##### 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 June 30, 2008
 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
(State of incorporation)
    
    94-3319956
(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
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION
    
    
    4Item 1. Unaudited Condensed Consolidated Financial Statements
    
    
    4Unaudited Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007
    
    
    4Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30,
2008 and 2007
    
    
    5Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and 2007
    
    
    6Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4. Controls and Procedures
    
    
    35PART II  OTHER INFORMATION
    
    
    35Item 1. Legal Proceedings
    
    
    35Item 1A. Risk Factors
    
    
    36Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 4. Submission of Matters to a Vote of Security Holders
    
    
    53Item 5. Other Information
    
    
    53Item 6. Exhibits
    
    
    53SIGNATURE
    
    
    54EXHIBIT INDEX
    
    
    55EXHIBIT 10.3EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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Statement regarding forward-looking statements
  
    
    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.
   Trademarks
 ®
 Internet site
 www.ziprealty.com
 Where you can find additional information
  3




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##### Table of Contents



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,
    
    
    December 31,2008
    
    
    2007AssetsCurrent assetsCash and cash equivalents
    
    $
    16,620
    
    
    $
    7,818Short-term investments
    
    
    38,481
    
    
    
    72,649Accounts receivable, net of allowance of $42
and $29 at June 30, 2008 and December 31,
2007, respectively
    
    
    2,396
    
    
    
    1,170Prepaid expenses and other current assets
    
    
    2,717
    
    
    
    3,267Total current assets
    
    
    60,214
    
    
    
    84,904Restricted cash
    
    
    130
    
    
    
    90Property and equipment, net
    
    
    4,874
    
    
    
    5,366Intangible assets, net
    
    
    104
    
    
    
    119Other assets
    
    
    355
    
    
    
    340Total assets
    
    $
    65,677
    
    
    $
    90,819Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    3,222
    
    
    $
    2,095Accrued expenses and other current liabilities
    
    
    8,721
    
    
    
    10,495Total current liabilities
    
    
    11,943
    
    
    
    12,590Other long-term liabilities
    
    
    468
    
    
    
    503Total liabilities
    
    
    12,411
    
    
    
    13,093Commitments and contingencies (Note 8)Stockholders equityCommon stock: $0.001 par value; 100,000
shares authorized; 23,681 and 23,651 shares
issued and 20,175 and 23,641 shares
outstanding at June 30, 2008 and December 31,
2007, respectively
    
    
    24
    
    
    
    24Additional paid-in capital
    
    
    146,632
    
    
    
    144,499Common stock warrants
    
    
    4
    
    
    
    209Deferred stock-based compensation
    
    
    
    
    
    
    (3
    )Accumulated other comprehensive income
    
    
    204
    
    
    
    188Accumulated deficit
    
    
    (76,071
    )
    
    
    (67,141
    )Treasury
stock at cost: 3,506 and 10 shares at June 30, 2008 and
December 31, 2007, respectively
    
    
    (17,527
    )
    
    
    (50
    )Total stockholders equity
    
    
    53,266
    
    
    
    77,726Total liabilities and stockholders equity
    
    $
    65,677
    
    
    $
    90,819
  4




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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 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net transaction revenues
    
    $
    29,870
    
    
    $
    30,506
    
    
    $
    49,991
    
    
    $
    53,181Referral and other revenues
    
    
    554
    
    
    
    775
    
    
    
    1,057
    
    
    
    1,482Net revenues
    
    
    30,424
    
    
    
    31,281
    
    
    
    51,048
    
    
    
    54,663Operating expensesCost of revenues
    
    
    17,156
    
    
    
    17,312
    
    
    
    29,498
    
    
    
    30,387Product development
    
    
    2,124
    
    
    
    1,813
    
    
    
    4,270
    
    
    
    3,494Sales and marketing
    
    
    10,526
    
    
    
    9,829
    
    
    
    20,554
    
    
    
    18,676General and administrative
    
    
    2,938
    
    
    
    4,457
    
    
    
    6,620
    
    
    
    8,425Litigation
    
    
    
    
    
    
    
    
    
    
    625
    
    
    
    Total operating expenses
    
    
    32,744
    
    
    
    33,411
    
    
    
    61,567
    
    
    
    60,982Loss from operations
    
    
    (2,320
    )
    
    
    (2,130
    )
    
    
    (10,519
    )
    
    
    (6,319
    )Other income (expense), netInterest income
    
    
    604
    
    
    
    1,094
    
    
    
    1,515
    
    
    
    2,182Other income, net
    
    
    47
    
    
    
    4
    
    
    
    74
    
    
    
    Total other income (expense), net
    
    
    651
    
    
    
    1,098
    
    
    
    1,589
    
    
    
    2,182Loss before income taxes
    
    
    (1,669
    )
    
    
    (1,032
    )
    
    
    (8,930
    )
    
    
    (4,137
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (1,669
    )
    
    $
    (1,032
    )
    
    $
    (8,930
    )
    
    $
    (4,137
    )Net loss per share:Basic
    
    $
    (0.08
    )
    
    $
    (0.05
    )
    
    $
    (0.41
    )
    
    $
    (0.19
    )Diluted
    
    $
    (0.08
    )
    
    $
    (0.05
    )
    
    $
    (0.41
    )
    
    $
    (0.19
    )Weighted average common shares outstanding:Basic
    
    
    20,074
    
    
    
    22,501
    
    
    
    21,771
    
    
    
    22,255Diluted
    
    
    20,074
    
    
    
    22,501
    
    
    
    21,771
    
    
    
    22,255
  5




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ZIPREALTY, INC.
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Six Months Ended June 30,2008
    
    
    2007Cash flows from operating activitiesNet loss
    
    $
    (8,930
    )
    
    $
    (4,137
    )Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation and amortization
    
    
    1,419
    
    
    
    1,404Stock-based compensation expense
    
    
    1,886
    
    
    
    1,995Provision for doubtful accounts
    
    
    13
    
    
    
    (11
    )Amortization of short-term investment premium (discount)
    
    
    (134
    )
    
    
    (209
    )Amortization of intangible assets
    
    
    15
    
    
    
    15Loss on disposal of property and equipment
    
    
    5
    
    
    
    7Equity in net loss of non-consolidated companies
    
    
    
    
    
    
    4Changes in operating assets and liabilitiesAccounts receivable
    
    
    (1,239
    )
    
    
    (1,308
    )Prepaid expenses and other current assets
    
    
    550
    
    
    
    (66
    )Other assets
    
    
    (15
    )
    
    
    43Accounts payable
    
    
    1,127
    
    
    
    512Accrued expenses and other current liabilities
    
    
    (1,774
    )
    
    
    833Other long-term liabilities
    
    
    (35
    )
    
    
    (12
    )Net cash used in operating activities
    
    
    (7,112
    )
    
    
    (930
    )Cash flows from investing activitiesRestricted cash
    
    
    (40
    )
    
    
    Purchases of short-term investments
    
    
    (111
    )
    
    
    (35,735
    )Proceeds from sale and maturity of short-term investments
    
    
    34,429
    
    
    
    36,191Purchases of property and equipment
    
    
    (902
    )
    
    
    (1,910
    )Net cash provided by (used in) investing activities
    
    
    33,376
    
    
    
    (1,454
    )Cash flows from financing activitiesProceeds from stock option exercises
    
    
    15
    
    
    
    71Proceeds from common stock warrant exercises
    
    
    
    
    
    
    450Purchase of treasury stock
    
    
    (17,477
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (17,462
    )
    
    
    521Net increase (decrease) in cash and cash equivalents
    
    
    8,802
    
    
    
    (1,863
    )Cash and cash equivalents at beginning of period
    
    
    7,818
    
    
    
    8,575Cash and cash equivalents at end of period
    
    $
    16,620
    
    
    $
    6,712
  6




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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BACKGROUND AND BASIS OF PRESENTATION
  Principles of consolidation
    Seasonality
  2. RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements Effective Date of FASB Statement 157
 7




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Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
 Determination of the Useful Life of
Intangible Assets Goodwill and
Other Intangible Assets
 The Hierarchy of Generally Accepted Accounting
Principles
 8




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3. SHORT-TERM INVESTMENTS AND FAIR VALUE MEASUREMENTS
  Gross
    
    
    GrossGross Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair Value(In thousands)Money market securities
    
    $
    10,808
    
    
    $
    
    
    
    $
    
    
    
    $
    10,808Asset backed
    
    
    16,362
    
    
    
    118
    
    
    
    (122
    )
    
    
    16,358Mortgage backed
    
    
    8,722
    
    
    
    141
    
    
    
    
    
    
    
    8,863Corporate obligations
    
    
    6,442
    
    
    
    26
    
    
    
    (2
    )
    
    
    6,466US Government and agency obligations
    
    
    6,751
    
    
    
    43
    
    
    
    
    
    
    
    6,794Total
    
    $
    49,085
    
    
    $
    328
    
    
    $
    (124
    )
    
    $
    49,289
 June 30,2008(In thousands)Recorded as:Cash equivalents
    
    $
    10,808Short-term investments
    
    
    38,481$
    49,289
   June 30,2008(In thousands)Due within one year or less
    
    $
    28,614Due after one year through two years
    
    
    2,629Due after two years through four years
    
    
    18,046$
    49,289
 Fair Value Measurements
  
    
    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;
 9




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
    
    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.
   Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In thousands)Money market securities
    
    $
    10,808
    
    
    $
    
    
    
    $
    
    
    
    $
    10,808Asset backed
    
    
    
    
    
    
    16,358
    
    
    
    
    
    
    
    16,358Mortgage backed
    
    
    
    
    
    
    8,863
    
    
    
    
    
    
    
    8,863Corporate obligations
    
    
    
    
    
    
    6,466
    
    
    
    
    
    
    
    6,466US Government and agency obligations
    
    
    
    
    
    
    6,794
    
    
    
    
    
    
    
    6,794Total
    
    $
    10,808
    
    
    $
    38,481
    
    
    $
    
    
    
    $
    49,289
  4. NET INCOME (LOSS) PER SHARE
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Numerator:Net loss
    
    $
    (1,669
    )
    
    $
    (1,032
    )
    
    $
    (8,930
    )
    
    $
    (4,137
    )Denominator:Weighted average common shares outstanding:Basic
    
    
    20,074
    
    
    
    22,501
    
    
    
    21,771
    
    
    
    22,255Diluted
    
    
    20,074
    
    
    
    22,501
    
    
    
    21,771
    
    
    
    22,255Net loss per share:Basic
    
    $
    (0.08
    )
    
    $
    (0.05
    )
    
    $
    (0.41
    )
    
    $
    (0.19
    )Diluted
    
    $
    (0.08
    )
    
    $
    (0.05
    )
    
    $
    (0.41
    )
    
    $
    (0.19
    )
  Three Months Ended June 30,
    

Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007(In thousands)Stock options to purchase common stock
    
    
    4,599
    
    
    
    4,733
    
    
    
    4,448
    
    
    
    4,538Warrants to purchase common stock
    
    
    107
    
    
    
    2,511
    
    
    
    122
    
    
    
    2,973Nonvested common stock
    
    
    189
    
    
    
    
    
    
    
    193
    
    
    
    Total
    
    
    4,895
    
    
    
    7,244
    
    
    
    4,763
    
    
    
    7,511
 5. STOCK-BASED COMPENSATION EXPENSE
 Stock option plans
  10




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Other stock options
  Stock-based compensation expense
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Cost of revenues
    
    $
    164
    
    
    $
    122
    
    
    $
    306
    
    
    $
    261Product development
    
    
    28
    
    
    
    31
    
    
    
    96
    
    
    
    62Sales and marketing
    
    
    273
    
    
    
    171
    
    
    
    535
    
    
    
    284General and administrative
    
    
    412
    
    
    
    848
    
    
    
    949
    
    
    
    1,388Total stock-based compensation expense
    
    
    877
    
    
    
    1,172
    
    
    
    1,886
    
    
    
    1,995Tax effect on stock-based compensation
    
    
    
    
    
    
    (469
    )
    
    
    
    
    
    
    (798
    )Net effect on net income
    
    $
    877
    
    
    $
    703
    
    
    $
    1,886
    
    
    $
    1,197Effect on earnings per share:Basic
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.05Diluted
    
    $
    0.04
    
    
    $
    0.03
    
    
    $
    0.09
    
    
    $
    0.05
  Valuation assumptions
  11




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Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007Expected volatility
    
    
    44
    %
    
    
    48
    %
    
    
    44
    %
    
    48-51
    %Risk-free interest rate
    
    2.1-3.2
    %
    
    
    4.8
    %
    
    2.1-3.2    %
    
    4.5-4.8    %Expected life (years)
    
    5.5-6.1
    
    
    5.5-6.1
    
    
    5.5-6.1
    
    
    5.5-6.1Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Weighted-average fair
value of options
granted during the
period
    
    $
    2.31
    
    
    $
    4.01
    
    
    $
    2.33
    
    
    $
    4.01
 Stock option and stock award activity
  WeightedWeighted
    
    
    AverageAverage
    
    
    RemainingNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    AggregateShares
    
    
    Price
    
    
    Life (Years)
    
    
    Intrinsic Value(In thousands)
    
    
    
    
    
    
    
    
    
    
    (In thousands)Outstanding at January 1, 2008
    
    
    4,318
    
    
    $
    7.66
    
    
    
    8.19
    
    
    $
    1,901Options granted
    
    
    52
    
    
    
    5.49Options exercised
    
    
    (1
    )
    
    
    1.76Options forfeited or expired
    
    
    (75
    )
    
    
    9.00Outstanding at March 31, 2008
    
    
    4,294
    
    
    
    7.61
    
    
    
    7.54
    
    
    
    1,708Options granted
    
    
    720
    
    
    
    4.97Options exercised
    
    
    (8
    )
    
    
    1.60Options forfeited or expired
    
    
    (40
    )
    
    
    8.78Outstanding at June 30, 2008
    
    
    4,966
    
    
     $
    7.23
    
    
    
    7.66
    
    
     $
    1,141Vested and expected to vest at June 30, 2008
    
    
    4,668
    
    
     $
    7.28
    
    
    
    7.57
    
    
     $
    1,141Options exercisable at June 30, 2008
    
    
    2,366
    
    
    $
    7.76
    
    
    
    6.22
    
    
    $
    1,141
     12




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##### Table of Contents



WeightedAverage Grant DateNumber of
    
    Fair ValueShares
    
    Per Share(In thousands)Nonvested at January 1, 2008
    
    
    197
    
    
    $
    6.68Shares granted
    
    
    Shares vested
    
    
    Shares forfeited
    
    
    Nonvested at March 31, 2008
    
    
    197
    
    
    $
    6.68Shares granted
    
    
    Shares vested
    
    
    28Shares forfeited
    
    
    Nonvested at June 30, 2008
    
    
    169
    
    
    $
    6.68
 6. INCOME TAXES
    Accounting for Uncertainty in Income
Taxes  an Interpretation of FASB Statement 109
 13




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7. COMPREHENSIVE INCOME (LOSS)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands)Net loss
    
    $
    (1,669
    )
    
    $
    (1,032
    )
    
    $
    (8,930
    )
    
    $
    (4,137
    )Other comprehensive income (loss):Change in accumulated
unrealized gain (loss) on
available-for-sale securities,
net of tax
    
    
    (276
    )
    
    
    (102
    )
    
    
    16
    
    
    
    19Comprehensive loss
    
    $
    (1,945
    )
    
    $
    (1,134
    )
    
    $
    (8,914
    )
    
    $
    (4,118
    )
 8. COMMITMENTS AND CONTINGENCIES
   OperatingYear ending December 31,
    
    Leases2008
    
    $
    1,2972009
    
    
    2,2302010
    
    
    1,9882011
    
    
    1,9022012
    
    
    817Thereafter
    
    
    103Total minimum lease payments
    
    $
    8,337
 Legal proceedings
 Lubocki, et al v. ZipRealty
 Crystal Alexander, et al. v. ZipRealty
 ZipRealty Inc., v. Squire, Sanders & Dempsey,
LLP, Michael W. Kelly Esq., et. al.
 14




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##### Table of Contents



Simon et al. v. ZipRealty, Inc.
  Indemnifications
   9. TREASURY STOCK
  
 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
   15




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Trends in our business and financial and real estate markets
 Softness in the residential real estate market.
 ® ® ®
 16




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##### Table of Contents



Impact of softened residential real estate market on availability of mortgages.
  17




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##### Table of Contents



Changes to our business model.
    Fluctuations in quarterly profitability.
 18




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##### Table of Contents



Industry declines in commission percentages. Trends
 Changes in competitive landscape.
 Industry seasonality and cyclicality.
  Historical variations in U.S. interest rates.
 19




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   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.
 20




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##### Table of Contents



Stock-based compensation
 Share-Based Payment
  Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services
  Income taxes
   Recently issued accounting pronouncements
 Fair Value Measurements Effective Date of FASB Statement 157
 21




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##### Table of Contents



Fair Value Option for Financial Assets and
Financial Liabilities
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
 Determination of the Useful Life of
Intangible Assets Goodwill and
Other Intangible Assets
 The Hierarchy of Generally Accepted Accounting
Principles
 22




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##### Table of Contents



RESULTS OF OPERATIONS
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Statements of operations data (unaudited)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007(In thousands, except per share data)Net transaction revenues
    
    $
    29,870
    
    
    $
    30,506
    
    
    $
    49,991
    
    
    $
    53,181Referral and other revenues
    
    
    554
    
    
    
    775
    
    
    
    1,057
    
    
    
    1,482Net revenues
    
    
    30,424
    
    
    
    31,281
    
    
    
    51,048
    
    
    
    54,663Operating expenses:Cost of revenues
    
    
    17,156
    
    
    
    17,312
    
    
    
    29,498
    
    
    
    30,387Product development
    
    
    2,124
    
    
    
    1,813
    
    
    
    4,270
    
    
    
    3,494Sales and marketing
    
    
    10,526
    
    
    
    9,829
    
    
    
    20,554
    
    
    
    18,676General and administrative
    
    
    2,938
    
    
    
    4,457
    
    
    
    6,620
    
    
    
    8,425Litigation
    
    
    
    
    
    
    
    
    
    
    625
    
    
    
    Total operating expenses
    
    
    32,744
    
    
    
    33,411
    
    
    
    61,567
    
    
    
    60,982Loss from operations
    
    
    (2,320
    )
    
    
    (2,130
    )
    
    
    (10,519
    )
    
    
    (6,319
    )Other income (expense):Interest income
    
    
    604
    
    
    
    1,094
    
    
    
    1,515
    
    
    
    2,182Other income, net
    
    
    47
    
    
    
    4
    
    
    
    74
    
    
    
    Total other income (expense), net
    
    
    651
    
    
    
    1,098
    
    
    
    1,589
    
    
    
    2,182Loss before income taxes
    
    
    (1,669
    )
    
    
    (1,032
    )
    
    
    (8,930
    )
    
    
    (4,137
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (1,669
    )
    
    $
    (1,032
    )
    
    $
    (8,930
    )
    
    $
    (4,137
    )Net loss per share:Basic
    
    $
    (0.08
    )
    
    $
    (0.05
    )
    
    $
    (0.41
    )
    
    $
    (0.19
    )Diluted
    
    $
    (0.08
    )
    
    $
    (0.05
    )
    
    $
    (0.41
    )
    
    $
    (0.19
    )Weighted average common shares outstanding:Basic
    
    
    20,074
    
    
    
    22,501
    
    
    
    21,771
    
    
    
    22,255Diluted
    
    
    20,074
    
    
    
    22,501
    
    
    
    21,771
    
    
    
    22,255
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,Statements of operations data (unaudited)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Net transaction revenues
    
    
    98.2
    %
    
    
    97.5
    %
    
    
    97.9
    %
    
    
    97.3
    %Referral and other revenues
    
    
    1.8
    
    
    
    2.5
    
    
    
    2.1
    
    
    
    2.7Net revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Operating expenses:Cost of revenues
    
    
    56.4
    
    
    
    55.3
    
    
    
    57.8
    
    
    
    55.6Product development
    
    
    7.0
    
    
    
    5.8
    
    
    
    8.4
    
    
    
    6.4Sales and marketing
    
    
    34.6
    
    
    
    31.4
    
    
    
    40.3
    
    
    
    34.2General and administrative
    
    
    9.7
    
    
    
    14.2
    
    
    
    13.0
    
    
    
    15.4Litigation
    
    
    
    
    
    
    
    
    
    
    1.2
    
    
    
    Total operating expenses
    
    
    107.7
    
    
    
    106.7
    
    
    
    120.7
    
    
    
    111.6Loss from operations
    
    
    (7.7
    )
    
    
    (6.7
    )
    
    
    (20.7
    )
    
    
    (11.6
    )Other income (expense):Interest income
    
    
    2.0
    
    
    
    3.5
    
    
    
    3.0
    
    
    
    4.0Other income, net
    
    
    0.2
    
    
    
    
    
    
    
    0.1
    
    
    
    Total other income (expense), net
    
    
    2.2
    
    
    
    3.5
    
    
    
    3.1
    
    
    
    4.0Loss before income taxes
    
    
    (5.5
    )
    
    
    (3.2
    )
    
    
    (17.6
    )
    
    
    (7.6
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (5.5
    )%
    
    
    (3.2
    )%
    
    
    (17.6
    )%
    
    
    (7.6
    )%
 23




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##### Table of Contents



Comparison of the three months ended June 30, 2008 and 2007
 Other operating data
 Three Months Ended
June 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    ChangeNumber of markets (1)Comparable existing markets
    
    
    23
    
    
    
    23
    
    
    
    New markets
    
    
    11
    
    
    
    4
    
    
    
    7Total
    
    
    34
    
    
    
    27
    
    
    
    7Number of transactions closed during the period (2)Comparable existing markets
    
    
    4,109
    
    
    
    3,966
    
    
    
    143
    
    
    
    3.6
    %New markets
    
    
    572
    
    
    
    22
    
    
    
    550
    
    
    
    2,500.0
    %Total
    
    
    4,681
    
    
    
    3,988
    
    
    
    693
    
    
    
    17.4
    %Average net revenue per transaction (3)Comparable existing markets
    
    $
    6,634
    
    
    $
    7,665
    
    
    $
    (1,031
    )
    
    
    (13.5
    )%New markets
    
    
    4,562
    
    
    
    4,733
    
    
    
    (171
    )
    
    
    (3.6
    )%All markets
    
    $
    6,381
    
    
    $
    7,649
    
    
    $
    (1,268
    )
    
    
    (16.6
    )%Number of ZipAgents at end of the periodComparable existing markets
    
    
    2,118
    
    
    
    1,978
    
    
    
    140
    
    
    
    7.1
    %New markets
    
    
    441
    
    
    
    92
    
    
    
    349
    
    
    
    379.3
    %All markets
    
    
    2,559
    
    
    
    2,070
    
    
    
    489
    
    
    
    23.6
    %
 
 (1)
    
    New markets are transferred to existing markets on January 1st following the completion of
their first full calendar year of operation. The Tampa, Orlando, Minneapolis, Austin, Palm
Beach and the Greater Philadelphia Area markets opened during 2006 and, therefore, completed
their first full calendar year at of the end of 2007. Accordingly, these markets were moved to
existing markets as of January 1, 2008 and are included in comparable existing markets for all
periods presented. Comparable existing markets:Atlanta, GA
    
    Houston, TX
    
    Phoenix, AZAustin, TX
    
    Las Vegas, NV
    
    Sacramento, CABaltimore, MD
    
    Los Angeles, CA
    
    San Diego, CABoston, MD
    
    Miami, FL
    
    San Francisco Bay Area, CAChicago, IL
    
    Minneapolis, MN
    
    Seattle, WADallas, TX
    
    Orange County, CA
    
    Tampa, FLFresno/Central Valley, CA
    
    Orlando, FL
    
    Washington, DCGreater Philadelphia Area, PA
    
    Palm Beach, FL
 New markets and the month opened:Naples, FL
    
    March 2007Tucson, AZ
    
    March 2007Denver, CO
    
    April 2007Jacksonville, FL
    
    May 2007Salt Lake City, UT
    
    July 2007Richmond, VA
    
    July 2007Virginia Beach, VA
    
    August 2007Charlotte, NC
    
    August 2007Raleigh-Durham, NC
    
    September 2007Westchester County, NY
    
    December 2007Long Island, NY
    
    March 2008
 
 (2)
    
    The term transaction refers to each representation of a buyer or seller in a real estate
purchase or sale. 24




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##### Table of Contents



(3)
    
    Average net revenue per transaction equals net transaction revenues divided by number of
transactions with respect to each period. Net transaction revenues
  Three Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)Net transaction revenuesComparable existing markets
    
    $
    27,261
    
    
    $
    30,402
    
    
    $
    (3,141
    )
    
    
    (10.3
    )%New markets
    
    
    2,609
    
    
    
    104
    
    
    
    2,505
    
    
    
    2,405.7
    %Total
    
    $
    29,870
    
    
    $
    30,506
    
    
    $
    (636
    )
    
    
    (2.1
    )%
     Referral and other revenues
  Three Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)Referral and other revenuesComparable existing markets
    
    $
    121
    
    
    $
    67
    
    
    $
    54
    
    
    
    79.9
    %New markets
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    100.0
    %Corporate
    
    
    422
    
    
    
    708
    
    
    
    (286
    )
    
    
    (40.4
    )%Total
    
    $
    554
    
    
    $
    775
    
    
    $
    (221
    )
    
    
    (28.6
    )%
  25




---



##### Table of Contents



Cost of revenues
  Three Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)Cost of revenuesComparable existing markets
    
    $
    15,807
    
    
    $
    17,246
    
    
    $
    (1,439
    )
    
    
    (8.3
    )%New markets
    
    
    1,349
    
    
    
    66
    
    
    
    1,283
    
    
    
    1,927.2
    %Total
    
    $
    17,156
    
    
    $
    17,312
    
    
    $
    (156
    )
    
    
    (0.9
    )%
     Product development
  Three Months EndedJune 30,
    
    Increase
    
    Percent2008
    
    2007
    
    (Decrease)
    
    Change(In thousands)Product development
    
    $
    2,124
    
    
    $
    1,813
    
    
    $
    311
    
    
    
    17.2
    %
   26




---



##### Table of Contents



Sales and marketing
  Three Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)Sales and marketingComparable existing markets
    
    $
    6,826
    
    
    $
    7,300
    
    
    $
    (474
    )
    
    
    (6.5
    )%New markets
    
    
    1,925
    
    
    
    670
    
    
    
    1,255
    
    
    
    187.6
    %Regional/corporate sales support and marketing
    
    
    1,775
    
    
    
    1,859
    
    
    
    (84
    )
    
    
    (4.5
    )%Total
    
    $
    10,526
    
    
    $
    9,829
    
    
    $
    697
    
    
    
    7.1
    %
      General and administrative
  Three Months EndedJune 30,
    
    Increase
    
    Percent2008
    
    2007
    
    (Decrease)
    
    Change(In thousands)General and administrative
    
    $
    2,938
    
    
    $
    4,457
    
    
    $
    (1,519
    )
    
    
    (34.1
    )%
  27




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##### Table of Contents



Interest income
  Three Months EndedJune 30,
    
    Increase
    
    Percent2008
    
    2007
    
    (Decrease)
    
    Change(In thousands)Interest income
    
    $
    604
    
    
    $
    1,094
    
    
    $
    (490
    )
    
    
    (44.8
    )%Interest income will fluctuate as our cash equivalents and short-term investment balances
change and applicable interest rates increase or decrease. The decrease in interest income for the
three months ended June 30, 2008 compared to the three months ended June 30, 2007 was due primarily
to lower interest rates earned on lower average balances.Other income (expense), netOther income (expense), net consists of non-operating items, which have not been significant
to date.Three Months EndedJune 30,
    
    Increase
    
    Percent2008
    
    2007
    
    (Decrease)
    
    Change(In thousands)Other income (expense), net
    
    $
    47
    
    
    $
    4
    
    
    $
    43
    
    
    
    980.4
    %Comparison of the six months ended June 30, 2008 and 2007Other operating dataSix Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    ChangeNumber of markets (1)Comparable existing markets
    
    
    23
    
    
    
    23
    
    
    
    New markets
    
    
    11
    
    
    
    4
    
    
    
    7Total
    
    
    34
    
    
    
    27
    
    
    
    7Number of transactions closed during the period (2)Comparable existing markets
    
    
    6,894
    
    
    
    7,075
    
    
    
    (181
    )
    
    
    (2.6
    )%New markets
    
    
    908
    
    
    
    23
    
    
    
    885
    
    
    
    3,847.8
    %Total
    
    
    7,802
    
    
    
    7,098
    
    
    
    704
    
    
    
    9.9
    %Average net revenue per transaction (3)Comparable existing markets
    
    $
    6,646
    
    
    $
    7,501
    
    
    $
    (855
    )
    
    
    (11.4
    )%New markets
    
    
    4,599
    
    
    
    4,788
    
    
    
    (190
    )
    
    
    (4.0
    )%All markets
    
    $
    6,407
    
    
    $
    7,492
    
    
    $
    (1,085
    )
    
    
    (14.5
    )%Number of ZipAgents at end of the periodComparable existing markets
    
    
    2,118
    
    
    
    1,978
    
    
    
    140
    
    
    
    7.1
    %New markets
    
    
    441
    
    
    
    92
    
    
    
    349
    
    
    
    379.3
    %All markets
    
    
    2,559
    
    
    
    2,070
    
    
    
    489
    
    
    
    23.6
    %
 
 (1)
    
    New markets are transferred to existing markets on January 1st following the completion of
their first full calendar year of operation. The Tampa, Orlando, Minneapolis, Austin, Palm
Beach and the Greater Philadelphia Area markets opened during 2006 and, 28




---



##### Table of Contents



therefore, completed their first full calendar year at of the end of 2007. Accordingly, these
markets were moved to existing markets as of January 1, 2008 and are included in comparable
existing markets for all periods presented. Comparable existing markets:Atlanta, GA
    
    Houston, TX
    
    Phoenix, AZAustin, TX
    
    Las Vegas, NV
    
    Sacramento, CABaltimore, MD
    
    Los Angeles, CA
    
    San Diego, CABoston, MD
    
    Miami, FL
    
    San Francisco Bay Area, CAChicago, IL
    
    Minneapolis, MN
    
    Seattle, WADallas, TX
    
    Orange County, CA
    
    Tampa, FLFresno/Central Valley, CA
    
    Orlando, FL
    
    Washington, DCGreater Philadelphia Area, PA
    
    Palm Beach, FL
 New markets and the month opened:Naples, FL
    
    March 2007Tucson, AZ
    
    March 2007Denver, CO
    
    April 2007Jacksonville, FL
    
    May 2007Salt Lake City, UT
    
    July 2007Richmond, VA
    
    July 2007Virginia Beach, VA
    
    August 2007Charlotte, NC
    
    August 2007Raleigh-Durham, NC
    
    September 2007Westchester County, NY
    
    December 2007Long Island, NY
    
    March 2008
 
 (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
  Six Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)Net transaction revenuesComparable existing markets
    
    $
    45,816
    
    
    $
    53,071
    
    
    $
    (7,255
    )
    
    
    (13.7
    )%New markets
    
    
    4,175
    
    
    
    110
    
    
    
    4,065
    
    
    
    3,691.2
    %Total
    
    $
    49,991
    
    
    $
    53,181
    
    
    $
    (3,190
    )
    
    
    (6.0
    )%
   29




---



##### Table of Contents



Referral and other revenues
  Six Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)Referral and other revenuesComparable existing markets
    
    $
    200
    
    
    $
    134
    
    
    $
    66
    
    
    
    49.0
    %New markets
    
    
    15
    
    
    
    
    
    
    
    15
    
    
    
    100.0
    %Corporate
    
    
    842
    
    
    
    1,348
    
    
    
    (506
    )
    
    
    (37.5
    )%Total
    
    $
    1,057
    
    
    $
    1,482
    
    
    $
    (425
    )
    
    
    (28.7
    )%
  Cost of revenues
  Six Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)Cost of revenuesComparable existing markets
    
    $
    27,360
    
    
    $
    30,317
    
    
    $
    (2,957
    )
    
    
    (9.8
    )%New markets
    
    
    2,138
    
    
    
    70
    
    
    
    2,068
    
    
    
    2,954.0
    %Total
    
    $
    29,498
    
    
    $
    30,387
    
    
    $
    (889
    )
    
    
    (2.9
    )%
    Product development
  30




---



##### Table of Contents



Six Months EndedJune 30,
    
    Increase
    
    Percent2008
    
    2007
    
    (Decrease)
    
    Change(In thousands)Product development
    
    $
    4,270
    
    
    $
    3,494
    
    
    $
    776
    
    
    
    22.2
    %
  Sales and marketing
  Six Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)Sales and marketingComparable existing markets
    
    $
    13,218
    
    
    $
    14,362
    
    
    $
    (1,144
    )
    
    
    (8.0
    )%New markets
    
    
    3,644
    
    
    
    814
    
    
    
    2,830
    
    
    
    348.0
    %Regional/corporate sales support and marketing
    
    
    3,692
    
    
    
    3,500
    
    
    
    192
    
    
    
    5.5
    %Total
    
    $
    20,554
    
    
    $
    18,676
    
    
    $
    1,878
    
    
    
    10.1
    %
     General and administrative
  31




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##### Table of Contents



Six Months EndedJune 30,
    
    
    Increase
    
    
    Percent2008
    
    
    2007
    
    
    (Decrease)
    
    
    Change(In thousands)General and administrative
    
    $
    6,620
    
    
    $
    8,425
    
    
    $
    (1,805
    )
    
    
    (21.4
    )%
  Litigation
 Six Months EndedJune 30,
    
    Increase
    
    Percent2008
    
    2007
    
    (Decrease)
    
    Change(In thousands)Litigation
    
    $
    625
    
    
    $
    
    
    
    $
    625
    
    
    
    100.0
    %
  Interest income
  Six Months EndedJune 30,
    
    Increase
    
    Percent2008
    
    2007
    
    (Decrease)
    
    Change(In thousands)Interest income
    
    $
    1,515
    
    
    $
    2,182
    
    
    $
    (667
    )
    
    
    (30.6
    )%
  Other income (expense), net
  Six Months EndedJune 30,
    
    Increase
    
    Percent2008
    
    2007
    
    (Decrease)
    
    Change(In thousands)Other income (expense), net
    
    $
    74
    
    
    $
    
    
    
    $
    74
    
    
    
    100.0
    %
 LIQUIDITY AND CAPITAL RESOURCES
  32




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Operating activities
    Investing activities
    Financing activities
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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
    
    $
    2,492
    
    
    $
    3,991
    
    
    $
    1,843
    
    
    $
    11
    
    
    $
    8,337
 OFF-BALANCE SHEET ARRANGEMENTS
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk:
 Interest rate sensitivity
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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
 Crystal Alexander, et al. v. ZipRealty
 ZipRealty Inc., v. Squire, Sanders &
Dempsey, LLP, Michael W. Kelly Esq., et. al.
 Simon et al. v. ZipRealty, Inc.
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Item 1A. Risk Factors:
  RISKS RELATED TO OUR BUSINESS AND INDUSTRY
 We have experienced losses in recent quarters and expect to incur losses in the future, and our
limited operating history makes our future financial performance difficult to assess.
    Our business model requires access to real estate listing services provided by third parties that
we do not control, and we expect that the demand for our services would be reduced if our ability
to display listings on our website, or to communicate to our clients that our website displays
MLS listings, is restricted.
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®
    Our business could be harmed by transitions in the real estate markets and economic events that
are out of our control and may be difficult to predict.
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We may not be able to continue to grow market share to offset the impact of the current
contraction in the residential real estate market.
  If the percentage of our business that is composed of representing home sellers, as opposed to
home buyers, increases, we may incur additional costs and achieve lower profit margins,
particularly in a softened market.
  The recent tightening in the availability of credit, particularly with respect to lenders in the
mortgage market, has and may continue to negatively impact the housing market.
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Softness in the residential real estate market may reduce the availability of home loans, which
may further negatively impact the housing market.
  Foreclosures and short sales may cause significant disruption in our business.
  Federal legislation designed to bolster the market for nonconforming mortgage loans may result in
short or long-term fluctuations in the number of residential real estate transactions, which
could negatively impact our operating results.
  Recently adopted federal legislation designed to bolster the housing market may fail to
achieve its intended objectives.
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We may be unable to integrate our technology with each MLS on a cost-effective basis, which may
harm our operating results and adversely affect our ability to service clients.
  Our business model is relatively new and unproven, and we cannot guarantee our future success.
  If we fail to recruit, hire and retain qualified agents, we would be less able to service our
clients and our growth would most likely be impaired.
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®
 We would likely incur additional expenses or liabilities if our current or former compensation
plans, including 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 and harm operating results.
  Our failure to effectively manage the growth of our control systems could adversely affect our
ability to maintain legal compliance.
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If we fail to comply with real estate brokerage laws and regulations, we may incur significant
financial penalties or lose our licenses 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 required to provide
these services.
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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.
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Our success depends in part on our ability to expand successfully 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, and ease of access to information from, 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 would suffer.
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We have numerous competitors, many of which have valuable industry relationships, innovative
business models and access to greater resources than we do.
  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.
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We derive a significant portion of our leads through third parties, and if any of our significant
lead generation relationships are terminated, impaired or become more expensive, our ability to
attract new clients and grow our business may be adversely affected.
  Our ability to expand our business may be limited by state laws governing cash rebates to home
buyers.
  We have undergone significant management transitions recently and need to successfully integrate
new members of the management team as well as retain key personnel or our business could be
harmed.
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As we implement changes in our agent compensation policies, we may incent behaviors that cause an
increase in our expenses and potentially a decrease in our profit margin with the goal of
increasing our sales and overall profitability.
  We monitor and evaluate the use of our website by our registered users, which could raise privacy
concerns.
  The value of our services could be diminished if anti-spam software filters out an increasing
portion of the emails we send.
  We may be subject to liability for the Internet content that we publish.
  We may need to change the manner in which we conduct our business if government regulation of the
Internet increases.
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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;
    
    the levels of housing inventory available for sale; and.
    
    the involvement of a foreclosed home, or one involving a short sale.
  Our reputation and client and agent service offerings may be harmed by system failures and
computer viruses.
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Our business is geographically concentrated, which makes us more susceptible to business
interruption and financial loss due to natural disasters, inclement weather, economic or market
conditions or other regional events outside of our control.
  Our intellectual property rights are valuable and our failure to protect those rights could
adversely affect our business.
  We may in the future be subject to intellectual property rights disputes, which could divert
management attention, be costly to defend and require us to limit our service offerings.
   
    
    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.
  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.
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
    
    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;
    
    our inability to recover the costs of acquisitions or investments; and
    
    our inability to increase earnings per share.
 OTHER RISKS RELATED TO OUR STOCK PRICE
 Our stock price may be volatile.
  
    
    variations in our quarterly results of operations;
    
    changes in our financial guidance for future periods;
    
    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, as well as the rules of trade
associations, affecting our business; and
    
    market conditions in our industry and the economy as a whole.
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Our share price could decline due to the large number of outstanding shares of our common stock
eligible for future sale.
   The relatively small average daily trading volume of our stock could result in volatility in our
trading prices, particularly if a large block of our stock is traded.
  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;
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
    
    limiting the persons who may call special meetings of stockholders; and
    
    requiring advance notification of stockholder nominations and proposals.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds:
     Total # Shares Purchased as Part
    
    Maximum # Shares that MayTotal # Shares
    
    Average Price Paid per
    
    of Publicly Announced Plans or
    
    Yet Be Purchased Under thePeriod
    
    Purchased
    
    Share
    
    Programs
    
    Plan or ProgramApril 2008
    
    3.5 million
    

    $ 5.00
    
    
    n/a
    
    n/a
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Item 4. Submission of Matters to a Vote of Security Holders:
  Nominees
    
    Votes For
    
    Votes WithheldElisabeth H. DeMarse
    
    15,251,539
    
    352,654Joseph Patrick Lashinsky
    
    15,397,581
    
    206,612Donald F. Wood
    
    15,391,555
    
    212,638
  Proposal
    
    Votes For
    
    Votes Against
    
    Votes AbstainedRatification of
appointment of
PricewaterhouseCoopers
LLP as the Companys
independent registered
public accounting firm
for the fiscal year
ending December 31, 2008
    
    15,525,411
    
    56,779
    
    22,003
 
 Item 5. Other Information:
  
 Item 6. Exhibits:
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SIGNATURE
  ZIPREALTY, INC.By:
    /s/ David A. RectorDavid A. RectorSenior Vice President and Chief Financial Officer  54




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Exhibit Index
 Exhibit number
    
    Description3.1(a)(1)
    
    Amended and Restated Certificate of Incorporation3.2(a)(1)
    
    Bylaws4.1(1)
    
    Form of Common Stock Certificate10.1(2)
    
    Securities Purchase Agreement entered into as of April 2, 2008 between the
Company and Pyramid Technology Ventures I, L.P.10.3*
    
    Management Incentive Plan  Fiscal Year 2008 (Clarified)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 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 8, 2008.*
    
    Identifies a management contract or compensatory plan or agreement required to be filed as an
exhibit of this report. 55