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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from                          to                         

Commission File Number 0-25131

INFOSPACE, INC.

(Exact name of registrant as specified in its charter)

601 108th Avenue NE, Suite 1200, Bellevue, Washington 98004

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code:

(425) 201-6100

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

None

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

Common Stock, par value $.0001 per share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes  x  No  ¨

The aggregate market value of the voting stock held by non-affiliates of the registrant outstanding as of June 30, 2004, based upon the closing price of Common Stock on June 30, 2004 as reported by Nasdaq, was approximately $961.2 million. Shares of voting stock held by each officer and director and by each person who owns 5% or more of the outstanding voting stock (as publicly reported by such persons pursuant to Section 13 and Section 16 of the Securities Exchange Act of 1934) have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of February 25, 2005, 33,124,961 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the definitive proxy statement for the Annual Meeting of Stockholders tentatively scheduled for May 9, 2005 (the “Proxy Statement”).

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ITEM 1.    Business

This report contains forward-looking statements that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We use words such as “anticipates,” “believes,” “plans,” “expects,” “future,” “intends,” “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” and similar expressions to identify such forward-looking statements. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance, achievements and prospects, and those of the wireless and Internet software and application services industry generally, to be materially different from those expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, among others, those identified under “Factors Affecting Our Operating Results, Business Prospects and Market Price of Stock” and elsewhere in this report.

On September 13, 2002, we effected a one-for-ten reverse split of our issued and outstanding common stock. We also effected two-for-one stock splits on May 5, 1999, January 4, 2000 and April 6, 2000. Historical share numbers and prices throughout this Annual Report on Form 10-K are split-adjusted.

Overview

InfoSpace, Inc. (“InfoSpace”, “Our” or “We”) is a diversified technology and services company comprised of our Search & Directory and Mobile business units. We were founded in 1996 and are incorporated in the state of Delaware. Our principal corporate offices are located in Bellevue, Washington. We also have facilities in Los Angeles and San Mateo, California; Westboro, Massachusetts; Woking and Eastleigh, United Kingdom; Papendrecht, The Netherlands; and Wedel, Germany. Our common stock is listed on the Nasdaq National Market under the symbol “INSP.”

Prior to 1997, we had insignificant revenues and were primarily engaged in the development of technology for the aggregation, integration and distribution of Internet content. In 1997, we expanded our operations, adding sales personnel to capitalize on the opportunity to generate Internet advertising revenues and began generating significant revenue with our on-line services. Since then, we have expanded and enhanced our products and application services through both internal development and acquisitions.

In 2003 and 2004, we tightened our strategic focus to two businesses: Search & Directory and Mobile. We sold our Payment Solutions business for $82.0 million in cash and sold or otherwise disposed of other non-core services, expanded our Search & Directory business, which included the acquisition of Switchboard Incorporated (“Switchboard”), an on-line directory company, and expanded our Mobile business with the acquisition of several mobile content and application businesses.

Company Internet Site and Availability of SEC Filings.    Our corporate Internet site is located at www.infospaceinc.com. We make available on that site our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as any amendments to those filings, and other filings we make electronically with the U.S. Securities and Exchange Commission (the “SEC”). The filings can be found in the Investor Relations section of our site and are available free of charge. Information on our Internet site is not part of this Form 10-K. In addition to our Web site, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding us and other issuers that file electronically with the SEC.

SEARCH & DIRECTORY

Our Search & Directory services enable Internet users to locate information, merchants, individuals and products on-line. We offer Search & Directory services through our branded Web sites, InfoSpace.com, Dogpile.com, Switchboard.com, Webcrawler.com and MetaCrawler.com, as well as through the Web properties of distribution partners. Partner versions of our Search & Directory services are generally private-labeled and delivered with each customer’s unique requirements.

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Revenue growth in Search & Directory is primarily determined by two key drivers: the number of paid searches and the price per paid search. Generally, each time a user “clicks” on a commercial search result or views a paid directory listing, the search engine or listing provider pays us a fee. Beginning in the second quarter of 2003, we began reporting the number of paid searches and the average revenue per paid search. Our Search & Directory business in North America generated an aggregate of approximately 750 million paid searches during the year ended December 31, 2004, at an average revenue per paid search of approximately $0.17.

Search

Our Search properties enable Internet users to locate relevant information, merchants and products on-line. We deliver results from leading search engines, including Yahoo! and Google, among others. Our search offerings differ from most other mainstream search services in that they provide “meta-search” technology that selects results from several search engines. We offer search services through our own Web sites, as well as through the Web properties of distribution partners including WebSearch.com, WhenU.com, Cablevision, Verizon Online, Info.com and others. The majority of Search revenue growth in 2004 and 2003 was generated through the addition of new distribution partners and the growth of existing distribution partners.

We compete against major Internet portals and other providers of Web search services. We also compete against more traditional advertising media, including radio, network and cable television, newspaper, magazines, Internet, direct mail and others for a share of the U.S. advertising media market.

Directory

Our Directory services include on-line yellow and white pages services. InfoSpace Directory properties help Internet users find local and national merchants and individuals in North America. With our Directory products, users can identify local or national businesses, locate contact information for friends and associates, or search for items to buy, sell, or rent. We offer Directory services through our branded Web sites, such as Switchboard.com and InfoSpace.com, as well as through distribution relationships. Our distribution partners include AT&T’s Anywho.com and AOL.

On June 3, 2004, we acquired all of the outstanding stock of Switchboard, a provider of local on-line advertising and Internet based yellow pages, for $7.75 per share totaling approximately $159.4 million in cash, plus transaction fees of approximately $6.2 million, for an aggregate purchase price of approximately $165.6 million. As of the acquisition date, Switchboard had approximately $56.4 million in cash and marketable securities and no debt. We acquired Switchboard to further expand our presence in the on-line directory industry, and, in addition to other items, because of Switchboard’s brand name and trademark recognition and existing traffic base.

Our on-line yellow page services allow users to find telephone, address and other information for local and national merchants. We provide both on-line and “brick-and-mortar” merchants with a Web-based yellow pages listing that is targeted to consumers looking specifically for the products and services that those merchants offer. We obtain the underlying directory listings primarily through our relationships with Verizon, BellSouth and Dex Media.

Our on-line white pages service enables users to find telephone and address information, as well as more detailed information, on individuals. In the white pages market, we have relationships with U.S. advertisers of services that make available public information on people and businesses, and derive substantially all of our revenue from advertising.

Our Directory services compete against major Internet portals, print and on-line directories from the Regional Bell Operating Companies (“RBOCs”), and independent print and Web-based directories. We also compete against more traditional advertising media, including radio, network and cable television, newspapers, magazines, Internet, direct mail and others for a share of the total U.S. advertising market.

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MOBILE

Our Mobile division provides mobile media products and content to mobile operators across multiple devices and portal and infrastructure services that enable mobile carriers to deliver content and programming to their subscribers. Through our products, content and service offerings, our mobile operator partners are able to aggregate, configure and customize the services they offer under their own brand and deliver them to their customers.

In November 2003, we acquired Moviso LLC (“Moviso”), a mobile media company, from Vivendi Universal Net USA Group, Inc. for $25.0 million in cash. The acquisition of Moviso provided us with mobile operator relationships and an extensive content library, primarily ringtones and graphics, improving our ability to help content brands and media companies get their content and applications quickly and easily to wireless subscribers. Additionally, during 2004 and early 2005, we expanded our mobile content portfolio by acquiring three mobile gaming companies. On July 1, 2004, we acquired the assets of Atlas Mobile, Inc. (“Atlas Mobile”), a provider of mobile multi-player tournament games, for $6.3 million in cash. The acquisition of Atlas Mobile allows us to add multiplayer gaming to our portfolio of applications and products. On December 1, 2004, we acquired all of the outstanding stock of IOMO Limited (“IOMO”), a designer and publisher of mobile games, for approximately $15.4 million in cash, and on January 7, 2005, we acquired elkware GmbH (“elkware”), a German mobile games company, for approximately $26.4 million in cash. The acquisition of both IOMO and elkware expands our role in mobile games by increasing our gaming product portfolio and European operator relationships. Additionally, the acquisition of elkware provides us with a proprietary porting capability technology which allows our games to be converted more rapidly to different mobile phone application platforms.

Today, the Mobile division generates revenue primarily from transaction fees, subscriber fees, revenue sharing fees, set-up fees and professional service fees. As of December 31, 2004, we had relationships with many leading mobile operators, including Cingular Wireless, T-Mobile, Verizon Wireless, and Virgin Mobile, and media publishers including Sony BMG, EMI, Warner and Universal Music Group.

Competitors include mobile application providers, mobile application aggregators, mobile application enablers, entertainment and other digital media companies, and the mobile operators themselves.

Seasonality

Our search services and mobile services are generally impacted by traditional retail seasonality, with sales usually increasing in the fourth quarter of each calendar year. Additionally, our search & directory services are generally affected by seasonal fluctuations in Internet usage, which generally declines in the summer months.

International Operations

We currently maintain facilities in the United States, The Netherlands, the United Kingdom and Germany.

We have historically generated most of our revenues from customers in the United States. Revenue generated in the United States accounted for 93% in 2004, 88% in 2003 and 89% in 2002 of our total revenues in those years.

Revenue Sources

Our revenues are derived from products and services delivered to our customers across our two business units, Search & Directory and Mobile. In 2003 and 2002, we derived 7.9% and 15.0%, respectively, of our revenue from our non-core services. As of the end of 2003, we had sold or otherwise disposed of our non-core services. Additionally, we sold our Payment Solutions business on March 31, 2004, and revenue from the Payment Solutions business is reflected as part of our discontinued operations.

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Search & Directory Revenue:    We generate revenues from our Web search and directory (on-line yellow pages and white pages) services. Revenues are generated when an end-user of our services generates a paid search at our Web site. We also generate revenue from paid searches through a distribution partner’s Web property. Revenues are recognized in the period in which a paid search occurs and are based on the amounts earned and remitted to us. We also generate advertising revenues by selling banner, button and text-link advertisements based on cost per search or page view, which are recognized when the services are delivered.

Mobile Revenue:    We earn revenues, typically from agreements with mobile operators, for content delivery services, which include both product downloads or subscriber usage, hosting and maintenance services and professional services. We recognize revenue from media and content downloads when the product is delivered. We recognize subscriber revenues based on a fee per user or per usage by the end user. We recognize revenue from hosting services and maintenance of such services in the period in which the service is provided. We sometimes earn one-time user set-up fees, which are generally amortized over the term of the customer contract. We also generate revenues from professional services, which are recognized as revenue in the period in which the work is completed and accepted by the customer.

Product Development

We believe that our technology is essential to successfully implement our strategy of expanding and enhancing our Search & Directory services and Mobile products, expanding in the mobile data market and maintaining the attractiveness and competitiveness of our products and services. Product development expenses were $23.1 million in the year ended December 31, 2004, $17.8 million in the year ended December 31, 2003, and $29.1 million in the year ended December 31, 2002.

Intellectual Property

Our success depends significantly upon our technology. To protect our rights, we rely on a combination of copyright and trademark laws, patents, trade secrets, confidentiality agreements with employees and third parties and protective contractual provisions. Most of our employees have executed confidentiality and non-use agreements that contain provisions prohibiting the unauthorized disclosure and use of our confidential and proprietary information and that transfer any rights they may have in copyrightable works or patentable technologies to us that they may develop while under our employ. In addition, prior to entering into discussions with potential content providers and customers regarding our business and technologies, we generally require that such parties enter into nondisclosure agreements with us. If these discussions result in a license or other business relationship, we also generally require that the agreement setting forth the parties’ respective rights and obligations include provisions for the protection of our intellectual property rights. For example, the standard language in our agreements provides that we retain ownership of all patents and copyrights in our technologies and requires our customers to display our patent, copyright and trademark notices.

We hold 66 U.S. registered trademarks and 122 foreign trademarks registered in various countries. We also have applied for registration of certain service marks and trademarks in the United States and in other countries, and will seek to register additional marks in the U.S. and foreign countries, as appropriate. We may not be successful in obtaining registration for the service marks and trademarks for which we have applied.

We hold 38 U.S. patents. Our issued patents relate to our on-line directory, advertisement and location services, among others. We have many issued foreign patents and patents pending covering some of these technologies. We are currently pursuing certain pending U.S. and foreign patent applications that relate to various aspects of our technology. We anticipate on-going patent application activity in the future. However, patent claims may not be issued, and, if issued, may be challenged or invalidated. In addition, issued patents may not provide us with any competitive advantages and may be challenged or invalidated by third parties.

Despite our efforts to protect our rights, unauthorized parties may copy aspects of our products or services or obtain and use information that we regard as proprietary. The laws of some foreign countries do not protect

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proprietary rights to as great an extent as do the laws of the United States. In addition, others could independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, our business could suffer.

Companies in the Internet software and application services industry have frequently resorted to litigation regarding intellectual property rights. We may have to litigate to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of others’ proprietary rights. From time to time, we have received, and may receive in the future, notice of claims of infringement of others’ proprietary rights. Responding to any such claims could be time-consuming, result in costly litigation, divert management’s attention, cause product or service release delays, require us to redesign our products or services or require us to enter into royalty or licensing agreements. If a successful claim of infringement were made against us and we could not develop non-infringing technology or license the infringed or similar technology on a timely and cost-effective basis, our business could suffer.

MetaCrawler License Agreement.    We hold an exclusive, perpetual worldwide license, subject to certain limited exceptions, to the MetaCrawler intellectual property and related search technology from the University of Washington, which we use in our Search business.

Competition

We operate in the Internet software and application and mobile services markets, which are extremely competitive and rapidly changing. Our current and prospective competitors include many large companies that have substantially greater resources than we have. We believe that the primary competitive factors in the market for mobile and Internet software and applications are:

Although we believe that no one competitor offers all of the products and services we do, our primary offerings face competition from various sources. We compete, directly or indirectly, in the following ways, among others:

We expect that in the future we will experience competition from other Internet software and application and mobile services companies. Some of these companies are currently customers or distribution partners of ours, the loss of which could harm our business.

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Many of our current customers have established relationships with some of our current and potential future competitors. Some of our customers are also our competitors. If our competitors develop software and application services that are superior to ours, or that achieve greater market acceptance than ours, our business will suffer.

Governmental Regulation

Because of the increasing use of the Internet and wireless devices, U.S. and foreign governments have adopted or may in the future adopt laws and regulations relating to the Internet or use of wireless devices, addressing issues such as user privacy, pricing, age verification, content, taxation, copyrights, distribution, and product and services quality.

Recent concerns regarding Internet and wireless device user privacy have led to the introduction of U.S. federal and state legislation to protect user privacy. Existing laws regarding user privacy that we may be subject to include the Children’s Online Privacy Protection Act, which regulates the on-line and, in some interpretations, wireless collection of personal information from children under 13, and the Gramm-Leach-Bliley Act, which regulates the collection and processing of personal financial information. Also, with respect to our tournament games, certain states prohibit the provision of prizes in mobile games, and other states may adopt similar prohibitions. In addition, the Federal Trade Commission (the “FTC”) has initiated investigations and hearings regarding Internet user privacy, which could result in rules or regulations that could adversely affect our business. As a result, we could become subject to new laws and regulations that could limit our ability to conduct targeted advertising, or to distribute or collect user information. The various states likewise have sought to regulate advertising and privacy.

The various states have likewise sought to regulate advertising and privacy in ways that that may effect the collection, use and disclosure of information. For example, California recently passed several laws relating the collection, storage and distribution of personal information, requiring in part the posting of a privacy policy and disclosure of how information is shared with third parties for marketing purposes.

Outside of the United States, other countries have more restrictive privacy laws. The European Union, for example, strictly regulates the collection, use and transfer of personal information of European residents. Further, information lawfully collected in the European Union may not be transferred for processing outside Europe to a country that lacks adequate protections. The European Union has deemed the U.S. to lack such protections and transfers are only permitted under limited circumstances. Other countries such as Canada follow the European model. These and similar restrictions may limit our ability to collect and use information regarding Internet users in those countries.

We may be subject to provisions of the Federal Trade Commission Act that regulate advertising in all media, including the Internet, and require advertisers to substantiate advertising claims before disseminating advertising. The FTC has the power to enforce this Act. It has recently brought several actions charging deceptive advertising via the Internet and is actively monitoring advertising via the Internet. States as well have brought such actions. In addition to U.S. laws regulating advertising, other countries strictly regulate direct and indirect marketing over the Internet. For example, the European Union has enacted an electronic communications directive that imposes certain restrictions on the use of cookies and action tags as well as sending of unsolicited communications.

We may also be subject to the provisions of the Child Online Protection Act, which restricts the distribution of certain materials deemed harmful to children. The Act is also designed to restrict access to such materials by children, and accordingly, the provisions of this Act may apply to certain Internet and wireless product and service providers even though such companies are not engaged in the business of distributing the harmful materials. Although some court decisions have cast doubt on the constitutionality of this Act, and we have instituted processes for voluntary compliance with provisions of the Act that may be relevant to our business, it could subject us to liability.

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These or any other laws or regulations that may be enacted in the future could have adverse effects on our business, including higher regulatory compliance costs, limitations on our ability to provide some services in some countries, and liabilities which might be incurred through lawsuits or regulatory penalties. For example, California requires and several other states are considering requiring that customers whose personal information is disclosed as part of a security breach be notified of the disclosure. We believe we take reasonable steps to protect the security and confidentiality of the information we collect and store but there is no guarantee that third parties will not gain unauthorized access despite our efforts.

Employees

As of February 25, 2005, we had approximately 515 employees. None of our employees are represented by a labor union, and we consider employee relations to be positive. There is competition for qualified personnel in our industry, particularly for software development and other technical staff. We believe that our future success will depend in part on our continued ability to hire and retain qualified personnel.

Executive Officers and Directors of the Registrant

The following table sets forth certain information as of February 25, 2005 with respect to our executive officers and directors:

James F. Voelker has served as our Chairman and Chief Executive Officer since December 2002. He also held the title of President from December 2002 to April 2003. He has served as a director since July 2002. He served as President and a director of NEXTLINK Communications, Inc. (now XO Communications, Inc.), a broadband communications company, from inception in 1994 through 1998. Prior to NEXTLINK, he served as Chief Executive Officer and director of U.S. Signal, a full service competitive local exchange carrier.

Kathleen H. Rae was appointed President and Chief Operating Officer in April 2003. She served as a partner of Ignition Partners, LLC, an early stage investment company, from inception in March 2000 to June 2001. She served as Chief Financial Officer and a member of the founding operational team for NEXTLINK Communications, Inc. (now XO Communications, Inc.), from January 1996 through December 1999. She served with Alaska Airlines, Inc. and Horizon Air Industries, Inc., subsidiaries of Alaska Air Group, Inc. from 1987 to 1995, serving as President and Chief Executive Officer of Horizon Air from 1994 to 1995. Ms. Rae holds a B.S. in Business from the University of California, Berkeley.

David E. Rostov was appointed Chief Financial Officer in April 2003. From March 2001 to November 2002, he served as Chief Financial Officer of Apex Learning Inc., a provider of on-line advanced placement courses for U.S. high schools. From May 2002 to November 2002, he also served as acting Chief Operating Officer of Apex

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Learning. Prior to Apex Learning, he served as Chief Financial Officer of drugstore.com, Inc., an on-line drugstore, from January 1999 to January 2001. He served as Chief Financial Officer of Nextel International (now NII Holdings, Inc.), a provider of integrated wireless communication services, from 1996 to 1999. He served in various financial positions at McCaw Cellular Communications, Inc. from 1992 to 1995. Mr. Rostov holds a B.A. in Economics from Oberlin College, and an M.B.A and M.A. in Public Policy from The University of Chicago.

Edmund O. Belsheim, Jr. joined us in November 2000 as Senior Vice President and General Counsel, and was appointed Chief Operating Officer in January 2001 and Chief Administrative Officer in April 2003. He also served as President from July 2001 to December 2002. Mr. Belsheim has also been a director since January 2001. From April 1999 to November 2000, he was a partner at Perkins Coie LLP, a Seattle-based law firm. From 1996 to 1998, Mr. Belsheim served as Vice President, Corporate Development, General Counsel and Secretary of Penford Corporation, a maker of specialty starches. He also served as Senior Vice President, Corporate Development, General Counsel and Secretary of Penwest Pharmaceuticals Co., an oral drug delivery technology and products company. Prior to joining Penford Corporation, Mr. Belsheim was a member of the law firm Bogle & Gates, P.L.L.C. Mr. Belsheim holds an A.B. from Carleton College, an M.A. from The University of Chicago and a J.D. from the University of Oregon.

Victor J. Melfi, Jr. joined us in November 2003 as Chief Strategy Officer, after serving in a consulting role from June 2003 to November 2003. Since 1998, he has served as a consultant to and board member of several technology companies, including License Online, a software licensing solutions provider. From July 1998 to October 1999, Mr. Melfi served as CEO of VirtualSpin LLC, a provider of ecommerce software. From February 2000 to January 2002, he was an Entrepreneur Partner at eFund, LLC, a venture capital investment firm. During the same period from February 2000 to December 2001, Mr. Melfi served as CEO of PrairieLaw.com, a legal Web portal. From March 1996 to January 1997, he served as Chief Executive Officer of Multiple Zones International, Inc. (now Zones, Inc.), a direct marketing reseller of technology products, after holding several other positions there from October 1994. From 1990 to 1994, he held several positions at Reader’s Digest Association, Inc. Mr. Melfi holds a bachelor’s degree from Shimer College and an M.B.A. from Yale University.

Brian T. McManus joined us in April 2003 as Executive Vice President, Search and Directory. From April 2000 to October 2002, he served as Vice President of Corporate Development at Internet service provider Epoch Internet. From October 1999 to April 2000, he served as Chief Operating Officer of Bazillion Inc., an Internet service provider. From December 1993 to October 1999, he served in a variety of executive positions in Seattle area technology companies, including Chief Executive Officer of Intermind Corporation, an open-source software company, and Chief Executive Officer of AccessLine Technologies Inc., a telecommunications company. Mr. McManus holds a B.S. in Business Administration and Economics from the University of California, Berkeley. He also holds a M.B.A. and a J.D. from the University of Washington.

Allen M. Hsieh joined us in June 2003 as Chief Accounting Officer and Vice President Financial Operations. From February 2000 to March 2003, he served as Vice President Finance at Terabeam Corp., a start up technology company. Prior to Terabeam Corp. he served in various positions at PricewaterhouseCoopers LLP, a big four accounting firm, from July 1985 to February 2000, and the last two years as a partner in their accounting and auditing practice. Mr. Hsieh holds a B.A. in Business Administration from the University of Washington.

John E. Cunningham, IV has served as a director since July 1998. Mr. Cunningham has been a general partner of Clear Fir Partners, L.P., a private equity investment partnership, since February 1998. Since January 2004, he has served as non-executive chairman of the board of Citel Technologies, Inc., a telecommunications company. From April 1995 until February 2003, he served as President of Kellett Investment Corporation, an investment fund for private companies. During 1997, Mr. Cunningham acted as interim Chief Executive Officer of Real Time Data, a wireless services company. From 1991 to 1994, he served as Chairman and Chief Executive Officer of RealCom Office Communications, a privately-held telecommunications company that merged with MFS Communications Company, Inc. Mr. Cunningham is on the board of directors of Petra Capital, LLC and

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Revenue Science, Inc., formerly digiMine.com, and also serves as an advisor to Petra Mezzanine Fund, L.P. He holds a B.A. from Santa Clara University and an M.B.A. from the University of Virginia.

Rufus W. Lumry, III has served as a director since December 1998. Since 1992, Mr. Lumry has served as President of Acorn Ventures, Inc., a venture capital firm he founded. Prior to founding Acorn Ventures, Mr. Lumry served as a director and Chief Financial Officer of McCaw Cellular Communications. Mr. Lumry was one of the founders of McCaw in 1982, and retired from McCaw in 1990 as Executive Vice President and Chief Financial Officer. Mr. Lumry holds an A.B. from Harvard University and an M.B.A. from the Harvard Graduate School of Business Administration.

Lewis M. Taffer has served as a director since June 2001. Mr. Taffer is currently an independent management consultant. From January 2004 to January 2005, Mr. Taffer served as Executive Vice President, Acquisition Marketing of America Online. From May 2001 to January 2004, Mr. Taffer was an independent consultant specializing in marketing, business development and strategic partnerships. From 1979 through April 2001, Mr. Taffer served in various positions at American Express Company, most recently as Senior Vice President—Corporate Business Development, a position at which he developed and launched an on-line shopping portal for American Express Cardmembers, which utilized InfoSpace services. Mr. Taffer serves on the board of directors of Lymphoma Research Foundation, a nonprofit entity. Mr. Taffer holds a B.A. from the University of Pittsburgh and a J.D. from the University of Michigan.

Richard D. Hearney has served as a director since September 2001. General Hearney served as President and Chief Executive Officer of Business Executives for National Security, an organization focusing on national security policy, from January 2000 to April 2002. General Hearney joined McDonnell Douglas Corporation in 1996 and served as Regional Vice President of Business Development—Western Europe until the acquisition of McDonnell Douglas by The Boeing Company in 1997, and subsequently served as Vice President of the Military Aircraft and Missile Systems Group of Boeing until November 1999. General Hearney served in the United States Marine Corps for over 35 years, and retired from military service in 1996 as Assistant Commandant of the Marine Corps. He holds a B.A. from Stanford University and an M.A. from Pepperdine University and graduated from the Naval War College.

George M. Tronsrue, III was appointed as a director in February 2003. Mr. Tronsrue is currently Co-Manager of Jericho Fund, LLC, an investment and consulting company. From January 2000 to March 2004, Mr. Tronsrue served as Chairman and Chief Executive Officer of Monet Mobile Networks Inc., a Seattle-based wireless Internet service provider. Monet Mobile filed for Chapter 11 bankruptcy protection in March 2004, and a U.S. trustee was appointed. From October 1997 to October 1999, Mr. Tronsrue was with XO Communications, Inc. (formerly NEXTLINK Communications, Inc.), a broadband communications company, where he served as Chief Operating Officer and was also appointed as President in July 1998. Prior to his tenure at XO Communications, Mr. Tronsrue was a member of the initial executive management team of American Communications Services, Inc. (later called e.spire Communications, Inc.), an Internet data and fiber infrastructure company. Prior to e.spire, Mr. Tronsrue was employed by Teleport Communications Group and MFS Communications. Mr. Tronsrue serves on the boards of directors of several private companies and charitable organizations. Mr. Tronsrue holds a B.S. from the U.S. Military Academy.

Vanessa A. Wittman was appointed as a director in April 2003. She presently serves as Executive Vice President and Chief Financial Officer of Adelphia Communications Corporation, where she has served since March 2003. From February 2000 to March 2003, she was Chief Financial Officer of broadband network services provider 360networks Inc. 360networks filed for Chapter 11 bankruptcy protection in the U.S. and similar protection in Canada in June 2001, from which it emerged in November 2002. Previously, she served as senior director of Corporate Development at Microsoft Corporation, and was Chief Financial Officer of the wireless-services company Metricom, Inc. Ms. Wittman holds a BS/BA in Business Administration from the University of North Carolina at Chapel Hill, and an MBA from the University of Virginia’s Darden Graduate School of Business.

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FACTORS AFFECTING OUR OPERATING RESULTS,

BUSINESS PROSPECTS AND MARKET PRICE OF STOCK

RISKS RELATED TO OUR BUSINESS

We have a history of incurring net losses, we may incur net losses in the future, and we may not be able to sustain profitability on a quarterly or annual basis.

We have incurred net losses on an annual basis from our inception through December 31, 2003. As of December 31, 2004, we had an accumulated deficit of approximately $1.2 billion. We may continue to incur net losses in the future. Some of our operating expenses are fixed. We may in the future incur losses from the impairment of goodwill or other intangible assets, losses from acquisitions, or restructuring charges. We must therefore generate revenues sufficient to offset these expenses in order for us to be profitable. While we achieved profitability in each of our last six fiscal quarters and on an annual basis for the fiscal year ended December 31, 2004, we may not be able to sustain profitability on a quarterly or annual basis.

Our revenues are dependent on our relationships with companies who distribute our products and services.

We rely on our relationships with distribution partners, including Web portals, software application providers and mobile operators, for distribution or usage of our products and application services. We generated approximately 55% of our total revenues through our relationships with our top ten distribution partners for the year ended December 31, 2004. In particular, we rely on a small number of distribution partners for a significant portion of the revenues associated with our search and directory products, and most of these partners are development-stage companies with limited operating histories and evolving business models. We cannot assure you that any of these relationships will continue, be sustainable or result in benefits to us that outweigh the costs of the relationships. In addition, our Search & Directory distribution partners or mobile operators may create their own content or license content directly from others that competes with or replaces the content that we provide.

Certain of our agreements with our distribution partners will come up for renewal in 2005 and 2006, and our mobile operator contracts generally come up for renewal on an annual basis. Also, if a distribution partner does not comply with their agreement with us, we may terminate the agreement. Such agreements may be terminated or may not be renewed or replaced on favorable terms, which could adversely impact our operating results and earnings. In particular, competition is increasing for consumer traffic in the search and directory markets and we are currently experiencing pricing pressure in our wireless business. We anticipate that the cost of our revenue sharing arrangements with our distribution partners will increase as revenues grow and may increase on a relative basis compared to revenues to the extent that there are changes to existing arrangements or we enter into new revenue sharing arrangements on less favorable terms.

Certain terms of our agreements with our third party content providers may be amended from time to time by both parties or may be subject to different interpretation by either party, which may require the rights we grant to our distribution partners to be modified to comply with such amendments or interpretations. Our agreements with our distribution partners in our Search & Directory business generally provide that we may modify the rights we grant to our distribution partners to avoid being in conflict with the agreements with our content providers. Failure of a distribution partner to comply with any such modification may require us either to not provide content from the applicable content provider to such distribution partner or to terminate the distribution agreement.

If we are unable to maintain these relationships on favorable terms, our financial results would materially suffer.

A substantial portion of our revenues is attributable to a small number of customers, the loss of any one of which would harm our financial results.

We derive a substantial portion of our revenues from a small number of customers. We expect that this concentration will continue in the foreseeable future. Our top ten customers represented approximately 89%,

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82% and 66% of our revenues for the fiscal years ended December 31, 2004, 2003 and 2002, respectively. Yahoo!, Google, Cingular Wireless and Verizon each accounted for more than 10% of our revenues in the year ended December 31, 2004. Yahoo!, Verizon, and Google each accounted for more than 10% of our revenues in the year ended December 31, 2003. Yahoo! and Verizon each accounted for more than 10% of our revenues in the year ended December 31, 2002. Our agreements with these customers expire in 2005 and 2006. If we lose any of these customers, are unable to renew the contracts on favorable terms, or if any of these customers are unable or unwilling to pay us amounts that they owe us, our financial results would materially suffer.

Our financial results are likely to continue to fluctuate, which could cause our stock price to be volatile or decline.

Our financial results have varied on a quarterly basis and are likely to fluctuate in the future. These fluctuations could cause our stock price to be volatile or decline. Several factors could cause our quarterly results to fluctuate materially, including:

For these reasons, among others, you should not rely on period-to-period comparisons of our financial results to forecast our future performance. Furthermore, our fluctuating operating results may fall below the expectations of securities analysts or investors, which could cause the trading price of our stock to decline.

We operate in new and rapidly evolving markets, and our business model continues to evolve, which make it difficult to evaluate our future prospects.

Our potential for future profitability must be considered in the light of the risks, uncertainties, and difficulties encountered by companies that are in new and rapidly evolving markets and continuing to innovate with new and unproven technologies or services, as well as undergoing significant change. Our Search & Directory and Mobile businesses are in young industries that have undergone rapid and dramatic changes in their short history. In addition to the other risks we describe in this section, some of these risks relate to our potential inability to:

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If we do not effectively address the risks we face, we may not sustain profitability.

Our strategic direction is evolving, which could negatively affect our future results.

Since inception, our business model has evolved and is likely to continue to evolve as we refine our product offerings and market focus. In particular, in 2003 we completed an in-depth analysis of our business and have since tightened our strategic focus to our Search & Directory and Mobile businesses. Businesses and services falling outside of these areas, including our Payment Solutions business, were sold or otherwise divested. There can be no assurance that our increased focus on and investment in our core businesses will produce better financial results than we would have achieved with our prior businesses or that we will be successful in effectively utilizing the proceeds of the sales. Further changes in strategic direction may occur as we continue to evaluate opportunities in a rapidly evolving market. These changes to our business may not prove successful in the short or long term and may negatively impact our financial results.

In addition, we have in the past and may in the future find it advisable to streamline operations and reduce expenses, including, without limitation, such measures as reductions in the workforce, reductions in discretionary spending, reductions in capital expenditures as well as other steps to reduce expenses. Effecting any such restructuring would likely place significant strains on management and our operational, financial, employee and other resources. In addition, any such restructuring could impair our development, marketing, sales and customer support efforts or alter our product development plans.

Our financial and operating results will suffer if we are unsuccessful at integrating acquired businesses.

We have acquired a number of technologies and businesses in the past and may engage in further acquisitions in the future. For example, in November 2003, we acquired Moviso, a provider of mobile media content, entertainment and personalization services; in June 2004, we acquired Switchboard, a provider of local on-line advertising solutions and Internet-based yellow pages; in July 2004, we acquired the assets of Atlas Mobile, a provider of mobile multi-player tournament games; in December 2004 we acquired IOMO, a U.K. developer and publisher of mobile games; and in January 2005, we acquired elkware, a German developer and publisher of mobile games.

Acquisitions may involve use of cash, potentially dilutive issuances of stock, the potential incurrence of debt and contingent liabilities or amortization expenses related to certain intangible assets. In the past, our financial results have suffered significantly due to impairment charges of goodwill and other intangible assets related to prior acquisitions. Acquisitions also involve numerous risks which could materially and adversely affect our results of operations or stock price, including:

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The success of the operations of companies and technologies that we have acquired will often depend on the continued efforts of the management and key employees of those acquired companies. Accordingly, we have typically attempted to retain key employees and members of existing management of acquired companies under the overall supervision of our senior management. We have, however, not always been successful in these attempts at retention. Failure to retain key employees of an acquired company may make it more difficult to integrate or manage the business of the acquired company, and may reduce the anticipated benefits of the acquisition by increasing costs, causing delays, or otherwise.

We depend on third parties for content, and the loss of access to or increased cost of this content could cause us to reduce our product offerings to customers and could negatively impact our financial results.

We currently create only a relatively small portion of our content. In most cases, we acquire rights to content from numerous third-party content providers, and our future success is highly dependent upon our ability to maintain relationships with these content providers and enter into new relationships with other content providers.

We typically license content under arrangements that require us to pay usage or fixed monthly fees for the use of the content or require us to pay under a revenue-sharing arrangement. Further, our musical composition and other media licenses for the creation of mobile content consisting of ringtones generally require royalty payments on a “most favored nation” basis, which requires us to pay the highest royalty paid to any licensor to all such licensors. In the future, some of our content providers may not give us access to important content or may increase the royalties, fees or percentages that they charge us for their content, which could have a negative impact on our net earnings. If we fail to enter into or maintain satisfactory arrangements with content providers, our ability to provide a variety of products and services to our customers could be severely limited, thus harming our operating results. Additionally, our content license and royalty fees will increase to the extent that our revenues related to such products and services increase and may increase as a percent of revenues as a result of price competition and carrier demand for our products and services and the mix of our product sales.

Our stock price has been and is likely to continue to be highly volatile.

The trading price of our common stock has been highly volatile. Since we began trading on December 15, 1998, our stock price has ranged from $3.70 to $1,385.00 (as adjusted for stock splits). On February 25, 2005, the closing price of our common stock was $41.13. Our stock price could decline or be subject to wide fluctuations in response to factors such as the other risks discussed in this section and the following, among others:

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In addition, the stock market in general, and the Nasdaq National Market and the market for Internet and technology company securities in particular, have experienced extreme price and volume fluctuations. These broad market and industry factors and general economic conditions may materially and adversely affect our stock price.

We are subject to legal proceedings that could result in liability and damage our business.

We have been, and expect to continue to be, subject to legal proceedings and claims. Approximately ten lawsuits are currently pending in which claims have been asserted against us or current and former directors and executive officers, in addition to ordinary course commercial and collection matters and intellectual property infringement claims that we believe are not material to our business. We are unable to determine the amount for which we potentially could be liable since a number of these lawsuits do not specify an amount for damages sought. We maintain insurance which may cover some defense costs and some of the claims, should we not prevail. Such proceedings and claims, even if claims against us are not meritorious, require the expenditure of significant financial and managerial resources, w