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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2004

OR

For the transition period from              to             

Commission file number 000-29609

ONVIA.COM, INC.

(Exact name of registrant as specified in its charter)

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.     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: 7,691,094 shares outstanding as of April 15, 2004.

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ONVIA.COM, INC.

INDEX

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ONVIA.COM, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to the condensed consolidated financial statements.

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ONVIA.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to the condensed consolidated financial statements.

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ONVIA.COM, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to the condensed consolidated financial statements.

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ONVIA.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

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 Accounting 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 increased to the pro forma amounts indicated below for the three months ended March 31:

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The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions:

Onvia considers all highly liquid instruments with a remaining maturity of three months or less to be cash equivalents. We classify investments with remaining maturities of more than three months and less than one year as short-term investments, and investments with remaining maturities of more than one year as long-term investments. In accordance with our investment policy, long-term investments are limited to original maturities of no more than thirteen months. Our cash and cash equivalents and investments at March 31, 2004 and December 31, 2003 consisted of the following (cost approximates fair value):

Historical basic and diluted earnings per share are calculated by dividing the net loss for the period by the weighted average shares of common stock outstanding for the period, reduced for shares subject to repurchase by Onvia, if any. As of March 31, 2004 and 2003, stock options, warrants and nonvested common stock totaling 1,120,852 and 1,074,424 shares, respectively, are excluded from the calculation of diluted net loss per share as they would be antidilutive.

We currently have approximately 52,000 square feet of idle office space in our current corporate headquarters building in Seattle, Washington as a result of the closure of our B2B exchange and the elimination of our outside sales force in 2001.

In October 2003 we signed an agreement with our landlord to remove from our lease obligation 2,000 square feet of our approximately 5,000 square feet of idle office space in Bellevue, Washington beginning August 1, 2004. This office space was acquired via our Globe-1 acquisition, and the lease expires in March 2005.

In November 2003 we reached an agreement to sublease approximately 19,000 square feet in a former corporate facility in Seattle, Washington. The sublease runs through the end of our contractual obligation on the space in August 2006. The rental rates in the sublease are below our

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contractually obligated rental rates, and the shortfall has been included in our idle lease accrual. Per the terms of the sublease, we established a letter of credit in the amount of approximately $181,000, which is included in Other Assets at March 31, 2004.

In February 2004 we reached an agreement to sublease the remaining 3,000 square feet in our Bellevue office. The sublease runs through the end of our contractual obligation on the space in March 2005. The rental rates in the sublease are below our contractually obligated rental rates, and the shortfall has been included in our idle lease accrual.

Based on our most recent evaluation, we estimate that it will take until the end of 2005 to find suitable tenants to sublease the remaining 52,000 square feet in our current corporate headquarters. At March 31, 2004, the total accrual related to future lease payments and estimated broker fees on our idle and sublet office space was $8.3 million. We anticipate that this accrual will cover our remaining contractual obligations, assuming that we will have the idle space sublet by the end of 2005 at estimated current market rates, which are below our contractually obligated rates, through the remainder of the lease obligations. The obligation for office space under lease, inclusive of the lease payments included in our $8.3 million accrual, exceeds $16.4 million. Should it take longer to sublease the excess office space or should the sublease amounts be lower than our estimates, the actual cost could exceed the amount accrued.

The following table displays roll forwards of the accruals included in the restructuring charge established for real estate and other exit costs through March 31, 2004 (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.

Our leasing arrangement for our current corporate facilities requires a letter of credit of $3.5 million to be issued to the landlord through May 2010. This letter of credit is included in other assets at March 31, 2004 and December 31, 2003.

At March 31, 2004 the Company held a promissory note that was issued to Kristin McLaughlin, our former Chief Strategy Officer. The note was issued in April 2001 in the amount of $350,000 and had a remaining principal and interest balance of approximately $263,000 as of March 31, 2004. The note is included in other assets as of March 31, 2004 and December 31, 2003. The Company holds 45,000 shares of Onvia common stock issued in Ms. McLaughlin’s name as collateral on the promissory note.

No new accounting standards were issued during the first quarter of 2004 or prior to the filing of this report that are expected to have an impact on the Company’s financial position, results of operations or cash flows.

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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 complaint charged 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 complaint alleged 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 sought 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. In June 2003, Onvia, along with most of the companies named as defendants in this litigation, accepted a settlement proposal negotiated among plaintiffs, underwriters and issuers. The major points of the settlement are: (1) insurers will provide a $1 billion guaranty payable to plaintiffs; (2) companies will assign excess compensation claims against underwriters to plaintiffs; (3) companies will agree not to assert pricing claims or claims for indemnification against the underwriters; (4) companies and their officers and directors will be released from any further litigation relating to these claims; and (5) companies will agree to cooperate in any document discovery. The final settlement agreement must be negotiated and approved by the court. We have a $30 million directors and officers liability policy that would cover any award up to $30 million, subject to a $250,000 deductible. We are awaiting the court’s approval on the final settlement. If the final settlement is approved, Onvia will be released from any future liability under 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, or of the matter specifically discussed above, 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, 2004, 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.

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

CAUTIONARY STATEMENT

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 for many reasons, including the factors described under “Risk Factors” and elsewhere in this report, and under the heading “Business” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 19, 2004. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of 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.

Results of Operations

Overview

Onvia is a leading notification and information service for government agency buyers and business suppliers. With our DemandStar procurement solution, we help government agencies inform and update suppliers electronically. Additionally, Onvia has expanded its product offering and now alerts customers of private sector opportunities across the United States as well.

Our service makes it more efficient for companies of all sizes and industries to access and compete for new business opportunities. Our strength is based on our broad, nationwide coverage of state and local government opportunities unequalled by other sources. Because state and local government purchasing is decentralized, businesses find it time consuming and expensive to locate these opportunities. By using our service, businesses no longer have to scour newspapers, trade periodicals, or the Internet in search of government and private sector opportunities. Onvia provides cost-effective access to revenue opportunities from state and local municipalities generally within 24 hours of their publication by the agency. Our customers are automatically notified of and updated on government and private sector 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 because they receive automatic daily notifications of government opportunities.

We also have a variety of products that keep businesses informed of private sector opportunities, including a news clipping service and a lead notification service. These private sector products are currently primarily focused on the architecture, engineering and construction industries (AEC), but will expand in the future to cover additional verticals.

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Products

Onvia’s Agency Solution

DemandStar, Onvia’s agency tool, automates the process of request for proposal (RFP) and request for quote (RFQ) creation, posting, and document distribution. By providing agencies with online tools for creating templates for RFPs and RFQs, we help agencies eliminate many manual steps in the bidding process and increase the overall efficiency of their procurement process.

Onvia’s buyer tools consist of BidWire and QuoteWire. BidWire is a web-based tool set that provides agency buyers with a step-by-step template for creating and posting RFPs and other requests for bids. All posted bids are coded by the buyer and distributed to subscribing suppliers and supplemental agency suppliers. Some of BidWire’s features also include bid document distribution services and tools to update open RFPs and view a list of suppliers who have downloaded bid documents.

QuoteWire provides buyers requesting quotes with the same efficiencies as BidWire does for RFPs. All posted RFQs are coded by the buyer and distributed to subscribing suppliers and supplemental agency suppliers. Some of QuoteWire’s primary features include tools that allow the buyer to modify standard RFQ forms and create individual line items for each quote; a specialized version of the RFQ form whereby suppliers can input prices and other information; automatic tabulation of seller responses for comparison and award; and specific award notification to the selected supplier.

Our buyer tools provide agency buyers with numerous benefits. The online tools eliminate many manual steps traditionally found in the RFP and RFQ process. Agencies save time and money by outsourcing the bid package production and distribution to us. Also, by posting bids and quotes to a database of suppliers, buyers increase the number of businesses competing for their projects, which can drive contract prices down.

Onvia’s Supplier Solution

Our lead generation network consists of two complementary products, DemandStar by Onvia and The Onvia Guide, which automate the process of RFP and RFQ creation and posting, and document distribution for agencies. We offer products on a nationwide level, and down to the county level, that provide business suppliers access to federal, state and local government agency revenue opportunities in their selected geography. In January 2004 we also added private sector revenue opportunities to our product offering.

DemandStar by Onvia

Subscribers to the DemandStar by Onvia service have access to historical and current bid requests from approximately 440 contracted government agencies. 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.

The Onvia Guide

The Onvia Guide is an excellent complement to our DemandStar by Onvia offering. The Onvia Guide is a daily e-mail publication of business leads from the private sector and from more than 45,000 government-purchasing offices. The leads published daily to each subscriber are professionally formatted and are customized based upon the selected locations and categories of the customer.

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Our proprietary Onvia Guide service allows business users the opportunity to participate in government procurement contracts in 328 business categories over nine vertical markets. The vertical markets currently served are:

Subscriptions to The Onvia Guide are generally prepaid at the beginning of the subscription term and are available in annual, quarterly and monthly payment options. The subscription fee is recognized ratably over the term of the subscription.

Premium Data

In 2003 and early 2004, we introduced additional products to increase the value proposition to existing customers and broaden our product appeal to potential customers in new markets. Products introduced include:

The addition of premium data products has positively impacted our average subscription price (ASP), and we expect this trend to continue. Average subscription price reflects the annual value of new and repeat transactions during the quarter.

Bid and Quote Publication

Our dedicated in-house research team aggregates and publishes thousands of bids and quotes on a daily basis to our subscribing customers. In the first quarter of 2004 we published approximately 159,000 bids and quotes, compared to approximately 112,000 bids and quotes in the first quarter of 2003, an increase of 42%. We have significantly increased the number of bids published by leveraging new technology and through efficiencies gained in our research team. While we expect to continue to see increases in the number of bids and quotes published, we expect the increases will be more modest in the future.

Customers

As of March 31, 2004, we had approximately 26,300 subscribers and enterprise licensees, compared to approximately 24,000 at March 31, 2003. The increase in our user count comes primarily from growth in our enterprise licensees, an area where we have allocated additional resources to increase the adoption of our services by these customers. We expect to continue to see modest increases in our user count as we continue to expand our product offering, continue to penetrate the enterprise market, and improve retention of our existing customers through continued focus on customer satisfaction.

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Premium Subscribers and Enterprise Licensees

Premium subscribers are customers who subscribe at the metro-level and above. Premium subscribers receive more leads, directly leading to higher customer satisfaction and retention rates. We also target enterprise level businesses to adopt our products. Enterprise licensees include larger companies who purchase multiple licenses for daily lead notification, or purchase Onvia data for redistribution to their employees or customers, or for remarketing their own products. We believe there is a significant market opportunity for this solution, and we have allocated additional resources to penetrate this market.

Our premium subscribers and enterprise licensees represented approximately 66% of total users as of March 31, 2004, compared to 48% as of March 31, 2003. We expect to continue to see increases in the number and percentage of premium customers and enterprise licensees, but we expect the increases to be more modest in the future.

We increased our ASP to $627 in the first quarter of 2004, an increase of 55% compared to $404 in the first quarter of 2003. This increase in ASP demonstrates our success in acquiring new premium subscribers and enterprise licensees and upgrading our existing subscribers to higher value products. Our focus on acquisition and retention of these premium subscribers and enterprise licensees should continue to positively impact our ASP.

Agency Services

Government agency participation is an important factor in the success of Onvia’s business. Agency partners bring value through increased bid and quote flow, and by providing low cost customer acquisition channels and referrals of their suppliers. Uploading bids and quotes to the DemandStar system is a key component to customer satisfaction and retention. Once an agency adopts the DemandStar procurement solution, they provide marketing support for the DemandStar service by providing a vendor list for direct marketing with the agency logo. In the first quarter of 2004 we added 13 new agencies, compared to 15 in the first quarter of 2003. The reduction in total agencies added reflects our initiative to sign agencies in metropolitan statistical areas (MSAs), which generally require more time to sign due to increased competition. MSAs represent core areas containing a substantial population nucleus, and targeting agencies in these MSAs yields a higher concentration of suppliers to target for direct mail marketing, our primary technique for agency supplier acquisition. Due to the value associated with our agency partners, we added additional resources to this team in the first quarter of 2004. We expect the number of agencies utilizing our service to increase in these targeted MSAs as a result of our continued focus on signing agencies in strategic geographic regions.

Results of Operations for the Three months ended March 31, 2004 Compared to the Three months ended March 31, 2003

Revenue and Cost of Revenue

Revenue for the three months ended March 31, 2004 increased 39% to $3.1 million, compared to $2.2 million for the three months ended March 31, 2003. The increase was due to increases in the average subscription price attributable to our success in acquiring new premium subscribers and upgrading our existing customers to premium products, combined with growth in our overall user count as a result of increased adoption of our product by enterprise licensees.

Costs of revenues were $366,000 and $296,000 for the three months ended March 31, 2004 and 2003, respectively, representing an increase of $70,000, or 24%, in 2004. Our cost of revenue primarily represents payroll related expenses associated with the publishing of our daily bid notification service, but also includes credit card processing fees and third party content fees. The increase over the comparable

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three month period was primarily attributable to an increase in third party content fees of approximately $29,000, and an increase in payroll related expenses of approximately $26,000 from an increase in headcount; both resulted from increased lead generation requirements from new product introductions. The balance of the increase is due to increased credit card fees as a result of an increase in cash receipts for the comparable quarters.

Gross margin increased to 88% in the first quarter of 2004, compared to 87% in the same quarter in 2003. We were able to slightly increase our gross margin by increasing our ASP and by leveraging new technology to streamline our bid publication process. 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.

Sales and Marketing

Sales and marketing expenses were $2.3 million and $2.4 million for the three months ended March 31, 2004 and 2003, respectively, representing a decrease of $103,000, or 4%, in 2004. The decrease is primarily comprised of a reduction of $371,000 in deferred compensation and other allocated expenses, which include depreciation, amortization and facilities related expenses. Depreciation expenses decreased significantly due to a number of large assets becoming fully depreciated in early 2003. Depreciation and certain other expenses are allocated between the sales and marketing, technology and development, and general and administrative departments based on headcount. In addition to the decrease in allocated expenses, marketing expenses decreased by $118,000 as a result of lower direct mail marketing and database management expenses. Direct mail expenses were higher in 2003 as a result of a one-time expense associated with a large direct-mail campaign. The reduction in database management expenses is due to timing of maintenance on our database. We expect to incur additional database management expenses in 2004, consistent with the amount incurred in the first quarter of 2003, which was approximately $40,000. In addition, contract labor expenses decreased by $37,000. These decreases were partially offset by an increase of $441,000 in payroll related and recruiting expenses as a result of an increase in the headcount in our corporate sales organization to achieve greater penetration in the corporate customer and premium data markets, and an increase in commission expenses as a result of increased revenue compared to the prior year.

Technology and Development

Technology and development expenses were $596,000 and $924,000 for the three months ended March 31, 2004 and 2003, respectively, representing a decrease of $328,000, or 35%. The decrease is primarily attributable to a reduction of $327,000 in allocated expenses and deferred compensation, and a decrease of approximately $60,000 in payroll related expenses due to headcount reductions. These reductions were partially offset by an increase of $59,000 in facilities related expenses, primarily telecom expenses. Telecom expenses were lower in the first quarter of 2003 because we accrued credits due from accounts that were terminated.

General and Administrative

General and administrative expenses were $809,000 and $1.0 million for the three months ended March 31, 2004 and 2003, respectively, representing a decrease of $215,000, or 21%. The decrease is primarily attributable to a reduction of approximately $181,000 in insurance expenses due to a decline in our directors and officers insurance premiums, a decrease of $83,000 in professional fees as a result of a reduction in legal expenses due to the resolution of several pending lawsuits, and a decrease of $74,000 in allocated expenses and deferred compensation. These savings were partially offset by an increase of $77,000 in recruiting fees related to the search to fill vacancies on our Board of Directors, and an increase of $55,000 in payroll related expenses and consulting fees related to performance incentives, independent director compensation and management training.

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Noncash Stock-Based Compensation

We record unearned stock compensation in connection with the grant or absorption in a purchase business combination of certain stock options and other equity instruments. For employee options, unearned stock compensation is recorded as the difference, if any, 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. Unearned stock-based compensation had been fully amortized as of March 31, 2004. We recorded $2,000 and $178,000 of net noncash stock-based compensation expense for the three months ended March 31, 2004 and 2003, respectively. Noncash stock-based compensation expense is recorded within the operating expense category based on the classification of the related employee.

Other Income, Net

Net other income was $85,000 and $132,000 for the three months ended March 31, 2004 and 2003, respectively. The decrease in comparable periods was primarily attributable to the amortization of license fees related to the licensing of our Canadian operations as part of the divestiture of our Canadian operations and web hosting business in 2001. Amortization of these license fees amounted to approximately $40,000 in the first quarter of 2003 and were included in other income. These license fees were fully amortized by the third quarter of 2003.

Net Loss and Net Loss per Share

Net loss decreased by 60% to $925,000 for the three months ended March 31, 2004, compared to $2.3 million for the same period in 2003 as a result of the increase in revenue and decrease in expenses discussed above. On a per share basis, net losses were $0.12 per share and $0.30 per share for the three months ended March 31, 2004 and 2003, respectively.

Recent Developments

In January 2004, we engaged a third party recruiting firm to assist us in our search to fill one of the vacancies on our Board of Directors. Total fees under this agreement are $70,000, plus direct expenses. $46,666 of this obligation had been paid as of March 31, 2004. The search to fill the vacancies is ongoing as of the date of this report.

In February 2004, we formally terminated our engagement with Broadview International, LLC (“Broadview”). Broadview had been engaged to assist us in identifying suitable transactions to enhance stockholder value. After reviewing our options, our Board of Directors concluded that the best way to enhance stockholder value is to utilize our balance sheet and operating momentum to accelerate our growth rate and achieve profitability. Accordingly, the engagement with Broadview was terminated.

Per the terms of the original Broadview agreement, certain “business combinations,” including a transaction which results in a change in control of either the acquired or acquiring company or a sale of all or substantially all of the Company’s assets, with certain named parties within one year of the termination date, would result in a completion fee of $750,000 becoming due to Broadview. Alternatively, certain “other transactions,” including a cash distribution or a stock repurchase, would result in a completion fee of $500,000 becoming due to Broadview.

On March 31, 2004, Nancy J. Schoendorf and Kenneth A. Fox submitted, and the Board accepted, resignations as members of Onvia’s Board of Directors. Neither of the resignations was due to a disagreement with Onvia on any matter relating to Onvia’s operations, policies, or practices. James L. Brill and Roger L. Feldman were appointed to the Board of Directors effective March 31, 2004 to fill the vacancies created by such resignations.

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Significant Accounting Policies and Management Estimates

Revenue Recognition

Subscription revenues are generally prepaid at the beginning of the subscription term and we offer annual, quarterly and monthly payment options. The subscription fee is recognized ratably over the term of the subscription. Unearned revenue as of March 31, 2004 consists of payments received for prepaid annual and quarterly subscriptions whose terms extend into future periods.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, and our ability to recognize sales to certain customers may be affected.

Lease Obligations

As a result of the closure of our Canadian operations and B2B exchange and the elimination of our outside sales force in 2001, we have recorded charges to accrue rental payments on our idle office space leases through the remainder of the lease obligations in March 2010. Based on our most recent evaluation we anticipate that our existing accrual will be sufficient to cover our remaining contractual obligations, assuming that we will have approximately half of the space sublet by mid-2005 and the remainder of the space sublet by the end of 2005 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 52,000 square feet of idle office space in our current corporate headquarters building in Seattle, Washington. We also have approximately 2,000 square feet of idle office space in Bellevue, Washington, but we have signed an agreement with the landlord of that building that will remove our contractual obligation on this space effective August 1, 2004. At March 31, 2004, the total accrual related to future lease payments and estimated broker fees on our idle office space and other exit costs was $8.3 million. Our total obligation for office space under lease, inclusive of the lease payments included in our $8.3 million accrual, is approximately $16.4 million. Should it take longer to sublease the excess office space or should the sublease amounts be lower than our estimates, the actual cost could exceed the amount accrued and we may be required to make an additional accrual.

Fair Value of Financial Instruments

Onvia’s financial instruments consist of cash and cash equivalents, short and long-term investments, accounts receivable, accounts payable, and accrued liabilities. The carrying amounts of the financial instruments approximate fair value due to their short maturities. The fair value of our long-term investments is not materially different from its carrying amount, based on the amount invested, the interest rates available and the short maturity (investments are limited to maximum maturities of thirteen months).

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Contractual Obligations

Future required payments under contracts, excluding operating expenses, as of March 31, 2004 are as follows for the periods specified:

Future required payments under contracts shown above have not been reduced by future receipts under sublease contracts in the following amounts for the periods specified:

Provision for Income Taxes

Onvia has incurred net operating losses from March 25, 1997 (inception) through March 31, 2004, 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

Our combined cash, cash equivalents and short-term investments were $30.2 million at March 31, 2004. In addition, at March 31, 2004 we held $1.1 million in long-term investments. Short-term investments are invested in money market funds fully invested in obligations of the U.S. Government, commercial paper, municipal and auction rate securities, and corporate debt securities with maturities of one year or less. Long-term investments are invested in the same types of investments, but have maturities of between 12 to 13 months. All of our investments carry a minimum rating of A+, A-1, P-1 or equivalent. The portfolio is diversified among security types and issuers and does not include any derivative financial instruments. At March 31, 2004, our working capital was $21.9 million.

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. Our contractual obligation on our operating leases is approximately $16.4 million, not including operating expenses, at March 31, 2004. We have reserved approximately $8.3 million at March 31, 2004, which includes our contractual obligations on our idle leases and our estimate of operating expenses related to the idle space, assuming that we will be able to sublease approximately half of the remaining 52,000 square feet of idle space by mid-2005 and the remainder of this space by the end of 2005. While we anticipate that we will be able to sublease our idle space by the end of 2005, our ability to sublease or dispose of this space within our estimated timeline will also affect our future liquidity.

We currently plan to fund our operations with our existing cash and cash equivalents and from revenues generated from future operations, which we believe will be sufficient to satisfy our cash requirements under existing operating plans for the foreseeable future. However, if we engage in merger or acquisition

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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 or may include securities that have rights, preferences or privileges senior to those of the rights of our common stock. We cannot make assurances that if additional financing is required, it will be available, or that such financing can be obtained on satisfactory terms.

Per the terms of the original Broadview agreement, which was terminated in February 2004, certain “business combinations,” including a transaction which results in a change in control of either the acquired or acquiring company or a sale of all or substantially all of the Company’s assets with certain named parties within one year of the termination date would result in a completion fee of $750,000 becoming due to Broadview. Alternatively, certain “other transactions,” including a cash distribution or a stock repurchase, would result in a completion fee of $500,000 becoming due to Broadview.

Operating Activities

Net cash used by operating activities was $1.1 million and $2.5 million for the three months ended March 31, 2004 and 2003, respectively, an improvement of $1.4 million. The improvement in net cash used by operating activities in the first three months of 2004 was primarily attributable to a lower net loss as a result of increased revenues and lower operating expenses, including depreciation and amortization, a decrease in payments for prepaid expenses and other current assets, and a decrease in the payment of accounts payable and accrued restructuring compared to the same period in 2003. Net cash payments for accrued restructuring decreased primarily due to the sublease of 19,000 square feet in our former corporate facility in Seattle, WA.

Investing Activities

Net cash provided by investing activities was $2.3 million for the three months ended March 31, 2004, compared to net cash used in investing activities of $4.3 million for the same period in 2003. The change from net cash used in investing activities to net cash provided by investing activities is primarily due to an increase in the maturity of short-term investments in the first quarter of 2004 compared to the same period in 2003. Maturities of $8.4 million in the first quarter of 2004 were partially offset by an increase in the purchase of short term investments of $1.9 million in the first quarter of 2004 compared to the first quarter of 2003.

Financing Activities

Net cash provided by financing activities was $29,000 in the three months ended March 31, 2004, compared to $0 in the same period in the prior year. Net cash provided by financing activities in the first quarter of 2004 was entirely related to employee option exercises

Recent Accounting Pronouncements

No new accounting standards were issued during the first quarter of 2004 or prior to the filing of this report that are expected to have an impact on the Company’s financial position, results of operations or cash flows.

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.

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

Our ability to appropriately categorize and distribute leads, to provide excellent customer service, to maintain competitive pricing and meet our customers’ expectations for source coverage will significantly impact our customers’ satisfaction with our products and services and will impact their decision to renew their service. If we are unable to meet our customers’ expectations, our projected renewal rates and 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 our products are not broadly adopted by targeted enterprise customers, our growth and profitability will be slowed

We anticipate that a significant portion of our future revenue will be generated by our enterprise sales team. The enterprise sales team targets larger companies who will purchase multiple licenses for daily lead notification, for redistribution to their employees or customers, or for remarketing their own products. Failure to achieve our expected market penetration with our enterprise product 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

We must continue to attract and retain subscribers to our premium, higher-priced services to achieve our growth and profitability goals. Subscribers to our premium services have higher average subscription prices (ASP), higher renewal rates and provide greater lifetime value to the Company.

Our ability to grow our business depends in part on government agencies and businesses increasing their use of the Internet to conduct commerce

Our growth depends in part on increased use of the Internet by government agencies 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.

We may be required to increase our marketing expenses in order to generate sufficient sales leads to achieve our revenue goals

We currently generate a significant portion of our marketing prospects and sales leads from our in-house database of vendors. If we are unable to continually refresh this database via agency referrals, visitors to our web sites or by other means, we may be required to purchase marketing lists from outside vendors, which would increase our marketing expenses.

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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. Moreover, public disclosure laws, which require governmental entities to produce bid information directly to the members of the public, may negatively impact our business and reduce the value of our services to government entities. 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 available in our network. In order to continue to increase the number of bids published, we may be required to add additional resources to our research team, which would increase our cost of sales. 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.

Increased blocking of our emails could negatively impact customer satisfaction with our product and could inhibit the effectiveness of our marketing efforts

Some network administrators could flag and block emails from Onvia due to increased filtering of email attachments as a result of the threat of email borne viruses or unwanted “spam”. Our content is currently delivered in the form of an attached file via email. Excessive filtering of our emails could negatively impact customer satisfaction and would harm our business. Our emails also may be flagged and blocked as “junk-email” or “spam” due to heightened security, state and federal anti-spam laws, or for other reasons. Blocking of our emails would harm our marketing efforts and our business.

Intense competition could impede our ability to gain market share and could 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, Governmentbids / Mediagrif, TrueAdvantage, e.Republic, FedMarket, BidMain, McGraw-Hill, Contractors Register, Input and other companies focused on providing services to government agencies and their vendors.

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. If we are required to increase our source coverage due to competitive pressures, we may be required to add additional resources to our research team, which would increase our cost of sales.

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Our stock price is volatile

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.

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:

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In addition, in November 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 52,000 square feet of idle office space in the Seattle area. Based on our most recent analysis, we estimate that we will have approximately half of the remaining idle lease space sublet by mid-2005 and the remainder by the end of 2005. We currently have approximately $8.3 million accrued for our contractual obligations on our idle and sublet lease space and our estimate of operating costs on this idle space. We anticipate that this accrual will cover our remaining contractual obligations, assuming that we will have the space sublet by the end of 2005 at estimated current market rates, which are below our contractually obligated rates, through the remainder of the lease obligations. 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 adversely affected and our stock price could decline.

Lead generation services are at an early stage of development and market acceptance and may not prove to be viable

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

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 infrastructure and application servers 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.

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We have incurred negative cash flows from operations in each quarter since inception. Under our current operating plan we expect to continue to incur negative cash flows in the future

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.

We may face challenges that could prevent us from successfully integrating any future merger, acquisition or other corporate transaction

In February 2004, we discontinued our engagement with Broadview International LLC (“Broadview”), an investment banking firm that was assisting us in identifying suitable transactions to enhance stockholder value, including, but not limited to, potential mergers, acquisitions, strategic partnerships and sale and/or privatization of the Company. Although Broadview is no longer engaged to assist us in identifying suitable corporate transactions, our management will continue to explore opportunities to increase shareholder value. There are significant challenges to implementing any corporate transaction. Integrating companies and technologies involves significant challenges and is a complex process, and the anticipated benefits of any corporate transaction may not be achieved within the anticipated timeline, or at all. Some of the challenges involved in corporate transactions include:

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We may not succeed in overcoming these risks or any other problems encountered in connection with a merger, acquisition or a sale of the Company. The diversion of the attention of our management and any difficulties encountered in such a transaction could cause the disruption of, or a loss of momentum in, the activities of our business. If we do not successfully execute any future merger, acquisition or other corporate transaction, the market price of our common stock may decline and future operating results may suffer.

If a merger, acquisition or other corporate transaction 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, mergers or other corporate transactions, such as the ability to secure additional business from government customers and vendors selling to those customers as a result of any such transaction. Consequently, we may not achieve the forecasted benefits of the transaction, including improved financial results, to the extent anticipated by us or by financial or industry analysts. In addition, significant stockholders of Onvia following any corporate transaction may decide to dispose of their shares if the transaction 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 may make future acquisitions designed to increase our customer base, broaden our offerings and market penetration and expand our technology platform. Failure to successfully evaluate and execute future acquisitions may seriously harm our business. To evaluate and execute an acquisition successfully, we must:

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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 any 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, 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 is 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 could 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 restrictions or 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 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.

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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 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 unauthorized redistribution of our published information

A number of entities have been identified as having utilized our published 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.

The performance of our application servers and 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 or our application servers, which support bid creation and

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distribution, could damage our reputation and result in the permanent loss of customers. In the past, system interruptions have made our web sites and our application servers 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.

All of our web servers are housed at our corporate headquarters in Seattle, Washington. Our experience and expertise in maintaining web and database servers may not be adequate to prevent interruptions and failures of our network web site service. Regardless of whether our servers are maintained by an ISP 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 we began deployment at the beginning of the third quarter of 2003. We anticipate that deployment will be completed near the end of the second quarter of 2004. 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 a litigation matter as detailed in the legal proceedings section at Item 1 of Part II of this Report. In such a lawsuit, we have directors and officers insurance of $30 million to cover defense costs and any award or settlement, less our deductible of $250,000. It is also possible that defense of this and future claims may result in a significant diversion of management attention.

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.

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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

We have assessed our susceptibility to certain market risks, including interest rate risk associated with financial instruments. We manage our interest rate risk by purchasing investment-grade securities and diversifying our investment portfolio among issuers and maturities. Due to the fact that we carry no debt as of March 31, 2004, and due to our investment policies and the short-term nature of our investments, we have determined that the risk associated with interest rate fluctuations is immaterial.

Our investment portfolio consists of money market funds, commercial paper, municipal securities and corporate debt securities with remaining maturities of thirteen months or less. Our primary investment objectives are preservation of principal, a high degree of liquidity and a maximum total return consistent with the investment objectives. We invest primarily in (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, 2004 and December 31, 2003, we consider the reported amounts of these investments to be reasonable approximations of their fair values.

Foreign Currency Risk

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

Equity Price Risk

We do not own any equity instruments, therefore, we expect our equity price risk to be insignificant.

Item 4. Controls and Procedures

(a) Under the supervision and with the participation of our management, including our principal executive officer and principal accounting officer, we evaluated the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report. Based on this evaluation, the Company’s management, including our principal executive officer and principal accounting officer, concluded that our disclosure controls and procedures were effective.

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

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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. On or around April 19, 2002, these five suits were consolidated, the consolidated complaint was filed and a lead plaintiff was appointed. The complaint charged 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 complaint alleged 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 sought 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. In June 2003, Onvia, along with most of the companies named as defendants in this litigation, accepted a settlement proposal negotiated among plaintiffs, underwriters and issuers. The major points of the settlement are: (1) insurers will provide a $1 billion guaranty payable to plaintiffs; (2) companies will assign excess compensation claims against underwriters to plaintiffs; (3) companies will agree not to assert pricing claims or claims for indemnification against the underwriters; (4) companies and their officers and directors will be released from any further litigation relating to these claims; and (5) companies will agree to cooperate in any document discovery. The final settlement agreement must be negotiated and approved by the court. We have a $30 million directors and officers liability policy that would cover any award up to $30 million, subject to a $250,000 deductible. We are awaiting the court’s approval on the final settlement. If the final settlement is approved, Onvia will be released from any future liability under 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, or of the matter specifically discussed above, will have a material adverse effect on our financial position, results of operations or cash flows.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

None.

Item 3. Defaults Upon Senior Securities

None.

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

None

Item 5. Other Information

None.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

(b) Reports on Form 8-K

The following report was filed on Form 8-K during the quarter ended March 31, 2004:

On February 6, 2004 Onvia filed a Current Report on Form 8-K, reporting under Item 7 and Item 12 announcing that, on February 6, 2004, we issued a press release announcing our financial results for the fourth quarter ended December 31, 2003.

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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.

Date: May 13, 2004

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