ONVIA COM INC - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2002.

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

For the transition period from to

Commission file number 000-29609

ONVIA.COM, INC.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

91-1859172

(I.R.S. Employer

Identification No.)

1260 Mercer Street

Seattle, Washington 98109

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code): (206) 282-5170

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 ¨

Common stock, par value $.0001 per share: 7,665,744 shares outstanding as of July 31, 2002.

ONVIA.COM, INC.

INDEX

		Page
PART I FINANCIAL INFORMATION

Item 1. Financial Statements.		3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		10

Item 3. Quantitative and Qualitative Disclosures about Market Risk.		27

PART II. OTHER INFORMATION		28

Item 1. Legal Proceedings.		28

Item 2. Changes in Securities and Use of Proceeds.		28

Item 3. Defaults Upon Senior Securities.		28

Item 4. Submission of Matters to a Vote of Security Holders.		28

Item 5. Other Information.		29

Item 6. Exhibits and Reports on Form 8-K.		29

SIGNATURES		30

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

ONVIA.COM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2002			December 31, 2001
	(Unaudited)
	(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	42,756		$	81,990
Accounts receivable, net		282			274
Prepaid expenses and other current assets		1,807			4,737

Total current assets		44,845			87,001
PROPERTY AND EQUIPMENT, NET		5,188			7,236
OTHER ASSETS, NET		3,976			4,674
GOODWILL, NET					16,468

TOTAL ASSETS	$	54,009		$	115,379

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable	$	656		$	942
Accrued expenses		1,763			3,280
Accrued restructuring		3,697			5,676
Unearned revenue		2,765			2,413
Current portion of long-term debt		273			2,034

Total current liabilities		9,154			14,345
LONG-TERM DEBT, less current portion					950
LONG-TERM ACCRUED RESTRUCTURING		1,479			3,065

Total liabilities		10,633			18,360

STOCKHOLDERS’ EQUITY:
Common stock and additional paid in capital		347,246			378,203
Unearned stock compensation		(961	)		(1,793	)
Accumulated deficit		(302,909	)		(279,391	)

Total stockholders’ equity		43,376			97,019

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	54,009		$	115,379

See accompanying notes to the condensed consolidated financial statements.

ONVIA.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended June 30,						Six Months Ended June 30,
	2002			2001			2002			2001
	(Unaudited)						(Unaudited)
	(000's, except per share data)						(000's, except per share data)
Revenue
Government network	$	1,702		$	670		$	3,269		$	952
Business exchange and other					1,456						4,578
Product											8,448

Total revenue		1,702			2,126			3,269			13,978
Cost of revenue
Government network		419			220			794			231
Business exchange and other					28						414
Product											9,555

Total cost of revenue		419			248			794			10,200
Gross margin		1,283			1,878			2,475			3,778

Operating expenses:
Sales and marketing (including noncash stock-based compensation of $173 and $384 in 2002 and $404 and $1,059 in 2001)		2,625			7,576			4,847			16,479
Technology and development (including noncash stock-based compensation of $147 and $326 in 2002 and $342 and $897 in 2001)		1,424			3,973			3,011			9,226
General and administrative (including noncash stock-based compensation of $55 and $122 in 2002 and $132 and $345 in 2001)		1,229			2,338			2,477			4,980
Amortization of goodwill					3,864						7,596
Restructuring charge (including reversal of noncash stock-based compensation of $0 and $221 in 2002 and 2001)											24,329
Firstsource charge											2,854

Total operating expenses		5,278			17,751			10,335			65,464

Loss from operations		(3,995	)		(15,873	)		(7,860	)		(61,686	)
Other income, net		405			1,334			810			3,172

Net loss before cumulative effect of change in accounting principle		(3,590	)		(14,539	)		(7,050	)		(58,514	)
Cumulative effect of change in accounting principle								(16,468	)

Net loss	$	(3,590	)	$	(14,539	)	$	(23,518	)	$	(58,514	)


Basic and diluted net loss per common share
Net loss before cumulative effect of change in accounting principle	$	(0.47	)	$	(1.70	)	$	(0.92	)	$	(6.88	)
Cumulative effect of change in accounting principle	$	—		$	—		$	(2.14	)	$	—

Basic and diluted net loss per common share	$	(0.47	)	$	(1.70	)	$	(3.05	)	$	(6.88	)

Basic and diluted weighted average shares outstanding		7,655			8,543			7,702			8,501

See accompanying notes to the condensed consolidated financial statements.

ONVIA.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended June 30,
	2002			2001
	(Unaudited)
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		(23,518	)		(58,514	)

Adjustments to reconcile net loss to net cash used in operating activities:
Cumulative effect of change in accounting principle		16,468
Depreciation and amortization		2,165			3,595
Impairment of assets					7,264
Impairment of goodwill					14,130
Loss on sale of property and equipment					460
Amortization of goodwill					7,596
Firstsource charge					2,854
Noncash stock-based compensation		832			2,080
Amortization of debt discount		10			173

Change in certain assets and liabilities, net of effects from purchase transactions:
Accounts receivable		(66	)		5,005
Inventory					4,087
Prepaid expenses and other current assets		(838	)		(296	)
Other assets		696			(332	)
Accounts payable		(286	)		(21,800	)
Accrued expenses and restructuring		(5,079	)		(4,477	)
Unearned revenue		352			(3,453	)

Net cash used in operating activities		(9,264	)		(41,628	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(10	)		(1,233	)
Sales and maturities of short-term investments					49,806
Change in restricted cash		3,200
Additions to internally developed software		(91	)		(652	)
Issuance of notes receivable					(4,000	)
Repayments of employee receivables		610			224
Cash acquired in purchase transactions					397

Net cash provided by investing activities		3,709			44,542

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on long-term debt		(2,722	)		(2,101	)
Proceeds from exercise of stock options and warrants		58			205
Cash distribution		(29,891	)
Repurchase of common stock		(1,124	)		(8,015	)

Net cash used in financing activities		(33,679	)		(9,911	)
Effect of exchange rate changes on cash					284

Net decrease in cash and cash equivalents		(39,234	)		(6,713	)
Cash and cash equivalents, beginning of period		81,990			109,341

Cash and cash equivalents, end of period	$	42,756		$	102,628

See accompanying notes to the condensed consolidated financial statements.

ONVIA.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Onvia.com, Inc. and its wholly owned subsidiaries, collectively referred to as “Onvia”. 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 Onvia’s 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.

2. Common Stock Reverse Split

On July 11, 2002, Onvia’s stockholders approved a one-for-ten reverse stock split of the Company’s common stock. 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.

3. Net Loss Per Share

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 June 30, 2002 and 2001, stock options, warrants and nonvested common stock totaling 723,904 and 1,237,360 shares, respectively, are excluded from the calculation of diluted net loss per share as they would be antidilutive.

4. Goodwill

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets”. Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no longer amortized, but are reviewed annually for impairment. Onvia adopted SFAS No. 142 on January 1, 2002. As required under the standard, Onvia continues to amortize intangible assets with finite lives and has ceased the amortization prospectively on goodwill upon adoption of the standard.

Onvia completed its initial impairment assessment of the goodwill by comparing the fair value of Onvia, which operates in a single segment, 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. Impairment adjustments

ONVIA.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

recognized after adoption, if any, generally are recognized as operating expenses.

The table below shows the effect on net loss and net loss per share had SFAS No. 142 been adopted as of January 1, 2001:

	Three Months Ended June 30			Six Months Ended June 30
	2001			2001
Reported net loss	$	(14,539	)	$	(58,514	)
Amortization of goodwill		3,864			7,596

Adjusted net loss	$	(10,675	)	$	(50,918	)

Reported basic and diluted net loss per share	$	(1.70	)	$	(6.88	)
Amortization of goodwill		0.45			0.89

Adjusted basic and diluted net loss per share	$	(1.25	)	$	(5.99	)

5. Cash Distribution

In March 2002, Onvia’s Board of Directors approved a cash distribution of $3.90 per share to return excess operating capital to Onvia’s stockholders. The distribution in the amount of $29.9 million was paid on May 3, 2002.

Subsequent to the cash distribution there are 76,070 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.

6. Repayment of Note Payable

In April 2002, Onvia paid $1.3 million to the lender of a note assumed in the acquisition of DemandStar.com, Inc., representing payment in full for the outstanding principal balance. Interest in the amount of approximately $44,000 was waived by the lender in consideration for prepayment of the note.

7. Corporate Restructuring

In 2001, as part of its overall strategic initiative to reduce costs and focus on its business-to-government network, Onvia licensed its Canadian operations, closed its web hosting business, outsourced and later shutdown its business-to-business exchange and eliminated its outside sales force. As a result of these initiatives, Onvia recorded restructuring charges totaling approximately $49.3 million during 2001, of which approximately $0 and $24.3 million was recorded during the three and six months ended June 30, 2001, respectively.

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 June 30, 2002 (in thousands):

	Accruals at December 31, 2001		Amounts Paid			Accruals at June 30, 2002
Real estate and other exit costs	$	6,912	$	(1,736	)	$	5,176
Employee separation costs		1,828		(1,828	)		0

	$	8,740	$	(3,564	)	$	5,176

ONVIA.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

The real estate and other exit costs, consisting principally of abandoned leased office space in Seattle, are expected to be paid out through December 31, 2003. Employee separation costs were paid out in 2002.

8. Related Party Transactions

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

In April 2002, Onvia repurchased 140,322 shares from its former Chief Executive Officer at their fair market value of approximately $870,000. Of the total, $800,000 satisfied the second principal payment on the outstanding promissory note issued to the former executive by a third party lender for which Onvia is a guarantor. The remaining $70,000 related to the repayment of principal on the promissory note issued to Onvia by the former executive.

In May 2002, the former executive made the final payments on his note with a third party lender. Upon repayment, the lender released the $3.2 million deposit pledged by Onvia as security for its corporate guarantee. Additionally, the former executive paid in full his promissory note held by Onvia in the amount of $226,000.

9. Segment Information

Prior to the disposal of its Canadian operations in March 2001, Onvia evaluated its business based on the geography of its two operations, the United States and Canada. Subsequent to March 31, 2001, Onvia had one operating segment, its business-to-government network within its United States operations. For the six months ended June 30, 2001, net revenue and net loss from Onvia’s Canadian operations were approximately $718,000 and $2.4 million, respectively.

10. New Accounting Pronouncements

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. Onvia will be required to adopt this Statement on January 1, 2003. Onvia does not expect that this Statement will have a material impact on its financial condition and results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which supersedes the accounting and reporting provisions for the disposal of a segment of a business as provided for in APB Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The Statement establishes accounting standards for all long-lived assets to be disposed of including discontinued operations. Under this Statement, long-lived assets to be disposed of are measured at the lower of their carrying amount or estimated fair value less selling costs, whether reported in continuing operations or discontinued operations. As such, discontinued operations will no longer be measured at net realizable value or include amounts for future operating

ONVIA.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)—(Continued)

losses. This Statement allows for the reporting as discontinued operations components of an entity with distinguishable operations from the rest of the entity and not limited to reportable business segments. The effect of adopting the provisions of SFAS No. 144 did not have a significant impact on Onvia’s 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. The rescission of SFAS No. 4 is effective for the Company as of January 1, 2002, and all other provisions of the statement are effective for the Company as of May 15, 2002. The Company has adopted this statement effective January 1, 2002.

In June 2001, 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 Issue 94-3, a liability for an exit cost as defined in Issue 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; however, early adoption is encouraged. Onvia is in the process of determining the impact this Statement will have on its financial condition and results of operations.

11. Commitments and Contingencies

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

12. Reclassifications

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

13. Subsequent Events

In July 2002, Onvia’s shareholders approved a one-for-ten reverse stock split to bring the Company’s share price above the $1.00 minimum trading price required for continued NASDAQ listing and to create a stock price more suitable for attracting new investors, including institutional investors.

On August 2, 2002, the Company received notification from NASDAQ that the Company had demonstrated a closing bid price of at least $1.00 per share as required by the NASDAQ and, therefore, the NASDAQ made the determination to continue the listing of the Company’s securities on the NASDAQ National Market and to close the hearing file.

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

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

Onvia’s disclosure and analysis in this report contains forward-looking statements. When used in this discussion, the words “believes”, “anticipates”, “plans”, “expects”, “intends” 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 Onvia’s plans, objectives, expectations and intentions and are subject to risks and uncertainties that could cause actual results to differ materially from historical results or 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. Onvia’s actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described under “Liquidity and Capital Resources” and “Risk Factors” below. Onvia undertakes 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 Onvia files from time to time with the Securities and Exchange Commission.

Results of Operations

Overview

Onvia is a leading business-to-government (B2G) marketplace for government agency buyers and business suppliers. The Onvia network helps business suppliers secure government contracts and government agencies find suppliers online. Onvia’s network manages the distribution and report of bid requests from government agencies nationwide in the $600 billion federal, state and local government marketplace. Business suppliers no longer have to scour newspapers, trade periodicals, or the Internet in search of government opportunities. Onvia’s network efficiently matches government agency bid requests to suppliers of the requested commodity, saving time and money on both sides of the procurement process. Government agencies reduce costs by streamlining the bid process and create a larger and more diverse pool of suppliers. Increased bid competition drives costs down for government agencies, as well as lowering marketing and administrative expenses. Agencies also have access to Onvia’s bid library that contains hundreds of bids awarded within the last 18 months.

Onvia’s B2G network consists of two B2G products, DemandStar by Onvia and The Onvia Guide, which allow business suppliers access to federal, state and local government agency procurement opportunities nationwide.

DemandStar by Onvia

Subscribers to the DemandStar by Onvia service have access to bid requests from approximately 400 participating government agencies. Subscribers have access to agency bid requests by commodity or location, and to Onvia’s 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.

The Onvia Guide

Onvia’s proprietary Onvia Guide service allows business users the opportunity to participate in government procurement contracts in 214 business categories over six vertical markets. The vertical markets currently served are:

•

Architectural, Engineering and Environmental Services

•

IT Telecom

•

Consulting Services

•

Construction Services and Building Supplies

•

Operate and Maintain

•

Transportation

Subscription revenues from The Onvia Guide are generated from monthly and annual subscriptions to this service and the subscription fee is recognized ratably over the term of the subscription.

In total, Onvia currently has over 25,800 subscribing business suppliers that receive over 250,000 bids per year from government agencies on its network.

In view of the rapidly changing nature of Onvia’s business and limited operating history, Onvia believes that a historical comparison of revenue and operating results is not necessarily meaningful and should not be relied on as an indication of future performance. This is particularly true of companies such as Onvia that operate in new and rapidly evolving markets. As a result, Onvia’s prospects must be considered in light of the risks, expenses and difficulties encountered by companies in their early state of development, particularly companies in new and rapidly evolving markets. See “Risk Factors” for a more complete description of the many risks Onvia faces.

Recent Developments

In March 2002, Onvia’s Board of Directors approved a cash distribution of $3.90 per share, or approximately $29.9 million, to return excess capital to Onvia’s stockholders. The distribution occurred on May 3, 2002.

Significant Accounting Policies and Management Estimates

Accrued Restructuring

Onvia currently has 79,000 square feet of idle office space currently under lease through 2010 as a result of the corporate downsizing, which occurred throughout 2001. Based upon its best estimates, company management has accrued lease rental payments on its idle and abandoned office space through the end of 2003. As of June 30, 2002, the accrual for abandoned lease rents, including operating costs, was $5.2 million.

Management periodically reevaluates its assumptions regarding its significant estimates. If Onvia does not see improvement in the real estate market, or if Onvia is unable to sublease the space at a reasonable rate during the period covered by the current accrual, company management may be required to record an additional restructuring charge for future idle lease payments.

Contractual Obligations

Future required payments under contracts as of June 30, 2002 are as follows for the years ending:

	Operating Leases		Debt		Total
2002	$	1,408,437	$	272,821	$	1,681,258
2003		2,807,254				2,807,254
2004		2,753,164				2,753,164
2005		2,615,085				2,615,085
2006		2,399,400				2,399,400
Thereafter		7,354,000				7,354,000

	$	19,337,340	$	272,821	$	19,610,161

In April 2002, Onvia paid $1.3 million to the lender of a note assumed in the acquisition of DemandStar.com, Inc., representing payment in full for the outstanding principal balance. Interest in the amount of approximately $288,000 was waived by the lender in consideration for prepayment of the note.

Onvia guaranteed a $3.2 million promissory note issued to its former Chief Executive Officer by a third party lender. In May 2002, the former executive made the final payments on his note with the third party lender. Upon repayment, the lender released the $3.2 million deposit pledged by Onvia as security for its corporate guarantee. Additionally, the former executive paid in full his promissory note held by Onvia in the amount of $226,000.

In April 2002, Onvia repurchased 140,322 shares from its former Chief Executive Officer at their fair market value of approximately $870,000. Of the total, $800,000 satisfied the second principal payment on the outstanding promissory note issued to the former executive by a third party lender for which Onvia was a guarantor. The remaining $70,000 related to the repayment of principal on the promissory note issued to Onvia by the former executive.

Three and six months ended June 30, 2002 and 2001

Onvia had net losses of $3.6 million and $23.5 million, or losses of $0.47 and $3.05 per share for the three and six months ended June 30, 2002, respectively, compared with net losses of $14.5 million and $58.5 million, or losses of $1.70 and $6.88 per share, for the three and six months ended June 30, 2001, respectively. Net loss, excluding noncash stock-based compensation expense, the cumulative effect of the change in accounting principle, amortization of goodwill, the restructuring charge, the firstsource charge and net interest income was $3.5 million, or a loss of $0.45 per share and $6.6 million, or a loss of $0.85 per share, for the three and six months ended June 30, 2002, respectively, compared to $11.1 million, or a loss of $1.30 per share and $24.6 million, or a loss of $2.89 per share, for the three and six months ended June 30, 2001.

Revenue. Revenue decreased to $1.7 million and $3.3 million for the three and six months ended June 30, 2002, respectively from $2.1 million and $14.0 million for the three and six months ended June 30, 2001, respectively. Government network revenue increased to $1.7 million and $3.3 million for the three and six months ended June 30, 2002, respectively, from $670,000 and $952,000 for the three and six months ended June 30, 2001, respectively, primarily due to the introduction and growth of Onvia’s business-to-government network. Product revenues were $0 for both the three and six months ended June 30, 2002, compared to $0 and $8.4 million in the three and six months ended June 30, 2001, respectively. Business exchange revenues were $0 for both the three and six months ended June 30, 2002, compared to $1.5 million and $4.6 million for the three and six months ended June 30, 2001, respectively. With the closure of its business-to-business exchange in 2001, Onvia no longer generates product or business exchange revenue. Future revenues will consist solely of subscription fees from Onvia’s business-to-government network.

Gross Margin. Overall gross margin decreased to a positive 75.4% from a positive 88.3% for the three months ended June 30, 2002 and 2001, respectively, and improved to a positive 75.7% from a positive 27.0% for the six months ended June 30, 2002 and 2001, respectively. The decrease for the three months ended June 30, 2002 compared to the three months ended June 30, 2001 is attributable to the elimination of the high margin B2B revenue as a result of the closure of the B2B business. The improvement for the six months ended June 30, 2002 over the six months ended June 30, 2001 is attributable to the closure of Onvia’s product sales operations.

Sales and Marketing. Sales and marketing expenses were $2.6 million and $4.8 million for the three and six months ended June 30, 2002, compared to $7.6 million and $16.5 million for the three and six months ended June 30, 2001. The decrease in sales and marketing expenses was primarily due to a decrease in advertising expenditures and reductions in headcount due to the closure of Onvia’s business-to-business website and product sales organization and the elimination of its outsides sales force.

Technology and Development. Technology and development expenses were $1.4 million and $3.0 million for the three and six months ended June 30, 2002, compared to $4.0 million and $9.2 million for the three and six months ended June 30, 2001. The decrease in technology and development expenses was primarily due to reductions in headcount resulting from the closure of Onvia’s business-to-business website and product sales organization.

General and Administrative. General and administrative expenses were $1.2 million and $2.5 million for the three and six months ended June 30, 2002, compared to $2.3 million and $5.0 million for the three and six months ended June 30, 2001. The decrease in general and administrative expenses was primarily attributable to the elimination of payroll related expenses resulting from decreases in administrative personnel and decreases in legal and professional fees.

Restructuring Charge. Onvia recorded a restructuring charge of approximately $24.3 million in March 2001. This charge consisted primarily of the write off of goodwill due to the closure of Onvia’s hosting operations, and the write off of property and equipment and internally developed software and employee severance costs relating to Onvia’s hosting and Canadian operations. Severance related charges were paid by June 30, 2002. Lease related accruals are expected to be paid out through December 2003.

Firstsource Charge. As a result of the insolvency of firstsource, which provided product purchasing and fulfillment services for Onvia’s web site through April 2001, Onvia recorded a charge of approximately $2.9 million in the six months ended June 30, 2001, which consisted primarily of an uncollectible $2.0 million promissory note and $800,000 in nonrefundable prepaid development fees.

Other Income, Net. Other income, net, was approximately $405,000 and $810,000 for the three and six months ended June 30, 2002, compared to approximately $1.3 million and $3.2 million for the three and six months ended June 30, 2001. The decrease was due to lower prevailing interest rates and Onvia’s lower cash balance held in interest bearing accounts during the three and six months ended June 30, 2002.

Noncash Stock-based Compensation. Onvia records 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 its common stock at the date of grant and the exercise price of the options. For non-employee options, unearned stock compensation is the fair market value of the options using the Black Scholes option-pricing model as of the date of grant or acquisition. These amounts are amortized on an accelerated basis over the vesting period of the option, typically four years. At June 30, 2002, unearned stock compensation was $961,000. Onvia has recorded $375,000 and $832,000 of net noncash stock-based compensation expense for the three and six months ended June 30, 2002, respectively, compared to $878,000 and $2.1 million for the three and six months ended June 30, 2001. Noncash stock-based compensation expense is recorded within the operating expense category based on the classification of the related employee.

Amortization of Goodwill. Amortization of goodwill was $0 for both the three and six months ended June 30, 2002 compared to $3.9 million and $7.6 million for the three and six months ended June 30, 2001. Onvia acquired Zanova Inc., Globe-1 Incorporated, and Hardware.com, Inc. in the third quarter of 2000, DemandStar.com, Inc. in the first quarter of 2001 and ProjectGuides, Inc. in the second quarter of 2001. Onvia accounted for these acquisitions as purchase business combinations. As a result of these transactions, Onvia initially recorded goodwill of $65.6 million, which was amortized on a straight-line basis over three years from the date of the respective acquisition. In conjunction with its decision to close its hosting operations in March 2001, Onvia wrote off goodwill with a net book value of approximately $14.1 million relating to the acquisition of Zanova. In conjunction with the elimination of its outside sales force and the discontinuation of the technology acquired in the Globe-1 acquisition in December 2001, Onvia wrote off goodwill with a net book value of approximately $12.1 million. In January, 2002, Onvia adopted 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 a result of adopting this Statement, Onvia incurred an impairment charge of $16.5 million in March 2002 to write-down all of its existing goodwill, which was presented after net loss from operations as the cumulative effect of adopting the new Statement.

Provision for Income Taxes. Onvia has incurred net operating losses from March 25, 1997 (inception) through June 30, 2002, 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.

Liquidity and Capital Resources

Onvia’s combined cash, cash equivalents and short-term investments were $42.8 million at June 30, 2002. Short-term investments, if any, are invested in money market funds, commercial paper 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 products. At June 30, 2002, Onvia’s working capital was $35.7 million.

Operating Activities

Net cash used in operating activities was $9.3 million for the six months ended June 30, 2002, compared to $41.6 million for the six months ended June 30, 2001. The decrease in net cash used in operating activities in 2002 was primarily attributable to a decrease in net loss as a result of lower operating expenses and to the net noncash charges and changes in operating assets and liabilities.

Investing Activities

Net cash provided by investing activities was $3.7 million for the six months ended June 30, 2002, compared to $44.5 million for the six months ended June 30, 2001. The decrease in 2002 was primarily attributable to decreases in sales of short-term investments offset by changes in restricted cash and repayments of employee receivables.

Financing Activities

Net cash used in financing activities was $33.7 million for the six months ended June 30, 2002, compared to $9.9 million for the six months ended June 30, 2001. The increase in cash used in 2002 was primarily attributable to a cash distribution on May 3, 2002, offset by a decrease in the repurchase of common stock.

Onvia’s future liquidity and capital requirements will depend on numerous factors. For example, Onvia’s pace of expansion will affect its future capital requirements, as will Onvia’s decision to acquire or invest in complementary businesses and technologies. Further, Onvia’s ability to sublease or dispose of its idle office space will affect its future liquidity. Onvia’s total obligation on its idle leases is approximately $19.3 million through 2010. Onvia’s operations will further reduce its cash balance, however, Onvia believes that the existing cash and cash equivalents will be sufficient to satisfy its cash requirements under existing operating plans for the foreseeable future. If Onvia acquires additional entities or its overall operating plans change, Onvia may require additional equity or debt financing to meet future working capital needs, which may have a dilutive effect on existing stockholders. Onvia cannot make assurances that if additional financing is required it will be available, or that such financing can be obtained on satisfactory terms.

Recent Accounting Pronouncements

RISK FACTORS

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.

Onvia’s common stock currently is quoted on the NASDAQ National Market, which has certain compliance requirements for continued listing of common stock, including a requirement that Onvia’s common stock have a minimum bid price of $1.00 per share.

In May 2002, Onvia was notified that its common stock had failed to maintain a minimum closing bid price of $1.00 per share during the 90 day period ending on May 15, 2002 as required by NASDAQ Marketplace Rule 4450, and that its common stock would be delisted if, by May 24, 2002, Onvia did not either transfer to be listed on the NASDAQ Small Cap Market or file an appeal to the NASDAQ Listing Qualification Panel. As a response, on May 17, 2002, Onvia filed an appeal before the NASDAQ Listing Qualifications Panel and instituted a one-for-ten reverse stock split to remain listed on the NASDAQ National Market. The reverse stock split was approved by Onvia’s Board of Directors, and subsequently by its shareholders at Onvia’s annual meeting on July 11, 2002.

After the NASDAQ Qualifications Panel hearing, held on June 20, 2002, Onvia was notified that its shares had to trade above $1.00 on the close of the effective date of the reverse stock split, and for ten consecutive trading days thereafter, to remain listed with the NASDAQ National Market. On July 17, 2002, the effective date of the reverse stock split, Onvia’s stock closed at $2.15 and in the range of $2.05 and $2.58 during the following ten consecutive trading days. On August 2, 2002, NASDAQ notified Onvia that the Company had regained compliance with the NASDAQ National Market’s listing requirements and that its common stock would continue to be listed on the NASDAQ National Market.

If Onvia’s share price eventually drops back below $1.00 again, Onvia may be unable to maintain its listing on NASDAQ, which could cause Onvia’s stock price to fall and decrease the liquidity of Onvia’s common stock

If Onvia’s common stock is delisted from trading on the NASDAQ National Market and is neither relisted thereon nor listed for trading on the NASDAQ SmallCap Market, trading in its 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 Onvia’s 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 Onvia’s common stock and Onvia’s ability to issue additional securities or to secure additional financing. In addition, if Onvia’s common stock were not listed and the trading price of the common stock was less than $5 per share, Onvia’s 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.

Onvia’s stock price is very volatile

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

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actual or anticipated changes in governmental spending;

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actual or anticipated variations in quarterly results of operations;

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announcements of technological innovations, new products or services by Onvia or its competitors;

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changes in financial estimates or recommendations by securities analysts;

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conditions or trends in the Internet and online commerce industries;

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changes in the market values of other Internet or online service companies;

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announcements of significant acquisitions, strategic relationships, joint ventures, capital commitments, dividends or cash distributions;

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additions or departures of key personnel;

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sales, repurchases or splits of its common stock;

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general market conditions;

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delisting from the NASDAQ National Market; and

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other events or factors, many of which are beyond Onvia’s control.

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 Onvia’s stock price, regardless of its operating performance.

Onvia has repurchased shares of its common stock on the NASDAQ National Market; however, its stock price may decline and Onvia could see the value of this investment decrease

Through June 2002, Onvia’s Board of Directors had authorized the repurchase of up to $15 million shares of its common stock on the open market and as of June 30, 2002, Onvia had repurchased $8.5 million under this program. However, Onvia’s stock price is volatile, and Onvia could see the value of this investment in its own stock decline, which could adversely impact its financial position. There can be no assurance that Onvia will continue to repurchase shares in the future.

Onvia’s principal stockholders, officers and directors own a controlling interest in its voting stock

Onvia’s officers, directors and stockholders with greater than 5% holdings beneficially own a majority of its outstanding common stock. As a result, these stockholders, acting together, will have the ability to control substantially all matters submitted to its stockholders for approval, including:

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election of Onvia’s Board of Directors;

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removal of any of Onvia’s Board of Directors;

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amendment of Onvia’s certificate of incorporation or bylaws; and

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adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving Onvia; and contrarily, approve any change in control, merger, takeover, corporate liquidation or any other business transaction involving Onvia.

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

Onvia has implemented anti-takeover provisions that may discourage takeover attempts and depress the market price of its stock

Provisions of Onvia’s 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 its stockholders.

Onvia’s cash distribution to its stockholders may negatively impact Onvia’s stock price and future operations

Onvia’s business has not yet generated retained earnings from which to pay dividends. However, in March, 2002, Onvia’s Board of Directors approved a cash distribution of $3.90 per share. The distribution, in the amount of $29.9 million, occurred on May 3, 2002. The cash distribution may not leave Onvia with adequate cash to pursue unidentified future merger and acquisition activities, to meet its lease obligations over the entire term of its lease if Onvia does not reduce or eliminate this obligation, or to achieve its profitability goals.

Uncertainty in the commercial real estate market in Seattle may harm Onvia’s chances of eliminating its monthly lease payments on its idle office space and thus prevent Onvia from achieving its cash flow profitability goals

Onvia currently has approximately 79,000 square feet of idle office space in the Seattle market alone and has recorded a liability for the rent payments on this space through December 2003. As a result of the continuing economic slowdown, the current market for commercial real estate in Seattle is depressed. Onvia’s ability to sublease or otherwise dispose of these idle office space leases affects the timing of Onvia’s achievement of cash flow profitability. If the commercial real estate market in Seattle remains depressed and Onvia is unable to eliminate its monthly lease payments on its idle office space, Onvia’s business, operating results and financial condition would be harmed.

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

Onvia’s success depends in part upon its ability to rapidly establish its 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, Onvia must continue to develop products and services that businesses, governments and citizens will find valuable, and there is no guarantee that it will be able to do so. If Onvia is unable to develop products and services that allow it to attract, retain and expand its current subscriber base, its revenues and future operating results may be harmed. Onvia cannot ensure that its products and services will appeal to a sufficient number of Internet users to generate continued revenue growth.

Onvia may lose the right to the content that it distributes, which is provided to it entirely by governmental entities

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

Onvia may not be able to maintain adequate bid flow to its customers if governmental agencies collectively reduce spending, and Onvia’s business may suffer

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

Onvia may not be able to meet its projected renewal rates, which could hurt Onvia’s growth and profitability

If Onvia is unable to meet its projected renewal rates on its two products, DemandStar by Onvia and The Onvia Guide, Onvia’s projected growth and profitability will suffer. The loss of renewals from its current and future subscribing suppliers would harm Onvia’s business, operating results and financial condition.

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

Onvia’s 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 Onvia’s services and products will be limited and its 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.

Onvia has changed strategy very quickly and if it fails to manage this change, its ability to increase revenue and achieve profitability will be harmed

Onvia has rapidly and significantly accelerated its migration from an online reseller of services and products to a network for businesses and government agencies. This change has placed a significant strain on Onvia’s employees, management systems and other resources and will continue to do so.

If Onvia does not execute its change effectively, its revenue may not grow as expected, and Onvia may not achieve profitability.

Intense competition could impede Onvia’s ability to gain market share and harm its financial results

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

Onvia’s current and potential competitors include companies such as BidNet, TrueAdvantage, AMS, FedMarket, BidLine, Simplexis, Epylon, NIC Commerce, ProcureNet and other companies focused on providing services to government agencies.

Many of Onvia’s current and potential competitors have longer operating histories, larger customer bases and greater brand recognition in business and Internet markets and significantly greater financial, marketing and technical resources than Onvia does. Onvia’s competitors may be more successful than Onvia in developing their technologies, adapting more aggressive pricing policies and establishing more comprehensive marketing and advertising campaigns.

Onvia’s competitors may develop web sites that are more sophisticated than Onvia’s with better online tools and service and product offerings superior to Onvia’s. For these and other reasons, Onvia’s competitors’ web sites may achieve greater acceptance than Onvia’s, limiting its 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 Onvia’s B2G network, which is critical to Onvia’s future success, is subject to a number of significant risks. These risks include:

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operating resource management and procurement on the Internet is a new market;

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Onvia’s need to significantly enhance the features and services of the network to achieve acceptance and scalability;

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a significant number of business suppliers may not be willing to receive government procurement bids online;

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a significant number of government agencies may not use Onvia’s network or the Internet to notify business suppliers about potential procurement opportunities;

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potential difficulty in charging a fee to government agencies or their business suppliers; and

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business customers may not provide Onvia data about themselves.

Although Onvia expects to derive a significant portion of its future revenue from government network services, Onvia has not yet fully evolved its 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, Onvia cannot predict whether these services will be commercially successful or whether they will adversely impact revenues. Onvia will be seriously harmed if its 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 its products, which could hurt Onvia’s growth and profitability

To be successful, Onvia 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, Onvia may release a product that contains defects. If Onvia releases a product that contains defects, or inadequate functionality and features, potential customers may become discouraged from using Onvia’s products, and therefore harm its reputation and business.

If Onvia fails to expand its current technology infrastructure and network software system, it will be unable to accommodate its anticipated growth

To be successful, Onvia must expand and develop its technology infrastructure and network software system. To maintain the necessary technology in the future, Onvia must continue to expand and stabilize the performance of its web servers, optimize the performance of its network servers and ensure the stable performance of its entire network. Onvia must improve, and potentially replace, its network software system to handle additional customers and to provide additional functionality. Onvia may not be successful in its ongoing efforts to upgrade its systems, or if it does successfully upgrade its systems, Onvia 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 Onvia’s network, and therefore harm its reputation and business.

Onvia has a limited operating history, making it difficult to evaluate its business and future prospects

Onvia was incorporated in March 1997. Onvia has been serving businesses since that time and has been focusing on including government agencies in its network only for the last year. Onvia has a limited operating history upon which an investor may evaluate its business and prospects. Onvia’s 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. Onvia may not successfully address any of these risks. If Onvia does not successfully address these risks, its business will be seriously harmed.

Prior to July 2001, Onvia derived most of its revenue from product sales and transactions on its business-to-business exchange. Onvia closed this business in 2001 for economic reasons, and subsequently, Onvia generates revenue exclusively from its business-to-government network. Onvia’s revenue and associated costs from its business-to-government network is significantly lower following the closure of its B2B exchange. This decrease may have an adverse effect on Onvia’s stock price.

Onvia has incurred negative cash flows in each quarter since inception, and it expects to incur significant negative cash flows in the future

Onvia has incurred negative cash flows from operations in each quarter since inception. Under Onvia’s current operating plan, it expects to continue to incur negative cash flows in 2002. To increase revenue, Onvia will need to continue to attract customers and suppliers to its network and expand its service offerings. Under its operating plan, it is also projected that Onvia will continue to incur significant sales and marketing, technology and development, and general and administrative expenses. As a result, Onvia 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 Onvia’s business, operating results and financial condition and may adversely affect the market price of Onvia’s stock.

Onvia’s quarterly financial results are subject to fluctuations that may make it difficult to forecast its future performance

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

Onvia’s current and future levels of operating expenses and capital expenditures are based largely on its growth plans and estimates of future revenue. These expenditure levels are, to a large extent, fixed in the short term. Onvia 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 its business and results of operations.

Onvia’s limited operating history and rapid growth make it difficult to assess the seasonal factors in its business. Nevertheless, Onvia expects seasonal fluctuations in its business, reflecting a combination of seasonal trends for the services and products it offers, seasonal trends in the buying habits of its target small business customers and government agency buyers and seasonal trends reflecting Internet usage.

Onvia may not be able to keep up with rapid technological and industry changes

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. Onvia may not be able to keep up with any of these or other rapid technological changes, and if it does not, its business will be harmed. These changes and the emergence of new industry standards and practices could render Onvia’s existing web site and operational infrastructure obsolete. The widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require Onvia to incur substantial expenditures to modify or adapt its operating practices or infrastructure. To be successful, Onvia must enhance its web site responsiveness, functionality and features, acquire and license leading technologies, enhance its existing service and product offerings, and respond to technological advances and emerging industry standards and practices in a timely and cost effective manner.

Onvia may face challenges that may prevent it from successfully integrating any future acquisition

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. The challenges involved in integrations include:

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retaining existing customers and strategic partners of Onvia and the acquired business;

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retaining and integrating management and other key employees of both Onvia and the acquired business;

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coordinating research and development activities to enhance the introduction of new products, services and technologies;

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addressing public perceptions of changes in Onvia’s business focus;

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combining service and product offerings effectively and quickly;

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transitioning the business systems to a common information technology system;

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persuading employees that the business cultures of Onvia and the acquired business are compatible;

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offering services and products of Onvia and the acquired business to each other’s customers and business associates;

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marketing the combined company;

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blending the pricing models;

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developing and maintaining uniform standards, controls, and procedures and policies;

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minimizing the potential disruption of Onvia’s business and distraction of its management;

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incorporating the acquired business’ technology, products and services into the product and service offerings of Onvia; and

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controlling expenses related to the integration of the companies.

Onvia may not succeed in overcoming these risks or any other problems encountered in connection with a merger. The diversion of the attention of Onvia’s 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 Onvia’s business. If Onvia does not successfully integrate its future acquired businesses, the market price of Onvia’s common stock may decline.

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

Onvia may make incorrect assumptions about its 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, and to continue to execute its strategic plan. Consequently, Onvia may not achieve the forecasted benefits of the merger, including improved financial results, to the extent anticipated by Onvia or 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 Onvia’s common stock may decline.

Onvia has completed several acquisitions and may make future acquisitions, which may harm its operating results

Onvia has completed several acquisitions and expects to continue making acquisitions designed to increase its customer base, broaden its offerings and expand its technology platform. Onvia’s ability to integrate its past acquisitions is unproven. In addition, failure to successfully evaluate and execute future acquisitions may seriously harm Onvia’s business. To evaluate and execute an acquisition successfully, Onvia must:

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properly evaluate the technology, personnel and customers;

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accurately forecast the financial impact of the transaction, including charges and transaction and professional expenses;

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integrate and retain personnel;

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combine potentially different corporate cultures; and

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effectively integrate services and products and technology, sales, marketing and support operations.

If Onvia fails to do any of these tasks, it may complete unsuccessful acquisitions, possibly resulting in adverse consequences to Onvia’s business. In March 2001, Onvia closed its hosting operations, which were acquired in July 2000, and licensed its Canadian operations in Vancouver, British Columbia and in December 2001, Onvia eliminated its outside sales force associated with its acquisitions of Globe-1 and DemandStar.com (acquired in August 2000 and March 2001, respectively). Onvia closed these operations as part of its overall strategic initiative to cut costs and focus on the development of its B2G network.

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

If regulations or legal restrictions are imposed upon bid aggregating on the Internet, Onvia’s business will be materially harmed

Onvia’s proprietary bid aggregating technology will be integral to its success. If the process of bid aggregating becomes regulated in the future and Onvia’s process for acquiring government bids is no longer cost-effective, Onvia’s business will be significantly harmed.

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

Onvia only provides its subscribers with a summary of the government bid notification and the required contact information, and 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 Onvia to provide the complete document to its suppliers to eliminate any potential confusion during the bidding process. If this occurs, Onvia’s current bid aggregating technology would not be adequate to achieve these requirements, and Onvia would need to find a new method to accumulate the complete bid document for distribution to its subscribers.

Future regulations could be enacted that either directly restrict Onvia’s business or indirectly impact its 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 Onvia’s services and offerings. Although many regulations might not apply to its business directly, Onvia expects that laws regulating the collection or processing of personal or consumer information could indirectly affect its 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.

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

Once a government decides to use Onvia’s 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 requests for proposals made by governments. To respond successfully to these requests for proposals, Onvia must estimate the time and costs required to establish operations for the proposed government client and the likely terms of any other proposals submitted. Onvia must also assemble and submit a large volume of information within the strict time schedule mandated by a request for proposal. Whether or not Onvia is able to respond successfully to requests for proposals in the future will significantly impact its business.

Onvia cannot guarantee that it will win any bids in the future through the request for proposal process. Onvia 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. Onvia cannot guarantee the success of those negotiations. If negotiations fail, the agency is free to negotiate with other bidders or restart the request for proposal process. Onvia generates most of its revenue from vendors who pay fees to it in order to use its systems to sell goods and services to government agencies. If Onvia is unable to sign up governments to participate in its B2G network, then Onvia will be unable to secure revenue-generating agreements with new vendors and existing vendors may terminate their agreements with Onvia for its DemandStar by Onvia service.

Onvia’s network and software may be vulnerable to security breaches and similar threats that could result in its liability for damages and harm its reputation

Onvia’s 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 its 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 Onvia’s customers. Furthermore, inappropriate use of the network by third parties could also jeopardize the security of confidential information stored in its computer systems.

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

Onvia’s operations may be adversely affected by earthquakes or extended power outages

Onvia’s 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. Onvia does not know the ultimate impact on its operations of being located near major earthquake faults, but an earthquake could harm its operating results. In addition, the Pacific Northwest may experience power shortages or outages. Power shortages or outages could cause disruptions to Onvia’s operations, which in turn may result in a material decrease in its revenues and earnings and harm its business. Onvia’s insurance coverage may not be adequate to cover the losses and interruptions caused by earthquakes or power outages.

Any settlement or claim awarded against Onvia as a result of the securities class action suits filed against Onvia could negatively impact its operating results

In 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 have been 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. The complaint charges 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 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 pre-determined prices. The complaint seeks an undisclosed amount of damages, as well as attorney fees. On or around April 19, 2002, a consolidated complaint was filed and a lead plaintiff was appointed. Onvia intends to defend itself vigorously against these charges. The results of litigation proceedings are inherently unpredictable, however, and Onvia is unable to provide assurance regarding the outcome of these complaints or possible damages that may be incurred.

Onvia expects its Directors and Officers insurance to cover any award or settlement as a result of these claims, less its self retention of $250,000.

Although Onvia believes it is unlikely, any cash award or settlement in excess of Onvia’s Directors and Officers insurance to the plaintiffs could have a material negative impact on its operating results and financial condition. It is also possible that defense of these claims will result in a significant diversion of management attention.

The performance of its web site is critical to Onvia’s business and its reputation

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

As of June 2001, Onvia moved all of its web servers in-house at its corporate headquarters in Seattle, Washington from its previous off-site location at Exodus Communications. Onvia’s lack of experience and expertise in maintaining web and database servers may increase the likelihood of interruptions and failures of its network web site service. Regardless of whether Onvia’s servers are maintained by Exodus or Onvia, Onvia’s backup systems may not be sufficient to prevent major interruptions to its operations, and it has not finalized and tested its disaster recovery plan. Onvia may not have sufficient business interruption insurance to cover losses from major interruptions.

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

Onvia’s services and products depend upon the continued availability of licensed technology from third parties

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

Onvia’s business will suffer if it is unable to hire and retain highly qualified employees

Onvia’s future success depends on its 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 Onvia continues to introduce new services, products and features on its web site, and as its customer base continues to grow, Onvia will need to hire qualified personnel. Competition for qualified personnel, especially those with Internet experience and experience in government procurement, is intense, and Onvia may not be able to attract, train, assimilate or retain qualified personnel in the future. In addition, Onvia’s recent layoffs and reductions in workforce may affect its ability to attract new qualified personnel as required. Onvia’s failure to attract, train, assimilate and retain qualified personnel could seriously disrupt its operations and could increase its costs as Onvia would be required to use more expensive outside consultants.

Onvia’s executive officers, directors and key employees are critical to its business, and these officers, directors and key employees may not remain with Onvia in the future

Onvia’s business and operations are substantially dependent on the performance of its 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, Chief Executive Officer and Acting Chief Financial Officer, or Clayton W. Lewis, President and Chief Operating Officer, members of the Board of Directors or other key employees would likely harm Onvia’s business.

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

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

Onvia may require substantial additional funds to expand its marketing activities, to continue to develop and upgrade its technology and to make corporate acquisitions. If Onvia issues convertible debt or equity securities to raise additional funds, Onvia’s existing stockholders will be diluted.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Interest Rate Risk

Onvia’s investment portfolio, if any, typically consists of money market funds, commercial paper and corporate debt securities with maturities of one year or less. Onvia’s primary investment objectives are preservation of principal, a high degree of liquidity and a maximum total return consistent with the investment objectives. Onvia invests primarily in (U.S. denominated only): commercial paper issued by U.S. corporations; direct obligations of the U.S. Government; 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 June 30, 2002, Onvia considers the reported amounts of these investments to be reasonable approximations of their fair values. Historically, Onvia’s interest expense was not sensitive to the general level of U.S. interest rates because all of its debt arrangements were based on fixed interest rates. Onvia manages its interest rate risk by purchasing investment-grade securities and diversifying its investment portfolio among issuers and maturities.

Foreign Currency Risk

Onvia expects its foreign currency risk exposure to be insignificant, since Onvia disposed of its Canadian operations in March 2001.

Equity Price Risk

Onvia does not own any significant equity instruments.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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. 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 pre-determined prices. The complaint seeks an undisclosed amount of damages, as well as attorney fees. On or around April 19, 2002, a consolidated complaint was filed and a lead plaintiff was appointed. Onvia intends to defend itself vigorously against these charges.

In addition, from time to time Onvia is subject to various other legal proceedings that arise in the ordinary course of business. While management believes that the disposition of these matters will not have a material adverse effect on the financial position, results of operations, or cash flows of Onvia, the ultimate outcomes are inherently uncertain.

Item 2. Changes in Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

(a) Onvia’s annual shareholders meeting was held on July 11, 2002 in Seattle, Washington.

(b) Onvia’s Class II Directors, namely Michael D. Pickett and Nancy J. Schoendorf, were elected to continue their term for an additional 3 year period (until 2005) and until their respective successors are elected and qualified. The existing terms of Onvia’s Class I Directors, namely Kenneth A. Fox and Steven D. Smith, and its Class III Directors, namely, Jeffrey C. Ballowe and William W. Ericson, continued after the annual meeting.

(c) The matters voted upon at the annual shareholder meeting and their respective number of votes cast for, against or withheld, as well as the number of abstentions are as follows:

To elect members of the Board of Directors to hold office for a three year term and until their respective successors are elected and qualified.

	Votes For	Votes Against	Votes Withheld
Michael D. Pickett	40,385,080	0	511,374
Nancy J. Schoendorf	40,385,080	0	511,374

To amend Onvia’s Certificate of Incorporation to effect a one-for-ten reverse split of outstanding common stock and to effect a decrease in the number of authorized shares of common stock from 265,000,000 to 13,000,000.

For		40,865,569
Against		21,875
Abstain		9,010

To ratify the Board of Directors’ selection of Deloitte & Touche LLP as Onvia’s independent auditors.

For		40,866,953
Against		11,251
Abstain		18,250

Item 5. Other Information.

None.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits


3.1(1)		Amended and Restated Certificate of Incorporation of the Registrant filed July 17, 2002.

99.1		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

The following reports were filed on Form 8-K during the three months ended June 30, 2002:

During the quarter ended June 30, 2002, the Company filed a Current Report on Form 8-K dated May 16, 2002 reporting under Items 5 and 7 that the Company had received notification from the NASDAQ National Market regarding a deficiency in the Company’s compliance with one of the NASDAQ National Market’s continued listing requirements.

On July 11, 2002, the Company filed a Current Report on Form 8-K reporting under Items 5 and 7 that its shareholders approved a 1-for-10 reverse stock split of all outstanding shares of common stock.

SIGNATURES

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* *Chief Executive Officer and* *Acting Chief Financial Officer*

Date: August 12, 2002

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