ONVIA COM INC - 10-Q Quarterly Report

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. x Yes ¨ No

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). ¨ Yes x No

Common stock, par value $.0001 per share: 7,667,263 shares outstanding as of April 15, 2003.

The accompanying condensed consolidated financial statements include the accounts of Onvia.com, Inc. and its wholly owned subsidiaries, collectively referred to as “Onvia” or “the Company.” The unaudited interim condensed consolidated financial statements and related notes thereto have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. The accompanying interim condensed consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K (“Annual Report”).

The information furnished is unaudited, but reflects, in the opinion of management, all adjustments, consisting of only normal recurring items, necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

Certain reclassifications of prior quarter balances have been made to conform to the current quarter presentation.

On July 11, 2002, Onvia’s stockholders approved a one-for-ten reverse stock split of our common stock. The reverse split was effective at the beginning of trading on July 17, 2002. All references in the consolidated financial statements and in the accompanying notes to the consolidated financial statements to common shares, share prices and per share amounts, including cash distribution per share, have been restated for the stock split.

Onvia considers all highly liquid instruments with a remaining maturity of three months or less to be cash equivalents. We classify investments with remaining maturity of more than three months and less than one year as short-term investments. Our cash and cash equivalents and short-term investments at March 31, 2003 and December 31, 2002 consisted of the following (cost approximates fair value):

Historical basic and diluted earnings per share are calculated using the weighted average shares of common stock outstanding, reduced for shares subject to repurchase by Onvia. As of March 31, 2003 and 2002, stock options, warrants and nonvested common stock totaling 1,074,424 and 851,223 shares, respectively, are excluded from the calculation of diluted net loss per share as they would be antidilutive.

We have elected to account for our employee and director stock-based awards under the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation cost for fixed award stock options is measured as the excess, if any, of the fair value of the underlying common stock on the date of grant over the exercise price of the stock option. We apply the provisions of Statement of Financial Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, for stock-based awards to those other than employees and directors. Stock-based compensation expense for all equity instruments is recognized on an accelerated basis over the related vesting periods.

Had we determined compensation expense based on the fair value of the option at the grant date for all stock options issued to employees, our net loss and net loss per share would have been increased to the pro forma amounts indicated below for the three months ended March 31:

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS No. 142, goodwill and certain other intangible assets will no longer be amortized but will remain on the balance sheet and will be reviewed for impairment using the guidance established in the Statement. As required under the Statement, when applicable, we will continue to amortize intangible assets with finite lives and we have ceased the amortization prospectively on goodwill upon adoption of the Statement.

We completed our initial impairment assessment of the goodwill by comparing the fair value of Onvia to its carrying value. Fair value was determined using the market capitalization of Onvia at January 1, 2002. This impairment test is required to be performed upon adoption of SFAS No. 142 and at least annually thereafter. Based on the initial impairment test, all of the goodwill recorded at January 1, 2002 was impaired. In accordance with SFAS No. 142, the impairment is presented as a cumulative effect of a change in accounting principle in the amount of $16.5 million at March 31, 2002.

As of March 31, 2003 there are 76,043 outstanding warrants for the purchase of common stock that would be eligible to receive the cash distribution if the warrants are exercised in the future. The maximum future distribution upon exercise of these warrants is approximately $297,000. The weighted average exercise price of these warrants as of March 31, 2003 was $11.20.

In 2001, as part of our overall strategic initiative to reduce costs and focus on our business-to-government (B2G) network, we licensed our Canadian operations, closed our web hosting business, outsourced and later closed our business-to-business (B2B) exchange and eliminated our outside sales force. In conjunction with this initiative, we recorded a charge during 2001 to accrue rental payments on our idle office space leases through December 2003. We periodically review the adequacy of our estimates, and due to the depressed commercial real estate market and the continued softening of sublease rates in Seattle we determined that an additional accrual was necessary. In December 2002 we recorded an additional reserve of $6.2 million, which covers our contractual obligations on our lease arrangements and estimated broker fees for our idle leased office space. This estimate assumes that we will be able to sublease our idle space in mid-2004 at estimated current market rates, which are below our contractually obligated rates, through the remainder of our lease obligations. The lease terms expire on dates ranging from 2005 through 2010.

The following table displays rollforwards of the accruals included in the restructuring charge established for real estate and other exit costs and employee separation costs through March 31, 2003 (in thousands):

The real estate and other exit costs, consisting principally of idle leased office space in Seattle, are expected to be paid out through 2010. Management will continue to evaluate this estimate on a periodic basis.

In January 2002, at Onvia’s discretion, we repurchased a total of 43,799 shares of our common stock from Kristin McLaughlin, our former Chief Strategy Officer, at the fair market value of the common stock on the transaction date for a total of $254,039.

During the quarter ended March 31, 2002, we received payments in the aggregate amount of $33,264 from Mark T. Calvert, our former Chief Financial Officer, towards the principal and interest balance on the $150,000 promissory note issued to him by Onvia in April 2000. This note was paid in full in June 2002.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement requires the recording of the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the associated costs of the asset retirement obligation will be capitalized as part of the carrying amount of the related long-lived asset. The liability for the asset retirement obligation will be accreted to its present value each period and the related capitalized costs will be depreciated over the useful life of the related long-lived asset. Upon retirement of the asset, Onvia will either settle the retirement obligation for its recorded amount or incur a gain or loss upon the retirement of the long-lived asset. This Statement was adopted on January 1, 2003 and did not have an impact on our financial position, results of operations or cash flows.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections, which rescinds and amends previously issued Statements for subsequent amendments and issuances affecting these Statements, including the elimination of the automatic treatment of extinguishment of debt as an extraordinary item. This Statement was adopted on January 1, 2003 and did not have an impact on our financial position, results of operations or cash flows.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost as defined in EITF Issue No. 94-3 was recognized at the date of an entity’s commitment to an exit plan. This Statement is effective for exit or disposal activities initiated after December 31, 2002. The exit activities discussed in Note 8 were initiated prior to the adoption date of this Statement; therefore, we expect to continue to account for our current and future costs associated with this activity under EITF Issue No. 94-3.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, which increases the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements for periods ending after December 15, 2002. The adoption of this Interpretation did not have an impact on our financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123, which amends SFAS No. 123 and provides alternative transition methods for a voluntary change to fair value based accounting for employee stock compensation. SFAS No. 148 also requires more prominent disclosures about the effects of stock-based compensation. The adoption of this Statement did not have a material impact on our financial position, results of operations or cash flows.

20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) and Sections 11 and 15 of the Securities Act of 1933, for issuing a Registration Statement and Prospectus that contained material misrepresentations and/or omissions. The complaint alleges that the Registration Statement and Prospectus were false and misleading because they failed to disclose (i) the agreements between CSFB and certain investors to provide them with significant amounts of restricted Onvia shares in the initial public offering (IPO) in exchange for excessive and undisclosed commissions; and (ii) the agreements between CSFB and certain customers under which the underwriters would allocate shares in the IPO to those customers in exchange for the customers’ agreement to purchase Onvia shares in the after-market at predetermined prices. The complaint seeks an undisclosed amount of damages, as well as attorney fees. On October 9, 2002, an order of dismissal without prejudice was entered, dismissing former officers Glenn S. Ballman and Mark T. Calvert. The parties are currently in settlement negotiations. We have a $30 million directors and officers liability policy that would cover any award up to $30 million, subject to a $250,000 self retention. Onvia intends to defend itself vigorously against these charges.

On February 21, 2001, Underground Utility Contractors of Florida, Inc. (“Underground”) (a trade association) filed a lawsuit against the City of Tallahassee (“Tallahassee”) and DemandStar.com, Inc. (“DemandStar”), a wholly owned subsidiary of Onvia. The suit was filed in the Second Circuit Court in Leon County, Florida. Underground’s complaint alleged that Tallahassee and DemandStar were violating the Florida Public Records Act. According to Underground, Tallahassee and DemandStar are charging members of the public more than the actual costs incurred in providing information on public bid opportunities and related public records stored in an electronic database used by Tallahassee. Underground sought an injunction against such practices. On January 28, 2002, DemandStar’s motion for summary judgment was granted and the lawsuit was dismissed. On or around July 31, 2002, Underground filed an appellant’s brief. On February 18, 2003, oral arguments were heard by the appeals court and on February 27, 2003, the District Court of Appeals affirmed the lower court’s summary judgment in favor of DemandStar. The decision was issued without opinion. Under the Florida Constitution, the Supreme Court has no jurisdiction to review a District Court of Appeals decision without opinion, which means the matter is final.

On February 28, 2003, a class action suit was filed in the United States District Court for the Southern District of Florida against approximately fifty companies, including Onvia, where CSFB was either the lead or the co-lead underwriter of an IPO, Glenn S. Ballman, Mark T. Calvert, CSFB, Frank Quattrone and other members of CSFB’s Technology Group (CSFB Individuals). The complaint charges CSFB and CSFB Individuals for violations of Section 12(a) of the Securities Act of 1933 and violations of Section 10(b) and 20(a) of the Securities and Exchange Act of 1934. The complaint charges the Company for violations of Sections 10(b) and 20(a) of the 1934 Act, and charges Mr. Ballman and Mr. Calvert for violations of Section 15 of the 1933 Act and Section 10(b) of the 1934 Act. The complaint also alleges claims against CSFB and the Company under the common law theory of respondeat superior, which provides that a principal is responsible for the actions of its agent, and against all defendants based on common law theories of fraud and negligent misrepresentation, and under Florida’s Blue Sky laws. In essence, the complaint alleges that the defendants disseminated false and misleading information to the public which misrepresented the accuracy of the Company’s IPO price, its financial condition and future revenue prospects. The complaint further alleges that the effect of the purported fraud was to manipulate the Company’s stock price so that the defendants could profit from the manipulation. The complaint seeks damages in an unspecified amount. The Company has submitted the claims to its directors and officers insurance carrier and intends to defend itself vigorously against these charges.

In August 2001 a shareholder of the Company filed a lawsuit in King County, Washington, alleging that the sale of preferred stock of Globe-1, a corporation that Onvia acquired in August 2000, violated the Washington Securities Act. The lawsuit also names Robert Gilmore, the former Chief Executive of Globe-1. The plaintiff seeks $65,000, plus attorney fees. The Company intends to defend itself vigorously against this lawsuit.

A similar lawsuit was filed in March 2003 in the U.S. District Court for the Western District of Washington by three shareholders of the Company alleging that the sale of preferred stock of Globe-1 violated the Washington Securities Act. The lawsuit also names Robert Gilmore. The plaintiffs seek $800,000, plus attorney fees. The Company intends to defend itself vigorously against this lawsuit.

From time to time the Company is subject to various other legal proceedings that arise in the ordinary course of our business. Although we cannot predict the outcomes of these proceedings with certainty, management does not believe that the disposition of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

We have incurred net operating losses from March 25, 1997 (inception) through March 31, 2003, and therefore have not recorded a provision for income taxes. We have recorded a valuation allowance for the full amount of our net deferred tax assets, as the future realization of the tax benefit is not currently likely.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to the historical information contained herein, the disclosure and analysis in this report contains forward-looking statements. When used in this discussion, the words “believes,” “anticipates,” “may,” “will,” “should,” “expects,” “plans,” “estimates,” “predicts,” “potential,” “continue,” “intends” or the negative of these and similar expressions are intended to identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and are subject to risks and uncertainties that could cause actual results to differ materially from those expected or implied by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described under “Risk Factors” and elsewhere in this report. We undertake no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated events. Readers are urged, however, to review the factors and risks described in reports we file from time to time with the Securities and Exchange Commission.

Onvia is a leading business-to-government (B2G) notification service for government agency buyers and business suppliers. The Onvia network alerts business suppliers of government contracts and helps government agencies inform and update suppliers electronically. Our network manages the distribution and report of bid requests from government agencies nationwide in the $600 billion federal, state and local government marketplace.

Our service makes it more efficient for companies of all sizes and industries to access and compete for these government opportunities. Business suppliers no longer have to scour newspapers, trade periodicals, or the Internet in search of government opportunities. Customers are automatically notified of and updated on government opportunities that match their business profile.

Our network efficiently matches government agency bid requests to suppliers of the requested commodity or service, saving time and money for agencies and businesses alike. Government agencies reduce costs by streamlining the bid process and create a larger and more diverse pool of suppliers, resulting in increased bid competition. Government suppliers can more efficiently keep up to date with public sector projects.

Agencies and suppliers also have access to our bid library that contains thousands of expired bids issued within the last 2 years. Information in our bid library helps agencies save time preparing new bid opportunities, and suppliers can use this library to analyze purchasing trends, identify potential future customers and access federal award information.

Our network consists of two complementary products, DemandStar by Onvia and The Onvia Guide, which automate the process of request for proposal (RFP) and request for quote (RFQ) creation, posting and document distribution for agencies and allows business suppliers access to federal, state and local government agency procurement opportunities nationwide.

Subscribers to the DemandStar by Onvia service have access to bid requests from approximately 400 contracted government agencies. Bid requests from agencies are supplemented by bids aggregated via our dedicated in-house research team. Subscribers have access to agency bid requests by commodity or location, and to our library of small business tools and government contracting reference materials. Subscription revenues from DemandStar by Onvia are generated from annual subscriptions to this service and the subscription fee is recognized ratably over the term of the subscription.

Our proprietary Onvia Guide service allows business users the opportunity to participate in government procurement contracts in 215 business categories over six vertical markets. The vertical markets currently served are:

Subscription revenues from The Onvia Guide are generated from monthly, quarterly and annual subscriptions to this service and the subscription fee is recognized ratably over the term of the subscription. In October 2002, we discontinued our monthly product, but will continue to renew and service our existing monthly subscribers. We added a quarterly product in August 2002. This product will provide customers with a longer initial period to experience the value of the product through increased lead flow.

In January 2003, we introduced premium data products, which include advance notice and award information. The award information offers additional revenue opportunities for many suppliers and most specifically subcontractors. The advance notice information offers additional advantages to our subscribers by alerting them of government projects in the bid-development process. We anticipate that the addition of premium data products will positively impact our average cash value per transaction.

We currently have approximately 24,000 subscribing business suppliers to whom we published approximately 112,000 bids in the first quarter of 2003, compared to approximately 66,000 bids in the same quarter in 2002, an increase of 70% in the number of bids published. Our subscriber count has declined slightly compared to 25,700 in the first quarter of 2002, which reflects our efforts to grow our premium subscribers at the expense of lower value customers and the elimination of our monthly product in October 2002.

Beginning with the last six months of 2002, we directed our marketing and sales activities to sign and retain customers that meet our premium profile. Premium subscribers are defined as customers with higher average revenue and higher retention, and include national, regional and state subscribers. Premium subscribers receive more government leads, directly leading to higher customer satisfaction and retention rates. Our premium subscribers represented over 48% of our total subscriber base in the first quarter of 2003, compared to 40% in the fourth quarter of 2002.

During 2002 we introduced new state, regional and metro-area products designed to expand our geographic offerings, and tailored to attract new premium subscribers and increase average cash value per transaction.

During the first quarter of 2003 we recorded over 9,300 new and repeat transactions, compared to 12,000 in the same quarter in 2002, a decrease of 2,700 transactions reflecting our focus on acquiring premium subscribers and the discontinuation of our monthly product. We increased our average cash value per transaction to $255 in the first quarter of 2003, an increase of 19% compared to $215 in the fourth quarter of 2002, and an increase of 96% compared to $130 in the first quarter of 2002. This increase in cash transaction value demonstrates our success in acquiring new premium customers and upgrading our existing customers to higher value products. Our focus on acquisition and retention of these premium customers should continue to positively impact our average cash value per subscriber.

In the first quarter of 2003 we placed additional emphasis on signing new agencies to increase the bid flow available to our subscribers, which is a key component of customer satisfaction and retention. The signing of additional agencies also substantially reduces our cost of customer acquisition because, in addition to submitting their bids directly to us, agencies refer their suppliers directly to us. As a result of this emphasis, we added 15 new agencies in the first quarter of 2003. We expect the growth in the number of agencies utilizing our service will continue to expand as we continue to focus on signing new agencies in strategic geographic regions.

We also target corporate customers to adopt our bid notification product. Corporate customers include larger companies who purchase multi-seat licenses for daily lead notification, or purchase Onvia data for redistribution to their employees or customers, or for remarketing their own products. During 2002 we signed a 5-year contract with a new corporate customer, with an aggregate value of approximately $2 million, to provide Onvia data for redistribution. The contract can be terminated for any reason by either party after a period of 24 months upon 6 months written notice. We also renewed an existing corporate customer for an additional two years for an aggregate value of approximately $500,000 in February 2003.

Results of Operations for the Three Months Ended March 31, 2003 Compared to the Three Months Ended March 31, 2002

Revenue increased 41% to $2.2 million, compared to $1.6 million for the three months ended March 31, 2003 and 2002, respectively. The increase was primarily due to increases in the average cash value per transaction attributable to our success in acquiring new premium subscribers and upgrading our existing customers to premium products. The increase in average cash value per transaction was partially offset by the decrease in total transactions as a result of our focus on acquiring premium subscribers and the discontinuation of our monthly product.

Cost of revenue decreased 21% to $296,000 for the three months ended March 31, 2003, compared to $375,000 for the same quarter in the prior year. The decrease was primarily attributable to a reduction of approximately $71,000 in payroll related expenses due to headcount reductions. The headcount reductions were a part of the initiative implemented in the fourth quarter of 2001 to reduce our cost structure. Some affected employees remained on staff for a portion of the first quarter of 2002 and were paid their normal salary.

Gross margin increased to 87% in the first quarter of 2003, compared to 76% in the same quarter in 2002 as a result of the increase in revenue and decrease in cost of revenue discussed above. We expect our gross margin to remain relatively flat in the foreseeable future; however, it may vary in direct relationship to the number of new products and verticals we offer.

Technology and development expenses were $924,000 and $1.6 million for the three months ended March 31, 2003 and 2002, respectively, representing a decrease of 42% for the first quarter of 2003 compared to the same quarter in 2002. The decrease is primarily attributable to a reduction of approximately $290,000 in payroll related expenses due to headcount reductions as part of the cost reduction initiative discussed above under cost of revenue, a reduction of approximately $100,000 in telecom expenses as a result of the termination of accounts associated with our legacy B2B business, and a reduction of approximately $190,000 in depreciation expenses because we had numerous large assets that became fully depreciated during 2002. Depreciation is allocated between sales and marketing, technology and development, and general and administrative departments based on headcount.

General and administrative expenses were $1.0 million and $1.2 million for the three months ended March 31, 2003 and 2002, respectively, reflecting a decrease of 18% for the first quarter of 2003 compared to the same quarter in 2002. The decrease is primarily attributable to a reduction of approximately $70,000 in payroll related expenses as a result of headcount reductions as part of the cost reduction initiative discussed above under cost of revenue, and a reduction of approximately $91,000 in NASDAQ dues and depreciation expenses. Our NASDAQ dues decreased as a result of the reduction in total shares outstanding after the 1-for-10 reverse stock split.

We record unearned stock compensation in connection with the grant or absorption of options in a purchase business combination of certain stock options and other equity instruments. For employee options, unearned stock compensation is the difference between the fair market value of our common stock at the date of grant and the exercise price of the options. These amounts are amortized on an accelerated basis over the vesting period of the option, typically four years. At March 31, 2003, unearned stock compensation was $232,000. We recorded $178,000 and $456,000 of net noncash stock-based compensation expense for the three months ended March 31, 2003 and 2002, respectively. Noncash stock-based compensation expense is recorded within the operating expense category based on the classification of the related employee.

Net other income was $132,000 and $405,000 for the three months ended March 31, 2003 and 2002, respectively. The decrease was primarily attributable to a lower cash balance held in interest bearing accounts and lower prevailing interest rates.

Net losses were $2.3 million and $19.9 million, or $0.30 per share and $2.58 per share for the three months ended March 31, 2003 and 2002, respectively. Net loss for the first quarter of 2002 includes the cumulative effect of a change in accounting principle in the amount of $16.5 million.

We continue to engage Broadview International LLC, an investment banking firm, to assist us in identifying suitable transactions to enhance stockholder value, including, but not limited to, potential mergers, acquisitions and strategic partnerships.

In conjunction with the closure of our Canadian operations and B2B exchange and the elimination of our outside sales force, we recorded a charge during 2001 to accrue rental payments on our idle office space leases through December 2003. We periodically review the adequacy of our estimates and due to the depressed commercial real estate market and the continued softening of sublease rates in Seattle we determined that an additional accrual was necessary. In December 2002 we recorded an additional net reserve of $6.2 million. This additional accrual covers our remaining contractual obligations assuming that we will be able to sublease our idle space in mid-2004 at estimated current market rates, which are below our contractually obligated rates, through the remainder of the lease obligations. The lease terms expire on dates ranging from 2005 through 2010. We currently have approximately 78,000 square feet of idle office space in the Seattle market. At March 31, 2003, the total accrual related to future lease payments and estimated broker fees on our idle office space was $9.3 million. The total obligation for office space under lease, which includes the $9.3 million accrual, exceeds $19 million. Should it take longer to sublease the excess office space or should the sublease amount be lower than our estimates, the actual cost could exceed the amount accrued.

Future required payments under contracts as of March 31, 2003 are as follows for the years ending:

Minimum lease payments have not been reduced by minimum sublease rentals of approximately $172,000 due in the future under current subleases.

Onvia has incurred net operating losses from March 25, 1997 (inception) through March 31, 2003, and therefore has not recorded a provision for income taxes. Onvia has recorded a valuation allowance for the full amount of its net deferred tax assets, as the future realization of the tax benefit is not currently likely.

Our future liquidity and capital requirements will depend on numerous factors. For example, our pace of expansion will affect our future capital requirements, as will our decision to acquire or invest in complementary businesses and technologies. Further, our ability to sublease or dispose of our idle office space, for which we have approximately $9.3 million accrued at March 31, 2003, will affect our future liquidity; however, we believe that our existing cash and cash equivalents will be sufficient to satisfy our cash requirements under existing operating plans for the foreseeable future.

If we engage in merger or acquisition transactions or our overall operating plans change, we may require additional equity or debt financing to meet future working capital needs, which may have a dilutive effect on existing stockholders. We cannot make assurances that if additional financing is required, it will be available or, that such financing can be obtained on satisfactory terms.

We experienced a slowdown in revenue growth in the first quarter of 2003, which occurred during the preparation and execution of military operations in Iraq. War distraction also contributed to the slower than anticipated adoption rates of our higher-value premium products. Despite these slowdowns, our management believes that we can achieve cash flow profitability sometime during the third quarter of 2003; however, the timing of profitability could extend into the fourth quarter of 2003 with $33 to $34 million in cash on hand. This guidance on cash flow profitability is dependent in part upon market adoption of our premium award and advance notice information products over the next few months. If market adoption is less than our expectation, cash flow profitability could be further delayed.

Our combined cash, cash equivalents and short-term investments were $36.1 million at March 31, 2003. Short-term investments, if any, are invested in money market funds, commercial paper, obligations of the U.S. Government, municipal and auction rate securities and corporate debt securities with maturities of one year or less. The portfolio, if applicable, is diversified among security types and issuers and does not include any derivative financial instruments. At March 31, 2003, our working capital was $29.3 million.

In March 2002, our Board of Directors approved a cash distribution of $3.90 per share to return excess operating capital to our stockholders. The distribution in the amount of $29.9 million was paid on May 3, 2002. At March 31, 2003 there were 76,043 outstanding warrants for the purchase of common stock that would be eligible to receive the cash distribution if the warrants are exercised in the future. The maximum future distribution upon exercise of these warrants is approximately $297,000. The weighted average exercise price of these warrants as of March 31, 2003 was $11.20.

Net cash used by operating activities was $2.5 million and $6.6 million for the three months ended March 31, 2003 and 2002, respectively. The improvement in net cash used by operating activities in the first quarter of 2003 was primarily attributable to a lower net loss as a result of lower operating expenses and costs of sales, a decrease in payments for prepaid expenses and other current assets, and a decrease in restructuring related payments compared to the same quarter in 2002.

Net cash used in investing activities was $4.3 million and $91,000 for the three months ended March 31, 2003 and 2002, respectively. The increase in net cash used in investing activities in the first quarter of 2003 was primarily attributable to an increase in the purchase of short-term investments compared to the same quarter in 2002.

Net cash used in financing activities was $0 and $1.2 million for the three months ended March 31, 2003 and 2002, respectively. Net cash used in financing activities in the first quarter of 2002 was primarily related to repayments on long-term debt and repurchases of common stock. All of our debt obligations were paid in full in 2002, and there were no repurchases of common stock during the first quarter of 2003.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123, which amends SFAS No. 123 and provides alternative transition methods for a voluntary change to fair value based accounting for employee stock compensation. SFAS No. 148 also requires more prominent disclosures about the effects of stock-based compensation. The adoption of this Statement did not have a material impact on our financial position, results of operations or cash flows.

In addition to other information in this Report, the following risk factors should be carefully considered in evaluating Onvia and its business because such factors may have a significant impact on Onvia’s business, results of operations and financial condition. As a result of the risk factors set forth below and elsewhere in this Report, and the risks discussed in Onvia’s other Securities and Exchange Commission filings, actual results could differ materially from historical results or those projected in any forward-looking statements.

We may be unable to maintain our listing on NASDAQ, which could cause our stock price to fall and decrease the liquidity of Onvia’s common stock

We previously received a delisting notification from NASDAQ due to NASDAQ’s $1.00 minimum bid price requirement. On August 2, 2002 we received notification from NASDAQ that we had regained compliance with the Market’s listing requirements. Onvia’s stock traded in the range of $2.50 and $2.74 in the first quarter of 2003, with a closing price of $2.69 on April 15, 2003. Our 1-for-10 reverse stock split, which was effective on July 17, 2002, reduced the number of outstanding shares of our stock. The reduced number of shares, combined with a reduction in stock price, could put us at risk of violating the NASDAQ minimum market value requirement. If our common stock is delisted from trading on the NASDAQ National Market as a result of subsequent listing requirement violations and is neither relisted thereon nor listed for trading on the NASDAQ SmallCap Market, trading in our common stock may continue to be conducted on the OTC Bulletin Board or in a non-NASDAQ over-the-counter market, such as the “pink sheets”. Delisting of our common stock would result in limited release of the market price of the common stock and limited news coverage of Onvia and could restrict investors’ interest in the common stock. Also, a delisting could materially and adversely affect the trading market and prices for our common stock and our ability to issue additional securities or to secure additional financing. In addition, if our common stock were not listed and the trading price of the common stock was less than $5 per share, our common stock could be subject to Rule 15g-9 under the Securities Exchange Act of 1934 which, among other things, requires that broker/dealers satisfy special sales practice requirements, including making individualized written suitability determinations and receiving a purchaser’s written consent prior to any transaction. In such case, Onvia’s common stock could also be deemed to be a “penny stock” under the Securities Enforcement and Penny Stock Reform Act of 1990, which would require additional disclosure in connection with trades in the common stock, including the delivery of a disclosure schedule explaining the nature and risks of the penny stock market. Such requirements could severely limit the liquidity of Onvia’s common stock.

The market price of Onvia’s common stock has fluctuated significantly and could continue to fluctuate significantly in response to various factors, including:

In addition, the stock market in general, and the NASDAQ National Market and the market for Internet and technology companies in particular, have experienced extreme price fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. These broad market and industry conditions may materially and adversely affect our stock price, regardless of our operating performance.

Our principal stockholders, officers and directors own a controlling interest in our voting stock

Onvia’s officers, directors and stockholders with greater than 5% holdings beneficially own approximately 55.9% of our outstanding common stock. Under the rules of the Securities and Exchange Commission, a person is deemed to be the beneficial owner of shares that can be acquired by such person within 60 days upon the exercise of options, warrants, or other convertible securities. As a result of this majority ownership, these stockholders could, if they acted together, have the ability to control substantially all matters submitted to our stockholders for approval, including:

These stockholders and directors have substantial influence over Onvia’s management and its affairs.

The exercise of employee stock options could have a dilutive effect on current stockholders

In January 2003, our Board of Directors approved a one-time aggregate stock option grant of 400,000 options to active employees, excluding certain executives. The grant was based on an analysis of employee ownership in related industries. Our analysis revealed that, prior to the additional grant, Onvia was significantly below industry norms for employee participation in equity ownership. The additional grants vest ratably over a period of 48 months and contain provisions for accelerated vesting of 25% of then unvested options if certain change of control transactions occur. The exercise of a significant number of these options could have a dilutive effect to current stockholders and could negatively impact the price of Onvia’s stock.

We have implemented anti-takeover provisions that may discourage takeover attempts and depress the market price of our stock

Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, Onvia’s state of incorporation, can have the effect of making it difficult for a third party to acquire Onvia, even if doing so would be beneficial to our stockholders. These provisions include:

In addition, on November 22, 2002, our Board of Directors adopted a Stockholders Rights Agreement, designed to protect stockholder interests in the event of an unsolicited takeover attempt by distributing one Preferred Stock Purchase Right for each outstanding share of Common Stock.

Uncertainty in the commercial real estate market in Seattle may harm our chances of eliminating the monthly lease payments on our idle office space

We currently have approximately 78,000 square feet of idle office space in the Seattle area. As a result of the continuing economic slowdown, the current market for commercial real estate in Seattle is depressed. We have recorded a liability sufficient to cover our remaining lease obligations through 2010 under the assumption that we will be able to sublease this space at estimated current market rates, which are below our contractually obligated rates, in mid-2004 through the remainder of the lease terms. If the commercial real estate market in Seattle remains depressed and we are unable to eliminate or reduce the monthly lease payments on our idle office space, our business, operating results and financial condition would be harmed.

We may fail to develop and market comprehensive, efficient, cost-effective and secure electronic access to public information and new products and services

Our success depends in part upon our ability to rapidly establish our own products and services as the standard used by businesses that transact with governmental entities and agencies in the United States. In order to increase revenue in the future, we must continue to develop products and services that businesses, governments and citizens will find valuable, and there is no guarantee that we will be able to do so. If we are unable to develop products and services that allow us to attract, retain and expand our current subscriber base, our revenues and future operating results may be harmed. We cannot ensure that our products and services will appeal to a sufficient number of Internet users to generate continued revenue growth.

We may lose the right to the content that we distribute, which is provided to us by governmental entities and other third parties

We do not own or create the content distributed to our vendors in the form of request for proposal and related information. We do not have an exclusive right to this content and we cannot ensure that these data sources will continue to be available in the future. Governmental entities and other third parties could terminate their contracts to provide data or restrict the distribution of such data. The loss or the unavailability of our data sources in the future, or the loss of our right to distribute some of the data sources, would harm our business, operating results and financial condition.

We may not be able to maintain adequate bid flow to our customers if governmental agencies collectively reduce spending

If at any time governmental agencies reduce spending for an extended period of time, there may be a shortage of procurement bids flowing through our B2G network. If we cannot provide an adequate supply of government procurement bids to our subscribing suppliers, these customers may not renew their subscription to the service. The loss of our current and future subscribing suppliers would harm our business, operating results and financial condition.

Our ability to distribute bid flow and to effectively market to our customers is largely dependent on the proper functioning of our customers’ internet service providers

Some network administrators could flag and block emails from Onvia as “junk-email” or for other reasons. Excessive blocking of our emails would harm our marketing efforts and our business.

We may not be able to meet our projected renewal rates, which could hurt our growth and profitability

If we are unable to meet our projected renewal rates our projected growth and profitability will suffer. The loss of renewals from our current and future subscribing suppliers would harm our business, operating results and financial condition.

If we are unable to increase subscribership to our premium, higher priced products, our business will suffer

For our B2G network to succeed, we must continue to attract and retain subscribers to our premium, higher-priced services. Subscribers to our premium services have higher average subscription prices (ASPs), higher renewal rates and provide greater lifetime value to the Company.

Our ability to grow our business depends in part on governments and businesses increasing their use of the Internet to conduct commerce, and the Internet’s capacity to support the demands of this growth

Our growth depends in part on increased use of the Internet by governments and businesses. If use of the Internet as a medium for government, consumer and business communications and commerce does not continue to increase, demand for our services and products will be limited and our financial results may suffer.

Even if governments and businesses increase their use of the Internet, the Internet infrastructure may not be able to support the demands of this growth. The Internet infrastructure must be continually improved and expanded in order to alleviate overloading and congestion. If the Internet’s infrastructure is not improved or expanded, the Internet’s performance and reliability will be degraded. Internet users may experience service interruptions as a result of outages and other delays occurring throughout the Internet. Frequent outages or delays may cause consumers and businesses to slow or stop their use of the Internet as a transaction-based medium.

Intense competition could impede our ability to gain market share and harm our financial results

The B2G e-commerce markets are new, rapidly evolving and intensely competitive, and we expect competition to intensify in the future. Our business could be severely harmed if we are not able to compete successfully against current or future competitors. Although we believe that there may be opportunities for several providers of products and services similar to ours, a single provider may dominate the market. We expect that additional companies will offer e-commerce solutions in the future.

Our current and potential competitors include internet-based and traditional companies such as BidNet, TrueAdvantage, AMS, FedMarket, BidLine, Epylon, Simplexis, BidMain, McGraw-Hill, Contractors Register and other companies focused on providing services to government agencies.

Many of our current and potential competitors have longer operating histories, larger customer bases and/or greater brand recognition in business and Internet markets and significantly greater financial, marketing and technical resources than we do. Our competitors may be more successful than we are in developing their technologies, adapting more aggressive pricing policies and establishing more comprehensive marketing and advertising campaigns.

Our competitors may develop web sites that are more sophisticated than ours, with better online tools and service and product offerings superior to ours. For these and other reasons, our competitors’ web sites may achieve greater acceptance than ours, limiting our ability to gain market share and customer loyalty and to generate sufficient revenue to achieve profitability.

B2G network service platforms are at an early stage of development and market acceptance and may not prove to be viable

Broad and timely acceptance of our B2G network, which is critical to our future success, is subject to a number of significant risks. These risks include:

Although we expect to derive a significant portion of our future revenue from bid notification services, we have not yet fully evolved our revenue model for services associated with the network. The revenue associated with network services may be a combination of transaction and/or subscription fees. Examples of such services might include electronic payment and bid/quote, among others. However, we cannot predict whether these services will be commercially successful or whether they will adversely impact revenues. The Company will be seriously harmed if our B2G network model is not commercially successful.

Failure to introduce new products or product enhancements on a timely basis that are compatible with industry standards and expectations could delay or hinder demand for, or market acceptance of, our products, which could hurt our growth and profitability.

To be successful, we must develop, test and deploy new products in a timely fashion that meet the usability expectations of the marketplace. Due to the importance of timely introduction of new products in the marketplace, we may release a product that contains defects. If we release a product that contains defects, or inadequate functionality and features, potential customers may become discouraged from using our products, and therefore harm our reputation and business. In addition, if market acceptance of these new products and subsequent renewals on these new products are not in line with our projections, our projected growth and profitability will suffer.

If we fail to expand our current technology infrastructure and network software system, it will be unable to accommodate our anticipated growth

To be successful, we must expand and develop our technology infrastructure and network software system. To maintain the necessary technology in the future, we must continue to expand and stabilize the performance of our web servers, optimize the performance of our network servers and ensure the stable performance of our entire network. We must improve, and potentially replace, our network software system to handle additional customers and to provide additional functionality. We may not be successful in our ongoing efforts to upgrade our systems, or if we do successfully upgrade our systems, we may not do so on time and within budget. Failure to achieve a stable technological platform in time to handle increasing network traffic may discourage potential customers from using our network, and therefore harm our reputation and business.

We have a limited operating history, making it difficult to evaluate our business and future prospects

Onvia was incorporated in March 1997. We have been serving businesses since that time and have been focusing on including government agencies in our network only since April 2001. We have a limited operating history upon which an investor may evaluate our business and prospects. Our potential for future profitability must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in early stages of development, particularly companies in new and rapidly evolving markets, such as e-marketplaces. We may not successfully address any of these risks. If we do not successfully address these risks, our business will be seriously harmed.

We have incurred negative cash flows from operations in each quarter since inception. Under our current operating plan we expect to continue to incur significant negative cash flows for a portion of 2003

To increase revenue, we will need to continue to attract customers and suppliers to our network and expand our service offerings. Under our operating plan, it is also projected that we will continue to incur significant sales and marketing, technology and development, and general and administrative expenses. As a result, we will need to generate significant revenue to achieve profitability in the future. Any failure to significantly increase revenue and achieve and maintain profitability would materially affect our business, operating results and financial condition and may adversely affect the market price of our stock.

Our quarterly financial results are subject to fluctuations that may make it difficult to forecast our future performance

We expect our revenue and operating results to vary significantly from quarter to quarter, making it difficult to formulate meaningful comparisons of our results between quarters. Our limited operating history and unproven business model further contribute to the difficulty of making meaningful quarterly comparisons. A significant portion of our subscription revenue for a particular quarter is derived from transactions that are initiated in previous quarters. Other factors that may affect our quarterly results include those discussed throughout this section.

Our current and future levels of operating expenses and capital expenditures are based largely on our growth plans and estimates of future revenue. These expenditure levels are, to a large extent, fixed in the short term. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and any significant shortfall in revenue relative to planned expenditures could harm our business and results of operations.

Our limited operating history and rapid growth make it difficult to assess the seasonal factors in our business. Nevertheless, we expect seasonal fluctuations in our business, reflecting a combination of seasonal trends for the services and products we offer and seasonal trends in the buying habits of our target business customers and government agencies.

The Internet and online exchange markets are characterized by rapid technological change, frequent introductions of new or enhanced hardware and software products, evolving industry standards and changes in customer preferences and requirements. We may not be able to keep up with any of these or other rapid technological changes, and if we do not, our business will be harmed. These changes and the emergence of new industry standards and practices could render our existing web site and operational infrastructure obsolete. The widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require us to incur substantial expenditures to modify or adapt our operating practices or infrastructure. To be successful, we must enhance our web site responsiveness, functionality and features, acquire and license leading technologies, enhance our existing service and product offerings, and respond to technological advances and emerging industry standards and practices in a timely and cost effective manner.

We may face challenges that could prevent us from successfully integrating any future acquisition

In November 2002, we reengaged Broadview International LLC, an investment banking firm, to assist us in identifying suitable transactions to enhance stockholder value, including, but not limited to, potential mergers, acquisitions and strategic partnerships. There are significant challenges to integrating any acquisition. Because integrating companies and technologies involves significant challenges and is a complex process, the anticipated benefits of a merger may not be achieved within the anticipated timeline, or at all. The challenges involved in integrations include:

We may not succeed in overcoming these risks or any other problems encountered in connection with a merger. The diversion of the attention of our management and any difficulties encountered in the process of combining the companies could cause the disruption of, or a loss of momentum in, the activities of our business. If we do not successfully integrate any future acquired businesses, the market price of our common stock may decline and future operating results may suffer.

If a merger does not meet the expectations of financial or industry analysts or Onvia’s investors, the market price of our common stock may decline

We may make incorrect assumptions about potential acquisitions or mergers, such as the ability of the acquired businesses to secure additional business from government customers and vendors selling to those customers. Consequently, we may not achieve the forecasted benefits of the merger, including improved financial results, to the extent anticipated by us or by financial or industry analysts. In addition, significant stockholders of Onvia following the merger may decide to dispose of their shares if the merger fails to meet their expectations. In either event, the market price of our common stock may decline.

We have completed several acquisitions and may make future acquisitions, which may harm our operating results

We have completed several acquisitions and expect to continue making acquisitions designed to increase our customer base, broaden our offerings and market penetration and expand our technology platform. Our ability to integrate our past acquisitions is unproven. In addition, failure to successfully evaluate and execute future acquisitions may seriously harm our business. To evaluate and execute an acquisition successfully, we must:

If we fail to do any of these tasks, we may complete unsuccessful acquisitions, possibly resulting in adverse consequences to our business.

We currently intend to finance future acquisitions by using our common stock and/or cash for all or a portion of the consideration to be paid. In the event that our common stock does not maintain sufficient value, is delisted from NASDAQ or potential acquisition candidates are unwilling to accept our common stock as consideration for the sale of their businesses, we may be required to use more cash, if available, in order to continue making acquisitions. If we do not have sufficient cash, our growth through acquisitions could be limited unless we are able to obtain capital through additional debt or equity financings.

If regulations or legal restrictions are imposed upon bid aggregation on the Internet or upon charging a fee for publicly available bid information, our business will be materially harmed

Our proprietary bid aggregation technology will be integral to our success. If the process of bid aggregation becomes regulated in the future and our process for acquiring government bids is no longer cost-effective, our business will be significantly harmed. If new regulations restricting our ability to charge a fee for public bid information are enacted, our business will be significantly harmed.

If government agencies require Onvia to provide the entire bid document to our subscribers, we would need to develop a new method of obtaining bid documents, and our business would be harmed

We provide our subscribers with a summary of the government bid notification and the required contact information, not the complete bid document. Government agencies could receive complaints from a potential business supplier about the lack of detail provided in the bid notification distributed by Onvia. The agencies could consequently require us to provide the complete document to our suppliers to eliminate any potential confusion during the bidding process. If this occurs, our current bid aggregation technology would not be adequate to achieve these requirements, and we would need to find a new method to accumulate the complete bid document for distribution to our subscribers.

Future regulations could be enacted that either directly restrict our business or indirectly impact our business by limiting the growth of e-commerce

As e-commerce evolves, federal, state, local and foreign agencies could adopt regulations covering issues such as privacy, content and taxation of services and products. If enacted, government regulations could limit the market for our services and offerings. Although many regulations might not apply to our business directly, we expect that laws regulating the collection or processing of personal or consumer information could indirectly affect our business. It is possible that legislation could expose companies involved in e-commerce to liability, which could limit the growth of e-commerce generally. Legislation could hinder the growth in Internet use and decrease its acceptance as a medium for communication and commerce.

We may be unable to obtain future DemandStar by Onvia contracts through the request for proposal (RFP) process

Once a government decides to use our DemandStar by Onvia services, it sometimes involves a selection process that operates under special rules imposed by law applicable to government purchasing. These rules typically require open bidding by possible service providers like Onvia against a list of requirements established by governments under existing or specially created procedures generally involving RFPs made by governments. To respond successfully to these RFPs, we must estimate the time and costs required to establish operations for the proposed government client and the likely terms of any other proposals submitted. We must also assemble and submit a large volume of information within the strict time schedule mandated by a request for proposal. Whether or not we are able to respond successfully to RFPs in the future will significantly impact our business.

We cannot guarantee that we will win any bids in the future through the RFP process. We also cannot guarantee that any winning bids will ultimately result in contracts, because after the winning bid is identified, negotiations then occur between the winning party and the agency. Typically, these negotiations are over legal terms and conditions of the agreement, not price or delivery time. We cannot guarantee the success of those negotiations. If negotiations fail, the agency is free to negotiate with other bidders or restart the RFP process. We generate most of our revenue from vendors who pay fees to us in order to use our systems to sell goods and services to government agencies. If we are unable to sign up governments to participate in our B2G network, then we will be unable to secure revenue-generating agreements with new vendors and existing vendors may terminate their agreements for our DemandStar by Onvia service.

Our network and software may be vulnerable to security breaches and similar threats that could result in our liability for damages and harm our reputation

Our network infrastructure is vulnerable to computer viruses, break-ins, network attacks and similar disruptive problems. This could result in Onvia’s liability for related damages, and our reputation could suffer, thus deterring existing and potential customers from transacting business with Onvia. Security problems caused by third parties could lead to interruptions and delays or to the cessation of service to our customers. Furthermore, inappropriate use of the network by third parties could also jeopardize the security of confidential information stored in our computer systems.

We intend to continue to implement industry-standard security measures, but we cannot ensure that the measures we implement will not be circumvented. The costs and resources required to alleviate security problems may result in interruptions, delays or cessation of service to our customers, which could harm our business.

We face significant security risks related to the electronic transmission of confidential information.

We rely on encryption and other technologies to provide system security to effect secure transmission of confidential information, such as bid flow and personal information. We license these technologies from third parties. We cannot make assurances that our use of applications designed for data security, or that of our third-party contractors will effectively counter evolving security risks. A security or privacy breach could:

Any inability to protect the security and privacy of our electronic transactions could have a material adverse effect on our profitability.

We may be unable to effectively combat use of our bid flow information for unauthorized redistribution

An increasing number of individuals and entities have been identified as having utilized our bid flow information for unauthorized redistribution. We have been and will continue to be aggressive about monitoring and combating such unauthorized use, and are considering technological avenues for blocking such users from our website. However, if we fail to effectively combat such unauthorized use, our business will be harmed.

Our operations may be adversely affected by earthquakes or extended power outages

Our corporate headquarters are located in the Pacific Northwest. The Pacific Northwest has from time-to-time experienced earthquakes and experienced an earthquake in February 2001 that caused significant damage in the region. We do not know the ultimate impact on our operations of being located near major earthquake faults, but an earthquake could harm our operating results. The Pacific Northwest, as with any other region, may also be subject to power shortages or outages. Power shortages or outages could cause disruptions to our operations, which in turn may result in a material decrease in our revenues and earnings and harm our business. Our insurance coverage may not be adequate to cover the losses and interruptions caused by earthquakes or power outages.

The performance of our web sites is critical to our business and our reputation

Any system failure that causes an interruption in the service of our B2G network or a decrease in its responsiveness could result in reduced activity and reduced revenue. Further, prolonged or ongoing performance problems on our web sites could damage our reputation and result in the permanent loss of customers. In the past, system interruptions have made our web sites totally unavailable, slowed their response time or prevented us from making our service available to our customers, and these problems may occur again in the future.

As of June 2001, we moved all of our web servers in-house at our corporate headquarters in Seattle, Washington from their previous off-site location at Exodus Communications. Our lack of experience and expertise in maintaining web and database servers may increase the likelihood of interruptions and failures of our network web site service. Regardless of whether our servers are maintained by Exodus or in-house, our backup systems may not be sufficient to prevent major interruptions to our operations, and our disaster recovery plan is not yet finalized. We may not have sufficient business interruption insurance to cover losses from major interruptions. We have identified an offsite facility to house our disaster recovery site and will begin deployment at the beginning of the third quarter of 2003. After successful deployment to an off-site location, our IT organization will conduct semi-annual disaster recovery testing.

Customers and visitors to our web site depend on their own Internet service providers, online service providers and other web site operators for access to our web sites. These providers have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to Onvia’s systems.

Our services and products depend upon the continued availability of licensed technology from third parties

We license, and will continue to license, technology integral to our services and products from third parties. If we are unable to acquire or retain key third-party product licenses or integrate the related third-party products into our network services, our service and product development may be delayed. We also expect to require new licenses in the future as our business grows and technology evolves. We may not be able to obtain these licenses on commercially reasonable terms, if at all.

Any settlement or claim awarded against Onvia in our ongoing litigation matters could negatively impact our operating results

Onvia is defending against litigation matters as detailed in Part II below, including a shareholder class action. In such a lawsuit, we have directors and officers insurance of $30 million to cover defense costs and any award or settlement, less our self retention of $250,000. Other lawsuits described in Part II are not covered by our directors and officers insurance and any award or settlement resulting from such lawsuits may significantly impact our financial position and operating results. It is also possible that defense of these claims will result in a significant diversion of management attention.

Our business will suffer if we are unable to hire and retain highly qualified employees

Our future success depends on our ability to identify, hire, train and retain highly qualified sales and marketing, technical, managerial and administrative personnel, especially those experienced in dealing with government agencies and businesses that serve government agencies. As we continue to introduce new services, products and features on our web site, and as our customer base continues to grow, we will need to hire qualified personnel. Competition for qualified personnel, especially those with Internet experience and experience in government procurement, is intense, and we may not be able to attract, train, assimilate or retain qualified personnel in the future. Our failure to attract, train, assimilate and retain qualified personnel could seriously disrupt our operations and could increase our costs as we would be required to use more expensive outside consultants.

Our executive officers, directors and key employees are critical to our business, and these officers, directors and key employees may not remain with the Company in the future

Our business and operations are substantially dependent on the performance of our senior management, directors and key employees, all of whom are employed on an at-will basis. The loss of Michael D. Pickett, Chairman of the Board of Directors and Chief Executive Officer, Clayton W. Lewis, President and Chief Operating Officer, members of the Board of Directors or other key employees would likely harm our business.

We may require significant additional capital in the future, which may not be available on suitable terms, or at all

The expansion and development of our business may require significant additional capital, which we may be unable to obtain on suitable terms, or at all. If we are unable to obtain adequate funding on suitable terms, or at all, we may have to delay, reduce or eliminate some or all of our advertising, marketing, engineering efforts, general operations or other initiatives.

We may require substantial additional funds to expand our marketing activities, to continue to develop and upgrade our technology and to make corporate acquisitions. If we issue convertible debt or equity securities to raise additional funds, our existing stockholders will be diluted.

Onvia is exposed to financial market risks, including changes in interest rates, foreign currencies and equity prices.

Our primary investment objectives are preservation of principal, a high degree of liquidity and a maximum total return consistent with the investment objectives. Our investment portfolio, if any, is primarily comprised of (U.S. denominated only): commercial paper issued by U.S. corporations; direct obligations of the U.S. Government; municipal securities; auction rate securities issued by U.S. financial institutions; bankers acceptances and/or certificates of deposit; and money market funds fully invested in direct obligations of the U.S. government. U.S. Government and agency securities (and money market funds investing in them) are exempt from size limitations; all other securities are limited to 10% of the portfolio at the time of purchase, per issuer. In addition, the cumulative investments in an individual corporation, financial institution or financial institution’s security are limited to $10 million. As of March 31, 2003, Onvia considers the reported amounts of these investments to be reasonable approximations of their fair values.

We expect our interest rate risk exposure to be insignificant, since all of our debt arrangements were paid in full prior to the first quarter of 2003. Historically, our interest expense was not sensitive to the general level of U.S. interest rates because all of our debt arrangements were based on fixed interest rates. We manage our interest rate risk by purchasing investment-grade securities and diversifying our investment portfolio among issuers and maturities.

We expect our foreign currency risk exposure to be insignificant, since we disposed of our Canadian operations in March 2001.

(a) We have designed our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) to ensure that material information related to Onvia, including our consolidated subsidiaries, is made known to our disclosure committee, including our principle executive officer and principal financial officer on a regular basis, particularly during the period in which the Report is being filed. As required, we will evaluate the effectiveness of these disclosure controls and procedures on a quarterly basis, and did so within 90 days prior to the filing of this Report. We believe that our disclosure controls and procedures are operating effectively as designed.

(b) There have been no significant changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph (a) above.

During the year ended December 31, 2001, five securities class action suits were filed against Onvia, former executive officers Glenn S. Ballman and Mark T. Calvert, and Onvia’s lead underwriter, Credit Suisse First Boston (CSFB). The suits were filed in the United States District Court for the Southern District of New York on behalf of all persons who acquired securities of Onvia between March 1, 2000 and December 6, 2000. On or around April 19, 2002, these five suits were consolidated, the consolidated complaint was filed and a lead plaintiff was appointed. The complaints charge defendants with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) and Sections 11 and 15 of the Securities Act of 1933, for issuing a Registration Statement and Prospectus that contained material misrepresentations and/or omissions. The complaints allege that the Registration Statement and Prospectus were false and misleading because they failed to disclose (i) the agreements between CSFB and certain investors to provide them with significant amounts of restricted Onvia shares in the initial public offering (IPO) in exchange for excessive and undisclosed commissions; and (ii) the agreements between CSFB and certain customers under which the underwriters would allocate shares in the IPO to those customers in exchange for the customers’ agreement to purchase Onvia shares in the after-market at predetermined prices. The complaint seeks an undisclosed amount of damages, as well as attorney fees. On October 9, 2002, an order of dismissal without prejudice was entered, dismissing former officers Glenn S. Ballman and Mark T. Calvert. The parties are currently in settlement negotiations. We have a $30 million directors and officers liability policy that would cover any award up to $30 million, subject to a $250,000 self retention. Onvia intends to defend itself vigorously against these charges.

Company for violations of Sections 10(b) and 20(a) of the 1934 Act, and charges Mr. Ballman and Mr. Calvert for violations of Section 15 of the 1933 Act and Section 10(b) of the 1934 Act. The complaint also alleges claims against CSFB and the Company under the common law theory of respondeat superior, which provides that a principal is responsible for the actions of its agent, and against all defendants based on common law theories of fraud and negligent misrepresentation, and under Florida’s Blue Sky laws. In essence, the complaint alleges that the defendants disseminated false and misleading information to the public which misrepresented the accuracy of the Company’s IPO price, its financial condition and future revenue prospects. The complaint further alleges that the effect of the purported fraud was to manipulate the Company’s stock price so that the defendants could profit from the manipulation. The complaint seeks damages in an unspecified amount. We may attempt to transfer this lawsuit to the United States District Court for the Southern District of New York where the other IPO class action litigation is pending. The Company has submitted the claims to its directors and officers insurance carrier and intends to defend itself vigorously against these charges.

In August 2001 a shareholder of the Company filed a lawsuit in King County, Washington, alleging that the sale of preferred stock of Globe-1, a corporation that Onvia acquired in August 2000, violated the Washington Securities Act. The lawsuit also names Robert Gilmore, the former chief executive of Globe-1. The plaintiff seeks $65,000, plus attorney fees. The Company intends to defend itself vigorously against this lawsuit.

No matters were submitted to a vote of security holders during the first quarter ended March 31, 2003.

No reports on Form 8-K were filed during the first quarter ended March 31, 2003.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ONVIA.COM, INC.

By:		/S/ MICHAEL D. PICKETT
		Michael D. Pickett Chairman of the Board and Chief Executive Officer



By:		/S/ CAMERON S. WAY
		Cameron S. Way Chief Accounting Officer

In connection with the Quarterly Report of Onvia.com, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission (the “Report”), I, Michael D. Pickett, Chairman of the Board and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:



		/S / MICHAEL D. PICKETT
		Michael D. Pickett Chairman of the Board and Chief Executive Officer May 15, 2003

In connection with the Quarterly Report of Onvia.com, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2003 as filed with the Securities and Exchange Commission (the “Report”), I, Cameron S. Way, Chief Accounting Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, that:



		/S/ CAMERON S. WAY
		Cameron S. Way Chief Accounting Officer May 15, 2003

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	30
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 2.	Changes in Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Submission of Matters to a Vote of Security Holders	31
Item 5.	Other Information	31
Item 6.	Exhibits and Reports on Form 8-K	32
SIGNATURES		33

	March 31, 2003			December 31, 2002
	(Unaudited)
	(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	28,311		$	35,051
Short-term investments		7,796			3,551
Accounts receivable, net		234			298
Prepaid expenses and other current assets		1,456			1,013

Total current assets		37,797			39,913
PROPERTY AND EQUIPMENT, NET		2,883			3,571
OTHER ASSETS, NET		3,672			3,713

TOTAL ASSETS	$	44,352		$	47,197

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	434		$	819
Accrued expenses		1,028			1,003
Accrued restructuring		3,084			3,362
Unearned revenue		3,952			3,418

Total current liabilities		8,498			8,602
LONG TERM LIABILITIES:
Accrued restructuring		6,205			6,824
Other liabilities		121			114

Total liabilities		14,824			15,540

STOCKHOLDERS’ EQUITY:
Common stock and additional paid in capital		347,208			347,207
Unearned stock compensation		(232	)		(410	)
Accumulated deficit		(317,448	)		(315,140	)

Total stockholders’ equity		29,528			31,657

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	44,352		$	47,197

	Three Months Ended March 31,
	2003			2002
	(Unaudited)
	(in thousands, except per share data)

Revenue	$	2,204		$	1,567
Cost of revenue		296			375

Gross margin		1,908			1,192
Operating expenses:
Sales and marketing		2,400			2,222
Technology and development		924			1,587
General and administrative		1,024			1,248

Total operating expenses		4,348			5,057

Loss from operations		(2,440	)		(3,865	)
Other income, net		132			405

Net loss before cumulative effect of change in accounting principle		(2,308	)		(3,460	)
Cumulative effect of change in accounting principle		—			(16,468	)

Net loss	$	(2,308	)	$	(19,928	)

Basic and diluted net loss per common share:
Net loss before cumulative effect of change in accounting principle	$	(0.30	)	$	(0.45	)
Cumulative effect of change in accounting principle	$	—		$	(2.13	)

Basic and diluted net loss per common share	$	(0.30	)	$	(2.58	)

Basic and diluted weighted average shares outstanding		7,660			7,741

	Three Months Ended March 31,
	2003			2002
	(Unaudited)
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,308	)	$	(19,928	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		746			1,099
Impairment of goodwill		—			16,468
Noncash stock-based compensation		178			456
Amortization of debt discount		—			9
Change in certain assets and liabilities:
Accounts receivable		64			(177	)
Prepaid expenses and other current assets		(443	)		(1,804	)
Other assets		(10	)		696
Accounts payable		(385	)		(446	)
Accrued expenses		25			(575	)
Other liabilities		7			—
Accrued restructuring		(897	)		(2,679	)
Unearned revenue		534			239

Net cash used in operating activities		(2,489	)		(6,642	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		—			(3	)
Purchases of short-term investments		(4,245	)		—
Additions to internally developed software		(6	)		(91	)
Collections of employee receivables		—			3

Net cash used in investing activities		(4,251	)		(91	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on long-term debt		—			(932	)
Proceeds from exercise of stock options and warrants		—			1
Repurchase of common stock		—			(254	)

Net cash used in financing activities		—			(1,185	)

Net decrease in cash and cash equivalents		(6,740	)		(7,918	)
Cash and cash equivalents, beginning of period		35,051			81,990

Cash and cash equivalents, end of period	$	28,311		$	74,072

	March 31, 2003				December 31, 2002
	Cash and Cash Equivalents		Short Term Investments		Cash and Cash Equivalents		Short Term Investments
	(In Thousands)
Cash	$	28,311	$	—	$	35,051	$	—
Available for sale securities:
Auction rate securities				1,250				1,250
Corporate bonds				1,500
US government obligations				5,046				2,301

	$	28,311	$	7,796	$	35,051	$	3,551

	Accruals at December 31, 2002		Amounts Paid			Accruals at March 31, 2003
Real estate and other exit costs	$	10,110	$	(821	)	$	9,289
Employee separation costs		76		(76	)		0

	$	10,186	$	(897	)	$	9,289

	Operating Leases
2003	$	2,322,744
2004	$	3,055,548
2005	$	2,922,765
2006	$	2,771,120
2007	$	2,489,756
Thereafter	$	5,858,575

	$	19,420,508

99.1		Certification of Michael D. Pickett, Chairman of the Board and Chief Executive Officer of Onvia.com, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2		Certification of Cameron S. Way, Chief Accounting Officer of Onvia.com, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002