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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark one)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2009

OR



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

Commission file number: 000-51002





ZIPREALTY, INC.

(Exact name of registrant as specified in its charter)







|                         |  |                                     
|------------------------ |  | ------------------------------------
|DELAWARE                 |  | 94-3319956                          
|(State of incorporation) |  | (IRS employer identification number)



|                                             |  |           
|-------------------------------------------- |  | ----------
|2000 POWELL STREET, SUITE 300 EMERYVILLE, CA |  | 94608     
|(Address of principal executive offices)     |  | (Zip Code)

(510) 735-2600

(Registrants telephone number)





Indicate by check mark whether
the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of accelerated filer,
large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



|                          |  |                     |  |                                                                       |  |                            
|------------------------- |  | ------------------- |  | --------------------------------------------------------------------- |  | ---------------------------
|Large accelerated filer  ̈ |  | Accelerated filer þ |  | Non-accelerated filer  ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈    No  x

We had 20,387,492 shares of common stock outstanding at August 3, 2009.









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TABLE OF CONTENTS



|                               |  |                                                                                                                      |  |     
|------------------------------ |  | -------------------------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                                      |  | Page
|PART I  FINANCIAL INFORMATION |  | 5                                                                                                                   
|                               |  |                                                                                                                     
|Item 1.                        |  | Unaudited Condensed Consolidated Financial Statements                                                                |  | 5   
|                               |  |                                                                                                                     
|                               |  | Unaudited Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008                            |  | 5   
|                               |  |                                                                                                                     
|                               |  | Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 
30, 2009 and 2008 |  | 6   
|                               |  |                                                                                                                     
|                               |  | Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008            |  | 7   
|                               |  |                                                                                                                     
|                               |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                       |  | 8   
|                               |  |                                                                                                                     
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                |  | 14  
|                               |  |                                                                                                                     
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                           |  | 29  
|                               |  |                                                                                                                     
|Item 4.                        |  | Controls and Procedures                                                                                              |  | 29  
|                               | 
|PART II  OTHER INFORMATION    |  | 30                                                                                                                  
|                               |  |                                                                                                                     
|Item 1.                        |  | Legal Proceedings                                                                                                    |  | 30  
|                               |  |                                                                                                                     
|Item 1A.                       |  | Risk Factors                                                                                                         |  | 30  
|                               |  |                                                                                                                     
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                  |  | 30  
|                               |  |                                                                                                                     
|Item 5.                        |  | Other Information                                                                                                    |  | 30  
|                               |  |                                                                                                                     
|Item 6.                        |  | Exhibits                                                                                                             |  | 30  
|                               | 
|SIGNATURE                      |  | 31                                                                                                                  
|                               | 
|EXHIBIT INDEX                  |  | 32                                                                                                                  
|                               | 
|Exhibit 31.1                   |  |                                                                                                                     
|                               | 
|Exhibit 31.2                   |  |                                                                                                                     
|                               | 
|Exhibit 32.1                   |  |                                                                                                                     
|                               | 
|Exhibit 32.2                   |  |                                                                                                                     



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Statement regarding forward-looking statements

This report includes forward-looking statements. Forward-looking statements provide current expectations of future events based on certain assumptions and
include any statement that does not directly relate to any historical or current fact. All statements other than statements of historical facts contained in this report, including statements regarding our future financial position, business strategy
and operations, and plans and objectives of management are forward-looking statements. The words believe, may, will, should, could, estimate, continue,
anticipate, intend, expect, plan, potential, predict, project, designed, provides, facilitates, assists,
helps and similar expressions, as they relate to us, are intended to identify forward-looking statements. Forward-looking statements contained in this report include, but are not limited to, statements relating to:



| |  |  | trends in the residential real estate market, the market for mortgages, and the general economy;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | our future financial results;
| | - |  | -----------------------------



| |  |  | our future growth and expansion into new markets;
| | - |  | -------------------------------------------------



| |  |  | our future advertising and marketing activities; and
| | - |  | ----------------------------------------------------



| |  |  | our future investment in technology.
| | - |  | ------------------------------------

We have based these forward-looking statements principally on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and
financial needs. No forward-looking statement is a guarantee of future performance and you should not place undue reliance on any forward-looking statement.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under Risk Factors in Item 1A of Part I of our Form 10-K for our fiscal year
ended December 31, 2008, as such disclosure may be revised under Risk Factors in Item 1A of Part II of this report. Those risks and uncertainties include, but are not limited to, our history of losses and expectation of
future losses, volatility in the real estate market, macroeconomic challenges, including a loss of consumer confidence and high unemployment, a continuing decline in the residential real estate market, including an increase in sales of distressed
properties and a decline in the number and/or sales prices of homes, changes in interest rates, the ability of home buyers to obtain mortgage financings on acceptable terms, the impact of tight credit on the housing market, the impact of federal
and/or state efforts designed to bolster the housing and credit markets, the Companys ability to hire, retain and train qualified agents and key personnel, the Companys access to Multiple Listing Service listings and leads from third
parties that it does not control, changes in mortgage-related rules, regulations or practices that could make our rebate less attractive to consumers, legal challenges to the Companys compensation plans, including expense policies, under
federal and state wage and hour laws, the Companys ability to manage growth in terms of personnel, expansion into new markets, information and control systems and legal restrictions, the Companys ability to comply with often complex
federal and state laws and regulations concerning real estate brokerage, other core services such as insurance, internet content, privacy and other matters as well as rules of real estate industry organizations, competition, management transitions,
use by Internet service providers and personal computer users of more restrictive email filters, seasonality, geographic concentration, and the newness and scalability of the Companys business model.

Readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ
materially from those in the forward-looking statements and from historical trends. Those cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this report or in materials incorporated herein by
reference.

In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report
may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. Except as otherwise required by law, we do not intend to update or revise any forward-looking statement contained in this
report.

Trademarks

ZipRealty, ZipAgent, ZipNotify, and Your home is where our heart is are some of our registered trademarks in the United States. We also own the rights to the domain name
www.Real-Estate.com. REALTOR and REALTORS are registered trademarks of the National Association of REALTORS®. All other trademarks, trade names and service marks appearing in this report are the property of their respective owners.



3



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Internet site

Our Internet address is www.ziprealty.com. We make publicly available free of charge on our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange
Commission. Information contained on our website is not a part of this report.

Where you can find additional information

You may review a copy of this report, including exhibits and any schedule filed therewith, and obtain copies of such materials at
prescribed rates, at the Securities and Exchange Commissions Public Reference at 100 F Street NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as ZipRealty, that
file electronically with the Securities and Exchange Commission.



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PART I  FINANCIAL INFORMATION



|Item 1. | Unaudited Condensed Consolidated Financial Statements:
|------- | ------------------------------------------------------

ZIPREALTY, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)



|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                  |  | June 30,2009 |         |   | December 31,2008 |  
|Assets                                                                                                                                            |  |              |         |   |                  |   |         |  
|Current assets                                                                                                                                    |  |              |         |   |                  |   |         |  
|Cash and cash equivalents                                                                                                                         |  | $            | 35,328  |   |                  | $ | 18,500  |  
|Short-term investments                                                                                                                            |  |              | 9,518   |   |                  |   | 30,889  |  
|Accounts receivable, net of allowance of $26 and $26, respectively                                                                                |  |              | 2,345   |   |                  |   | 1,625   |  
|Prepaid expenses and other current assets                                                                                                         |  |              | 3,057   |   |                  |   | 3,442   |  
|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Total current assets                                                                                                                              |  |              | 50,248  |   |                  |   | 54,456  |  
|Restricted cash                                                                                                                                   |  |              | 110     |   |                  |   | 130     |  
|Property and equipment, net                                                                                                                       |  |              | 4,007   |   |                  |   | 4,516   |  
|Intangible assets, net                                                                                                                            |  |              | 74      |   |                  |   | 89      |  
|Other assets                                                                                                                                      |  |              | 488     |   |                  |   | 776     |  
|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Total assets                                                                                                                                      |  | $            | 54,927  |   |                  | $ | 59,967  |  
|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|                                                                                                                                                  |  |             
|Liabilities and Stockholders Equity                                                                                                              |  |              |         |   |                  |   |         |  
|Current liabilities                                                                                                                               |  |              |         |   |                  |   |         |  
|Accounts payable                                                                                                                                  |  | $            | 2,710   |   |                  | $ | 2,169   |  
|Accrued expenses and other current liabilities                                                                                                    |  |              | 9,151   |   |                  |   | 6,706   |  
|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Total current liabilities                                                                                                                         |  |              | 11,861  |   |                  |   | 8,875   |  
|Other long-term liabilities                                                                                                                       |  |              | 401     |   |                  |   | 441     |  
|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Total liabilities                                                                                                                                 |  |              | 12,262  |   |                  |   | 9,316   |  
|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Commitments and contingencies (Note 8)                                                                                                            |  |              |         |   |                  |   |         |  
|Stockholders equity                                                                                                                              |  |              |         |   |                  |   |         |  
|Common stock: $0.001 par value; 100,000 shares authorized; 23,833 and 23,709 shares issued and 20,386 and 20,273 shares outstanding,
respectively |  |              | 24      |   |                  |   | 24      |  
|Additional paid-in capital                                                                                                                        |  |              | 150,475 |   |                  |   | 148,502 |  
|Common stock warrants                                                                                                                             |  |              | 4       |   |                  |   | 4       |  
|Accumulated other comprehensive loss                                                                                                              |  |              | (194    | ) |                  |   | (246    | )
|Accumulated deficit                                                                                                                               |  |              | (90,464 | ) |                  |   | (80,483 | )
|Treasury stock at cost: 3,447 and 3,436 shares, respectively                                                                                      |  |              | (17,180 | ) |                  |   | (17,150 | )
|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                        |  |              | 42,665  |   |                  |   | 50,651  |  
|                                                                                                                                                  |  |              |         |   |                  |   |         |  
|Total liabilities and stockholders equity                                                                                                        |  | $            | 54,927  |   |                  | $ | 59,967  |  
|                                                                                                                                                  |  |              |         |   |                  |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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ZIPREALTY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands,
except per share amounts)



|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                            |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                            |  | 2009                        |        |   | 2008                      |   |        | 2009 |  |   | 2008    |  
|Net transaction revenues                    |  | $                           | 31,702 |   |                           | $ | 29,870 |      |  | $ | 53,054  |   |  | $ | 49,991  |  
|Referral and other revenues                 |  |                             | 432    |   |                           |   | 554    |      |  |   | 792     |   |  |   | 1,057   |  
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net revenues                                |  |                             | 32,134 |   |                           |   | 30,424 |      |  |   | 53,846  |   |  |   | 51,048  |  
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Operating expenses                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Cost of revenues                            |  |                             | 18,909 |   |                           |   | 17,156 |      |  |   | 32,743  |   |  |   | 29,498  |  
|Product development                         |  |                             | 2,344  |   |                           |   | 2,124  |      |  |   | 4,656   |   |  |   | 4,270   |  
|Sales and marketing                         |  |                             | 10,237 |   |                           |   | 10,526 |      |  |   | 20,181  |   |  |   | 20,554  |  
|General and administrative                  |  |                             | 3,278  |   |                           |   | 2,938  |      |  |   | 6,757   |   |  |   | 6,620   |  
|Litigation                                  |  |                             |       |   |                           |   |       |      |  |   |        |   |  |   | 625     |  
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Total operating expenses                    |  |                             | 34,768 |   |                           |   | 32,744 |      |  |   | 64,337  |   |  |   | 61,567  |  
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Loss from operations                        |  |                             | (2,634 | ) |                           |   | (2,320 | )    |  |   | (10,491 | ) |  |   | (10,519 | )
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Other income (expense), net                 |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Interest income                             |  |                             | 200    |   |                           |   | 604    |      |  |   | 509     |   |  |   | 1,515   |  
|Other income, net                           |  |                             | 1      |   |                           |   | 47     |      |  |   | 1       |   |  |   | 74      |  
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Total other income (expense), net           |  |                             | 201    |   |                           |   | 651    |      |  |   | 510     |   |  |   | 1,589   |  
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Loss before income taxes                    |  |                             | (2,433 | ) |                           |   | (1,669 | )    |  |   | (9,981  | ) |  |   | (8,930  | )
|Provision for income taxes                  |  |                             |       |   |                           |   |       |      |  |   |        |   |  |   |        |  
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net loss                                    |  | $                           | (2,433 | ) |                           | $ | (1,669 | )    |  | $ | (9,981  | ) |  | $ | (8,930  | )
|                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Net loss per share:                         |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic and diluted                           |  | $                           | (0.12  | ) |                           | $ | (0.08  | )    |  | $ | (0.50   | ) |  | $ | (0.41   | )
|Weighted average common shares outstanding: |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |         |  
|Basic and diluted                           |  |                             | 20,140 |   |                           |   | 20,074 |      |  |   | 20,136  |   |  |   | 21,771  |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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ZIPREALTY, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                           |  |                           |        |   |      |   |         |  
|-------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ---- | - | ------- | -
|                                                                           |  | Six Months Ended June 30, |       
|                                                                           |  | 2009                      |        |   | 2008 |  
|Cash flows from operating activities                                       |  |                           |        |   |      |   |         |  
|Net loss                                                                   |  | $                         | (9,981 | ) |      | $ | (8,930  | )
|Adjustments to reconcile net loss to net cash used in operating activities |  |                           |        |   |      |   |         |  
|Depreciation and amortization                                              |  |                           | 1,285  |   |      |   | 1,419   |  
|Stock-based compensation expense                                           |  |                           | 2,079  |   |      |   | 1,886   |  
|Provision for doubtful accounts                                            |  |                           |       |   |      |   | 13      |  
|Amortization of short-term investment premium (discount)                   |  |                           | (17    | ) |      |   | (134    | )
|Amortization of intangible assets                                          |  |                           | 15     |   |      |   | 15      |  
|Loss on disposal of property and equipment                                 |  |                           | 7      |   |      |   | 5       |  
|                                                                           |  |                          
|Changes in operating assets and liabilities                                |  |                           |        |   |      |   |         |  
|Accounts receivable                                                        |  |                           | (720   | ) |      |   | (1,239  | )
|Prepaid expenses and other current assets                                  |  |                           | 385    |   |      |   | 550     |  
|Other assets                                                               |  |                           | 288    |   |      |   | (15     | )
|Accounts payable                                                           |  |                           | 541    |   |      |   | 1,127   |  
|Accrued expenses and other current liabilities                             |  |                           | 2,296  |   |      |   | (1,774  | )
|Other long-term liabilities                                                |  |                           | (40    | ) |      |   | (35     | )
|                                                                           |  |                           |        |   |      |   |         |  
|Net cash used in operating activities                                      |  |                           | (3,862 | ) |      |   | (7,112  | )
|                                                                           |  |                           |        |   |      |   |         |  
|Cash flows from investing activities                                       |  |                           |        |   |      |   |         |  
|Restricted cash                                                            |  |                           | 20     |   |      |   | (40     | )
|Purchases of short-term investments                                        |  |                           |       |   |      |   | (111    | )
|Proceeds from sale and maturity of short-term investments                  |  |                           | 21,440 |   |      |   | 34,429  |  
|Purchases of property and equipment                                        |  |                           | (746   | ) |      |   | (902    | )
|                                                                           |  |                           |        |   |      |   |         |  
|Net cash provided by investing activities                                  |  |                           | 20,714 |   |      |   | 33,376  |  
|                                                                           |  |                           |        |   |      |   |         |  
|Cash flows from financing activities                                       |  |                           |        |   |      |   |         |  
|Proceeds from stock option exercises                                       |  |                           | 6      |   |      |   | 15      |  
|Purchase of treasury stock                                                 |  |                           | (30    | ) |      |   | (17,477 | )
|                                                                           |  |                           |        |   |      |   |         |  
|Net cash used in financing activities                                      |  |                           | (24    | ) |      |   | (17,462 | )
|                                                                           |  |                           |        |   |      |   |         |  
|Net increase in cash and cash equivalents                                  |  |                           | 16,828 |   |      |   | 8,802   |  
|                                                                           |  |                           |        |   |      |   |         |  
|Cash and cash equivalents at beginning of period                           |  |                           | 18,500 |   |      |   | 7,818   |  
|                                                                           |  |                           |        |   |      |   |         |  
|Cash and cash equivalents at end of period                                 |  | $                         | 35,328 |   |      | $ | 16,620  |  
|                                                                           |  |                           |        |   |      |   |         |  

The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.



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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BACKGROUND AND BASIS OF PRESENTATION

The
accompanying unaudited interim condensed consolidated financial statements as of June 30, 2009 and 2008 and for the three and six months then ended have been prepared in accordance with accounting principles generally accepted in the United
States of America for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required by generally accepted
accounting principles for annual financial statements. In the opinion of the Companys management, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements, and
include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the Companys financial position for the periods presented. The results for the three and six months ended June 30, 2009 are
not necessarily indicative of the results to be expected for the year ending December 31, 2009, or any other period. The unaudited condensed consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated
balance sheet at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These financial statements and notes should
be read in conjunction with the audited financial statements and notes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 2008.

Principles of consolidation

The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries and reflect the elimination of intercompany accounts and transactions.

Seasonality

The Companys net transaction revenues and income (loss) from operations have historically varied from quarter to quarter. Such variations are
principally attributable to variations in home sales activity over the course of the calendar year. The Company has historically experienced lower net transaction revenues during the first quarter because holidays and adverse weather conditions in
certain regions typically reduce the level of sales activity and listings inventories between the Thanksgiving and Presidents Day holidays. Net transaction revenues during the three months ended June 30, 2008 and 2007 accounted for
approximately 28.3% and 30.2% of annual net transaction revenues in 2008 and 2007, respectively. Net transaction revenues during the six months ended June 30, 2008 and 2007 accounted for approximately 47.4% and 52.6% of annual net transaction
revenues in 2008 and 2007, respectively.

Subsequent events

In May 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (FAS) No. 165, Subsequent Events(FAS 165),which
is effective for interim and annual periods ending after June 15, 2009. FAS 165 provides guidance on managements assessment of subsequent events, clarifying that management must evaluate, as of each reporting period, events or
transactions that occur after the balance sheet date through the date that the financial statements are issued or available to be issued. The adoption of FAS 165 did not have a material impact on the Companys consolidated financial position,
results of operations or cash flows. The Company has evaluated subsequent events through August 5, 2009, the date the financial statements were issued (See Note 9).

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB issued FAS No. 168 The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162 (FAS 168), which is effective for interim and annual periods ending after
September 15, 2009. FAS 168 makes the FASB Accounting Standards Codification (Codification) the single authoritative source for U.S. GAAP. The Codification replaces all previous U.S. GAAP accounting standards. The adoption of FAS
168 will only impact references for accounting guidance.



8



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3. SHORT-TERM INVESTMENTS AND FAIR VALUE MEASUREMENTS

At June 30, 2009, short-term investments were classified as available-for-sale securities, except for restricted cash, and were reported at fair
value as follows:



|                        |  |                    |        |                      |   |                       |  |   |                    |   |  |   |       
|----------------------- |  | ------------------ | ------ | -------------------- | - | --------------------- |  | - | ------------------ | - |  | - | ------
|                        |  | GrossAmortizedCost |        | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | EstimatedFairValue
|                        |  | (In thousands)    
|Money market securities |  | $                  | 28,574 |                      | $ |                      |  | $ |                   |   |  | $ | 28,574
|Asset backed            |  |                    | 3,940  |                      |   | 12                    |  |   | (302               | ) |  |   | 3,650 
|Mortgage backed         |  |                    | 4,467  |                      |   | 90                    |  |   |                   |   |  |   | 4,557 
|Corporate obligations   |  |                    | 1,305  |                      |   | 6                     |  |   |                   |   |  |   | 1,311 
|                        |  |                    |        |                      |   |                       |  |   |                    |   |  |   |       
|Total                   |  | $                  | 38,286 |                      | $ | 108                   |  | $ | (302               | ) |  | $ | 38,092
|                        |  |                    |        |                      |   |                       |  |   |                    |   |  |   |       



|                       |  |                |       
|---------------------- |  | -------------- | ------
|                       |  | June 30,2009  
|                       |  | (In thousands)
|Recorded as:           |  |                |       
|Cash equivalents       |  | $              | 28,574
|Short-term investments |  |                | 9,518 
|                       |  |                |       
|                       |  | $              | 38,092
|                       |  |                |       

At June 30, 2009 the fair value of the Companys investments that had been in an
unrealized loss position for over twelve months was $1.7 million and the related unrealized loss was approximately $302,000. The Company evaluates its investments periodically for possible other-than-temporary impairment and records impairment
charges equal to the amount by which the carrying value of its available-for-sale securities exceeds the estimated fair market value of the securities as of the evaluation date, if appropriate. The Company considers various factors such as the
length of time and extent to which fair value has been below cost basis and the financial condition of the issuer. The Company has no requirement and no intent to sell the securities and expects to recover up to (or beyond) the initial cost of the
investment. The evaluation of asset-backed securities involves many factors including, but not limited to, lien position, loan to value ratios, fixed vs. variable rate, amount of collateralization, delinquency rates, credit support, and servicer and
originator quality. Based on its evaluation, the Company has determined that the unrealized loss is temporary and, accordingly, no impairment charge on investments has been recorded in the three and six months ended June 30, 2009. The factors
evaluated in this determination may change and an impairment charge may be recorded in the future.

The estimated fair value of short-term
investments classified by date of contractual maturity at June 30, 2009 was as follows:



|                                       |  |                |       
|-------------------------------------- |  | -------------- | ------
|                                       |  | June 30,2009  
|                                       |  | (In thousands)
|Due within one year or less            |  | $              | 30,454
|Due after one year through two years   |  |                | 1,383 
|Due after two years through four years |  |                | 6,255 
|                                       |  |                |       
|                                       |  | $              | 38,092
|                                       |  |                |       

Fair Value Measurements

To increase consistency and comparability in fair value measurements, FAS 157 establishes a fair value hierarchy to prioritize the inputs used in valuation techniques. There are three broad levels to the fair value
hierarchy of inputs to fair value; Level 1 is the highest priority and Level 3 is the lowest priority. The three levels of the fair value hierarchy and are as follows:



| |  |  | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active
markets; inputs other than quoted prices that are observable for the asset or the liability, or inputs that are derived principally from or corroborated by observable market data by correlation or other means;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 3: Unobservable inputs reflecting the Companys own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are
required to be consistent with market participant assumptions that are reasonably available.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The Company measures and reports certain financial assets at fair value on a recurring basis, including
its investments in money market funds and available-for-sale securities.

At June 30, 2009, our available-for-sale short-term
investments, measured at fair value on a recurring basis, by level within the fair value hierarchy were as follows:



|                        |  |                |        |         |   |         |  |       |   |  |   |       
|----------------------- |  | -------------- | ------ | ------- | - | ------- |  | ----- | - |  | - | ------
|                        |  | Level 1        |        | Level 2 |   | Level 3 |  | Total
|                        |  | (In thousands)
|Money market securities |  | $              | 28,574 |         | $ |        |  | $     |  |  | $ | 28,574
|Asset backed            |  |                |       |         |   | 3,650   |  |       |  |  |   | 3,650 
|Mortgage backed         |  |                |       |         |   | 4,557   |  |       |  |  |   | 4,557 
|Corporate obligations   |  |                |       |         |   | 1,311   |  |       |  |  |   | 1,311 
|                        |  |                |        |         |   |         |  |       |   |  |   |       
|Total                   |  | $              | 28,574 |         | $ | 9,518   |  | $     |  |  | $ | 38,092
|                        |  |                |        |         |   |         |  |       |   |  |   |       

The fair value of the Companys investments in money market funds, included within money
market securities, approximates their face value and has been included in cash and cash equivalents.

4. NET INCOME (LOSS) PER SHARE

The following table sets forth the computation of basic and dilutive net income (loss) per share for the periods indicated:



|                                            |  |                                      |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|------------------------------------------- |  | ------------------------------------ | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                            |  | Three Months Ended June 30,          |        |   | Six Months Ended June 30, |  
|                                            |  | 2009                                 |        |   | 2008                      |   |        | 2009 |  |   | 2008   |  
|                                            |  | (In thousand, except per share data) |       
|Numerator:                                  |  |                                      |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Net loss                                    |  | $                                    | (2,433 | ) |                           | $ | (1,669 | )    |  | $ | (9,981 | ) |  | $ | (8,930 | )
|                                            |  |                                      |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|                                            |  |                                      |        |  
|Denominator:                                |  |                                      |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Shares used to compute EPS basic and dilute |  |                                      | 20,140 |   |                           |   | 20,074 |      |  |   | 20,136 |   |  |   | 21,771 |  
|Net loss per share basic and diluted        |  | $                                    | (0.12  | ) |                           | $ | (0.08  | )    |  | $ | (0.50  | ) |  | $ | (0.41  | )

The following table set forth potential common shares that are not included in the diluted net
income (loss) per share calculation because to do so would be anti-dilutive for the periods presented:



|                                       |  |                             |  |                           |  |       |  |      
|-------------------------------------- |  | --------------------------- |  | ------------------------- |  | ----- |  | -----
|                                       |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|                                       |  | 2009                        |  | 2008                      |  | 2009  |  | 2008 
|                                       |  | (In thousand)              
|Stock options to purchase common stock |  | 5,241                       |  | 4,599                     |  | 5,226 |  | 4,448
|Warrants to purchase common stock      |  | 3                           |  | 107                       |  | 3     |  | 122  
|Nonvested common stock                 |  | 274                         |  | 189                       |  | 251   |  | 193  
|Restricted stock issuable              |  | 54                          |  |                          |  | 106   |  |     
|                                       |  |                             |  |                           |  |       |  |      
|Total                                  |  | 5,572                       |  | 4,895                     |  | 5,586 |  | 4,763
|                                       |  |                             |  |                           |  |       |  |      

5. STOCK-BASED COMPENSATION EXPENSE

Valuation assumptions and stock-based compensation expense

The Company estimates the fair value of
stock options on the day of grant using the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected life and interest rates. The expected volatility is based on the historical volatility of the
Companys common stock and consideration of other relevant factors such as the volatility of guideline companies. The expected life of options granted during the three and six months ended June 30, 2009 and 2008 was estimated by taking the
average of the vesting term and the contractual term of the option as provided by SEC Staff Accounting Bulletin No. 110 (SAB110). The risk-free interest rate estimate is based upon U.S Treasury bond rates appropriate for the
expected life of the options.



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The assumptions used and the resulting estimates of weighted average fair value per share of options
granted were as follows:



|                                                                 |  |                             |  |                           |  |            |  |           
|---------------------------------------------------------------- |  | --------------------------- |  | ------------------------- |  | ---------- |  | ----------
|                                                                 |  | Three Months Ended June 30, |  | Six Months Ended June 30,
|                                                                 |  | 2009                        |  | 2008                      |  | 2009       |  | 2008      
|Expected volatility                                              |  | 45%                         |  | 44%                       |  | 44 - 45%   |  | 44%       
|Risk-free interest rate                                          |  | 0.5 - 2.5%                  |  | 2.1 - 3.2%                |  | 0.5 - 2.5% |  | 2.1 - 3.2%
|Expected life (years)                                            |  | 5.5 - 6.1                   |  | 5.5 - 6.1                 |  | 5.5 - 6.1  |  | 5.5 - 6.1 
|Expected dividend yield                                          |  | 0%                          |  | 0%                        |  | 0%         |  | 0%        
|Weighted-average fair value of options granted during the period |  | $1.41                       |  | $2.31                     |  | $1.32      |  | $2.33     

Stock-base compensation was as follows:



|                                       |  |                             |       |                           |   |      |  |      |       |  |   |      
|-------------------------------------- |  | --------------------------- | ----- | ------------------------- | - | ---- |  | ---- | ----- |  | - | -----
|                                       |  | Three Months Ended June 30, |       | Six Months Ended June 30,
|                                       |  | 2009                        |       | 2008                      |   | 2009 |  | 2008
|                                       |  | (In thousands)             
|Cost of revenues                       |  | $                           | 81    |                           | $ | 164  |  | $    | 193   |  | $ | 306  
|Product development                    |  |                             | 95    |                           |   | 28   |  |      | 171   |  |   | 96   
|Sales and marketing                    |  |                             | 292   |                           |   | 273  |  |      | 542   |  |   | 535  
|General and administrative             |  |                             | 618   |                           |   | 412  |  |      | 1,173 |  |   | 949  
|                                       |  |                             |       |                           |   |      |  |      |       |  |   |      
|Total stock-based compensation expense |  |                             | 1,086 |                           |   | 877  |  |      | 2,079 |  |   | 1,886
|Tax effect on stock-based compensation |  |                             |      |                           |   |     |  |      |      |  |   |     
|                                       |  |                             |       |                           |   |      |  |      |       |  |   |      
|Net effect on net income               |  | $                           | 1,086 |                           | $ | 877  |  | $    | 2,079 |  | $ | 1,886
|                                       |  |                             |       |                           |   |      |  |      |       |  |   |      

The Company is required to estimate the expected pre-vesting forfeiture rate and only recognize
expense for those shares expected to vest. The Company estimates expected forfeitures based on various factors, including employee class and historical experience, and revises, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Accordingly, the amount of stock-based compensation expense has been reduced for estimated forfeitures. As of June 30, 2009, there was $5.0 million of unrecorded stock-based compensation, after estimated forfeitures,
related to unvested stock options. That cost is expected to be recognized over a weighted average remaining recognition period of 2.3 years. As of June 30, 2009, there was $1.1 million of unrecorded stock-based compensation related to
unvested restricted stock. That cost is expected to be recognized over a weighted average remaining recognition period of 1.2 years.

Stock option
activity

A summary of the Companys stock option activity for the period indicated was as follows:



|                                     |  |                 |   |  |                              |      |                                                 |      |                          |   |    
|------------------------------------ |  | --------------- | - |  | ---------------------------- | ---- | ----------------------------------------------- | ---- | ------------------------ | - | ---
|                                     |  | Number ofShares |   |  | WeightedAverageExercisePrice |      | WeightedAverageRemainingContractualLife (Years) |      | AggregateIntrinsic Value
|                                     |  | (In thousands)  |   |  |                              |      |                                                 |      | (In thousands)          
|Outstanding at December 31, 2008     |  | 5,214           |   |  | $                            | 6.78 |                                                 | 7.30 |                          | $ | 630
|Options granted                      |  | 113             |   |  |                              | 2.95 |                                                 |      |                          |   |    
|Options exercised                    |  | (6              | ) |  |                              | 1.10 |                                                 |      |                          |   |    
|Options forfeited or expired         |  | (53             | ) |  |                              | 8.35 |                                                 |      |                          |   |    
|                                     |  |                 |   |  |                              |      |                                                 |      |                          |   |    
|Outstanding at June 30, 2009         |  | 5,268           |   |  | $                            | 6.69 |                                                 | 6.88 |                          | $ | 651
|                                     |  |                 |   |  |                              |      |                                                 |      |                          |   |    
|Options exercisable at June 30, 2009 |  | 3,242           |   |  | $                            | 7.48 |                                                 | 5.84 |                          | $ | 600
|                                     |  |                 |   |  |                              |      |                                                 |      |                          |   |    

Options generally vest over a four-year period with one-fourth (1/4) of the shares vesting
one year after the vesting commencement date, and an additional one-forty eighth (1/48) of the shares vesting on the first day of each calendar month thereafter until all such shares are exercisable. Options expire after ten years.

Aggregate intrinsic value represents the difference between the Companys closing stock price on the last trading day of the fiscal period, which
was $2.68 on June 30, 2009, and the exercise price for the options that were in-the-money at June 30, 2009. The total number of in-the-money options exercisable as of June 30, 2009 was 389,000. Total intrinsic value of options
exercised was $10,000 and $32,000 for the six months ended June 30, 2009 and 2008, respectively.



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The Company settles employee stock option exercises with newly issued common shares.

Restricted Stock

The Company expenses the cost of
restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse. Stock-based compensation expense related to restricted stock for the three and
six months ended June 30, 2009 was $255,000 and $469,000, including $77,000 and $149,000, respectively, of accrued expense for unissued stock awards under management incentive plans. Stock-based compensation expense related to restricted stock
for the three and six months ended June 30, 2008 was ($16,000) and $188,000. The expense for the three months ended June 30, 2008 reflects the reversal of expense accrued for the three months ended March 31, 2008, in the amount of
$109,000, related to unissued stock awards under management incentive plans as the goals under the plan were not achieved by the Company for the six months ended June 30, 2008.

A summary of the Companys nonvested restricted stock for the period indicated was as follows:



|                               |  |                 |   |  |                                               |     
|------------------------------ |  | --------------- | - |  | --------------------------------------------- | ----
|                               |  | Number ofShares |   |  | WeightedAverage GrantDate Fair ValuePer Share
|                               |  | (In thousands)  |   |  |                                              
|Nonvested at December 31, 2008 |  | 166             |   |  | $                                             | 6.06
|Shares granted                 |  | 118             |   |  |                                               |     
|Shares vested                  |  | (35             | ) |  |                                               |     
|Shares forfeited               |  |                |   |  |                                               |     
|                               |  |                 |   |  |                                               |     
|Nonvested at June 30, 2009     |  | 249             |   |  | $                                             | 4.42
|                               |  |                 |   |  |                                               |     

6. INCOME TAXES

At the end of each interim period, the Company calculates an effective tax rate based on the Companys best estimate of the tax provision (benefit) that will be provided for the full year, stated as a percentage
of estimated annual pre-tax income (loss). The tax provision (benefit) for the interim period is determined using this estimated annual effective tax rate.

The Company maintains that a full valuation allowance should be accounted for against its net deferred tax assets at June 30, 2009. The Company supports the need for a valuation allowance against the deferred tax
assets due to negative evidence including recent historical results and managements expectations for the future.

Based on the full
valuation allowance and the taxable loss for the six months ended June 30, 2009, the Company has not recorded a tax provision or benefit.

7.
COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes net income (loss) and unrealized gains (losses) on investments.
Comprehensive income (loss) for the periods indicated is comprised of the following:



|                                                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                          |  | Three Months Ended June 30, |        |   | Six Months Ended June 30, |  
|                                                                                          |  | 2009                        |        |   | 2008                      |   |        | 2009 |  |   | 2008   |  
|                                                                                          |  | (In thousands)              |       
|Net loss                                                                                  |  | $                           | (2,433 | ) |                           | $ | (1,669 | )    |  | $ | (9,981 | ) |  | $ | (8,930 | )
|Other comprehensive income (loss):                                                        |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Change in accumulated unrealized gain (loss) on available-for-sale securities, net of tax |  |                             | 112    |   |                           |   | (276   | )    |  |   | 52     |   |  |   | 16     |  
|                                                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Comprehensive loss                                                                        |  | $                           | (2,321 | ) |                           | $ | (1,945 | )    |  | $ | (9,929 | ) |  | $ | (8,914 | )
|                                                                                          |  |                             |        |   |                           |   |        |      |  |   |        |   |  |   |        |  



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8. COMMITMENTS AND CONTINGENCIES

The Company leases office space under non-cancelable operating leases with various expiration dates through July 2014.

Future minimum lease payments under non-cancelable operating leases at June 30, 2009 were as follows, in thousands:



|                             |  |                 |      
|---------------------------- |  | --------------- | -----
|Year ending December 31,     |  | OperatingLeases
|2009                         |  | $               | 1,317
|2010                         |  |                 | 2,425
|2011                         |  |                 | 2,258
|2012                         |  |                 | 1,081
|2013                         |  |                 | 350  
|Thereafter                   |  |                 | 70   
|                             |  |                 |      
|Total minimum lease payments |  | $               | 7,501
|                             |  |                 |      

Legal proceedings

From time to time the Company has been, and it currently is, a party to litigation and subject to claims incidental to the ordinary course of its business. The amounts in dispute in these matters are currently
believed to be not material to the Company, and management believes that the resolution of these proceedings will not have a material adverse effect on the Companys business, consolidated financial position, results of operations or cash
flows.

Indemnifications

The Company
has entered into various indemnification agreements in the ordinary course of our business. Pursuant to these agreements, the Company has agreed to indemnify, hold harmless and reimburse the indemnified parties, which include certain of its service
providers as well as others, in connection with certain occurrences. In addition, the corporate charter documents require the Company to provide indemnification rights to the Companys directors and officers to the fullest extent permitted by
the Delaware General Corporation Law, and permit the Company to provide indemnification rights to its other employees and agents, for certain events that occur while these persons are serving in these capacities. The Companys charter documents
also protect each of its directors, to the fullest extent permitted by the Delaware General Corporation Law, from personal liability to the Company and its stockholders from monetary damages for a breach of fiduciary duty as a director. The Company
has also entered into indemnification agreements with the Companys directors and each of its officers with a title of Vice President or higher. Further, the underwriting agreement for the Companys initial public offering requires the
Company to indemnify the underwriters and certain of their affiliates and agents for certain liabilities arising from the offering and the related registration statement.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unspecified. The Company is not aware of any material indemnification liabilities for
actions, events or occurrences that have occurred to date. The Company maintains insurance on some of the liabilities the Company has agreed to indemnify, including liabilities incurred by the Companys directors and officers while acting in
these capacities, subject to certain exclusions and limitations of coverage.

9. SUBSEQUENT EVENT

On June 26, 2009, the Company launched a voluntary stock option exchange program. Under the terms of the program, eligible employees had the right to
exchange stock options having an exercise price equal to or greater than $4.59 per share for new nonqualified stock options. Eligible employees received a new option for each tendered eligible option, depending on the exercise price, in accordance
with the exchange ratios as follows:



|                 |  |                                                              
|---------------- |  | -------------------------------------------------------------
|Exercise Price   |  | Exchange Ratio                                               
|$4.59 - $7.99    |  | Two new options issued in exchange for three eligible options
|$8.00 or greater |  | One new option issued in exchange for two eligible options   

The offer expired on July 24, 2009 and eligible options to purchase an aggregate of approximately
2.9 million shares of the Companys common stock were validly tendered, representing approximately 80.9% of the eligible shares. The Company will issue new options to purchase an aggregate of approximately 1.8 million shares of the
Companys common stock at an exercise price per share of $3.20, the closing price of the Companys common stock on July 24, 2009.

The Company will recognize incremental compensation cost of the stock options granted in the exchange offer in addition to the remaining unamortized expense for the eligible options exchanged. The incremental compensation cost, of
approximately $600,000 to $700,000, was measured, using the Black-Scholes option pricing model, as the excess of the fair value of the new options



13



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##### Table of Contents

granted, over the fair value of the options surrendered as of the modification date. The new options will vest ratably each month over a 36 month period
contingent upon employment with the Company on the date of vest and the incremental compensation cost for the new options will be recognized in compensation expense ratably over the vesting period. In the event that any of the new options are
forfeited prior to their vesting due to termination of service, the compensation cost for the forfeited options will not be recorded. The new options were issued for a term of seven years.



|Item 2. | 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, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons,
including but not limited to those described under Risk Factors in Item 1A of Part I of our Form 10-K for our fiscal year ended December 31, 2008, as such disclosure may be revised under Risk Factors in Item 1A
of Part II of this report. Those reasons include, without limitation, those described at the beginning of this report under Statement regarding forward-looking statements, as well as those that may be set forth elsewhere in this
report. Except as otherwise required by law, we do not intend to update any information contained in these forward-looking statements.

OVERVIEW

General

We
are a full-service residential real estate brokerage firm and operator of a leading website and of online services focused on residential real estate. We utilize our user-friendly website and employee real estate agents to provide homebuyers and
sellers with high-quality service and value. Our website provides users with access to comprehensive local Multiple Listing Services home listings data, as well as other relevant market and neighborhood information. Our proprietary business
management system and technology platform help to improve productivity and reduce costs, allowing us to pass on significant savings to consumers as permitted by law.

We typically share a portion of our commissions with our buyer clients in the form of a cash rebate, and typically represent our seller clients at fee levels below those offered by most traditional brokerage companies
in our markets. Generally, our seller clients pay a total brokerage fee of 4.5% to 5.0% of the transaction value, of which 2.5% to 3.0% is paid to agents representing buyers. In two of the states in which we operate, New Jersey and Oregon, the
payment of cash rebates is not currently permitted by law. In lieu of offering a cash rebate to our buyers in New Jersey, prior to April 1, 2009, we made a donation to a local charity through United Way equal to 20% of our commissions. Effective
April 1, 2009, we discontinued this practice. In the Portland market, we have adjusted our value proposition for our clients by offering an enhanced client satisfaction guarantee.

Our net revenues are composed primarily of commissions earned as agents for buyers and sellers in residential real estate transactions. We record
revenues net of rebate where applicable (or, in New Jersey, net of charitable donation until April 1, 2009) or commission discount, if any, paid or offered to our clients. Our net revenues are principally driven by the number of transactions we
close and the average net revenue per transaction. Average net revenue per transaction is a function of the home sales price and percentage commission we receive on each transaction and varies significantly by market. We also receive revenues from
certain co-marketing arrangements, such as mortgage lenders to whom we provide access through the mortgage center on our website, who typically pay us a flat monthly fee that is established on a periodic basis, as well as from relationships with
advertisers. For example, in the second quarter of 2009 we entered into a marketing agreement with Bank of America. We have begun rolling out that agreement in our markets, and we expect implementation to be complete in all of our markets by the end
of August 2009. Generally, non-commission revenues represent less than 5% of our net revenues during any period. We routinely explore our options for entering into additional co-marketing arrangements or offering other services related to the
purchase, sale and ownership of a home and offer property and casualty insurance (including auto insurance) services through a subsidiary.

We believe that customer acquisition is one of our core competencies, and while the difficulty of acquiring a sufficient number of leads online could increase over time, we expect that we can mitigate some of that impact with repeat and
referral business, as well as by increasing our visibility and credibility to potential clients over time. Since our market share has averaged less than 1% over the past year in our existing markets in aggregate, we believe that there is an
opportunity to increase further our market share, even if the overall level of sales continue to decline due to increased unemployment, changing consumer sentiment, interest rate fluctuations, credit tightening, or other economic or geopolitical
factors.

We were founded in 1999, currently have operations in 36 markets, and as of June 30, 2009 employed 3,433 people, of whom
3,172 were ZipAgents. During 2009 we commenced operations in the Portland, Oregon market in April, and depending on market conditions, we may consider entering one additional market during the year.

Trends in our business and financial and real estate markets

Current state of the residential real estate market.Although our business has experienced increasing revenue growth and transaction volume on an annual basis since our inception in 1999, in the past few years
our business has been negatively impacted by

macroeconomic conditions that have resulted in slower revenue growth and a decline in average net revenue per
transaction. The residential real estate market began to soften in the fall of 2005. As mortgages consequently went into default, lender underwriting criteria tightened, which reduced homebuyers ability to obtain acceptable funding for home
purchases, further dampening the residential real estate market. We believe the tightening of credit has also impaired the ability to close transactions, creating further downward pressure on home prices. We believe that the continued increase in
the unemployment rate, together with greater job



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insecurity and lackluster consumer confidence on a macroeconomic level, have added additional downward pressure on home
demand

The current indications we have concerning the health of the residential real estate market are mixed, and we are unable to predict
when, where, and to what extent the residential real estate market may return to more historical norms. We may continue to experience slower growth rates versus our historical levels as buyers react cautiously to challenging market conditions.

On the positive side, some indicators suggest that the national residential real estate market may be stabilizing from the shocks caused by
the banking and financial crises, such as the following data from the National Association of REALTORS®, or NAR:



| |  |  | Existing home sales rose for three consecutive months during the second quarter of 2009. In addition, existing home sales in June 2009 were 3.6% higher than the
previous month and occurred in all major regions of the country, although they were still 0.2% lower than June 2008.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Although median existing home sales prices in June 2009 were 15.4% lower than in June 2008, the decline in median existing home sales prices year-over-year has
started to flatten.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The inventory of homes available for sale in June 2009 decreased by 0.7% from the previous month and by 14.9% from June 2008. Any future decreases in inventory
levels could help stabilize housing prices by reducing the glut of homes available for sale.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Despite these positive
indicators, other factors could hamper the recovery of, or even further deteriorate, the residential real estate market, including the following:



| |  |  | The national unemployment rate has continued to rise. According to the Bureau of Labor Statistics, seasonally adjusted national unemployment rates rose from 4.9% in
December 2007 to 7.2% in December 2008, and the rate rose again to 9.5% in June 2009, the highest rate in over a quarter century. If unemployment remains high or worsens, it could negatively impact housing affordability and consumer confidence,
potentially resulting in fewer home sales and more mortgage defaults, which in turn could further impair the banking and financial markets.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Currently, a significant percentage of our sales transaction volume is composed of distressed properties. Distressed properties are homes that are in foreclosure,
are bank owned (REO) or are short sales, meaning a sale where the sale price is less than the loans or debt secured by the home listed for sale. In the second quarter of 2009, the percentage of our sales transactions composed of
distressed properties was approximately 43%, which was less than the 53% result realized in the previous quarter, but nevertheless greater than the 29% result realized in the second quarter of 2008. Distressed properties not only tend to sell at
reduced prices, but they also tend to put downward pressure on the values of other homes for sale in their neighborhoods.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We expect distressed properties to continue to represent a significant portion of our business in the foreseeable future. While the inventory of homes for sale has
recently decreased as discussed above, there is some evidence that this decrease may have been caused, in part, by changes in foreclosure practices that have resulted in shadow inventory, meaning distressed and other properties that have
not yet been listed for sale. Shadow inventory can occur when lenders put REO properties on the market gradually, rather than all at once. They may choose to do so because of regulations and foreclosure moratoriums, because of the additional costs
and resources required to process and sell foreclosed properties, or because they want to avoid depressing housing prices further by putting many distressed properties up for sale at the same time. According to Forbes-Online, in July 2009, less than
30% of all bank-owned REOs were listed for sale on an MLS. This shadow inventory could delay the recovery of the residential real estate market as it is introduced into the market in future periods.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Reduced availability of home loans on residential real estate market.We believe that the availability of home loans is critical to the residential
real estate market. We continue to perceive mortgage lending standards to be tight. Lenders continue to require homebuyers to have higher credit scores and to provide greater down payments than in recent years. Lenders have also required increased
documentation, which has a tendency to slow the closing process. Although Congress has enacted legislation to improve the availability of mortgages, there can be no assurance that such improvement will happen.

An entire group of loan products, including subprime and some Alt A loans, continue to be difficult to obtain, as is also true of prime, non-conforming
loans (principally loans of more than $729,750, which exceed the maximum amounts that may be purchased by Fannie Mae and Freddie Mac). We believe that the increase in the availability and cost of non-conforming loans has reduced demand for
higher-priced homes, which exerts downward pressure of average net revenue per transaction. As evidence for this belief, according to a May 2009 report from NAR, the supply of homes available for sale at prices over $750,000 was 41 months in 2009,
as compared to 19 months in 2007.

In addition, Fannie Mae and Freddie Mac, who together guarantee or own approximately half of the total
home mortgages in the United States, have played critical roles in the national housing market by supplying significant liquidity in the market for mortgage lending and buying. In the second half of 2008, Fannie Mae and Freddie Mac experienced
significant losses and were placed into conservatorship by the Federal government. If either Fannie Mae or Freddie Mac ceases, or significantly curtails, its mortgage lending and buying activities, the availability of mortgages to potential
homebuyers, and consequently the residential real estate market, could

worsen significantly.



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Federal and State efforts to bolster the residential real estate market. As we have described in
our previous reports, beginning in 2008, the federal government and related agencies acted repeatedly to address the decline in the residential real estate market and the availability of home mortgage credit. Recent developments include the
following:



| |  |  | In the first quarter of 2008, federal legislation was enacted that, among other objectives, attempted to bolster the market for home loans by raising the loan
amount that qualifies as a conforming loan up to a maximum of $729,750 in certain markets. In early 2009, this legislation was extended through December 2009. The U.S. House Appropriations Committee has approved a bill to extend this
legislation through September 2010, subject to Congressional approval.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2009, the President introduced a plan to reduce home foreclosures by, among other things, offering incentives to lenders that provide loan modifications
to homeowners in danger of foreclosure. The plan was approved by the U.S. Senate in May 2009 and includes a moratorium on foreclosures during the loan modification process.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Also in February 2009, the U.S. Senate approved an amendment to the economic stimulus package that would provide a $15,000 tax credit to anyone buying a primary
residence, whether or not a first-time homebuyer. This legislation is currently pending in the U.S. House of Representatives.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In May 2009, the Home Valuation Code of Conduct, or HVCC, went into effect. The HVCC sets forth new appraisal-related practices that must be followed for a
conforming loan to be purchased by Fannie Mae or Freddie Mac. The purpose of the HVCC is to prevent artificially high appraisals by promoting independence between appraisers and others, such as lenders, who are compensated for completed property
transactions. While it is too early fully to assess the full impact of the implementation of the HVCC, the HVCC may dampen the real estate market though higher appraisal fees, longer closing timelines, and lower property valuations.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the Federal Reserve Board, or FRB, has acted repeatedly to make additional funds available to banks and
financial institutions, including by making loans, buying unsecured short-term debt, and buying mortgage-related assets. The FRB regulates the supply of money in the United States, including through the extension of credit to banks and other
financial institutions, and its actions often have a significant impact on interest rates.

Further, several states, including California,
have enacted legislation designed to reduce the number of foreclosures by, among other things, imposing foreclosure moratoriums, charging lenders additional foreclosure fees, adding additional procedures designed to protect homeowners to the
foreclosure process, and encouraging loan modification.

It is too early for us to assess whether the federal and state activities described
above will have a positive and meaningful impact on stabilizing the banking and financial industries, on the availability of credit, on spurring consumers to purchase homes, or on the overall residential housing market.

Fluctuations in quarterly profitability. We have experienced fluctuations in profitability from period to period. Our profitability has been
impacted by various factors including seasonality (discussed below), new market expansion, legal settlements, and ongoing market challenges, including the tightening in the availability of home mortgage credit.

Industry seasonality and cyclicality. The residential real estate brokerage market is influenced both by annual seasonality factors, as well
as by overall economic cycles. While individual markets vary, transaction volume nationally tends to progressively increase from January through the summer months, then gradually slows over the last three to four months of the calendar year.
Revenues in each quarter are significantly affected by activity during the prior quarter, given the typical 30- to 45-day time lag between contract execution and closing for traditional home purchases. For non-traditional sales, the time lag from
contract execution to closing can be a few months. We have been, and believe we will continue to be, influenced by overall market activity and seasonal forces. We generally experience the most significant impact in the first and fourth quarters of
each year, when our revenues are typically lower relative to the second and third quarters as a result of traditionally slower home sales activity and reduced listings inventory between Thanksgiving and Presidents Day.

The impact of seasonality can be masked by the general health of the residential real estate market at any given point in time, whether affected by
macroeconomic events, periodic business cycles or other factors. Generally, when economic times are fair or good, the housing market tends to perform well. If the economy is weak, if interest rates dramatically increase, if mortgage lending
standards tighten, or if there are disturbances such as terrorist attacks or threats, the outbreak of war or geopolitical uncertainties, the housing market likely would be negatively impacted.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our
financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Accordingly, our actual results may differ from these estimates under different assumptions or
conditions.



16



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##### Table of Contents

Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial
Statements contained in our 10-K for the year ended December 31, 2008, and of those policies, we believe that the following accounting policies are the most critical to understand and evaluate our financial condition and results of operations.

Revenue recognition

We derive
the majority of our revenues from commissions earned as agents for buyers and sellers in residential real estate transactions. We recognize commission revenues upon closing of a sale and purchase transaction, net of any rebate,
commission discount or transaction fee adjustment, as evidenced when the escrow or similar account has closed and funds have been disbursed to all appropriate parties. We recognize non-commission revenues from our other business relationships, such
as lender marketing relationships, as the fees are earned from the other party typically on a monthly basis.

Internal-use software and website
development costs

We account for internal-use software and website development costs, including the development of our ZipAgent
Platform, in accordance with the guidance set forth in Statement of Position 98-1, Accounting for the Cost of Computer Software Developed or Obtained for Internal Use,and Emerging Task Force Issue No. 00-02, Accounting for Website
Development Costs.We capitalize internal costs consisting of payroll and direct payroll-related costs of employees who devote time to the development of internal-use software, as well as any external direct costs. We amortize these costs over
their estimated useful lives, which typically range between 15 to 24 months. Our judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the
capitalized costs, and in determining the estimated useful lives over which the costs are amortized. The estimated life is based on managements judgment as to the product life cycle.

Stock-based compensation

We follow the
provisions of Statement of Financial Accounting Standards (FAS) 123 (Revised 2004), Share-Based Payment(FAS 123(R)), which requires the measurement and recognition of compensation expense for all stock-based
payment awards made to employees and directors, including employee stock options and employee stock purchases, based on estimated fair values. Under the fair value recognition provisions for FAS 123(R), stock-based compensation cost is
estimated at the grant date based on the fair value of the awards expected to vest and recognized as expense using the straight-line method over the requisite service period of the award.

We estimate the fair value of stock options using the Black-Scholes option pricing model, which incorporates various assumptions including volatility,
expected life and interest rates. The expected volatility is based on the historical volatility of our common stock and consideration of other relevant factors such as the volatility of guideline companies. The expected life of options is estimated
by taking the average of the vesting term and the contractual term of the option as provided by Staff Accounting Bulletin No. 110 (SAB 110). We estimate expected forfeitures based on various factors including employee class and
historical experience. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in
the period the estimates are revised.

Income taxes

Deferred tax assets and liabilities arise from the differences between the tax basis of an asset or liability and its reported amount in the financial statements as well as from net operating loss and tax credit carry
forwards. Deferred tax amounts are determined by using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under current tax law. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change during the period in deferred tax assets and liabilities.

FAS No. 109, Accounting for Income Taxes, requires that deferred tax assets be evaluated for future realization and reduced by a valuation
allowance to the extent we believe a portion will not be realized. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent historical results and our expectations for the future.
Historically, we have recorded a valuation allowance on our deferred tax assets, the majority of which relate to net operating loss carryforwards and we maintain that a full valuation allowance should be accounted for against our net deferred tax
assets at June 30, 2009.

Recently issued accounting pronouncements

See Note 2 titled Recent Accounting Pronouncements of our Notes to Unaudited Condensed Consolidated Financial Statements for a full
description of recent accounting pronouncements including the respective expected dates of adoption.



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##### Table of Contents

RESULTS OF OPERATIONS

The following table summarizes certain financial data related to our operations for the periods indicated:



|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------- |  | ------------------------------------- | ------ | - | ------------------------ | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                            |  | Three Months EndedJune 30,            |        |   | Six Months EndedJune 30, |  
|Statements of operations data (unaudited)   |  | 2009                                  |        |   | 2008                     |   |        | 2009 |  |   | 2008    |  
|                                            |  | (In thousands, except per share data) |       
|Net transaction revenues                    |  | $                                     | 31,702 |   |                          | $ | 29,870 |      |  | $ | 53,054  |   |  | $ | 49,991  |  
|Referral and other revenues                 |  |                                       | 432    |   |                          |   | 554    |      |  |   | 792     |   |  |   | 1,057   |  
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Net revenues                                |  |                                       | 32,134 |   |                          |   | 30,424 |      |  |   | 53,846  |   |  |   | 51,048  |  
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Operating expenses:                         |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Cost of revenues                            |  |                                       | 18,909 |   |                          |   | 17,156 |      |  |   | 32,743  |   |  |   | 29,498  |  
|Product development                         |  |                                       | 2,344  |   |                          |   | 2,124  |      |  |   | 4,656   |   |  |   | 4,270   |  
|Sales and marketing                         |  |                                       | 10,237 |   |                          |   | 10,526 |      |  |   | 20,181  |   |  |   | 20,554  |  
|General and administrative                  |  |                                       | 3,278  |   |                          |   | 2,938  |      |  |   | 6,757   |   |  |   | 6,620   |  
|Litigation                                  |  |                                       |       |   |                          |   |       |      |  |   |        |   |  |   | 625     |  
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Total operating expenses                    |  |                                       | 34,768 |   |                          |   | 32,744 |      |  |   | 64,337  |   |  |   | 61,567  |  
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Loss from operations                        |  |                                       | (2,634 | ) |                          |   | (2,320 | )    |  |   | (10,491 | ) |  |   | (10,519 | )
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Other income (expense):                     |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Interest income                             |  |                                       | 200    |   |                          |   | 604    |      |  |   | 509     |   |  |   | 1,515   |  
|Other income, net                           |  |                                       | 1      |   |                          |   | 47     |      |  |   | 1       |   |  |   | 74      |  
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Total other income (expense), net           |  |                                       | 201    |   |                          |   | 651    |      |  |   | 510     |   |  |   | 1,589   |  
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Loss before income taxes                    |  |                                       | (2,433 | ) |                          |   | (1,669 | )    |  |   | (9,981  | ) |  |   | (8,930  | )
|Provision for income taxes                  |  |                                       |       |   |                          |   |       |      |  |   |        |   |  |   |        |  
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Net loss                                    |  | $                                     | (2,433 | ) |                          | $ | (1,669 | )    |  | $ | (9,981  | ) |  | $ | (8,930  | )
|                                            |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|                                            |  |                                       |        |  
|Net loss per share:                         |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Basic and diluted                           |  | $                                     | (0.12  | ) |                          | $ | (0.08  | )    |  | $ | (0.50   | ) |  | $ | (0.41   | )
|Weighted average common shares outstanding: |  |                                       |        |   |                          |   |        |      |  |   |         |   |  |   |         |  
|Basic and diluted                           |  |                                       | 20,140 |   |                          |   | 20,074 |      |  |   | 20,136  |   |  |   | 21,771  |  

The following table presents our operating results as a percentage of net revenues for the periods
indicated:



|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|------------------------------------------------------ |  | -------------------------- | -- |  | ------------------------ | -- |  | ----- | -- |  | ----- | --
|                                                       |  | Three Months EndedJune 30, |    |  | Six Months EndedJune 30, |   
|Consolidated statements of operations data (unaudited) |  | 2009                       |    |  | 2008                     |    |  | 2009  |    |  | 2008  |   
|Net transaction revenues                               |  | 98.7                       | %  |  | 98.2                     | %  |  | 98.5  | %  |  | 97.9  | % 
|Referral and other revenues                            |  | 1.3                        |    |  | 1.8                      |    |  | 1.5   |    |  | 2.1   |   
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|Net revenues                                           |  | 100.0                      |    |  | 100.0                    |    |  | 100.0 |    |  | 100.0 |   
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|                                                       |  |                            |    | 
|Operating expenses:                                    |  |                            |    |  |                          |    |  |       |    |  |       |   
|Cost of revenues                                       |  | 58.8                       |    |  | 56.4                     |    |  | 60.8  |    |  | 57.8  |   
|Product development                                    |  | 7.3                        |    |  | 7.0                      |    |  | 8.6   |    |  | 8.4   |   
|Sales and marketing                                    |  | 31.9                       |    |  | 34.6                     |    |  | 37.5  |    |  | 40.3  |   
|General and administrative                             |  | 10.2                       |    |  | 9.7                      |    |  | 12.5  |    |  | 13.0  |   
|Litigation                                             |  |                           |    |  |                         |    |  |      |    |  | 1.2   |   
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|Total operating expenses                               |  | 108.2                      |    |  | 107.7                    |    |  | 119.4 |    |  | 120.7 |   
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|Loss from operations                                   |  | (8.2                       | )  |  | (7.7                     | )  |  | (19.4 | )  |  | (20.7 | ) 
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|                                                       |  |                            |    | 
|Other income (expense), net                            |  |                            |    |  |                          |    |  |       |    |  |       |   
|Interest income                                        |  | 0.6                        |    |  | 2.0                      |    |  | 0.9   |    |  | 3.0   |   
|Other income, net                                      |  |                           |    |  | 0.2                      |    |  |      |    |  | 0.1   |   
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|Total other income (expense), net                      |  | 0.6                        |    |  | 2.2                      |    |  | 0.9   |    |  | 3.1   |   
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|Loss before income taxes                               |  | (7.6                       | )  |  | (5.5                     | )  |  | (18.5 | )  |  | (17.6 | ) 
|Provision for income taxes                             |  |                           |    |  |                         |    |  |      |    |  |      |   
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   
|Net loss                                               |  | (7.6                       | )% |  | (5.5                     | )% |  | (18.5 | )% |  | (17.6 | )%
|                                                       |  |                            |    |  |                          |    |  |       |    |  |       |   



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##### Table of Contents

Comparison of the three months ended June 30, 2009 and 2008

Other operating data



|                                                    |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|--------------------------------------------------- |  | -------------------------- | ----- | ------------------ | - | ----- | ------------- | - | ------ | - |  | ----- | --
|                                                    |  | Three Months EndedJune 30, |       | Increase(Decrease) |   |       | PercentChange |  
|                                                    |  | 2009                       |       | 2008               |   |      
|Number of markets (1)                               |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|Comparable existing markets                         |  |                            | 23    |                    |   | 23    |               |   |       |   |  |       |   
|New markets                                         |  |                            | 13    |                    |   | 11    |               |   | 2      |   |  |       |   
|                                                    |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|Total                                               |  |                            | 36    |                    |   | 34    |               |   | 2      |   |  |       |   
|                                                    |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|Number of transactions closed during the period (2) |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|Comparable existing markets                         |  |                            | 5,011 |                    |   | 4,109 |               |   | 902    |   |  | 22.0  | % 
|New markets                                         |  |                            | 1,006 |                    |   | 572   |               |   | 434    |   |  | 75.9  | % 
|                                                    |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|Total                                               |  |                            | 6,017 |                    |   | 4,681 |               |   | 1,336  |   |  | 28.5  | % 
|                                                    |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|Average net revenue per transaction (3)             |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|Comparable existing markets                         |  | $                          | 5,400 |                    | $ | 6,634 |               | $ | (1,234 | ) |  | (18.6 | )%
|New markets                                         |  |                            | 4,612 |                    |   | 4,562 |               |   | 50     |   |  | 1.1   | % 
|All markets                                         |  | $                          | 5,269 |                    | $ | 6,381 |               | $ | (1,112 | ) |  | (17.4 | )%
|Number of ZipAgents at end of the period            |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|Comparable existing markets                         |  |                            | 2,435 |                    |   | 2,118 |               |   | 317    |   |  | 15.0  | % 
|New markets                                         |  |                            | 737   |                    |   | 441   |               |   | 296    |   |  | 67.1  | % 
|                                                    |  |                            |       |                    |   |       |               |   |        |   |  |       |   
|All markets                                         |  |                            | 3,172 |                    |   | 2,559 |               |   | 613    |   |  | 24.0  | % 
|                                                    |  |                            |       |                    |   |       |               |   |        |   |  |       |   



|(1) | Beginning with our Form 10-Q for the three months ended March 31, 2009, new markets are transferred to existing markets on January 1st following the completion of their first
full two calendar years of operation. In our reports filed prior to that           Form 10-Q, new markets were transferred to existing markets on January 1st following the completion of their first
full calendar year of operation. Our Tampa, Orlando, Minneapolis, Austin, Palm Beach and the Greater Philadelphia Area markets opened during 2006 and, therefore, completed their first two full calendar years as of the end of 2008. Accordingly, these
markets were moved to existing markets as of January 1, 2009 and are included in comparable existing markets for all periods presented.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                  |  |                   |  |                           
|--------------------------------- |  | ----------------- |  | --------------------------
|Comparable existing markets:      |  |                   |  |                           
|                                  |  |                  
|Atlanta, GA                       |  | Houston, TX       |  | Phoenix, AZ               
|Austin, TX                        |  | Las Vegas, NV     |  | Sacramento, CA            
|Baltimore, MD                     |  | Los Angeles, CA   |  | San Diego, CA             
|Boston, MD                        |  | Miami, FL         |  | San Francisco Bay Area, CA
|Chicago, IL                       |  | Minneapolis, MN   |  | Seattle, WA               
|Dallas, TX                        |  | Orange County, CA |  | Tampa, FL                 
|Fresno/Central Valley, CA         |  | Orlando, FL       |  | Washington, DC            
|Greater Philadelphia Area, PA     |  | Palm Beach, FL    |  |                           
|                                  |  |                  
|New markets and the month opened: |  |                   |  |                           
|                                  |  |                  
|Naples, FL                        |  |                   |  | March 2007                
|Tucson, AZ                        |  |                   |  | March 2007                
|Denver, CO                        |  |                   |  | April 2007                
|Jacksonville, FL                  |  |                   |  | May 2007                  
|Salt Lake City, UT                |  |                   |  | July 2007                 
|Richmond, VA                      |  |                   |  | July 2007                 
|Virginia Beach, VA                |  |                   |  | August 2007               
|Charlotte, NC                     |  |                   |  | August 2007               
|Raleigh-Durham, NC                |  |                   |  | September 2007            
|Westchester County, NY            |  |                   |  | December 2007             
|Long Island, NY                   |  |                   |  | March 2008                
|Hartford, CT                      |  |                   |  | July 2008                 
|Portland, OR                      |  |                   |  | April 2009                



19



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##### Table of Contents

|(2) | The term transaction refers to each representation of a buyer or seller in a real estate purchase or sale.
|--- | ------------------------------------------------------------------------------------------------------------

|(3) | Average net revenue per transaction equals net transaction revenues divided by number of transactions with respect to each period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

Net transaction revenues

Net
transaction revenues consist of commissions earned as agents to buyers and sellers on the purchase or sale of real estate transactions, net of any rebate, commission discount or transaction fee adjustment.



|                            |  |                            |        |                    |   |        |               |   |       |   |  |      |   
|--------------------------- |  | -------------------------- | ------ | ------------------ | - | ------ | ------------- | - | ----- | - |  | ---- | --
|                            |  | Three Months EndedJune 30, |        | Increase(Decrease) |   |        | PercentChange |  
|                            |  | 2009                       |        | 2008               |   |       
|                            |  | (In thousands)             |       
|Net transaction revenues    |  |                            |        |                    |   |        |               |   |       |   |  |      |   
|Comparable existing markets |  | $                          | 27,062 |                    | $ | 27,261 |               | $ | (199  | ) |  | (0.7 | )%
|New markets                 |  |                            | 4,640  |                    |   | 2,609  |               |   | 2,031 |   |  | 77.8 | % 
|                            |  |                            |        |                    |   |        |               |   |       |   |  |      |   
|Total                       |  | $                          | 31,702 |                    | $ | 29,870 |               | $ | 1,832 |   |  | 6.1  | % 
|                            |  |                            |        |                    |   |        |               |   |       |   |  |      |   

The increase in our net transaction revenues of $1.8 million for the quarter ended
June 30, 2009 compared to the quarter ended June 30, 2008 was primarily due to an increase in net transaction revenues of $2.0 million in our new markets offset by a decrease in net transaction revenues of $0.2 million from our
existing markets.

The decrease in net transaction revenues in our existing markets of $0.2 million or 0.7% was driven primarily by a
decrease in average net revenue per transaction of $1,234 or 18.6%, offset by an increase in the number of transactions closed during the period of 902 or 22.0%. The decrease in average net revenue per transaction was primarily attributable to a
combination of factors including an overall decrease in housing prices, an increase in the number of foreclosure, bank real estate owned (REO) and short sale transactions, typically at further reduced sales prices, and ongoing tightening
in the availability of consumer mortgage financing particularly impacting the sale of higher priced housing.

The increase in net
transaction revenues in our new markets of $2.0 million was driven by an increase of 434 transactions closed during the period primarily from the ten new markets opened during 2007 and the new market opened in March 2008. Average net
revenue per transaction increased by $50 or 1.1% primarily attributable to the mix of properties sold in markets with different housing prices although our new markets face the same factors impacting net revenue per transaction in our existing
markets.

We expect our net transaction revenues will increase for 2009 driven by an increase in the overall number of transactions in both
our existing and new markets, offset by decreases in net revenue per transaction. The decrease in net revenue per transaction year over year is expected to result from a continuation of the factors impacting the quarter ended June 30, 2009:
overall decreases in housing prices, increases in the number of foreclosure, bank REO and short sale transactions, typically at further reduced sales prices, and ongoing pressure on the availability of consumer mortgage financing particularly
impacting the sale of higher priced housing.

Referral and other revenues

Referral and other revenues consist primarily of certain marketing agreements and transaction referrals.



|                            |  |                            |     |                    |   |     |               |   |      |   |  |       |   
|--------------------------- |  | -------------------------- | --- | ------------------ | - | --- | ------------- | - | ---- | - |  | ----- | --
|                            |  | Three Months EndedJune 30, |     | Increase(Decrease) |   |     | PercentChange |  
|                            |  | 2009                       |     | 2008               |   |    
|                            |  | (In thousands)             |    
|Referral and other revenues |  |                            |     |                    |   |     |               |   |      |   |  |       |   
|Comparable existing markets |  | $                          | 112 |                    | $ | 121 |               | $ | (9   | ) |  | (7.1  | )%
|New markets                 |  |                            | 13  |                    |   | 11  |               |   | 2    |   |  | 21.3  | % 
|Corporate                   |  |                            | 307 |                    |   | 422 |               |   | (115 | ) |  | (27.3 | )%
|                            |  |                            |     |                    |   |     |               |   |      |   |  |       |   
|Total                       |  | $                          | 432 |                    | $ | 554 |               | $ | (122 | ) |  | (21.9 | )%
|                            |  |                            |     |                    |   |     |               |   |      |   |  |       |   

The decrease in corporate referral and other revenues for the quarter ended June 30, 2009
compared to the quarter ended June 30, 2008 was primarily attributable to the elimination of fees from a primary source of corporate referral income, a mortgage services marketing agreement with E-LOAN, that terminated October 31, 2008

During June, 2009 we commenced a mortgage services marketing agreement with Bank of America and, as a result, we expect our referral and
other income will remain flat or increase moderately for 2009.



20



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##### Table of Contents

Cost of revenues

Our cost of revenues consists principally of commissions, payroll taxes, benefits including health insurance, performance and tenure based award programs,
agent expense reimbursements and amortization of internal-use software and website development costs which relate primarily to our ZAP technology. Agent commissions are generally paid on market net revenues which include net transaction revenues
plus referral and other revenues generated by our ZipAgents.



|                            |  |                            |        |                    |   |               |  |   |       |  |      |  
|--------------------------- |  | -------------------------- | ------ | ------------------ | - | ------------- |  | - | ----- |  | ---- | -
|                            |  | Three Months EndedJune 30, |        | Increase(Decrease) |   | PercentChange | 
|                            |  | 2009                       |        | 2008               |   |              
|                            |  | (In thousands)             |       
|Cost of revenues            |  |                            |        |                    |   |               |  |   |       |  |      |  
|Comparable existing markets |  | $                          | 16,366 |                    | $ | 15,807        |  | $ | 559   |  | 3.5  | %
|New markets                 |  |                            | 2,543  |                    |   | 1,349         |  |   | 1,194 |  | 88.5 | %
|                            |  |                            |        |                    |   |               |  |   |       |  |      |  
|Total                       |  | $                          | 18,909 |                    | $ | 17,156        |  | $ | 1,753 |  | 10.2 | %
|                            |  |                            |        |                    |   |               |  |   |       |  |      |  

The increase in cost of revenues for the quarter ended June 30, 2009 compared to the quarter
ended June 30, 2008 was primarily related to the overall increase in net revenues on which we pay agent commissions.

Cost of revenues
increased in our existing markets by approximately $0.6 million or 3.5% for the quarter ended June 30, 2009 compared to the quarter ended June 30, 2008. Agent performance and tenure based programs, benefits and expense reimbursements
increased by approximately $0.5 million or 21.5% primarily attributable to the increased number of qualifying agents. Overall, cost of revenues as a percentage of existing markets net revenues increased by about 2.5 percentage points.

Cost of revenues increased in our new markets by approximately $1.2 million or 88.5% for the quarter ended June 30, 2009 compared to the
quarter ended June 30, 2008. Agent commissions and payroll taxes increased by $1.0 million primarily attributable to the increase in net revenues on which these costs are based and the mix of agent commissions paid. Agent expense reimbursements
and benefits increased by approximately $0.2 million primarily attributable to the increased number of qualifying agents. Overall, cost of revenues as a percentage of new market net revenues increased by 3.2 percentage points. As new markets mature,
we expect the cost of revenues percentage to increase as additional ZipAgents achieve higher commission splits and qualify for benefits.

We expect our cost of revenues for 2009 will increase in absolute dollars and increase modestly as a percentage of net revenues over the prior year.

Product development

Product development expenses include our information technology costs
relating to the maintenance of our website, proprietary technology platforms and system infrastructure. These costs consist primarily of compensation and benefits for our product development and infrastructure personnel, depreciation of software and
equipment and infrastructure costs consisting primarily of facilities, communications and other operating expenses.



|                    |  |                            |       |                    |   |               |  |   |     |  |      |  
|------------------- |  | -------------------------- | ----- | ------------------ | - | ------------- |  | - | --- |  | ---- | -
|                    |  | Three Months EndedJune 30, |       | Increase(Decrease) |   | PercentChange | 
|                    |  | 2009                       |       | 2008               |   |              
|                    |  | (In thousands)             |      
|Product development |  | $                          | 2,344 |                    | $ | 2,124         |  | $ | 220 |  | 10.4 | %

The increase in product development expenses for the quarter ended June 30, 2009 compared to
the quarter ended June 30, 2008 was due primarily to supporting higher website volume and a new data site and consisted primarily of increases in salaries and benefits, including stock based compensation, of $0.2 million and technology
infrastructure costs of $0.1 million partially offset by a decrease in depreciation of $0.1 million. As a percentage of net revenues, product development expenses increased by 0.3 percentage points for the quarter ended June 30, 2009
compared to the quarter ended June 30, 2008.

We expect our product development expenses to increase in 2009 in absolute dollars over
the prior year and to decrease as a percentage of net revenues.

Sales and marketing

Sales and marketing expenses consist primarily of compensation and related costs for personnel engaged in sales, sales support and customer service as
well as promotional, advertising and client acquisition costs. These expenses have been categorized below between those incurred in the existing and new markets offices and those expenses which are incurred by the regional and corporate support
functions across all markets.



21



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##### Table of Contents

|                                               |  |                            |        |                    |   |        |               |   |      |   |  |      |   
|---------------------------------------------- |  | -------------------------- | ------ | ------------------ | - | ------ | ------------- | - | ---- | - |  | ---- | --
|                                               |  | Three Months EndedJune 30, |        | Increase(Decrease) |   |        | PercentChange |  
|                                               |  | 2009                       |        | 2008               |   |       
|                                               |  | (In thousands)             |       
|Sales and marketing:                           |  |                            |        |                    |   |        |               |   |      |   |  |      |   
|Comparable existing markets                    |  | $                          | 6,185  |                    | $ | 6,826  |               | $ | (641 | ) |  | (9.4 | )%
|New markets                                    |  |                            | 2,243  |                    |   | 1,925  |               |   | 318  |   |  | 16.5 | % 
|Regional/corporate sales support and marketing |  |                            | 1,809  |                    |   | 1,775  |               |   | 34   |   |  | 1.9  | % 
|                                               |  |                            |        |                    |   |        |               |   |      |   |  |      |   
|Total                                          |  | $                          | 10,237 |                    | $ | 10,526 |               | $ | (289 | ) |  | (2.7 | )%
|                                               |  |                            |        |                    |   |        |               |   |      |   |  |      |   

The decrease in sales and marketing expenses for the quarter ended June 30, 2009 compared to
the quarter ended June 30, 2008 was primarily related to the cost control initiatives in our existing markets and regional/corporate support operations partially offset by growth in our new markets.

Sales and marketing expenses decreased in our existing markets by approximately $0.6 million principally attributable to decreases in salaries and
benefits of $0.1 million, travel of $0.1 million and customer acquisition and marketing costs of $0.3 million. As a percentage of existing market net revenues, existing market sales and marketing expenses were 22.8% in the current year compared to
24.9% in the prior year.

Sales and marketing expenses increased in our new markets by approximately $0.3 million principally attributable
to the current year reflecting a full year of operations for the ten new markets opened during 2007 and the new market opened in March 2008. The increase in expenses consisted primarily of customer acquisition and marketing costs of $0.3 million. As
a percentage of new market revenues, new market sales and marketing expenses were 48.2% in the current year compared to 73.5% in the prior year.

Regional/corporate sales support and marketing expenses increased marginally compared to the prior year and, as a percentage of net revenues were approximately 5.6% in the current year compared to 5.8% in the prior year.

We expect our sales and marketing expenses for 2009 will increase in absolute dollars over the prior year but will decrease as a percentage of net
revenues.

General and administrative

General and administrative expenses consist primarily of compensation and related costs for personnel and facilities related to our executive, finance, human resources, facilities and legal organizations, and fees for
professional services. Professional services are principally comprised of outside legal, audit and tax services.



|                           |  |                            |       |                    |   |               |  |   |     |  |      |  
|-------------------------- |  | -------------------------- | ----- | ------------------ | - | ------------- |  | - | --- |  | ---- | -
|                           |  | Three Months EndedJune 30, |       | Increase(Decrease) |   | PercentChange | 
|                           |  | 2009                       |       | 2008               |   |              
|                           |  | (In thousands)             |      
|General and administrative |  | $                          | 3,278 |                    | $ | 2,938         |  | $ | 340 |  | 11.6 | %

The increase in general and administrative expenses for the quarter ended June 30, 2009
compared to the quarter ended June 30, 2008 was principally due to an increase in salaries and benefits of $0.5 million, including stock based compensation of $0.2 million partially offset by a decrease in professional fees of
$0.2 million. Salaries and benefits, including stock based compensation, for the three months ended June 30, 2008 reflect the reversal of amounts accrued, under a management incentive plan, during the three months ended June 30, 2008
of $0.2 million as the required performance metrics of the plan were not satisfied for the six months ended June 30, 2008. As a percentage of net revenues, general and administrative expenses were 10.2% for the current year compared to 9.7% in
the prior year.

We expect our general and administrative expenses for 2009 will increase in absolute dollars over the prior year but will
decrease as a percentage of net revenues.



22



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##### Table of Contents

Interest income

Interest income relates to interest we earn on our money market deposits and short-term investments.



|                |  |                            |     |                    |   |     |               |   |      |   |  |       |   
|--------------- |  | -------------------------- | --- | ------------------ | - | --- | ------------- | - | ---- | - |  | ----- | --
|                |  | Three Months EndedJune 30, |     | Increase(Decrease) |   |     | PercentChange |  
|                |  | 2009                       |     | 2008               |   |    
|                |  | (In thousands)             |    
|Interest income |  | $                          | 200 |                    | $ | 604 |               | $ | (404 | ) |  | (66.8 | )%

Interest income fluctuates as our cash equivalents and short-term investment balances change and
applicable interest rates increase or decrease. The decrease in interest income for the quarter ended June 30, 2009 compared to the quarter ended June 30, 2008 was due primarily to lower interest rates earned on lower average balances. The
lower interest rates were primarily attributable to overall decreases in market interest rates combined with maintaining higher money market account balances yielding lower interest rates as we decreased our short-term investments positions. The
lower average balances were primarily attributable to the repurchase of shares of our common stock for approximately $17.4 million in April 2008 and cash used in our operating activities as a result of the losses incurred since June 30, 2008.

Other income (expense), net

Other income (expense), net consists of non-operating items.



|                            |  |                            |   |                    |   |    |               |   |     |   |  |       |   
|--------------------------- |  | -------------------------- | - | ------------------ | - | -- | ------------- | - | --- | - |  | ----- | --
|                            |  | Three Months EndedJune 30, |   | Increase(Decrease) |   |    | PercentChange |  
|                            |  | 2009                       |   | 2008               |   |   
|                            |  | (In thousands)             |  
|Other income (expense), net |  | $                          | 1 |                    | $ | 47 |               | $ | (46 | ) |  | (97.2 | )%

Other income for the quarter ended June 30, 2008 relates primarily to realized gains on our
short term investments.

Comparison of the six months ended June 30, 2009 and 2008

Other operating data



|                                                    |  |                          |        |          |   |            |         |   |        |   |  |       |   
|--------------------------------------------------- |  | ------------------------ | ------ | -------- | - | ---------- | ------- | - | ------ | - |  | ----- | --
|                                                    |  | Six Months EndedJune 30, |        | Increase |   |            | Percent |  
|                                                    |  | 2009                     |        | 2008     |   | (Decrease) |         |   | Change |  
|Number of markets (1)                               |  |                          |        |          |   |            |         |   |        |   |  |       |   
|Comparable existing markets                         |  |                          | 23     |          |   | 23         |         |   |       |   |  |       |   
|New markets                                         |  |                          | 13     |          |   | 11         |         |   | 2      |   |  |       |   
|                                                    |  |                          |        |          |   |            |         |   |        |   |  |       |   
|Total                                               |  |                          | 36     |          |   | 34         |         |   | 2      |   |  |       |   
|                                                    |  |                          |        |          |   |            |         |   |        |   |  |       |   
|Number of transactions closed during the period (2) |  |                          |        |          |   |            |         |   |        |   |  |       |   
|Comparable existing markets                         |  |                          | 8,510  |          |   | 6,894      |         |   | 1,616  |   |  | 23.4  | % 
|New markets                                         |  |                          | 1,678  |          |   | 908        |         |   | 770    |   |  | 84.8  | % 
|                                                    |  |                          |        |          |   |            |         |   |        |   |  |       |   
|Total                                               |  |                          | 10,188 |          |   | 7,802      |         |   | 2,386  |   |  | 30.6  | % 
|                                                    |  |                          |        |          |   |            |         |   |        |   |  |       |   
|Average net revenue per transaction (3)             |  |                          |        |          |   |            |         |   |        |   |  |       |   
|Comparable existing markets                         |  | $                        | 5,347  |          | $ | 6,646      |         | $ | (1,299 | ) |  | (19.5 | )%
|New markets                                         |  |                          | 4,500  |          |   | 4,599      |         |   | (99    | ) |  | (2.1  | )%
|All markets                                         |  | $                        | 5,207  |          | $ | 6,407      |         | $ | (1,200 | ) |  | (18.7 | )%
|Number of ZipAgents at end of the period            |  |                          |        |          |   |            |         |   |        |   |  |       |   
|Comparable existing markets                         |  |                          | 2,435  |          |   | 2,118      |         |   | 317    |   |  | 15.0  | % 
|New markets                                         |  |                          | 737    |          |   | 441        |         |   | 296    |   |  | 67.1  | % 
|                                                    |  |                          |        |          |   |            |         |   |        |   |  |       |   
|All markets                                         |  |                          | 3,172  |          |   | 2,559      |         |   | 613    |   |  | 24.0  | % 
|                                                    |  |                          |        |          |   |            |         |   |        |   |  |       |   



|(1) | Beginning with our Form 10-Q for the three months ended March 31, 2009, new markets are transferred to existing markets on January 1st following the completion of their first full
two calendar years of operation. In our reports filed prior to that    Form 10-Q, new markets were transferred to existing markets on January 1st following the completion of their first full calendar year of operation. Our Tampa,
Orlando, Minneapolis, Austin, Palm Beach and the Greater Philadelphia Area markets opened during 2006 and, therefore, completed their first two full calendar years as of the end of 2008. Accordingly, these markets were moved to existing markets as
of January 1, 2009 and are included in comparable existing markets for all periods presented.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



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##### Table of Contents

|                                  |  |                   |  |                           
|--------------------------------- |  | ----------------- |  | --------------------------
|Comparable existing markets:      |  |                   |  |                           
|                                  |  |                  
|Atlanta, GA                       |  | Houston, TX       |  | Phoenix, AZ               
|Austin, TX                        |  | Las Vegas, NV     |  | Sacramento, CA            
|Baltimore, MD                     |  | Los Angeles, CA   |  | San Diego, CA             
|Boston, MD                        |  | Miami, FL         |  | San Francisco Bay Area, CA
|Chicago, IL                       |  | Minneapolis, MN   |  | Seattle, WA               
|Dallas, TX                        |  | Orange County, CA |  | Tampa, FL                 
|Fresno/Central Valley, CA         |  | Orlando, FL       |  | Washington, DC            
|Greater Philadelphia Area, PA     |  | Palm Beach, FL    |  |                           
|                                  |  |                  
|New markets and the month opened: |  |                   |  |                           
|                                  |  |                  
|Naples, FL                        |  |                   |  | March 2007                
|Tucson, AZ                        |  |                   |  | March 2007                
|Denver, CO                        |  |                   |  | April 2007                
|Jacksonville, FL                  |  |                   |  | May 2007                  
|Salt Lake City, UT                |  |                   |  | July 2007                 
|Richmond, VA                      |  |                   |  | July 2007                 
|Virginia Beach, VA                |  |                   |  | August 2007               
|Charlotte, NC                     |  |                   |  | August 2007               
|Raleigh-Durham, NC                |  |                   |  | September 2007            
|Westchester County, NY            |  |                   |  | December 2007             
|Long Island, NY                   |  |                   |  | March 2008                
|Hartford, CT                      |  |                   |  | July 2008                 
|Portland, OR                      |  |                   |  | April 2009                



|(2) | The term transaction refers to each representation of a buyer or seller in a real estate purchase or sale.
|--- | ------------------------------------------------------------------------------------------------------------

|(3) | Average net revenue per transaction equals net transaction revenues divided by number of transactions with respect to each period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

Net transaction revenues

Net
transaction revenues consist of commissions earned as agents to buyers and sellers on the purchase or sale of real estate transactions, net of any rebate, commission discount or transaction fee adjustment.



|                            |  |                          |        |                    |   |        |               |   |       |   |  |      |   
|--------------------------- |  | ------------------------ | ------ | ------------------ | - | ------ | ------------- | - | ----- | - |  | ---- | --
|                            |  | Six Months EndedJune 30, |        | Increase(Decrease) |   |        | PercentChange |  
|                            |  | 2009                     |        | 2008               |   |       
|                            |  | (In thousands)           |       
|Net transaction revenues    |  |                          |        |                    |   |        |               |   |       |   |  |      |   
|Comparable existing markets |  | $                        | 45,503 |                    | $ | 45,816 |               | $ | (313  | ) |  | (0.7 | )%
|New markets                 |  |                          | 7,551  |                    |   | 4,175  |               |   | 3,376 |   |  | 80.8 | % 
|                            |  |                          |        |                    |   |        |               |   |       |   |  |      |   
|Total                       |  | $                        | 53,054 |                    | $ | 49,991 |               | $ | 3,063 |   |  | 6.1  | % 
|                            |  |                          |        |                    |   |        |               |   |       |   |  |      |   

The increase in our net transaction revenues of $3.1 million for the six months ended
June 30, 2009 compared to the six months ended June 30, 2008 was primarily due to an increase in net transaction revenues of $3.4 million in our new markets offset by a decrease in net transaction revenues of $0.3 million from
our existing markets.

The decrease in net transaction revenues in our existing markets of $0.3 million or 0.7% was driven primarily
by a decrease in average net revenue per transaction of $1,299 or 19.5%, offset by an increase in the number of transactions closed during the period of 1,616 or 23.4%. The decrease in average net revenue per transaction was primarily attributable
to a combination of factors including an overall decrease in housing prices, an increase in the number of foreclosure, bank real estate owned (REO) and short sale transactions, typically at further reduced sales prices, and ongoing
tightening in the availability of consumer mortgage financing particularly impacting the sale of higher priced housing.

The increase in
net transaction revenues in our new markets of $3.4 million was driven by an increase of 770 transactions closed during the period primarily from the ten new markets opened during 2007 and the new market opened in March 2008. Average net
revenue per transaction decreased by $98 or 2.1% primarily attributable to the same factors impacting net revenue per transaction in our existing markets.



24



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##### Table of Contents

Referral and other revenues

Referral and other revenues consist primarily of certain marketing agreements and transaction referrals.



|                            |  |                          |     |                    |   |       |               |   |      |   |  |       |   
|--------------------------- |  | ------------------------ | --- | ------------------ | - | ----- | ------------- | - | ---- | - |  | ----- | --
|                            |  | Six Months EndedJune 30, |     | Increase(Decrease) |   |       | PercentChange |  
|                            |  | 2009                     |     | 2008               |   |      
|                            |  | (In thousands)           |    
|Referral and other revenues |  |                          |     |                    |   |       |               |   |      |   |  |       |   
|Comparable existing markets |  | $                        | 197 |                    | $ | 200   |               | $ | (3   | ) |  | (1.5  | )%
|New markets                 |  |                          | 27  |                    |   | 15    |               |   | 12   |   |  | 86.4  | % 
|Corporate                   |  |                          | 568 |                    |   | 842   |               |   | (274 | ) |  | (32.5 | )%
|                            |  |                          |     |                    |   |       |               |   |      |   |  |       |   
|Total                       |  | $                        | 792 |                    | $ | 1,057 |               | $ | (265 | ) |  | (25.0 | )%
|                            |  |                          |     |                    |   |       |               |   |      |   |  |       |   

The decrease in corporate referral and other revenues for the six months ended June 30, 2009
compared to the six months ended June 30, 2008 was primarily attributable to the elimination of fees from a primary source of corporate referral income, a mortgage services marketing agreement with E-LOAN, that terminated October 31, 2008.

Cost of revenues

Our cost of revenues consists principally of commissions, payroll taxes, benefits including health insurance, performance and tenure based award programs, agent expense reimbursements and amortization of internal-use software and website
development costs which relate primarily to our ZAP technology. Agent commissions are generally paid on market net revenues which include net transaction revenues plus referral and other revenues generated by our ZipAgents.



|                            |  |                          |        |                    |   |               |  |   |       |  |      |  
|--------------------------- |  | ------------------------ | ------ | ------------------ | - | ------------- |  | - | ----- |  | ---- | -
|                            |  | Six Months EndedJune 30, |        | Increase(Decrease) |   | PercentChange | 
|                            |  | 2009                     |        | 2008               |   |              
|                            |  | (In thousands)           |       
|Cost of revenues            |  |                          |        |                    |   |               |  |   |       |  |      |  
|Comparable existing markets |  | $                        | 28,493 |                    | $ | 27,360        |  | $ | 1,133 |  | 4.1  | %
|New markets                 |  |                          | 4,250  |                    |   | 2,138         |  |   | 2,112 |  | 98.7 | %
|                            |  |                          |        |                    |   |               |  |   |       |  |      |  
|Total                       |  | $                        | 32,743 |                    | $ | 29,498        |  | $ | 3,245 |  | 11.0 | %
|                            |  |                          |        |                    |   |               |  |   |       |  |      |  

The increase in cost of revenues for the six months ended June 30, 2009 compared to the six
months ended June 30, 2008 was primarily related to the overall increase in net revenues on which we pay agent commissions.

Cost of
revenues increased in our existing markets by approximately $1.1 million or 4.1% for the six months ended June 30, 2009 compared to the six months ended June 30, 2008. Agent commissions and payroll taxes increased by $0.2 million or
1.0% primarily attributable to the mix of agent commissions paid on the modest decrease in the net revenues on which these costs are based. Agent performance and tenure based programs, benefits and expense reimbursements increased by approximately
$1.0 million or 20.8% primarily attributable to the increased number of qualifying agents. Overall, cost of revenues as a percentage of existing markets net revenues increased by about 2.9 percentage points.

Cost of revenues increased in our new markets by approximately $2.1 million or 98.7% for the six months ended June 30, 2009 compared to the six
months ended June 30, 2008. Agent commissions and payroll taxes increased by $1.7 million primarily attributable to the increase in net revenues on which these costs are based and the mix of agent commissions paid. Agent expense reimbursements
and benefits increased by approximately $0.4 million primarily attributable to the increased number of qualifying agents. Overall, cost of revenues as a percentage of new market net revenues increased by 5.0 percentage points.



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##### Table of Contents

Product development

Product development expenses include our information technology costs relating to the maintenance of our website, proprietary technology platforms and
system infrastructure. These costs consist primarily of compensation and benefits for our product development and infrastructure personnel, depreciation of software and equipment and infrastructure costs consisting primarily of facilities,
communications and other operating expenses.



|                    |  |                          |       |                    |   |               |  |   |     |  |     |  
|------------------- |  | ------------------------ | ----- | ------------------ | - | ------------- |  | - | --- |  | --- | -
|                    |  | Six Months EndedJune 30, |       | Increase(Decrease) |   | PercentChange | 
|                    |  | 2009                     |       | 2008               |   |              
|                    |  | (In thousands)           |      
|Product development |  | $                        | 4,656 |                    | $ | 4,270         |  | $ | 386 |  | 9.0 | %

The increase in product development expenses for the six months ended June 30, 2009 compared
to the six months ended June 30, 2008 was due primarily to supporting higher website volume and a new data site and consisted primarily of increases in salaries and benefits, including stock based compensation, of $0.3 million and
technology infrastructure costs of $0.1 million partially offset by a decrease in depreciation of $0.1 million. As a percentage of net revenues, product development expenses increased by 0.2 percentage points for the six months ended
June 30, 2009 compared to the six months ended June 30, 2008.

Sales and marketing

Sales and marketing expenses consist primarily of compensation and related costs for personnel engaged in sales, sales support and customer service as
well as promotional, advertising and client acquisition costs. These expenses have been categorized below between those incurred in the existing and new markets offices and those expenses which are incurred by the regional and corporate support
functions across all markets.



|                                               |  |                          |        |                    |   |        |               |   |        |   |  |      |   
|---------------------------------------------- |  | ------------------------ | ------ | ------------------ | - | ------ | ------------- | - | ------ | - |  | ---- | --
|                                               |  | Six Months EndedJune 30, |        | Increase(Decrease) |   |        | PercentChange |  
|                                               |  | 2009                     |        | 2008               |   |       
|                                               |  | (In thousands)           |       
|Sales and marketing:                           |  |                          |        |                    |   |        |               |   |        |   |  |      |   
|Comparable existing markets                    |  | $                        | 12,199 |                    | $ | 13,218 |               | $ | (1,019 | ) |  | (7.7 | )%
|New markets                                    |  |                          | 4,411  |                    |   | 3,644  |               |   | 767    |   |  | 21.1 | % 
|Regional/corporate sales support and marketing |  |                          | 3,571  |                    |   | 3,692  |               |   | (121   | ) |  | (3.3 | )%
|                                               |  |                          |        |                    |   |        |               |   |        |   |  |      |   
|Total                                          |  | $                        | 20,181 |                    | $ | 20,554 |               | $ | (373   | ) |  | (1.8 | )%
|                                               |  |                          |        |                    |   |        |               |   |        |   |  |      |   

The decrease in sales and marketing expenses for the six months ended June 30, 2009 compared
to the six months ended June 30, 2008 was primarily related to the cost control initiatives in our existing markets and regional/corporate support operations partially offset by growth in our new markets.

Sales and marketing expenses decreased in our existing markets by approximately $1.0 million principally attributable to decreases in salaries and
benefits of $0.2 million, travel of $0.1 million and customer acquisition and marketing costs of $0.5 million. As a percentage of existing market net revenues, existing market sales and marketing expenses were 26.7% in the current year compared to
28.7% in the prior year.

Sales and marketing expenses increased in our new markets by approximately $0.8 million principally attributable
to the current year reflecting a full year of operations for the ten new markets opened during 2007 and the new market opened in March 2008. The increase in expenses consisted primarily of customer acquisition and marketing costs of $0.8 million. As
a percentage of new market revenues, new market sales and marketing expenses were 58.2% in the current year compared to 87.0% in the prior year.

Regional/corporate sales support and marketing expenses decreased by approximately $0.1 million and consisted primarily of a decrease in travel expenses of $0.1 million. As a percentage of net revenues, regional sales support and marketing
expenses were approximately 6.6% in the current year compared to 7.2% in the prior year.



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##### Table of Contents

General and administrative

General and administrative expenses consist primarily of compensation and related costs for personnel and facilities related to our executive, finance,
human resources, facilities and legal organizations, and fees for professional services. Professional services are principally comprised of outside legal, audit and tax services.



|                           |  |                          |       |                    |   |               |  |   |     |  |     |  
|-------------------------- |  | ------------------------ | ----- | ------------------ | - | ------------- |  | - | --- |  | --- | -
|                           |  | Six Months EndedJune 30, |       | Increase(Decrease) |   | PercentChange | 
|                           |  | 2009                     |       | 2008               |   |              
|                           |  | (In thousands)           |      
|General and administrative |  | $                        | 6,757 |                    | $ | 6,620         |  | $ | 137 |  | 2.1 | %

The increase in general and administrative expenses for the six months ended June 30, 2009
compared to the six months ended June 30, 2008 was principally due to an increase in salaries and benefits, including stock based compensation, of $0.7 million partially offset by a decrease in professional fees of $0.5 million. As a
percentage of net revenues, general and administrative expenses were 12.5% for the current year compared to 13.0% in the prior year.

Litigation



|           |  |                          |   |                    |   |     |               |   |      |   |  |        |   
|---------- |  | ------------------------ | - | ------------------ | - | --- | ------------- | - | ---- | - |  | ------ | --
|           |  | Six Months EndedJune 30, |   | Increase(Decrease) |   |     | PercentChange |  
|           |  | 2009                     |   | 2008               |   |    
|           |  | (In thousands)           |  
|Litigation |  | $                        |  |                    | $ | 625 |               | $ | (625 | ) |  | (100.0 | )%

Litigation for the six months ended June 30, 2008 relates to the settlement of a class action
lawsuit filed by a former ZipAgent in the amount of $0.6 million.

Interest income

Interest income relates to interest we earn on our money market deposits and short-term investments.



|                |  |                          |     |                    |   |       |               |   |        |   |  |       |   
|--------------- |  | ------------------------ | --- | ------------------ | - | ----- | ------------- | - | ------ | - |  | ----- | --
|                |  | Six Months EndedJune 30, |     | Increase(Decrease) |   |       | PercentChange |  
|                |  | 2009                     |     | 2008               |   |      
|                |  | (In thousands)           |    
|Interest income |  | $                        | 509 |                    | $ | 1,515 |               | $ | (1,006 | ) |  | (66.4 | )%

Interest income fluctuates as our cash equivalents and short-term investment balances change and
applicable interest rates increase or decrease. The decrease in interest income for the six months ended June 30, 2009 compared to the six months ended June 30, 2008 was due primarily to lower interest rates earned on lower average
balances. The lower interest rates were primarily attributable to overall decreases in market interest rates combined with maintaining higher money market account balances yielding lower interest rates as we decreased our short-term investments
positions. The lower average balances were primarily attributable to the repurchase of shares of our common stock for approximately $17.4 million in April 2008 and cash used in our operating activities as a result of the losses incurred since
June 30, 2008.

Other income (expense), net

Other income (expense), net consists of non-operating items.



|                            |  |                          |   |                    |   |    |               |   |     |   |  |       |   
|--------------------------- |  | ------------------------ | - | ------------------ | - | -- | ------------- | - | --- | - |  | ----- | --
|                            |  | Six Months EndedJune 30, |   | Increase(Decrease) |   |    | PercentChange |  
|                            |  | 2009                     |   | 2008               |   |   
|                            |  | (In thousands)           |  
|Other income (expense), net |  | $                        | 1 |                    | $ | 74 |               | $ | (73 | ) |  | (98.2 | )%

Other income for the six months ended June 30, 2008 relates primarily to realized gains on
our short term investments.



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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity for 2009 are our cash, cash equivalents and short-term investments. As of June 30, 2009, we had cash, cash equivalents and short-term investments at fair value of
$44.8 million and no bank debt, line of credit or equipment facilities.

Operating activities

Our operating activities used cash in the amount of $3.9 and $7.1 million in the six months ended June 30, 2009 and 2008, respectively. Cash used in
the six months ended June 30, 2009 resulted primarily from a net loss $10.0 million partially offset by $1.3 million of depreciation and amortization and $2.1 million of non-cash stock-based compensation expense. Cash used in the six months
ended June 30, 2008 resulted primarily from a net loss of $8.9 million and the payment of $3.55 million litigation settlement partially offset by $1.4 million of depreciation and amortization and $1.9 million of non-cash
stock-based compensation expense.

Our primary source of operating cash flow is the collection of our net commission revenues offset by cash
payments for ZipAgent costs: commissions, payroll taxes, benefits, award programs and expense reimbursements, as well as for product development, sales and marketing and general and administrative costs including employee compensation, benefits,
client acquisition costs and other operating expenses. Due to the structure of our commission arrangements, our accounts receivable are settled in cash on a short-term basis and our accounts receivable balances at period end have historically been
significantly less than one months net revenues.

Investing activities

Our investing activities provided cash of $20.7 million and $33.4 million in the six months ended June 30, 2009 and 2008, respectively. Cash
provided for in the six months ended June 30, 2009 primarily represents the proceeds from the sale and maturity of short-term investments of $21.4 million less the purchase of property and equipment, including amounts for website development
and internal use software. Cash provided for the six months ended June 30, 2008 represent the net proceeds from the sales and purchases of short-term investments of $34.3 million less the purchase of property and equipment, including amounts
for website development and internal use software.

We typically maintain a minimum amount of cash and cash equivalents for operational
purposes and invest the remaining amount of our cash in investment grade, highly liquid interest-bearing securities which allows for flexibility in the event our cash needs change. Due to current economic conditions we have retained proceeds from
maturing short-term investments in money market securities and as a result our cash and cash equivalent balances have increased by approximately $16.8 million at June 30, 2009 from December 31, 2008.

Currently, we expect our remaining 2009 capital expenditures to be approximately $1.1 million primarily attributable to amounts capitalized for
internal-use software and website development as well as expenditures for increased server capacity and new market expansion leasehold improvements, furniture and computer equipment. In the future, our ability to make significant capital investments
may depend on our ability to generate cash flow from operations and to obtain adequate financing, if necessary and available.

Financing activities

Proceeds from our financing activities were not significant in the six months ended
June 30, 2009 and 2008, respectively. Sources of cash from financing activities primarily represented the proceeds from stock option exercises.

As of June 30, 2009, we had one warrant outstanding for the purchase of an aggregate of 3,284 shares of our common stock at an exercise price of $18.27 per share; that warrant is currently exercisable at the option of the holder.

Future needs

We believe that our current cash, cash equivalents and short-term investments will be sufficient to fund cash used in our operations and capital expenditures for at least the next twelve months. Our future capital requirements will
depend on many factors, including our rate of growth into new geographic markets, our level of investment in technology and advertising initiatives. In addition, if the current macroeconomic environment and depressed state of the residential real
estate market continues or worsens, we may have a greater need to fund our business by using our cash reserves, which could not continue indefinitely without our raising additional capital.

We routinely explore our options for offering services relating to the purchase, sale and ownership of a home, including services related to title
insurance, escrow, mortgage, home warranty insurance and property and casualty insurance (including auto insurance), which we refer to as core services. We expect that some of our core services will be offered through affiliates (including wholly
owned subsidiaries), while others will be offered through joint ventures or promoted through marketing arrangements with independent third parties, such as title companies, banks and insurance companies. We may enter into these types of arrangements
in the future, which could also require us to seek additional equity or debt financing.



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We currently have no bank debt or line of credit facilities. In the event that additional financing is
required, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operations and results will likely suffer.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

We lease
office space under non-cancelable operating leases with various expiration dates through July 2014. The following table provides summary information concerning our future contractual obligations and commitments at June 30, 2009.



|                       |  |                        |       |              |   |              |  |                  |     |       |   |   |  |   |      
|---------------------- |  | ---------------------- | ----- | ------------ | - | ------------ |  | ---------------- | --- | ----- | - | - |  | - | -----
|                       |  | Payments due by period
|                       |  | Less than1 year        |       | 1 to 3 years |   | 3 to 5 years |  | More than5 years |     | Total
|                       |  | (In thousands)        
|Minimum lease payments |  | $                      | 2,556 |              | $ | 4,125        |  | $                | 813 |       | $ | 7 |  | $ | 7,501

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off balance-sheet arrangements, investments in special purpose entities or undisclosed borrowings or debt. Additionally, we are not a
party to any derivative contracts or synthetic leases.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk:
|------- | -----------------------------------------------------------

We are exposed to the impact of interest rate changes, changes in the market value of our investments and foreign currency exchange rate fluctuations.

Interest rate and investment risk

Our investment policy requires us to invest funds in excess of
current operating requirements. The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss. We believe this investment policy is prudent,
and helps to reduce, but does not prevent, loss of principal, and results in minimal interest rate exposure on our investments.

Our cash
and cash equivalents consisted primarily of money market funds and our short-term investments consisted primarily of investment grade, highly liquid interest-bearing securities. The recorded carrying amounts of cash and cash equivalents approximate
fair value due to their short maturities and short-term investments are carried at fair value. As of June 30, 2009 and 2008, net unrealized gains and losses on these investments were not material. The amount of credit exposure to any one issue,
issuer and type of instrument is limited. Our interest income is sensitive to changes in the general level of interest rates in the United States, particularly since the majority of our investments are fixed income investments. If market interest
rates were to increase or decrease immediately and uniformly by 10% from levels at June 30, 2009 and 2008, the increase or decline in fair market value of the portfolio would be approximately $0.0 and $0.1 million, respectively.

Exchange rate risk

We consider our exposure to
foreign currency exchange rate fluctuations to be minimal, as we do not have any sales denominated in foreign currencies. We have not engaged in any hedging or other derivative transactions to date.



|Item 4. | Controls and Procedures:
|------- | ------------------------

(a)
Disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such items are defined in
Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Quarterly Report are effective to ensure that information we are required to disclose in reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Changes
in internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.



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##### Table of Contents

PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings:
|------- | ------------------

We are not
currently aware of any material legal proceedings. From time to time we have been, and we currently are, a party to litigation and subject to claims incidental to the ordinary course of our business. The amounts in dispute in these matters are not
material to us, and we believe that the resolution of these proceedings will not have a material adverse effect on the Companys business, consolidated financial position, results of operations or cash flows.



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

Because of risks and
uncertainties affecting our operating results and financial condition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods. You
should carefully consider the risk factors described under Risk Factors in Item 1A of Part I of our Form 10-K for our fiscal year ended December 31, 2008. At this time, we are not aware of any material changes to the nature of
those risk factors. We intend to set forth material changes to the nature of those risk factors in our future reports on Form 10-Q as required by Item 1A of Part II thereof. For business, market and other developments in the quarter ended
June 30, 2009, please see Item 2 of Part I of this report, Managements Discussion and Analysis of Financial Condition and Results of Operations.



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

At the Companys annual meeting of stockholders held on May 21, 2009, the following individual was elected to the Board of Directors as a continuing director, to serve for a term of three years:



|                |  |            |  |               
|--------------- |  | ---------- |  | --------------
|Nominee         |  | Votes For  |  | Votes Withheld
|Robert C. Kagle |  | 17,637,739 |  | 320,954       

Also at the annual meeting of stockholders, the following proposal was adopted by the margin
indicated:



|                                                                                                                                                                      |  |            |  |               |  |                
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | ------------- |  | ---------------
|Proposal                                                                                                                                                              |  | Votes For  |  | Votes Against |  | Votes Abstained
|Ratification of appointment of PricewaterhouseCoopers LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2009 |  | 17,926,789 |  | 15,048        |  | 16,827         



|Item 5. | Other Information:
|------- | ------------------

Our Insider
Trading Compliance Program allows directors, officers and other employees covered under the program to establish, under limited circumstances contemplated by Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, written programs that
permit automatic trading of our stock or trading of our stock by an independent person (such as an investment bank) who is not aware of material inside information at the time of the trade. As of the filing date of this report, one of our executive
officers has adopted a Rule 10b5-1 trading plan under which a total of up to 35,000 shares may be sold in the future. Sales under this plan will be made at various dates and prices but in no event at a price less than $8.00 per share, subject to the
terms of the plan. In the future, we believe that additional directors, officers and employees may establish such programs.



|Item 6. | Exhibits:
|------- | ---------

The exhibits listed in the
Exhibit Index are filed as a part of this report.



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##### Table of Contents

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



ZIPREALTY, INC.By:

/s/    Charles C. BakerCharles C. BakerExecutive Vice President and Chief Financial Officer


Date: August 5, 2009



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##### Table of Contents

Exhibit Index



|               |  |                                                                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit number |  | Description                                                                                                                               
|3.1(a)(1)      |  | Certificate of Correction to Amended and Restated Certificate of Incorporation                                                            
|               | 
|3.2(a)(2)      |  | Bylaws                                                                                                                                    
|               | 
|4.1(2)         |  | Form of Common Stock Certificate                                                                                                          
|               | 
|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 3.1 to the Registrants Current Report on Form 8-K (File No. 000-51002) filed with the Securities and Exchange
Commission on December 16, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



32