
|Due after one year through two years   |  |                | 28,162 | 
|Due after two years through four years |  |                | 6,536  | 
|                                       |  |                |       
|                                       |  | $              | 84,803 | 
|                                       |  |                |       



| |                                          
| | -----------------------------------------
| | Prepaid expenses and other current assets



|                        |                                           |                |       |       |      |   |       |       | 
|----------------------- | ----------------------------------------- | -------------- | ----- | ----- | ---- | - | ----- | ----- | 
|                        |                                           | December 31,   |      
|                        |                                           |                |      
|                        |                                           | 2005           |       |       | 2004 |  
|                        |                                           |                |       |       |      |  
|                        |                                           | (In thousands) |      
|Prepaid expenses        |                                           | $              | 2,101 |       |      | $ | 1,211 |      
|Interest receivable     |                                           |                | 858   |       |      |   | 735   |      
|Other assets            |                                           |                | 270   |       |      |   | 168   |      
|                        |                                           |                |       |       |      |  
|                        |                                           |                | 3,229 |       |      |   | 2,114 |      
|Less: long-term portion |                                           |                | 91    |       |      |   | 12    |      
|                        |                                           |                |       |       |      |  
|                        | Prepaid expenses and other current assets |                | $     | 3,138 |      |   | $     | 2,102 | 
|                        |                                           |                |       |       |      |  



| |                            
| | ---------------------------
| | Property and equipment, net



|                                                |                             |                |        |       |      |   |        |       | 
|----------------------------------------------- | --------------------------- | -------------- | ------ | ----- | ---- | - | ------ | ----- | 
|                                                |                             | December 31,   |       
|                                                |                             |                |       
|                                                |                             | 2005           |        |       | 2004 |  
|                                                |                             |                |        |       |      |  
|                                                |                             | (In thousands) |       
|Computer hardware and software                  |                             | $              | 4,812  |       |      | $ | 3,574  |      
|Furniture, fixtures and equipment               |                             |                | 901    |       |      |   | 391    |      
|Leasehold improvements                          |                             |                | 428    |       |      |   | 34     |      
|                                                |                             |                |        |       |      |  
|                                                |                             |                | 6,141  |       |      |   | 3,999  |      
|Less: accumulated depreciation and amortization |                             |                | (3,603 | )     |      |   | (2,763 | )    
|                                                |                             |                |        |       |      |  
|                                                | Property and equipment, net |                | $      | 2,538 |      |   | $      | 1,236 | 
|                                                |                             |                |        |       |      |  





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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


Accrued expenses




|                           |                  |                |       |       |      |   |       |       | 
|-------------------------- | ---------------- | -------------- | ----- | ----- | ---- | - | ----- | ----- | 
|                           |                  | December 31,   |      
|                           |                  |                |      
|                           |                  | 2005           |       |       | 2004 |  
|                           |                  |                |       |       |      |  
|                           |                  | (In thousands) |      
|Accrued vacation           |                  | $              | 727   |       |      | $ | 539   |      
|Accrued agent commissions  |                  |                | 1,905 |       |      |   | 1,647 |      
|Accrued bonuses            |                  |                | 565   |       |      |   | 975   |      
|Accrued marketing expenses |                  |                | 774   |       |      |   | 432   |      
|Litigation settlement      |                  |                | 3,164 |       |      |   |      |      
|Other accrued expenses     |                  |                | 1,368 |       |      |   | 694   |      
|                           |                  |                |       |       |      |  
|                           | Accrued expenses |                | $     | 8,503 |      |   | $     | 4,287 | 
|                           |                  |                |       |       |      |  



| |                                              
| | ---------------------------------------------
| | Accumulated other comprehensive income (loss)



|                                                             |                                         |                |      |      |      |   |      |      |  
|------------------------------------------------------------ | --------------------------------------- | -------------- | ---- | ---- | ---- | - | ---- | ---- | -
|                                                             |                                         | December 31,   |     
|                                                             |                                         |                |     
|                                                             |                                         | 2005           |      |      | 2004 |  
|                                                             |                                         |                |      |      |      |  
|                                                             |                                         | (In thousands) |     
|Other comprehensive income (loss):                           |                                         |                |      |      |      |   |      |     
|Unrealized loss on available-for-sale securities, net of tax |                                         | $              | (490 | )    |      | $ | (105 | )   
|                                                             |                                         |                |      |      |      |  
|                                                             | Total other comprehensive income (loss) |                | $    | (490 | )    |   | $    | (105 | )
|                                                             |                                         |                |      |      |      |  

68



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |                            
|-- | ---------------------------
|3. | NET INCOME (LOSS) PER SHARE



|                                                                                                 |         |                                          |        |      |      |   |       |      |  |   |        |       |  
|------------------------------------------------------------------------------------------------ | ------- | ---------------------------------------- | ------ | ---- | ---- | - | ----- | ---- |  | - | ------ | ----- | -
|                                                                                                 |         | Year Ended December 31,                  |       
|                                                                                                 |         |                                          |       
|                                                                                                 |         | 2005                                     |        |      | 2004 |   |       | 2003 | 
|                                                                                                 |         |                                          |        |      |      |   |       |      | 
|                                                                                                 |         | (In thousands, except per share amounts) |       
|Numerator:                                                                                       |         |                                          |        |      |      |   |       |      |  |   |        |      
|Net income (loss)                                                                                |         | $                                        | 20,467 |      |      | $ | 3,184 |      |  | $ | (4,583 | )    
|Cumulative preferred stock dividends                                                             |         |                                          |       |      |      |   | 552   |      |  |   | 631    |      
|Amount allocated to participating preferred stockholders                                         |         |                                          |       |      |      |   | 2,632 |      |  |   |       |      
|                                                                                                 |         |                                          |        |      |      |   |       |      | 
|Net income (loss) available to common stockholders (for basic
    and dilutive EPS computations) |         | $                                        | 20,467 |      |      | $ |      |      |  | $ | (5,214 | )    
|                                                                                                 |         |                                          |        |      |      |   |       |      | 
|Denominator:                                                                                     |         |                                          |        |      |      |   |       |      |  |   |        |      
|Shares used to compute EPS:                                                                      |         |                                          |        |      |      |   |       |      |  |   |        |      
|Basic                                                                                            |         |                                          | 20,089 |      |      |   | 3,798 |      |  |   | 1,459  |      
|Add: Dilutive common stock options and warrants                                                  |         |                                          | 4,991  |      |      |   |      |      |  |   |       |      
|                                                                                                 |         |                                          |        |      |      |   |       |      | 
|Diluted                                                                                          |         |                                          | 25,080 |      |      |   | 3,798 |      |  |   | 1,459  |      
|                                                                                                 |         |                                          |        |      |      |   |       |      | 
|Net income (loss) per share:                                                                     |         |                                          |        |      |      |   |       |      |  |   |        |      
|                                                                                                 | Basic   |                                          | $      | 1.02 |      |   | $     |     |  |   | $      | (3.57 | )
|                                                                                                 | Diluted |                                          | $      | 0.82 |      |   | $     |     |  |   | $      | (3.57 | )



|                                                |  |                         |     |  |      |  |       |      |  |  |        | 
|----------------------------------------------- |  | ----------------------- | --- |  | ---- |  | ----- | ---- |  |  | ------ | 
|                                                |  | Year Ended December 31, |    
|                                                |  |                         |    
|                                                |  | 2005                    |     |  | 2004 |  |       | 2003 | 
|                                                |  |                         |     |  |      |  |       |      | 
|                                                |  | (In thousands)          |    
|Stock options to purchase common stock          |  |                         | 808 |  |      |  | 3,421 |      |  |  | 2,263  | 
|Participating convertible preferred stock       |  |                         |    |  |      |  |      |      |  |  | 10,805 | 
|Warrants to purchase preferred and common stock |  |                         | 3   |  |      |  | 4,811 |      |  |  | 7,058  | 

69



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|   |             
|-- | ------------
|4. | INCOME TAXES



|          |         |                                  |         |         |         |   |    |    |    | 
|--------- | ------- | -------------------------------- | ------- | ------- | ------- | - | -- | -- | -- | 
|          |         | December 31,                     |        
|          |         |                                  |        
|          |         | 2005                             |         |         | 2004    |  
|          |         |                                  |         |         |         |  
|          |         | (In thousands)                   |        
|Current:  |         |                                  |         |         |         |   |    |   
|          | Federal |                                  | $       | 636     |         |   | $  | 65 |   
|          | State   |                                  |         | 146     |         |   |    | 24 |   
|          |         |                                  |         |         |         |  
|          |         |                                  | 782     |         |         |   | 89 |   
|          |         |                                  |         |         |         |  
|Deferred: |         |                                  |         |         |         |   |    |   
|          | Federal |                                  |         | (15,853 | )       |   |    |   |   
|          | State   |                                  |         | (1,643  | )       |   |    |   |   
|          |         |                                  |         |         |         |  
|          |         |                                  | (17,496 | )       |         |   |   |   
|          |         |                                  |         |         |         |  
|          |         | Total provision for income taxes |         | $       | (16,714 | ) |    | $  | 89 | 
|          |         |                                  |         |         |         |  



|                          |                                  |                                 |      |        |        |  |         |        |        | 
|------------------------- | -------------------------------- | ------------------------------- | ---- | ------ | ------ |  | ------- | ------ | ------ | 
|                          |                                  | December 31,                    |     
|                          |                                  |                                 |     
|                          |                                  | 2005                            |      |        | 2004   | 
|                          |                                  |                                 |      |        |        | 
|                          |                                  | (In thousands)                  |     
|Deferred tax assets       |                                  |                                 |      |        |        |  |         |       
|                          | Net operating loss carryforwards |                                 | $    | 16,762 |        |  | $       | 17,734 |       
|                          | Allowances and accruals          |                                 |      | 780    |        |  |         | 397    |       
|                          | Credits                          |                                 |      | 146    |        |  |         | 79     |       
|                          |                                  |                                 |      |        |        | 
|                          |                                  | Total gross deferred tax assets |      |        | 17,668 |  |         |        | 18,210 | 
|Less: valuation allowance |                                  |                                 | (192 | )      |        |  | (18,210 | )     
|                          |                                  |                                 |      |        |        | 
|                          |                                  | Net deferred tax assets         |      | $      | 17,496 |  |         | $      |       | 
|                          |                                  |                                 |      |        |        | 





70



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ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








|                                                |  |                         |         |    |      |  |        |      |  |  |        |   
|----------------------------------------------- |  | ----------------------- | ------- | -- | ---- |  | ------ | ---- |  |  | ------ | --
|                                                |  | Year Ended December 31, |        
|                                                |  |                         |        
|                                                |  | 2005                    |         |    | 2004 |  |        | 2003 | 
|                                                |  |                         |         |    |      |  |        |      | 
|Statutory federal tax rate                      |  |                         | 34.00   | %  |      |  | 34.00  | %    |  |  | (34.00 | )%
|State tax rate, net of federal benefit          |  |                         | 5.27    | %  |      |  | 5.67   | %    |  |  | (3.64  | )%
|Change in valuation allowance                   |  |                         | (479.15 | )% |      |  | (44.13 | )%   |  |  | 35.97  | % 
|Other, net                                      |  |                         | (0.24   | )% |      |  | 7.18   | %    |  |  | 1.67   | % 
|                                                |  |                         |         |    |      |  |        |      | 
|Total provision for (benefit from) income taxes |  |                         | (440.12 | )% |      |  | 2.72   | %    |  |  | 0.00   | % 
|                                                |  |                         |         |    |      |  |        |      | 



|                               |  |                |     |  |      |   |   | 
|------------------------------ |  | -------------- | --- |  | ---- | - | - | 
|                               |  | December 31,  
|                               |  |               
|                               |  | 2005           |     |  | 2004
|                               |  |                |     |  |     
|                               |  | (In thousands)
|Prepaid income taxes           |  | $              | 57  |  |      | $ |  | 
|Deferred income taxes, current |  |                | 443 |  |      |   |  | 
|                               |  |                |     |  |      |  
|                               |  | $              | 500 |  |      | $ |  | 
|                               |  |                |     |  |      |  



|   |                          
|-- | -------------------------
|5. | CONVERTIBLE NOTES PAYABLE







71



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






E-1




|   |                              
|-- | -----------------------------
|6. | COMMITMENTS AND CONTINGENCIES



| |       
| | ------
| | Leases





|                         |                              |           |       |       | 
|------------------------ | ---------------------------- | --------- | ----- | ----- | 
|                         |                              | Operating |      
|                         |                              | Leases    |      
|                         |                              |           |      
|Year ending December 31, |                              |           |       |      
|2006                     |                              |           | 1,333 |      
|2007                     |                              |           | 1,333 |      
|2008                     |                              |           | 1,040 |      
|2009                     |                              |           | 672   |      
|2010                     |                              |           | 692   |      
|Thereafter               |                              |           | 777   |      
|                         |                              |           |      
|                         | Total minimum lease payments |           | $     | 5,847 | 
|                         |                              |           |      





| |                  
| | -----------------
| | Legal Proceedings

Sullivan,
et al v. ZipRealty


72



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)








| |                 
| | ----------------
| | Indemnifications







|   |                                       
|-- | --------------------------------------
|7. | REDEEMABLE CONVERTIBLE PREFERRED STOCK



|           |                              |            |            |            |             |  |             |            |  |   |            |            | 
|---------- | ---------------------------- | ---------- | ---------- | ---------- | ----------- |  | ----------- | ---------- |  | - | ---------- | ---------- | 
|           |                              |            |            | Shares     |             |  | Aggregate   |           
|           |                              |            |            | Issued and |             |  | Liquidation |           
|           |                              | Authorized |            |            | Outstanding |  |             | Preference | 
|           |                              |            |            |            |             |  |             |            | 
|Series A   |                              |            | 1,911,112  |            |             |  | 629,626     |            |  | $ | 1,700,000  |           
|Series B   |                              |            | 5,246,171  |            |             |  | 1,734,752   |            |  |   | 16,393,438 |           
|Series C   |                              |            | 2,178,486  |            |             |  | 547,343     |            |  |   | 10,000,005 |           
|Series D   |                              |            | 6,106,871  |            |             |  | 2,006,357   |            |  |   | 9,531,544  |           
|Series E   |                              |            | 9,000,000  |            |             |  | 2,466,724   |            |  |   | 29,082,849 |           
|Series E-1 |                              |            | 15,300,000 |            |             |  |            |            |  |   |           |           
|Series F   |                              |            | 19,600,000 |            |             |  | 3,420,534   |            |  |   | 26,885,452 |           
|           |                              |            |            |            |             |  |             |            | 
|           | Balance at December 31, 2003 |            |            | 59,342,640 |             |  |             | 10,805,336 |  |   | $          | 93,593,288 | 
|           |                              |            |            |            |             |  |             |            | 



73



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |       
| | ------
| | Voting

E-1








| |          
| | ---------
| | Dividends

E-1 E-1






| |            
| | -----------
| | Liquidation

E-1 E-1


74



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






| |           
| | ----------
| | Conversion

E-1 E-1, E-1, 2 3






| |                     
| | --------------------
| | Warrant for services





| |                          
| | -------------------------
| | Warrant with office lease





| |                                   
| | ----------------------------------
| | Warrants with equipment lease line



75



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




| |                               
| | ------------------------------
| | Warrants for convertible notes











76



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


E-1 E-1




|   |                           
|-- | --------------------------
|8. | PREFERRED AND COMMON STOCK





| |                      
| | ---------------------
| | Common stock warrants







|   |                   
|-- | ------------------
|9. | STOCK OPTION PLANS









77



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)


S-8.


1 4 1 48




|                              |  |                       |        |   |             |  |          |          |  |   |       | 
|----------------------------- |  | --------------------- | ------ | - | ----------- |  | -------- | -------- |  | - | ----- | 
|                              |  | Options               |        |   |             |  | Weighted |         
|                              |  | Available             |        |   | Number of   |  |          | Average  | 
|                              |  | for                   |        |   | Options     |  |          | Exercise | 
|                              |  | Grant                 |        |   | Outstanding |  |          | Price    | 
|                              |  |                       |        |   |             |  |          |          | 
|                              |  | (Shares in thousands) |       
|Balance at December 31, 2002  |  |                       | 173    |   |             |  | 2,148    |          |  | $ | 1.05  | 
|Increase in authorized shares |  |                       | 200    |   |             |  |          |          |  |   |       | 
|Options granted               |  |                       | (314   | ) |             |  | 314      |          |  | $ | 1.92  | 
|Options canceled              |  |                       | 185    |   |             |  | (185     | )        |  | $ | 1.26  | 
|Options exercised             |  |                       |        |   |             |  | (14      | )        |  | $ | 0.66  | 
|                              |  |                       |        |   |             |  |          |          | 
|Balance at December 31, 2003  |  |                       | 244    |   |             |  | 2,263    |          |  | $ | 1.14  | 
|Increase in authorized shares |  |                       | 1,750  |   |             |  |          |          |  |   |       | 
|Options granted               |  |                       | (1,528 | ) |             |  | 1,528    |          |  | $ | 11.28 | 
|Options canceled              |  |                       | 220    |   |             |  | (220     | )        |  | $ | 2.39  | 
|Options exercised             |  |                       |        |   |             |  | (150     | )        |  | $ | 1.18  | 
|                              |  |                       |        |   |             |  |          |          | 
|Balance at December 31, 2004  |  |                       | 686    |   |             |  | 3,421    |          |  | $ | 5.59  | 
|Options granted               |  |                       | (704   | ) |             |  | 704      |          |  | $ | 13.60 | 
|Options canceled              |  |                       | 233    |   |             |  | (233     | )        |  | $ | 10.95 | 
|Options exercised             |  |                       |        |   |             |  | (240     | )        |  | $ | 2.38  | 
|                              |  |                       |        |   |             |  |          |          | 
|Balance at December 31, 2005  |  |                       | 215    |   |             |  | 3,652    |          |  | $ | 7.01  | 
|                              |  |                       |        |   |             |  |          |          | 

78



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)




|                         |  |                        |       |                       |                   |  |          |          |  |   |             |         |  |          |       |  |  |   |       | 
|------------------------ |  | ---------------------- | ----- | --------------------- | ----------------- |  | -------- | -------- |  | - | ----------- | ------- |  | -------- | ----- |  |  | - | ----- | 
|                         |  |                        |       | Options Vested and    |                  
|                         |  | Options Outstanding at |       |                       | Exercisable at    | 
|                         |  | December 31, 2005      |       |                       | December 31, 2005 | 
|                         |  |                        |       |                       |                   | 
|                         |  |                        |       | Weighted              |                   |  |          |          |  |   | Weighted    |        
|                         |  |                        |       | Average               |                   |  | Weighted |          |  |   |             | Average | 
|                         |  |                        |       | Remaining             |                   |  | Average  |          |  |   |             | Option  | 
|                         |  | Number                 |       |                       | Contractual       |  |          | Exercise |  |   | Number      |         |  | Exercise |      
|Range of Exercise Prices |  | Outstanding            |       |                       | Life (Years)      |  |          | Price    |  |   | Outstanding |         |  | Price    |      
|                         |  |                        |       |                       |                   |  |          |          |  |   |             |         |  |          |      
|                         |  |                        |       | (Shares in thousands) |                   |  |          |          | 
|$0.30                    |  |                        | 3     |                       |                   |  | 3.6      |          |  | $ | 0.30        |         |  |          | 3     |  |  | $ | 0.30  | 
|$0.99                    |  |                        | 1,563 |                       |                   |  | 5.9      |          |  | $ | 0.99        |         |  |          | 1,489 |  |  | $ | 0.99  | 
|$1.50 - $6.00            |  |                        | 205   |                       |                   |  | 7.4      |          |  | $ | 3.81        |         |  |          | 113   |  |  | $ | 3.68  | 
|$7.50                    |  |                        | 472   |                       |                   |  | 8.2      |          |  | $ | 7.50        |         |  |          | 207   |  |  | $ | 7.50  | 
|$8.30 - $11.25           |  |                        | 307   |                       |                   |  | 8.7      |          |  | $ | 9.88        |         |  |          | 101   |  |  | $ | 10.03 | 
|$13.73                   |  |                        | 262   |                       |                   |  | 9.8      |          |  | $ | 13.73       |         |  |          | 13    |  |  | $ | 13.73 | 
|$13.88                   |  |                        | 143   |                       |                   |  | 9.6      |          |  | $ | 13.88       |         |  |          | 6     |  |  | $ | 13.88 | 
|$14.08                   |  |                        | 85    |                       |                   |  | 9.4      |          |  | $ | 14.08       |         |  |          | 5     |  |  | $ | 14.08 | 
|$14.75                   |  |                        | 105   |                       |                   |  | 9.2      |          |  | $ | 14.75       |         |  |          | 9     |  |  | $ | 14.75 | 
|$16.50                   |  |                        | 507   |                       |                   |  | 9.0      |          |  | $ | 16.50       |         |  |          | 129   |  |  | $ | 16.50 | 
|                         |  |                        |       |                       |                   |  |          |          |  |   |             |         |  |          |      
|                         |  |                        | 3,652 |                       |                   |  | 7.6      |          |  | $ | 7.01        |         |  |          | 2,075 |  |  | $ | 3.40  | 
|                         |  |                        |       |                       |                   |  |          |          |  |   |             |         |  |          |      







| |                              
| | -----------------------------
| | Stock option exchange program





|    |                      
|--- | ---------------------
|10. | EMPLOYEE BENEFIT PLAN



79



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##### Table of Contents



ZIPREALTY, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)






|    |                                   
|--- | ----------------------------------
|11. | UNAUDITED QUARTERLY FINANCIAL DATA



|                                                   |         |                |        |        |         |   |        |         |  |   |         |        |   |   |        |        | 
|-------------------------------------------------- | ------- | -------------- | ------ | ------ | ------- | - | ------ | ------- |  | - | ------- | ------ | - | - | ------ | ------ | 
|                                                   |         | Fourth         |        |        | Third   |   |        | Second  |  |   | First   |       
|Year Ended December 31, 2005                       |         | Quarter        |        |        | Quarter |   |        | Quarter |  |   | Quarter |       
|                                                   |         |                |        |        |         |   |        |         |  |   |         |       
|                                                   |         | (In thousands) |       
|Net transaction revenues                           |         | $              | 20,960 |        |         | $ | 27,576 |         |  | $ | 25,228  |        |   | $ | 17,318 |       
|Cost of revenues                                   |         |                | 11,646 |        |         |   | 15,555 |         |  |   | 13,820  |        |   |   | 10,063 |       
|Income (loss) from operations(a)                   |         |                | 340    |        |         |   | 2,219  |         |  |   | (1,616  | )      |   |   | 82     |       
|Net income (loss)(b)                               |         |                | 17,901 |        |         |   | 2,850  |         |  |   | (946    | )      |   |   | 662    |       
|Net income (loss) available to common shareholders |         |                | 17,901 |        |         |   | 2,850  |         |  |   | (946    | )      |   |   | 662    |       
|Net income (loss) per share:                       |         |                |        |        |         |   |        |         |  |   |         |        |   |   |        |       
|                                                   | Basic   |                | $      | 0.88   |         |   | $      | 0.14    |  |   | $       | (0.05  | ) |   | $      | 0.03   | 
|                                                   | Diluted |                | $      | 0.73   |         |   | $      | 0.11    |  |   | $       | (0.05  | ) |   | $      | 0.03   | 
|Weighted average common shares outstanding:        |         |                |        |        |         |   |        |         |  |   |         |        |   |   |        |       
|                                                   | Basic   |                |        | 20,260 |         |   |        | 20,198  |  |   |         | 20,005 |   |   |        | 19,885 | 
|                                                   | Diluted |                |        | 24,546 |         |   |        | 25,328  |  |   |         | 20,005 |   |   |        | 25,711 | 






|    |  |                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Includes a one-time charge of $4.2 million recorded in the
    second quarter of 2005 related to the settlement of threatened
    litigation.                                                                                                               
|   
|(b) |  | Includes an income tax benefit of $16.8 million recorded in
    the fourth quarter of 2005 related to a reversal of the
    Companys valuation allowance primarily attributable to the
    deferred tax assets related to net operating loss carryforwards.

|                                                   |         |                |        |        |         |   |        |         |  |   |         |       |  |   |        |       |  
|-------------------------------------------------- | ------- | -------------- | ------ | ------ | ------- | - | ------ | ------- |  | - | ------- | ----- |  | - | ------ | ----- | -
|                                                   |         | Fourth         |        |        | Third   |   |        | Second  |  |   | First   |      
|Year Ended December 31, 2004                       |         | Quarter        |        |        | Quarter |   |        | Quarter |  |   | Quarter |      
|                                                   |         |                |        |        |         |   |        |         |  |   |         |      
|                                                   |         | (In thousands) |       
|Net transaction revenues                           |         | $              | 17,079 |        |         | $ | 17,108 |         |  | $ | 15,902  |       |  | $ | 10,660 |      
|Cost of revenues                                   |         |                | 9,468  |        |         |   | 9,587  |         |  |   | 8,709   |       |  |   | 6,093  |      
|Income (loss) from operations                      |         |                | 615    |        |         |   | 1,207  |         |  |   | 1,168   |       |  |   | (127   | )    
|Net income (loss)                                  |         |                | 888    |        |         |   | 1,254  |         |  |   | 1,157   |       |  |   | (115   | )    
|Net income (loss) available to common shareholders |         |                | 129    |        |         |   |       |         |  |   |        |       |  |   | (272   | )    
|Net income (loss) per share:                       |         |                |        |        |         |   |        |         |  |   |         |       |  |   |        |      
|                                                   | Basic   |                | $      | 0.01   |         |   | $      |        |  |   | $       |      |  |   | $      | (0.19 | )
|                                                   | Diluted |                | $      | 0.01   |         |   | $      |        |  |   | $       |      |  |   | $      | (0.19 | )
|Weighted average common shares outstanding:        |         |                |        |        |         |   |        |         |  |   |         |       |  |   |        |      
|                                                   | Basic   |                |        | 10,706 |         |   |        | 1,563   |  |   |         | 1,498 |  |   |        | 1,469 |  
|                                                   | Diluted |                |        | 16,440 |         |   |        | 1,563   |  |   |         | 1,498 |  |   |        | 1,469 |  

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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure:








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures



| |                                                 
| | ------------------------------------------------
| | Evaluation of Disclosure Controls and Procedures

13a-15(e) 15d-15(e) 10-K.




| |                                                                     
| | --------------------------------------------------------------------
| | Managements Report on Internal Control Over
    Financial Reporting

13a-15(f) Internal Control  Integrated Framework.


Internal Control  Integrated Framework,






| |                                                         
| | --------------------------------------------------------
| | Changes in Internal Control Over Financial
    Reporting



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##### Table of Contents






Item 9B.     Other
Information:







PART III





Item 10. Directors and Executive Officers:




| |                   
| | ------------------
| | Executive officers





| |          
| | ---------
| | Directors





| |                                                            
| | -----------------------------------------------------------
| | Section 16(a) beneficial ownership reporting
    compliance





| |               
| | --------------
| | Code of ethics

www.ziprealty.com







|         |                        
|-------- | -----------------------
|Item 11. | Executive Compensation:








|         |                                                                                                    
|-------- | ---------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters:



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| |                                     
| | ------------------------------------
| | Equity compensation plan information



|                                                   |  |                      |       |  |                      |                      |                |                      |  |  |     | 
|-------------------------------------------------- |  | -------------------- | ----- |  | -------------------- | -------------------- | -------------- | -------------------- |  |  | --- | 
|                                                   |  |                      |       |  |                      | Number of Securities |               
|                                                   |  | Number of            |       |  |                      |                      | Available for  |                     
|                                                   |  | Securities to be     |       |  |                      |                      | Issuance Under |                     
|                                                   |  | Issued Upon          |       |  | Weighted-Average     |                      |                | Equity Compensation  | 
|                                                   |  | Exercise of          |       |  | Exercise Price of    |                      |                | Plans (Excluding     | 
|                                                   |  | Outstanding Options, |       |  | Outstanding Options, |                      |                | Securities Reflected | 
|Plan Name and Type                                 |  | Warrants and Rights  |       |  | Warrants and Rights  |                      |                | in the First Column) | 
|                                                   |  |                      |       |  |                      |                      |                |                      | 
|                                                   |  | (In thousands)       |       |  |                      |                      | (in thousands) |                     
|Equity compensation plans approved by stockholders |  |                      |       |  |                      |                      |                |                      |  |  |     | 
|1999 Stock Option Plan                             |  |                      | 2,511 |  |                      | $                    | 3.45           |                      |  |  |    | 
|2004 Equity Incentive Plan                         |  |                      | 1,141 |  |                      | $                    | 14.83          |                      |  |  | 215 | 
|Total                                              |  |                      | 3,652 |  |                      | $                    | 7.01           |                      |  |  | 215 | 




Item 13. Certain Relationships and Related
Transactions:







Item 14. Principal Accountant Fees and
Services:







PART IV





Item 15. Exhibits and Financial Statement
Schedules:




| |     |                                  
| | --- | ---------------------------------
| | (a) | Documents filed with this report:



| |                         
| | ------------------------
| | 1. Financial Statements.





| |   |                                                                                            
| | - | -------------------------------------------------------------------------------------------
| |  | Report of independent registered public accounting firm                                    
|
| |  | Balance Sheets at December 31, 2005 and 2004                                               
|
| |  | Statements of Operations for the years ended December 31,
    2005, 2004 and 2003          
|
| |  | Statements of Stockholders Equity for the years ended
    December 31, 2005, 2004 and 2003
|
| |  | Statements of Cash Flows for the years ended December 31,
    2005, 2004 and 2003          
|
| |  | Notes Financial Statements.                                                                



| |                                
| | -------------------------------
| | 2. Financial Statement Schedule



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Schedule II   Valuation and Qualifying
Accounts


|                                    |  |                |        |  |            |  |       |            |  |            |        |  |  |  |        | 
|----------------------------------- |  | -------------- | ------ |  | ---------- |  | ----- | ---------- |  | ---------- | ------ |  |  |  | ------ | 
|                                    |  | Balance at     |        |  | Charged to |  |       |            |  | Balance at |       
|                                    |  | Beginning of   |        |  | Costs and  |  |       |            |  | End of     |       
|Description                         |  | Year           |        |  | Expenses   |  |       | Deductions |  |            | Year   | 
|                                    |  |                |        |  |            |  |       |            |  |            |        | 
|                                    |  | (In thousands) |       
|Fiscal year ended December 31, 2003 |  |                |        |  |            |  |       |            |  |            |        |  |  |  |        | 
|Provision for Doubtful Accounts     |  |                | 13     |  |            |  | 13    |            |  |            | 6      |  |  |  | 20     | 
|Deferred Tax Asset Valuation        |  |                | 18,241 |  |            |  | 1,641 |            |  |            |       |  |  |  | 19,882 | 
|Fiscal year ended December 31, 2004 |  |                |        |  |            |  |       |            |  |            |        |  |  |  |        | 
|Provision for Doubtful Accounts     |  |                | 20     |  |            |  | 9     |            |  |            |       |  |  |  | 29     | 
|Deferred Tax Asset Valuation        |  |                | 19,882 |  |            |  |      |            |  |            | 1,672  |  |  |  | 18,210 | 
|Fiscal year ended December 31, 2005 |  |                |        |  |            |  |       |            |  |            |        |  |  |  |        | 
|Provision for Doubtful Accounts     |  |                | 29     |  |            |  | 19    |            |  |            | 6      |  |  |  | 42     | 
|Deferred Tax Asset Valuation        |  |                | 18,210 |  |            |  |      |            |  |            | 18,018 |  |  |  | 192    | 





| |             
| | ------------
| | 3. Exhibits.



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##### Table of Contents






SIGNATURES






| |                
| | ---------------
| | ZIPREALTY, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ Gary M. Beasley

| |                             
| | ----------------------------
| |                             
| | Gary M. Beasley             
| | Executive Vice President and
| | Chief Financial Officer     



attorneys-in 10-K attorneys-in




|                                             |  |                                                                                                |  |                |  | 
|-------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | -------------- |  | 
|Name                                         |  | Title                                                                                          |  | Date          
|                                             |  |                                                                                                |  |               
|                                            
|/s/ Eric A. DanzigerEric A. Danziger         |  | President, Chief Executive Officer and Director (Principal
    Executive Officer)              |  | March 16, 2006
|                                            
|/s/ Gary M. BeasleyGary M. Beasley           |  | Executive Vice President and
    Chief Financial Officer
    (Principal Financial Officer)     |  | March 16, 2006
|                                            
|/s/ David A. RectorDavid A. Rector           |  | Vice President, Controller and
    Chief Accounting Officer
    (Principal Accounting Officer) |  | March 16, 2006
|                                            
|/s/ Ronald C. BrownRonald C. Brown           |  | Director                                                                                       |  | March 16, 2006
|                                            
|/s/ Marc L. CellierMarc L. Cellier           |  | Director                                                                                       |  | March 16, 2006
|                                            
|/s/ Elisabeth H. DeMarseElisabeth H. DeMarse |  | Director                                                                                       |  | March 16, 2006

85



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|                                                 |  |          |  |                |  | 
|------------------------------------------------ |  | -------- |  | -------------- |  | 
|Name                                             |  | Title    |  | Date          
|                                                 |  |          |  |               
|                                                
|/s/ Robert C. KagleRobert C. Kagle               |  | Director |  | March 16, 2006
|                                                
|/s/ Stanley M. Koonce, Jr.Stanley M. Koonce, Jr. |  | Director |  | March 16, 2006
|                                                
|/s/ Donald F. WoodDonald F. Wood                 |  | Director |  | March 16, 2006

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Exhibit Index


|        |    |             |  |                                                                                                                                                                                                                                               
|------- | -- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 1  | .1(1)       |  | Form of Underwriting Agreement                                                                                                                                                                                                                
|        | 3  | .1(a)(1)    |  | Amended and Restated Certificate of Incorporation                                                                                                                                                                                             
|       
|        | 3  | .2(a)(1)    |  | Bylaws                                                                                                                                                                                                                                        
|       
|        | 4  | .1(1)       |  | Form of Common Stock Certificate                                                                                                                                                                                                              
|       
|        | 10 | .1(1)*      |  | Form of Director and Executive Officer Indemnification Agreement                                                                                                                                                                              
|       
|        | 10 | .2(1)*      |  | 1999 Stock Option Plan                                                                                                                                                                                                                        
|       
|        | 10 | .3(1)*      |  | 2004 Equity Incentive Plan                                                                                                                                                                                                                    
|       
|        | 10 | .3(a)(2)*   |  | Form of Stock Option Award Agreement under 2004 Equity Incentive
    Plan                                                                                                                                                                     
|       
|        | 10 | .4(1)*      |  | Form of Change of Control Agreement                                                                                                                                                                                                           
|       
|        | 10 | .5(1)       |  | Fifth Amended and Restated Investors Rights Agreement
    dated December 17, 2002                                                                                                                                                            
|       
|        | 10 | .6(1)       |  | Office Lease Agreement between the Registrant and EOP-Emeryville
    Properties, L.L.C. dated November 28, 2001                                                                                                                               
|       
|        | 10 | .6(a)(1)    |  | First Amendment dated March 22, 2002 to Office Lease
    Agreement between the Registrant and EOP-Emeryville Properties,
    L.L.C. dated November 28, 2001                                                                                   
|       
|        | 10 | .6(b)(3)    |  | Third Amendment dated November 30, 2005 to Office Lease
    Agreement between ZipRealty, Inc. and CA-Emeryville Properties
    Limited Partnership (as successor in interest to EOP-Emeryville
    Properties, L.L.C.) dated November 28, 2001
|       
|        | 10 | .7(1)*      |  | Employment offer letter between the Registrant and Eric A.
    Danziger dated April 27, 2001                                                                                                                                                  
|       
|        | 10 | .8(1)       |  | Form of Primary Warrant to purchase shares of Series E-1
    Preferred Stock                                                                                                                                                                  
|       
|        | 10 | .9(1)       |  | Form of Secondary Warrant to purchase shares of Series E-1
    Preferred Stock                                                                                                                                                                
|       
|        | 10 | .10(1)      |  | Form of Warrant to purchase shares of Series F Preferred
    Stock                                                                                                                                                                            
|       
|        | 10 | .1(4)       |  | Director Compensation Policy                                                                                                                                                                                                                  
|       
|        | 10 | .12*        |  | Summary of Cash Compensation for Named Executive Officers                                                                                                                                                                                     
|       
|        | 10 | .13         |  | Management Incentive Plan  Fiscal Year 2006                                                                                                                                                                                                  
|       
|        | 23 | .1          |  | Consent of independent registered public accounting firm                                                                                                                                                                                      
|       
|        | 24 | .1          |  | Power of Attorney (see signature page)                                                                                                                                                                                                        
|       
|        | 31 | .1          |  | Certification of Chief Executive Officer, as required by
    Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act of 1934                                                                                                      
|       
|        | 31 | .2          |  | Certification of Chief Financial Officer, as required by
    Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act of 1934                                                                                                      
|       
|        | 32 | .1          |  | Certification of Chief Executive Officer, as required by
    Section 1350 of Chapter 63 of Title 18 of the
    United States Code (18 U.S.C. 1350)                                                                                            
|        | 32 | .2          |  | Certification of Chief Financial Officer, as required by
    Section 1350 of Chapter 63 of Title 18 of the
    United States Code (18 U.S.C. 1350)                                                                                            






|    |                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Incorporated by reference to the exhibit of the same number to
    the Registrants Registration Statement on
    Form S-1(File
    No. 333-115657)
    filed with the Securities and Exchange Commission on
    May 20, 2004, as amended.                                
|(2) | Incorporated by reference to the exhibit of the same number to
    the Registrants Annual Report on Form 10-K (File
    No. 000-51002) for its fiscal year ended December 31,
    2004, filed with the Securities and Exchange Commission on
    March 28, 2005.         
|(3) | Incorporated by reference to the exhibit of the same number to
    the Registrants Current Report on
    Form 8-K (File
    No. 000-51002) filed with the Securities and Exchange
    Commission on December 6, 2005.                                                    
|(4) | Incorporated by reference to the exhibit of the same number to
    the Registrants Quarterly Report on
    Form 10-Q (File
    No. 000-51002) for the quarterly period ended June 30,
    2005, filed with the Securities and Exchange Commission on
    August 12, 2005.

| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| | * | Identifies a management contract or compensatory plan of
    arrangement required to be filed as an exhibit to this report.

87