##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark one)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 OR
 o
    
    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 300EMERYVILLE, CA
    
    94608(Address of principal executive offices)
    
    (Zip Code)
 (510) 735-2600
(Registrants telephone number)
 þ o
  Large Accelerated Filer o
    
    Accelerated Filer þ
    
    Non-Accelerated Filer o
 o þ




---



##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION
    
    
    4Item 1. Unaudited Condensed Consolidated Financial Statements
    
    
    4Unaudited Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006
    
    
    4Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2007 and 2006
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2007 and 2006
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25PART II  OTHER INFORMATION
    
    
    25Item 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 6. Exhibits
    
    
    39SIGNATURES
    
    
    40EXHIBITS INDEX
    
    
    41Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
  2




---



##### Table of Contents



Statement regarding forward-looking statements
  
    
    our future financial results;
    
    our future growth and expansion into new markets;
    
    our future advertising and marketing activities; and
    
    our future investment in technology.
   Trademarks
 ®
 Internet Site
 www.ziprealty.com Form 10-K, Form 10-Q, Section 13(a) Form 10-Q
 Where You Can Find Additional Information
  3




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Unaudited Condensed Consolidated Financial Statements:
 ZIPREALTY, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share amounts)
 March 31,
    
    
    December 31,2007
    
    
    2006AssetsCurrent assetsCash and cash equivalents
    
    $
    6,184
    
    
    $
    8,575Short-term investments
    
    
    79,332
    
    
    
    80,233Accounts receivable, net of allowance of $19
and $30 at March 31, 2007 and December 31,
2006, respectively
    
    
    2,628
    
    
    
    1,781Prepaid expenses and other current assets
    
    
    3,245
    
    
    
    3,151Current and deferred income taxes
    
    
    45
    
    
    
    29Total current assets
    
    
    91,434
    
    
    
    93,769Restricted cash
    
    
    90
    
    
    
    90Property and equipment, net
    
    
    4,361
    
    
    
    4,114Investment in non-consolidated companies
    
    
    16
    
    
    
    17Other assets
    
    
    320
    
    
    
    367Total assets
    
    $
    96,221
    
    
    $
    98,357Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    2,291
    
    
    $
    2,184Accrued expenses
    
    
    7,477
    
    
    
    7,791Total current liabilities
    
    
    9,768
    
    
    
    9,975Other long-term liabilities
    
    
    498
    
    
    
    513Total liabilities
    
    
    10,266
    
    
    
    10,488Commitments
and contingencies (Note 8)Stockholders equityCommon stock: $0.001 par value; 100,000
shares authorized; 22,278 and 21,627 shares
issued and outstanding at March 31, 2007 and
December 31, 2006, respectively
    
    
    22
    
    
    
    22Additional paid-in capital
    
    
    137,542
    
    
    
    134,813Common stock warrants
    
    
    3,838
    
    
    
    5,519Deferred stock-based compensation
    
    
    (49
    )
    
    
    (71
    )Accumulated other comprehensive loss
    
    
    (36
    )
    
    
    (157
    )Accumulated deficit
    
    
    (55,362
    )
    
    
    (52,257
    )Total stockholders equity
    
    
    85,955
    
    
    
    87,869Total liabilities and stockholders equity
    
    $
    96,221
    
    
    $
    98,357
  4




---



##### Table of Contents



ZIPREALTY, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except per share amounts)
 Three months ended March 31,2007
    
    
    2006Net transaction revenues
    
    $
    22,675
    
    
    $
    18,648Referral and other revenues
    
    
    707
    
    
    
    569Net revenues
    
    
    23,382
    
    
    
    19,217Operating expensesCost of revenues
    
    
    13,075
    
    
    
    10,740Product development
    
    
    1,681
    
    
    
    1,401Sales and marketing
    
    
    8,847
    
    
    
    7,083General and administrative
    
    
    3,968
    
    
    
    3,299Total operating expenses
    
    
    27,571
    
    
    
    22,523Loss from operations
    
    
    (4,189
    )
    
    
    (3,306
    )Other income (expense), netInterest income
    
    
    1,088
    
    
    
    800Other income (expense), net
    
    
    (4
    )
    
    
    Total other income (expense), net
    
    
    1,084
    
    
    
    800Loss before income taxes
    
    
    (3,105
    )
    
    
    (2,506
    )Provision for (benefit from) income taxes
    
    
    
    
    
    
    (1,718
    )Net loss
    
    $
    (3,105
    )
    
    $
    (788
    )Net loss per share:Basic
    
    $
    (0.14
    )
    
    $
    (0.04
    )Diluted
    
    $
    (0.14
    )
    
    $
    (0.04
    )Weighted average common shares outstanding:Basic
    
    
    22,008
    
    
    
    20,291Diluted
    
    
    22,008
    
    
    
    20,291
  5




---



##### Table of Contents



ZIPREALTY, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 Three months ended March 31,2007
    
    
    2006Cash flows from operating activitiesNet loss
    
    $
    (3,105
    )
    
    $
    (788
    )Adjustments
to reconcile net income (loss) to net cash provided by (used in)
operating activitiesDeferred income tax benefit
    
    
    
    
    
    
    (1,719
    )Depreciation and amortization
    
    
    693
    
    
    
    536Stock based compensation expense
    
    
    823
    
    
    
    556Provision for doubtful accounts
    
    
    (11
    )
    
    
    11Amortization of short-term investment premium (discount)
    
    
    (100
    )
    
    
    62Loss on disposal of property and equipment
    
    
    3
    
    
    
    Equity in
net loss of non-consolidated companies
    
    
    1
    
    
    
    Changes in operating assets and liabilitiesAccounts receivable
    
    
    (836
    )
    
    
    (294
    )Prepaid expenses and other current assets
    
    
    (110
    )
    
    
    (581
    )Other assets
    
    
    39
    
    
    
    (37
    )Accounts payable
    
    
    107
    
    
    
    493Accrued expenses
    
    
    (314
    )
    
    
    (2,181
    )Other long-term liabilities
    
    
    (15
    )
    
    
    556Net cash used in operating activities
    
    
    (2,825
    )
    
    
    (3,386
    )Cash flows from investing activitiesPurchases of short-term investments
    
    
    (12,553
    )
    
    
    (5,994
    )Proceeds from sale and maturity of short-term investments
    
    
    13,675
    
    
    
    16,941Purchases of property and equipment
    
    
    (935
    )
    
    
    (2,093
    )Net cash provided by investing activities
    
    
    187
    
    
    
    8,854Cash flows from financing activitiesProceeds from stock option exercises
    
    
    21
    
    
    
    146Proceeds from common stock warrant exercises
    
    
    226
    
    
    
    Net cash provided by financing activities
    
    
    247
    
    
    
    146Net increase (decrease) in cash and cash equivalents
    
    
    (2,391
    )
    
    
    5,614Cash and cash equivalents at beginning of period
    
    
    8,575
    
    
    
    6,868Cash and cash equivalents at end of period
    
    $
    6,184
    
    
    $
    12,482
  6




---



##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BACKGROUND AND BASIS OF PRESENTATION
     Reclassifications
  Three Months EndedMarch 31, 2006PreviouslyReported
    
    
    Reclassified(in thousands)Cost of revenues
    
    $
    10,740
    
    
    $
    10,740Product development
    
    
    1,279
    
    
    
    1,401Sales and marketing
    
    
    3,073
    
    
    
    7,083General and administrative
    
    
    7,431
    
    
    
    3,299Total operating expenses
    
    $
    22,523
    
    
    $
    22,523
 7




---



##### Table of Contents



Seasonality
  2.
RECENT ACCOUNTING PRONOUNCEMENTS
  3. SHORT-TERM INVESTMENTS
  Gross
    
    
    GrossGross Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(in thousands)Money market securities
    
    $
    4,052
    
    
    $
    
    
    
    $
    
    
    
    $
    4,052Asset backed
    
    
    24,360
    
    
    
    20
    
    
    
    (24
    )
    
    
    24,356Corporate obligations
    
    
    31,895
    
    
    
    22
    
    
    
    (39
    )
    
    
    31,878US Government and agency obligations
    
    
    23,113
    
    
    
    9
    
    
    
    (24
    )
    
    
    23,098Total short-term investments
    
    $
    83,420
    
    
    $
    51
    
    
    $
    (87
    )
    
    $
    83,384
 March 31,2007(in thousands)Recorded as:Cash equivalents
    
    $
    4,052Short-term investments
    
    
    79,332$
    83,384
   March 31,2007(in thousands)Due within one year or less
    
    $
    41,243Due after one year through two years
    
    
    22,470Due after two years through four years
    
    
    19,671$
    83,384
 8




---



##### Table of Contents



4. NET LOSS PER SHARE
  Three Months EndedMarch 312007
    
    
    2006(in thousands, except per share data)Numerator:Net loss
    
    $
    (3,105
    )
    
    $
    (788
    )Denominator:Weighted average common shares outstanding:Basic
    
    
    22,008
    
    
    
    20,291Diluted
    
    
    22,008
    
    
    
    20,291Net loss per share:Basic
    
    $
    (0.14
    )
    
    $
    (0.04
    )Diluted
    
    $
    (0.14
    )
    
    $
    (0.04
    )
  Three Months EndedMarch 31,2007
    
    
    2006(in thousands)Stock options to purchase common stock
    
    
    4,342
    
    
    
    4,105Warrants to purchase common stock
    
    
    2,899
    
    
    
    4,603
 5. STOCK-BASED COMPENSATION EXPENSE
  Three Months Ended
    
    
    Three Months EndedMarch 31, 2007
    
    
    March 31, 2006(in thousands, except per share data)Cost of revenues
    
    $
    139
    
    
    $
    120Product development
    
    
    31
    
    
    
    42Sales and marketing
    
    
    113
    
    
    
    132General and administrative
    
    
    540
    
    
    
    262Total stock-based compensation expense
    
    
    823
    
    
    
    556Tax effect on stock-based compensation
    
    
    (349
    )
    
    
    (222
    )Net effect on net income
    
    $
    494
    
    
    $
    334Effect on earnings per share:Basic
    
    $
    0.02
    
    
    $
    0.02Diluted
    
    $
    0.02
    
    
    $
    0.02
  Valuation Assumptions
  9




---



##### Table of Contents



Three Months Ended March 31,2007
    
    2006Expected volatility
    
    
    51
    %
    
    
    52
    %Risk-free interest rate
    
    
    4.5-4.8
    %
    
    
    4.3-4.7
    %Expected life (years)
    
    
    6.1
    
    
    
    6.1Expected dividend yield
    
    
    0
    %
    
    
    0
    %Weighted-average fair value of options granted
    
    $
    4.00
    
    
    $
    4.62
 Stock Option Activity
  WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    AggregateShares
    
    
    Price
    
    
    Life (Years)
    
    
    Intrinsic Value(in thousands)
    
    
    
    
    
    
    
    
    
    
    (in thousands)Outstanding at January 1, 2007
    
    
    4,235
    
    
    $
    7.71
    
    
    
    8.50
    
    
    
    5,885Options granted
    
    
    976
    
    
    $
    7.37Options exercised
    
    
    (14
    )
    
    $
    1.51Options forfeited or expired
    
    
    (347
    )
    
    $
    9.81Outstanding at March 31, 2007
    
    
    4,850
    
    
    $
    7.51
    
    
    
    8.56
    
    
    
    4,929Options exercisable at March 31, 2007
    
    
    1,509
    
    
    $
    7.31
    
    
    
    6.88
    
    
    
    3,393
    Stock Option Plans
   10




---



##### Table of Contents



6. INCOME TAXES
     7. COMPREHENSIVE INCOME (LOSS)
  Three Months EndedMarch 31,2007
    
    
    2006(in thousands)Net loss
    
    $
    (3,105
    )
    
    $
    (788
    )Other comprehensive income (loss):Change in accumulated unrealized gain (loss) on available-for-sale securities, net of tax
    
    
    121
    
    
    
    23Comprehensive loss
    
    $
    (2,984
    )
    
    $
    (765
    )
 11




---



##### Table of Contents



8. COMMITMENTS AND CONTINGENCIES
   OperatingYear ending December 31,
    
    Leases2007
    
    $
    1,4952008
    
    
    1,7342009
    
    
    1,2882010
    
    
    1,1742011
    
    
    1,159Thereafter
    
    
    252Total minimum lease payments
    
    $
    7,102
 Legal Proceedings
 Lubocki, et al v. ZipRealty
  Indemnifications
   
 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 and uncertainties. Our actual results could
differ materially from those anticipated in these forward-looking statements for many reasons,
including but not limited to those set forth in Risk Factors in Item 1A of Part II of this report
and 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
  12




---



##### Table of Contents



Trends in our business
    13




---



##### Table of Contents



14




---



##### Table of Contents



Market seasonality, cyclicality and interest rate influences
      CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   15




---



##### Table of Contents



Income Statement Reclassification
  Revenue recognition
  Internal-use software and website development costs
 Accounting for the Cost of Computer Software Developed or Obtained for Internal Use Accounting for Website Development Costs
 Income taxes
   Stock-Based Compensation
 Share-Based Payment
 16




---



##### Table of Contents



Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services
  Recently Issued Accounting Pronouncement
  17




---



##### Table of Contents



RESULTS OF OPERATIONS
  Three Months EndedMarch 31,Statements of operations data (unaudited)
    
    2007
    
    
    2006(in thousands, except per share data)Net transaction revenues
    
    $
    22,675
    
    
    $
    18,648Referral and other revenues
    
    
    707
    
    
    
    569Net revenues
    
    
    23,382
    
    
    
    19,217Operating expenses:Cost of revenues
    
    
    13,075
    
    
    
    10,740Product development
    
    
    1,681
    
    
    
    1,401Sales and marketing
    
    
    8,847
    
    
    
    7,083General and administrative
    
    
    3,968
    
    
    
    3,299Total operating expenses
    
    
    27,571
    
    
    
    22,523Loss from operations
    
    
    (4,189
    )
    
    
    (3,306
    )Other income (expense):Interest income
    
    
    1,088
    
    
    
    800Other expense, net
    
    
    (4
    )
    
    
    Total other income (expense), net
    
    
    1,084
    
    
    
    800Loss before income taxes
    
    
    (3,105
    )
    
    
    (2,506
    )Provision for (benefit from) for income taxes
    
    
    
    
    
    
    (1,718
    )Net loss
    
    $
    (3,105
    )
    
    $
    (788
    )Net loss per share:Basic
    
    $
    (0.14
    )
    
    $
    (0.04
    )Diluted
    
    $
    (0.14
    )
    
    $
    (0.04
    )Weighted average common shares outstanding:Basic
    
    
    22,008
    
    
    
    20,291Diluted
    
    
    22,008
    
    
    
    20,291
  Three Months EndedMarch 31,Statements of operations data (unaudited)
    
    2007
    
    
    2006Net transaction revenues
    
    
    97.0
    %
    
    
    97.0
    %Referral and other revenues
    
    
    3.0
    
    
    
    3.0Net revenues
    
    
    100.0
    
    
    
    100.0Operating expenses:Cost of revenues
    
    
    55.9
    
    
    
    55.9Product development
    
    
    7.2
    
    
    
    7.3Sales and marketing
    
    
    37.8
    
    
    
    36.9General and administrative
    
    
    17.0
    
    
    
    17.2Total operating expenses
    
    
    117.9
    
    
    
    117.3Loss from operations
    
    
    (17.9
    )
    
    
    (17.3
    )Other income (expense):Interest income
    
    
    4.7
    
    
    
    4.2Other income (expense)
    
    
    
    
    
    
    Total other income (expense), net
    
    
    4.7
    
    
    
    4.2Loss before income taxes
    
    
    (13.2
    )
    
    
    (13.1
    )Provision for (benefit from) income taxes
    
    
    
    
    
    
    (8.9
    )Net loss
    
    
    (13.2
    )%
    
    
    (4.2
    )%
 18




---



##### Table of Contents



Comparison of the three months ended March 31, 2007 and 2006
 Net transaction revenues
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands, except statistical data)Net transaction revenuesComparable existing markets
    
    $
    20,993
    
    
    $
    18,648
    
    
    $
    2,345
    
    
    
    12.6
    %New markets
    
    
    1,682
    
    
    
    
    
    
    
    1,682
    
    
    
    100.0
    %Total
    
    $
    22,675
    
    
    $
    18,648
    
    
    $
    4,027
    
    
    
    21.6
    %Statistical DataNumber of MarketsComparable existing markets
    
    
    17
    
    
    
    17
    
    
    
    0
    
    
    
    0.0
    %New markets
    
    
    8
    
    
    
    1
    
    
    
    7
    
    
    
    700.0
    %Total
    
    
    25
    
    
    
    18
    
    
    
    7
    
    
    
    38.9
    %Number of transactions closed during the period (2)Comparable existing markets
    
    
    2,782
    
    
    
    2,638
    
    
    
    144
    
    
    
    5.5
    %New markets
    
    
    328
    
    
    
    
    
    
    
    328
    
    
    
    100.0
    %Total
    
    
    3,110
    
    
    
    2,638
    
    
    
    472
    
    
    
    17.9
    %Average net revenue per transaction (3)Comparable existing markets
    
    $
    7,546
    

$
    7,069
 
    
$
    477


        
6.7
    %New Markets
    
    
    5,128
    
    
    
    
    
    
    
    5,128
    
    
    
    100.0
    %All Markets
    
 $
    7,291
 
       
 $
    7,069
 
     
$
    222
      
    
    
 3.1

    %
 (1)
    
    Comparable existing markets consist of Atlanta GA, Baltimore MD, Boston MA, Chicago IL,
Dallas TX, Fresno/Central Valley CA, Los Angeles CA, Houston TX, Las Vegas NV, Miami FL,
Orange County CA, Phoenix AZ, Sacramento CA, San Diego CA, San
Francisco Bay Area CA, Seattle WA and
Washington DC. New markets are transferred to existing markets on January 1stfollowing the completion of their first full calendar year. The Las Vegas, Houston and
Miami markets opened during 2005 and, therefore, completed their first full calendar year
at of the end of 2006. Accordingly, these markets were moved to existing markets as of
January 1, 2007 and are included in comparable existing markets for all periods presented.
New markets and the month opened consist of:
 Tampa, FL
    
    February 2006Orlando, FL
    
    April 2006Minneapolis, MN
    
    May 2006Austin, TX
    
    July 2006Palm Beach, FL
    
    September 2006Greater
Philadelphia Area, PA
    
    December 2006Naples, FL
    
    March 2007Tucson, AZ
    
    March 2007
 (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.
 19




---



##### Table of Contents



Referral and other revenues
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands)Referral and other revenues
    
    $
    707
    
    
    $
    569
    
    
    $
    138
    
    
    
    24.1
    %
   Cost of revenues
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands)Cost of revenuesComparable existing markets
    
    $
    12,198
    
    
    $
    10,740
    
    
    $
    1,458
    
    
    
    13.6
    %New markets
    
    
    877
    
    
    
    
    
    
    
    877
    
    
    
    100.0
    %Total
    
    $
    13,075
    
    
    $
    10,740
    
    
    $
    2,335
    
    
    
    21.7
    %
   20




---



##### Table of Contents



Product development
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands)Product development
    
    $
    1,681
    
    
    $
    1,401
    
    
    $
    280
    
    
    
    20.0
    %
   Sales and marketing
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands)Sales and marketing:Comparable existing markets
    
    $
    5,806
    
    
    $
    5,518
    
    
    $
    288
    
    
    
    5.2
    %New markets
    
    
    1,400
    
    
    
    183
    
    
    
    1,217
    
    
    
    665.5
    %Regional sales support and marketing
    
    
    1,641
    
    
    
    1,382
    
    
    
    259
    
    
    
    18.8
    %Total
    
    $
    8,847
    
    
    $
    7,083
    
    
    $
    1,764
    
    
    
    24.9
    %
   21




---



##### Table of Contents



General and administrative
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands)General and administrative
    
    $
    3,968
    
    
    $
    3,299
    
    
    $
    669
    
    
    
    20.3
    %
   Interest income
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands)Interest income
    
    $
    1,088
    
    
    $
    800
    
    
    $
    288
    
    
    
    36.0
    %
  Other income (expense), net
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands)Other income (expense), net
    
    $
    (4
    )
    
    $
    
    
    
    $
    (4
    )
    
    
    100.0
    %
 Provision for (benefit from) income taxes
  Three Months EndedMarch 31,
    
    
    Increase
    
    
    Percent2007
    
    
    2006
    
    
    (Decrease)
    
    
    Change(in thousands)Provision for (benefit from) income taxes
    
    $
    
    
    
    $
    (1,718
    )
    
    $
    1,718
    
    
    
    100.0
    %
 22




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   Operating activities
    Investing activities
    23




---



##### Table of Contents



Financing activities
   Future needs
  CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  Payments due by periodLess than
    
    
    
    
    
    
    
    
    
    
    More than1 year
    
    
    1 to 3 years
    
    
    3 to 5 years
    
    
    5 years
    
    
    Total(in thousands)Minimum lease payments
    
    $2,011
    
    
    
    $2,798
    
    
$2,190

    
    
 $103
    
     
    
$7,102
 OFF-BALANCE SHEET ARRANGEMENTS
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk:
 Interest rate sensitivity
   24




---



##### Table of Contents



Exchange rate sensitivity
  
 Item 4. Controls and Procedures:
 Disclosure controls and procedures
 Changes in internal control over financial reporting
 
 PART II  OTHER INFORMATION
  
 Item 1. Legal Proceedings:
 Lubocki, et al v. ZipRealty
  
 Item 1A. Risk Factors:
  RISKS RELATED TO OUR BUSINESS AND INDUSTRY
 We have been profitable in only nine quarters and may incur losses in the future, and our limited
operating history makes our future financial performance difficult to assess.
   25




---



##### Table of Contents



Our business model requires access to real estate listing services provided by third parties that
we do not control, and the demand for our services may be reduced if our ability to display
listings on our website is restricted.
   ®
 ®
 ®
 26




---



##### Table of Contents



Our business could be harmed by transitions in the real estate markets and economic events that
are out of our control and may be difficult to predict.
   Consumer access to mortgage financing has been affordable and widely available by historic
standards. Any tightening in the availability of credit will have the potential to negatively
impact the housing market.
  Our business model is new and unproven, and we cannot guarantee our future success.
  If we fail to recruit, hire and retain qualified agents, we may be unable to service our clients
and our growth could be impaired.
  27




---



##### Table of Contents



We
may incur additional expenses or liabilities if our current or
former compensation or expense allowance or reimbursement
policies are found to violate federal or state wage and hour laws.
  Our failure to effectively manage the growth of our ZipAgents and related technology could
adversely affect our ability to service our clients.
  Our failure to effectively manage the growth of our control systems could adversely affect our
ability to maintain legal compliance.
  28




---



##### Table of Contents



If we fail to comply with real estate brokerage laws and regulations, we may incur significant
financial penalties or lose our license to operate.
  We may have liabilities in connection with real estate brokerage activities.
  We may have liabilities if any of our employees violates laws concerning settlement procedures.
  If any of our core services fails to comply with applicable federal and state law and regulations,
we may incur significant financial penalties or lose licenses require to provide these services.
   29




---



##### Table of Contents



We may have liabilities in connection with our performance of core services.
  If our arrangements for providing core services become impaired, we may lose sources of revenue
that may be difficult to replace and we may be less likely to engage in related transactions with
our clients.
  If consumers do not continue to use the Internet as a tool in their residential real estate buying
or selling process, we may be unable to attract new clients and our growth and financial results
may suffer.
  30




---



##### Table of Contents



Our success depends in part on our ability to successfully expand into additional real estate
markets.
  
    
    the economic conditions and demographics of a market;
    
    the general prices of real estate in a market;
    
    Internet use in a market;
    
    competition within a market from local and national brokerage firms;
    
    rules and regulations governing a market;
    
    the ability and capacity of our organization to manage expansion into additional
geographic areas, additional headcount and increased organizational complexity;
    
    the existence of local MLSs; and
    
    state laws governing cash rebates and other regulatory restrictions.
  Unless we develop, maintain and protect a strong brand identity, our business may not grow and our
financial results may suffer.
   We have numerous competitors, many of which have valuable industry relationships, innovative
business models and access to greater resources than we do.
  31




---



##### Table of Contents



Trends.
   Changes in federal and state real estate laws and regulations, and rules of industry organizations
such as the National Association of REALTORS ® , could adversely affect our business.
  We derive a significant portion of our leads through third parties, and if any of our significant
lead generation relationships are terminated, impaired or become more expensive, our ability to
attract new clients and grow our business may be adversely affected.
 32




---



##### Table of Contents



Our ability to expand our business may be limited by state laws governing cash rebates to home
buyers.
  We may be unable to integrate our technology with each MLS on a cost-effective basis, which may
harm our operating results and adversely affect our ability to service clients.
  We may be subject to liability for the Internet content that we publish.
  We monitor and evaluate the use of our website by our registered users, which could raise privacy
concerns.
  33




---



##### Table of Contents



We may need to change the manner in which we conduct our business if government regulation of the
Internet increases.
    Our operating results are subject to seasonality and vary significantly among quarters during each
calendar year, making meaningful comparisons of successive quarters difficult.
   
    
    timing of widely observed holidays and vacation periods and availability of home buyers
and sellers, real estate agents and related service providers during these periods;
    
    a desire to relocate prior to the start of the school year;
    
    inclement weather which can influence consumers desire or ability to visit properties;
    
    timing of employment compensation changes, such as raises and bonuses;
    
    the time between entry into a purchase contract for real estate and closing of the transaction; and
    
    the levels of housing inventory available for sale.
  Our reputation and client and agent service offerings may be harmed by system failures and
computer viruses.
  34




---



##### Table of Contents



Our business is geographically concentrated, which makes us more susceptible to business
interruption and financial loss due to natural disasters, inclement weather, economic or market
conditions or other regional events outside of our control.
  Our intellectual property rights are valuable and our failure to protect those rights could
adversely affect our business.
  We may in the future be subject to intellectual property rights disputes, which could divert
management attention, be costly to defend and require us to limit our service offerings.
   
    
    pay damages;
    
    stop using the technology found to be in violation of a third partys rights;
    
    seek a license for the infringing technology; or
    
    develop alternative non-infringing technology.
 35




---



##### Table of Contents



If we fail to attract and retain our key personnel, our ability to meet our business goals will be
impaired and our financial condition and results of operations will suffer.
  We intend to evaluate acquisitions or investments in complementary technologies and businesses and
we may not realize the anticipated benefits from, and may have to pay substantial costs related
to, any acquisitions or investments that we undertake.
  
    
    our inability to successfully integrate acquired technologies or operations;
    
    diversion of managements attention;
    
    problems maintaining uniform standards, procedures, controls and policies;
    
    potentially dilutive issuances of equity securities or the incurrence of debt or contingent liabilities;
    
    expenses related to amortization of intangible assets;
    
    risks associated with operating a business or in a market in which we have little or no prior experience;
    
    potential write offs of acquired assets;
    
    loss of key employees of acquired businesses; and
    
    our inability to recover the costs of acquisitions or investments.
 36




---



##### Table of Contents



The value of our services could be diminished if anti-spam software filters out an increasing
portion of the emails we send.
  As we implement changes in our agent compensation policies, we may incent behaviors that cause a
decrease in our profit margin with the goal of increasing our profits.
  OTHER RISKS RELATED TO OUR STOCK PRICE
 Our stock price may be volatile.
  
    
    variations in our quarterly results of operations;
    
    announcements by us or our competitors or lead source providers;
    
    the relatively low level of public float and average daily trading volumes of our common stock;
    
    changes in estimates of our performance or recommendations, or termination of coverage by securities analysts;
    
    inability to meet quarterly or yearly estimates or targets of our performance;
    
    the hiring or departure of key personnel, including agents or groups of agents or key executives;
    
    changes in our reputation;
    
    acquisitions or strategic alliances involving us or our competitors;
    
    changes in the legal and regulatory environment affecting our business; and
    
    market conditions in our industry and the economy as a whole.
  37




---



##### Table of Contents



Our share price could decline due to the large number of outstanding shares of our common stock
eligible for future sale.
    Our principal stockholders, executive officers and directors own a significant percentage of our
stock, and as a result, the trading price for our shares may be depressed and these stockholders
can take actions that may be adverse to your interests.
  Our charter documents and Delaware law could prevent a takeover that stockholders consider
favorable and could also reduce the market price of our stock.
  
    
    providing for a classified board of directors with staggered, three-year terms;
    
    not providing for cumulative voting in the election of directors;
    
    authorizing the board to issue, without stockholder approval, preferred stock with rights senior to those of common stock;
    
    prohibiting stockholder action by written consent;
    
    limiting the persons who may call special meetings of stockholders; and
    
    requiring advance notification of stockholder nominations and proposals.
  38




---



##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
     
 Item 6. Exhibits:
  39




---



##### Table of Contents



SIGNATURE
  ZIPREALTY, INC.By:
    
    /s/ David A. RectorDavid A. RectorSenior Vice President andChief Financial Officer
  40




---



##### Table of Contents



Exhibit Index
 Exhibitnumber
    
    Description3.1(a)(1)
    
    Amended and Restated Certificate of Incorporation3.2(a)(1)
    
    Bylaws4.1(1)
    
    Form of Common Stock Certificate10.13(2)*
    
    ZipRealty, Inc. Management Incentive Plan  Fiscal Year 200710.18(3)*
    
    J. Patrick Lashinsky Employment Agreement dated January 30, 200710.19(4)*
    
    Gary M. Beasley Separation Agreement and Release dated February 1, 200731.1
    
    Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 193431.2
    
    Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule
15d-14(a) of the Securities Exchange Act of 193432.1
    
    Certification of Chief Executive Officer, as required by Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350)32.2
    
    Certification of Chief Financial Officer, as required by Section 1350 of Chapter 63 of
Title 18 of the United States Code (18 U.S.C. 1350)
 
 (1)
    
    Incorporated by reference to the exhibit of the same number to the Registrants Registration
Statement on Form S-1(File No. 333-115657) filed with the Securities and Exchange Commission
on May 20, 2004, as amended.(2)
    
    Incorporated by reference to the exhibit of the same number to the Registrants Current
Report on Form 8-K (File No. 000-51002) filed with the Securities and Exchange Commission on
April 2, 2007.(3)
    
    Incorporated by reference to Exhibit 10.1 to the Registrants Current Report on Form 8-K
(File No. 000-51002) filed with the Securities and Exchange Commission on February 8, 2007.(4)
    
    Incorporated by reference to Exhibit 10.2 to the Registrants Current Report on Form 8-K
(File No. 000-51002) filed with the Securities and Exchange Commission on February 8, 2007.*
    
    Identifies a management contract or compensatory plan or agreement required to be filed as an
exhibit of this report. 41