Attached files
| file | filename |
|---|---|
| EX-32.2 - EXHIBIT 32.2 - ONVIA INC | exh_322.htm |
| EX-32.1 - EXHIBIT 32.1 - ONVIA INC | exh_321.htm |
| EX-31.2 - EXHIBIT 31.2 - ONVIA INC | exh_312.htm |
| EX-31.1 - EXHIBIT 31.1 - ONVIA INC | exh_311.htm |
| EX-23.1 - EXHIBIT 23.1 - ONVIA INC | exh_231.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K
______________________
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2016
OR
| ☐ | 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 001-35164
______________________
ONVIA, INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 91-1859172 |
|
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
509 Olive Way, Suite 400, Seattle, Washington 98101
(Address of Principal Executive Offices)
(206) 282-5170
(Registrant’s Telephone Number, Including Area Code)
______________________
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of each class | Name of exchange on which registered | |
| Common Stock, $.0001 par value per share | The NASDAQ Capital Market | |
| Rights to Purchase Series RA Junior Participating Preferred Stock | The NASDAQ Capital Market | |
Securities Registered Pursuant to Section 12(g) of the Act:
None
______________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 twelve 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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the closing price on June 30, 2016, as reported on the NASDAQ Capital Market, was $15,879,841.
The number of shares of the registrant’s common stock outstanding at February 1, 2017 was 7,212,848.
ONVIA, INC.
FORM 10-K
For the Year Ended December 31, 2016
TABLE OF CONTENTS
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CAUTIONARY STATEMENT
In addition to the historical information contained herein, the discussion and analysis in this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding expected increases in revenue, clients, contracts and contract value, cash flow, profitability and stockholder value. When used in this discussion, the words “believes,” “anticipates,” “may,” “will,” “should,” “expects,” “plans,” “estimates,” “predicts,” “potential,” “continue,” “intends”, “indicates” 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 a forward-looking statement. Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and are subject to risks and uncertainties that could cause actual results to differ materially from those expected or implied by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described under “Risk Factors”, “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. Except as required by law, 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. The following discussion should also be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto included in this report.
In this report, we rely on and refer to information and statistics regarding the markets for various products. We obtained this information from third-party sources, discussions with our clients and our own estimates. We believe that these third-party sources are reliable, but we have not independently verified them and there can be no assurance that they are accurate.
| ITEM 1. | BUSINESS |
Onvia is a Delaware corporation. In this report, when we refer to “Onvia,” the “Company” “we,” “our,” or “us,” we are referring to Onvia, Inc.
Company Overview
Our Vision
At Onvia, we believe there is a better way for government agencies and businesses to work together. The Business to Government, or B2G, marketplace is one of the largest, most unstructured and fragmented markets in the world. We believe that equipping this market with data and technology will build trusted connections between businesses and governments. These connections should make the B2G market more productive and efficient. By resolving the friction in this vital, complex, multi-trillion dollar marketplace, we can create mutual value for private and public sectors, taxpayers and society at large.
Our Business
Onvia is a leading commerce intelligence company at the core of B2G marketplace. Over the last 17 years Onvia has developed domain expertise and advanced technologies to curate data on millions of exchanged contracts, agencies and decision makers, vendors and channels, projects and investment plans, awards records and market trends. Onvia’s B2G Intelligence System (B2GIS) delivers quality leads, process agility and strategic foresight, equipping companies of all sizes to grow their public sector business and help government agencies gain procurement efficiency. Onvia was incorporated in January 2000 in the state of Delaware. Our principal corporate office is located in Seattle, Washington. Our securities trade on The NASDAQ Capital Market under the symbol “ONVI”.
Industry Background
The United States public sector represents one of the largest markets in the world. This market represents 4,000 federal agencies, and 90,000 agencies at the state and local level. Overall, procurement spending represents a multi-trillion dollar industry with State, Local, and Education (SLED) opportunities representing roughly 70-80% of government spending. Recent legislation at the federal level, most recently the Digital Accountability and Transparency Act of 2014 (DATA Act), is intended to address transparency at the federal level. However, these federal initiatives do not address the even greater transparency issue within the SLED market.
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The variety, volume and unstructured nature of spending across so many unique regulatory districts makes the SLED market one of the most fragmented in the world. The procurement lifecycle is complex and unique to each agency.
The aggregation of these public procurement events individually provides limited value. This data must be complete, normalized, enhanced, structured, linked and classified to provide actionable spending insights by agency, vendor or procurement type. As a result, agencies do not have a comprehensive view of spending by their peer agencies, so procurement officers rely on their own historical activities to make significant procurement decisions. Businesses must evaluate a variety of incomplete procurement information sources to obtain limited intelligence to inform their decision-making. The lack of data transparency makes the B2G marketplace extremely inefficient for both agencies and businesses that sell to them.
Our Objectives
To create trusted connections between businesses and governments, we have established three objectives upon which we focus our efforts:
| · | Increase our content coverage to become the authority in B2G commerce intelligence and analysis |
| · | Leverage our proprietary technology, including industry ontologies, business rules and search capabilities to consistently deliver highly targeted, proprietary data |
| · | Develop workflow tools and integrations to help businesses efficiently qualify and pursue revenue opportunities |
Onvia’s B2G Intelligence System
Onvia’s B2GIS applies advanced data science and search technologies to transform unstructured government contracting data into meaningful commerce intelligence for buyers and sellers. Businesses leverage this system to increase their sales pipeline, pursue opportunities and make strategic decisions. Government agencies employ the B2GIS to improve process transparency and efficiency, identify potential suppliers, and to meet their fiduciary responsibilities to their constituents.
B2GIS equips buyers and sellers with:
• The highest volume and quality of contracting data
• Quick integration into systems and workflows
• Forward-looking data for strategic decision-making
Highest volume and quality of contracting data
B2GIS provides the most comprehensive coverage of agencies and their procurement activity, with a goal of covering 95% of published dollar spending. B2GIS leverages Onvia’s robust database of proprietary public sector procurement which includes comprehensive historical and real-time information on procurement activities unavailable elsewhere in the marketplace. We provide access to over 5.0 million procurement-related records connected to over 400,000 companies from across approximately 86,000 procurement entities nationwide. These records are standardized, formatted and classified within our database each day. We harvest data on a daily basis from thousands of agencies and sources, processing millions of records every year. This enables us to typically publish 90% of all collected government solicitations within 24 hours of issuance. Opportunities are curated using state-of-the-art algorithms and machine tagging, which makes our contracting data extremely actionable and industry-relevant. B2GIS helps businesses discover more, relevant opportunities to help fill their sales pipelines. Agencies can use this data to make their procurement processes more efficient.
Integration to systems and workflows
B2GIS makes pursuing relevant opportunities easier. Opportunities can be reviewed and pursued in multiple ways, whether through direct email notification, researched and qualified online using Onvia’s robust procurement database, or on a mobile device. The B2GIS also integrates directly into the major Client Relationship Management (CRM) platforms for easy tracking and follow up. Most importantly, businesses and agencies have on-demand access to their dedicated Client Success Manager (CSM). Our CSM team of domain experts is proficient in industry best practices and implementing data into business workflows. B2GIS helps clients accelerate their pursuit of relevant opportunities and potential partners.
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Forward looking data for strategic decisions
Onvia’s B2GIS extends the line-of-sight beyond just bids, providing advance notice of potential future contracts. Using the B2GIS, businesses can evaluate relevant information extracted from budgets, capital improvement plans and council meeting minutes, which may indicate that a future contract is being considered. Advance notice information, when combined with historical procurement data, can help businesses develop a proactive pursuit strategy designed to improve contract win rates.
We believe the B2GIS provides a significant competitive advantage to both businesses and government agencies.
B2GIS for Businesses
Businesses use the B2GIS to grow their sales pipelines, accelerate their contract pursuit process, monitor competitors activity and other relevant channels, and anticipate future spending. A business leveraging the B2GIS has access to the following to support their tactical and strategic go to market processes:
| · | Daily Lead Notification Emails |
| · | Project Leads Search Portal |
| · | Agency and Decision-Maker Contacts |
| · | Vendors and Competitors Profiles |
| · | Contract Renewal Timing |
| · | Agency Expenditure Forecasts |
| · | Purchase Orders Pricing Details |
| · | CRM Integration |
Onvia Exchange
Government agencies can use Onvia’s B2GIS to meet their fiduciary responsibilities to their constituents. Agencies participate in Onvia Exchange to improve process transparency and efficiency, identify and attract more qualified vendors, award more contracts to small and disadvantaged businesses, and ultimately make more informed procurement decisions. Access to the B2GIS is free to government agencies.
Our Technology Advantage
Onvia’s curation process makes analyzing millions of records easy. Today, other data providers typically use existing agency codes and keyword searches to identify relevant content. Agency contracts usually include many different deliverables, and using a single code or keyword may be inaccurate, return irrelevant results or miss critical projects. Onvia has developed a proprietary vocabulary or “ontology” to simplify the search process and improve the identification of projects. This ontology summarizes tens of thousands of synonyms and terms used by governments into a few thousand key industry terms. Onvia’s curation process uses natural language processing to determine the essence of a project and consistently categorizes the record using this taxonomy. Searching Onvia’s database using our ontology returns targeted results with minimal noise. Our ontology continues to improve every day. We review thousands of projects a day and use machine learning to identify and add new terms and language to our ontology, which further improves the accuracy and relevance of search results. Users of the B2GIS can focus on value added activities such as pipeline creation and pursuit strategies, instead of sifting through hundreds of irrelevant records every day.
Our Clients
Our Business Clients
We have a diverse client base from large Fortune 500 companies to small businesses that have been Onvia clients for many years. Onvia’s strategic target client has a long-term strategic interest in the public sector and with a primary focus on the B2G market. As companies expand geographically, their market becomes less transparent and they have a greater need for B2G information. Our target prospects do business on a regional or national level.
Our target market companies typically operate in the following large, high-growth industry verticals:
| o | Architectural and Engineering |
| o | Operations and Maintenance |
| o | Environmental Services |
| o | Transportation |
| o | Infrastructure and Construction |
| o | Technology and Telecom | |
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| o | Financial Services and Insurance |
| o | Healthcare |
| o | Professional Business Services |
| o | Education |
| o | Public Safety |
| o | Water and Energy |
Small businesses can receive the benefits of the B2GIS by subscribing to our self-service eCommerce solution.
We measure our business, excluding those companies that participate in our self-service eCommerce program with the following key metrics:
Annual Contract Value (“ACV”)
ACV represents the annualized aggregate revenue value of all subscription contracts as of the end of the quarter. ACV is driven by annual contract value per client and the number of clients. Most of Onvia’s revenues are generated from subscription contracts, which are typically prepaid and have a minimum term of one year, with revenues recognized ratably over the term of the subscription. Onvia also receives revenue from multi-year content distribution partnerships, stand-alone management reports, document download services, and list rental services, which are not included in the calculation of ACV. Content license contracts are excluded from ACV. ACV excludes subscribers to the self-serve leads solution.
Total ACV at December 31, 2016 increased by 5% to $23.2 million compared to $22 million at December 31, 2015. Growth rate in ACV can fluctuate from year to year based on timing in the amount of ACV available for renewal in addition to the mix of tenured and first year clients expiring in each period as tenured clients tend to renew at a higher rate than first year clients.
Number of Clients
Number of clients represents the number of individual businesses subscribing to our solutions.
As of December 31, 2016, Onvia’s total client base decreased 3% to 2,900 clients compared to 3,000 clients as of the same time one year ago, but flat with the third quarter of 2016.
Annual Contract Value per Client (“ACVC”)
Annual contract value per client is the ACV divided by the number of clients and indicates the average value of each of our subscriptions.
Total ACVC at December 31, 2016 grew 10% to $8,024 from $7,283 one year ago. Growth in overall ACVC demonstrates that clients for an increasing percentage of our total client base are purchasing our forward looking intelligence solution, not just lead solutions.
Dollar Retention
Dollar retention measures the dollars renewed on the available base of expiring contracts over the preceding twelve months. Dollar retention is calculated on a percentage basis by dividing the contract value of subscription contracts renewed, including the value of contract upgrades, during the most recent twelve-month period by the total value of subscription contracts expiring over the same period. Dollar retention measures the percentage of dollars retained from the population of expiring contracts over a twelve-month period.
In the twelve months ended December 31, 2016, overall dollar retention was 89%, compared to 88% for the twelve months ended December 31, 2015. Dollar retention can fluctuate from period to period due to the mix of first year and tenured clients expiring in each period, and timing of contract growth. Dollar retention, in conjunction with ACV, provides insight into our subscription retention rate and ability to generate future subscription revenue.
Client subscriptions are typically prepaid, have a minimum term of one year and revenues are recognized ratably over the term of the subscription. Subscriptions are generally priced based upon the geographic range, nature of content purchased, and the number of users accessing the database.
Most of Onvia’s revenues are generated from sales to companies that leverage our information for their own internal use, and to businesses that license our content for redistribution. Revenue from businesses who license our content for resale to their own clients is classified as Content License revenue. Content license contracts are generally multi-year arrangements and typically have higher annual contract values than our subscription-based services. Revenue from content license agreements is recognized over the term of the agreement.
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Our Government Clients
In June 2016 we launched Onvia Exchange, which provides government agencies access to the B2GIS in exchange for agency-maintained procurement data. Onvia Exchange offers access to a comprehensive library of 1.9 million solicitation records (bids/RFPs, specifications) to help public sector procurement professionals improve the efficiency of their formal solicitation processes. To gain access, government clients agree to make available to Onvia, either publically or directly, award and bid results for formal procurements. Data sets collected from agencies are integrated into our B2GIS and made available to both Business and Government clients.
Our public sector-facing presence extends back to 2001 when Onvia acquired DemandStar.com, Inc, which has been in operation since 1997 and is an e-procurement platform for governments.
Technology
We support our operations and business solutions using an advanced technology platform designed to serve a large and rapidly increasing volume of web traffic in a reliable and efficient manner without critical failures. Our systems are designed to:
| • | Provide fast, secure and highly available visitor access to our websites; | |
| • | Validate and process client requests promptly and accurately; | |
| • | Provide timely, comprehensive and accurate management-reporting capabilities; | |
| • | Accommodate upgrades to features on our websites; | |
| • | Scale to accommodate growth in users and content; and | |
| • | Provide basic redundancy in case of component failures. |
Our systems use a combination of proprietary technologies and commercially available licensed technologies
Our web servers, database servers, transaction-processing servers and other core systems that conduct essential business operations are housed at a third-party offsite co-location facility. Our co-location vendor provides 24x7 monitoring and engineering support in a climate-controlled and physically secure environment and our on-call operations personnel have 24x7 access to the facility. Our data center has redundant communication lines from multiple Internet Service Providers and has its own emergency power and backup systems. We house some non-critical systems such as development servers, quality assurance servers, and internal application servers at our headquarters in Seattle. All our production platform related servers and the majority of lower environment servers are in the Seattle co-location facility and a passive secondary production site in Spokane for redundancy in case of some natural calamity. Onvia has a redundant disaster recovery site located outside the Seattle geographical area for the Company mail system which provides full functionality in the event of disaster. The onvia.com website and the CRM (Salesforce.com) system are both remotely hosted solutions and not directly managed by the Onvia technology group. Onvia uses select cloud strategies to securely manage compliance data for disaster recovery purposes.
In addition to maintaining responsibility for the technical architecture, security and uptime of our business solutions, our technology department works closely with the sales and marketing departments to ensure that client feedback for new features is incorporated into new products and services and that our investment in new product development is aligned with our clients’ needs and expectations.
Competition
The market for comprehensive intelligence on the government procurement marketplace is underserved. Competitors include, to a limited extent, bid aggregators, industry analysts and government e-procurement platforms.
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Our current and potential competitors include, but are not limited to, the following:
| • | Information companies that target specific industry verticals covered by our services, such as Dodge Data & Analytics, Contractors Register, and ConstructConnect and Deltek, the last two of which were recently acquired by Roper Technologies. | |
| • | Lead generation and bid matching companies such as FedMarket.com, BidNet, BidSync and GovernmentBids.com. |
We may face additional competition in the future as well-funded companies pursue new government procurement and private sector database products and services. We must continue to differentiate ourselves by expanding our database, enhancing and normalizing our data, developing solutions with high switching costs, and maintaining a loyal base of repeat clients. To achieve this we must continually invest in content and software applications to provide our clients with business insight and intelligence on the government procurement market.
We believe that the principal competitive factors affecting our market include, but are not limited to, breadth, depth and timeliness of content, content quality, base of existing clients, and client service. In order to excel at these principal competitive factors, we strive to achieve a superior understanding of our clients, offer valuable solutions to maximize the return on our clients’ investment in the public sector market, and sustain an efficient operating model in delivering these solutions. We believe that our current solutions compare favorably to competitive offerings available in the marketplace today based on the depth and breadth of content, daily updates, a comprehensive archive of procurement intelligence and a structured and disciplined customer care program designed to provide sustainable value to our clients during the course of their subscriptions.
Seasonality
Our client acquisition business is subject to some seasonal fluctuations. The second and third quarters are generally slower than the first and fourth quarters for client acquisition. The construction industry is our single largest market and these prospects are typically engaged on projects during the spring and summer months, not prospecting for new work, which causes new client acquisition to decline compared to the first and fourth quarters in the year. For this reason, comparisons of the performance of our business quarter to consecutive quarter may not provide the most relevant information, and so in addition to sequential quarter comparisons our quarterly results and metrics should be considered on the basis of results for the whole year or by comparing results in a quarter with the results in the same quarter of the previous year.
Intellectual Property Rights
Our future success depends in part on intellectual property rights, proprietary rights, and technology. We rely on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other methods to protect our proprietary rights. We seek to protect our internally developed products, documentation, and other written materials under trade secret and copyright laws, which afford only limited protection. We cannot ensure that any of our proprietary rights will be viable or of value in the future because the validity, enforceability and type of protection of proprietary rights in Internet-related industries is uncertain and still evolving.
We license and will continue to license certain products integral to services from third parties, including products that are integrated with internally developed products and used jointly to provide key content and services. These third-party product licenses may not continue to be available on commercially reasonable terms and we may not be able to successfully integrate such third-party products into our solutions.
We presently have no issued U.S. patents. It is possible that we may not develop future proprietary products or technologies that are patentable and that the patents of others will seriously harm our ability to do business.
We own the following registered trademarks in the U.S. Patent and Trademark Office: ONVIA, ONVIA and Design (current logo with orange circular design), DEMANDSTAR, QUOTEWIRE and BIDWIRE. We also own the following registered trademarks in Canada: ONVIA, ONVIA.COM, and ONVIA.COM and Design.
Employees
As of February 1, 2017, we had 142 employees with the majority located at our headquarters in Seattle, Washington.
None of our employees are represented by a union or collective bargaining agreement. We have never had a work stoppage and consider relations with our employees to be good.
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Geographic Financial Information
During the years ended December 31, 2016 and 2015, substantially all of our revenues were generated from clients located in the United States or Canada, and all sales are denominated in U.S. currency. All of our long lived assets are located in the United States.
Available Information
We file with and furnish to the Securities and Exchange Commission, or SEC, periodic reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements, and other information, along with amendments to such reports. Our SEC filings are posted on the SEC’s Web site at http://www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Materials that we file with the SEC are also available at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our annual report on Form 10-K, all other reports and amendments filed with or furnished to the SEC, and our Code of Business Ethics and Conduct are available on the “Investor Relations” section of our website at www.onvia.com as soon as reasonably practicable after we have filed them with, or furnished them to, the SEC.
| ITEM 1A. | RISK FACTORS |
In addition to other information in this Report, the following risk factors should be carefully considered in evaluating our business, because such factors may have a significant impact on our business, results of operations and financial condition, and could cause our stock price to decline. The following sections discuss many, but not all, of the risks and uncertainties that may affect our future performance, but is not intended to be all-inclusive. As a result of the risk factors set forth below and elsewhere in this Report, and the risks discussed in our other Securities and Exchange Commission filings, actual future results could differ materially from historical results or those projected in any forward-looking statements.
Risks related to our growth strategy
Our quarterly financial results may continue to reflect net losses and may be subject to fluctuations that may cause material variations in our quarterly operating results and make it difficult to forecast future performance.
Based upon the number of variables within our business, it is subject to execution risk and it may be difficult to project results. As a small business we are subject to increased volatility in our results. Onvia has had a history of net losses and may continue to have losses in the future. Our operating plan considers our ability to execute these initiatives and generate results within a specific timeframe. If we are unable to execute our initiatives as planned, our quarterly financial results may fluctuate and future quarterly results will be affected. A significant portion of our subscription revenue for a particular quarter is derived from transactions that are initiated in previous quarters, because revenue is generally recognized ratably over the subscription term.
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 consultative selling approach may not scale the business as planned.
Unlike a traditional transactional sales process, the consultative selling process used by our sales organization with respect to enterprise clients focuses on fewer, more targeted prospects, which we expect to renew at higher rates with higher contract values than is typically achieved in a transactional sales process. The consultative sales process requires a longer sales cycle than a transactional model and requires the development of a substantial pipeline of qualified prospects to achieve consistent and predictable results. Due to the complexity of a consultative sale, our sales people may not be able to scale their individual results to maximize profitability. As a result of these risks, our business may not scale as planned.
Our target market of companies with a strategic, long term interest in the public sector may not be adequate to scale our business as planned.
Our sales effort is largely targeted to companies with a strategic, long term interest in conducting business with the national and regional public sector organized around three high growth industry market sectors: Infrastructure, Information Technology, and Business Services. By focusing on target companies in these industry market sectors, we may not identify qualified prospects in other industry market sectors and we may not have adequate industry knowledge to identify prospects within the targeted market sectors. As a result, our business may not scale as planned.
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Our self-service solution may not scale as planned.
Our self-service solution gives companies, which primarily do business in three states or less, access a limited subset of our content. This approach may not be competitive with competitor offerings in the space and we may not be able to scale this portion of the business as planned, which could negatively impact our results of operations and financial condition.
Our competitors may develop similar technologies that are more broadly accepted in the marketplace.
The functionality in Onvia’s products provides business intelligence across industry verticals and geographic regions. If competitors introduce products with similar functionality or are able to more effectively market and price their products for broad client acceptance, new client acquisition and existing client retention would be adversely impacted. If we are unable to enhance functionality or increase marketing efforts to offset challenges from competitors, we may lose market share.
Rapid advances in technology and new mediums for distributing information may diminish the value of our service offerings.
Our business model is predicated on providing access to and analysis of hard to find public and private sector information. Information in general is quickly becoming more accessible at a low cost as new distribution mediums, such as blogs, and new search technologies are developed. We may be unable to keep up with the rapid advances in information collection, and new technologies and mediums may be developed that commoditize the value of our services. If this were to occur, our revenues would suffer.
Risks related to our product strategy
We may fail to introduce new content and products that are broadly accepted by clients and prospects, and there may be delays in the introduction of these tools and products.
We may not adequately identify and capture content that is valuable to new and existing clients. In addition, introducing new content and products is complex and we may not be successful in developing such new offerings on a timely basis, or at all. If client acceptance and adoption of our new products is below our expectations, projected growth rates and client acquisition and retention goals may not be achieved, and financial results would be harmed. We expect to utilize internally developed technology and technology licensed from third parties for the development of new content and products. If we are unable to develop or acquire the required technology on time, or at all, or if the launch of these new products is delayed for any other reason beyond our anticipated launch dates, projected growth rates may not be achieved.
Onvia Exchange may not be widely used by our Government Clients.
Our ability to scale Onvia Exchange relies on the voluntary participation of government agencies and their willingness to timely and consistently provide Onvia with agency maintained procurement data that may be normalized and made available to both our government and business clients. In the event that Onvia Exchange is not widely accepted and used by government agencies, our quality and content of government data may be reduced and negatively impact future data solutions.
We may be unable to control the cost of ongoing content collection or the cost of collecting new content types to support new product offerings.
We will need to identify cost effective sources and develop efficient collection processes for new content types required to support new product development plans. If we are unable to find new ways to collect content efficiently, and aggregate new content types in a cost effective manner, gross margins may decline.
We may overestimate the value to our clients of public sector contracting intelligence.
We believe there is a large unmet market need for robust public sector contracting information because it is information that is highly fragmented across different levels of agencies. Our business model assumes that clients will continue to pay recurring subscriptions for our content and delivery solutions and we expect increases in the annual value of these contracts as a result of this. If we have overestimated the value of this information, we will not achieve our forecasted revenue goals.
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Financial, economic and market risks
Utilization of our net operating loss carryforwards may be subject to annual limitations under the Internal Revenue Code, or may not be usable at all in the future.
We have substantial net operating loss carryforwards (“NOLs”) that could be used to offset future tax liabilities arising from future taxable income. In 2011, we conducted a study and determined that an “ownership change” occurred in 2001, as defined under Section 382 of the Internal Revenue Code of 1986, as amended (which is generally a greater than a 50 percentage point increase by certain “5% shareholders” over a rolling three-year period). Section 382 imposes an annual limitation on the utilization of net deferred tax assets, such as NOLs and other tax attributes, once an ownership change has occurred. The ownership change which occurred in 2001 resulted in a permanent loss of $180.0 million of our U.S. federal NOLs. After this impairment, we had $77.5 million in NOLs as of December 31, 2016 available to offset future taxable net income.
It is possible that we could have an additional “ownership change” under Section 382 of the Code in the future and lose a significant portion of our net deferred tax assets, which could have a material adverse effect on our future results of operations and financial condition. As discussed in the following risk factor, we adopted a tax benefits preservation plan in early 2011, which was amended and restated in 2014, to mitigate the risk of future ownership changes.
We had approximately $25 million in net deferred tax assets, excluding valuation allowance, as of December 31, 2016. Realization of net deferred tax assets ultimately depends on the existence of sufficient taxable income, including taxable income in prior carryback years, as well as future taxable income. We regularly review our net deferred tax assets for usability based on a history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. In particular, we consider our three-year earnings trend to determine if we have generated cumulative net income or net losses over that period, which the accounting guidance considers significant evidence to evaluate in determining the existence and amount of any valuation allowance.
As a result of our cumulative three-year net loss, it is our best judgment that we should conclude that our net deferred tax assets are not more-likely-than-not to be utilized. Accordingly, we have maintained the valuation allowance as of December 31, 2016 to be 100% of our net deferred tax assets. We may reverse all or a portion of our valuation allowance in the future if it is determined that realization of these benefits is more likely than not.
We adopted a tax benefits preservation plan, designed to preserve the value of our net deferred tax assets, primarily related to net operating loss carryforwards (“NOLs”), which may discourage acquisition and sale of large blocks of our stock and may result in significant dilution for certain stockholders.
In April 2014, our Board of Directors (the “Board”) approved and adopted a tax benefits preservation plan in the form of the Amended and Restated Section 382 Rights Agreement (the “Amended Rights Agreement”), which amends and restates the previously approved Section 382 Rights Agreement, dated May 4, 2011.
The Amended Rights Agreement is designed to preserve stockholder value and the value of certain income tax assets primarily associated with NOLs by acting as a deterrent to any person acquiring beneficial ownership of 4.9% or more of Onvia’s outstanding common stock without the approval of the Board. Ownership changes of greater than 5% could create an ownership change which could limit the realizable value of our NOLs.
Under the Amended Rights Agreement, one Preferred Stock Purchase Right (each, a “Right”) was distributed for each share of Common Stock outstanding as of the close of business on May 23, 2011. Pursuant to the Amended Rights Agreement and at the discretion of our Board, if any person or group becomes the beneficial owner (subject to certain restrictions) of 4.9% or more of the outstanding shares of Common Stock the Rights may become exercisable. Upon exercise of a Right and payment of the purchase price of $20.00 (the “Purchase Price”), the holder will be entitled to receive a number of shares of Common Stock having a market value equal to two times the Purchase Price.
The Amended Rights Agreement may discourage existing 5% stockholders from selling their interest in a single block which may impact the liquidity of Onvia common stock, may deter institutional investors from investing in Onvia stock, and may deter potential acquirers from making premium offers to acquire Onvia, all factors which may depress the market price of our stock or prevent stockholders from receiving a premium in a change in control transaction.
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Our Board has formed an independent Rights Plan Committee to establish a process for evaluating indications of interest from shareholders interested in purchasing more than 4.9% of Onvia stock.
Provisions of our charter documents and Delaware law 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, the state of our incorporation, can have the effect of making it difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include:
| • | the classification of our Board of Directors into three classes so that the directors serve staggered three-year terms, which may make it difficult for a potential acquirer to gain control of our Board; |
| • | authorizing the issuance of shares of undesignated preferred stock without a vote of stockholders; and |
| • | non-cumulative voting for the election of directors. |
We may require additional financial resources which may not be available on favorable terms or at all.
We believe that our existing cash and investment balances, and projected cash flow from operations, will be sufficient to fund our plans for the next 12 months and the foreseeable future. However, we may require additional financial resources due to changed business conditions, implementation of our strategy or to pursue future business opportunities requiring investments of additional capital. If our existing financial resources are insufficient to satisfy our requirements, we may seek additional borrowings. Credit market conditions may negatively affect debt availability and cost, and, as a result, financing may not be available in amounts or on terms acceptable to us, if at all. In addition, the incurrence of indebtedness would result in debt service obligations and could require us to agree to operating and financial covenants that would further restrict our operations.
Political pressure as a result of deficits and budget shortfalls may lead to reduced spending by federal, state and local government agencies.
Should agencies reduce spending, there may be fewer revenue opportunities to deliver to our clients. Existing clients that leverage our products primarily for new sales leads may perceive a drop in opportunities as a reduction in their return on investment, which could lead to reduced retention rates. In addition, prospects considering an investment in our products may perceive a decline in government spending as a signal that there will be fewer opportunities and they may decide against purchasing a business intelligence solution, or may decide against pursuing public sector opportunities all together, which would negatively impact new client acquisition.
Operational risks
We may not effectively implement new technologies, and new product functionality could fail to perform as designed.
We periodically release products that employ new search technologies, ontology categorizations and complex database architecture in new and innovative ways. These technologies are usually built in house, or purchased from third party vendors and reengineered to meet our operational needs. If the creative application of these technologies does not work as planned or if we implement these new technologies poorly or in incompatible ways, our new products and services may not function properly, delivery of our products could be disrupted or delayed and our client retention and new client acquisition may suffer.
System failures could cause an interruption in the services of our network and impact our ability to compile information and deliver our products to clients.
Any system failure that causes an interruption in the service of our suite of products, disrupts our ability to aggregate, organize and publish new content, or reduces timely access to and delivery of our content could result in client dissatisfaction, which would impact client acquisition and retention rates. Further, prolonged or ongoing performance problems on our web sites or our application servers, which support bid creation and distribution, could damage our reputation and result in the permanent loss of clients.
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We may not have sufficient business interruption insurance to cover losses from major interruptions. We have deployed our primary business application servers to a secure offsite facility with backup utility power and redundant Internet connectivity. Our current physical cloud based disaster recovery systems are not capable of recovering core business functionality in less than a period of 24 to 48 hours depending on severity in the event of a disaster scenario at the offsite facility. Production, Information Technology and Data department functions will be operational in the event of a local building disaster so that delivery of our products will not be significantly interrupted as long as the offsite facility is still operational. Our disaster recovery plan does not yet include automated failover of product distribution-related systems, requiring extensive manual intervention to complete the recovery process which could result in prolonged service interruptions and ultimately lower client satisfaction.
Our current technology infrastructure and network software systems may be unable to accommodate our anticipated growth, and we may require a significant investment in these systems to accommodate performance and storage requirements of new and planned products.
Expansion of the historical content contained in our products and future product offerings to clients have and will place significant additional demands on our enterprise-grade technology infrastructure. We add thousands of records to our database each day, which has required us to expand the storage capacity of the database and client access to this information requires significant computing power based on usage. If new content types, product introductions or workflow processes change current network and computing requirements or if growth in our client base exceeds our expectations, we may be required to make significant investments to upgrade our systems to accommodate such changes, which could negatively impact our cash flows and results of operations. We may not be successful in our 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 usage may discourage potential clients from using our network.
We may not be able to attract and retain the services of our executive officers, directors, senior managers and other key employees, which could harm our business.
Our business and operations are substantially dependent on the performance
of senior management, directors and key employees. We face competition for the limited pool of these qualified professionals from
other companies, some of which have a greater ability to attract and compensate these professionals. Our process for succession
planning across all levels of the organization to provide business continuity includes developing, coaching and rewarding high
performing employees. The loss and inability to replace any of these employees or directors, including any executive officers,
would likely harm our business. In addition, a failure to retain key personnel or hire and train additional qualified personnel
as required to support our business, could adversely affect the quality of our products and services, as well as future business
and operating results.
We could incur substantial costs in the future as a result of cyber incidents.
As our dependence on digital technologies to conduct operations increases, so does the risk associated with cyber security. We may be unable to prevent targeted, random or accidental breaches of our security and could incur significant costs associated with lost or stolen information, including increased cyber security protection costs, lost revenues, reputational damage or increased litigation. We may not have sufficient cybersecurity insurance to cover losses from a major incident.
Political, social or environmental conditions in off-shore locations may impact the collection and delivery of our content and/or development of new products.
Portions of our content are aggregated and/or formatted by off-shore vendors. Delivery of that content may be impacted by local political, social or environmental conditions, which may result in delayed delivery to clients resulting in client dissatisfaction. We also outsource portions of our product development to off-shore vendors. Political, social or environmental conditions in those locations may result in delays of product releases.
We may be unable to effectively monitor and prevent unauthorized redistribution of our published information.
In the past we have identified a number of entities that have redistributed proprietary information without authorization and against our terms of use. 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 database. However, if we fail to effectively combat such unauthorized use, our business could be harmed.
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Our services and products depend upon the continued availability of licensed technology from third parties, and we may not be able to obtain those licenses on commercially reasonable terms, or at all.
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 acquire 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, or at all.
Regulatory, judicial or legislative risks
If we are unable to enforce and protect our intellectual property rights our competitive position may be harmed.
We rely on a combination of copyright, trademark, confidentiality, non-compete and other contractual provisions to protect our intellectual property rights. Despite our efforts to protect our intellectual property rights, unauthorized third parties may obtain and use technology or other information that we regard as proprietary. Our intellectual property rights may not survive a legal challenge to their validity or provide significant protection for us. The laws of certain countries, particularly in emerging markets, do not protect our proprietary rights to the same extent as the laws of the United States. Accordingly, we may not be able to protect our intellectual property against unauthorized third-party copying or use, which could adversely affect our competitive position. Additionally, there can be no assurance that another party will not assert that we have infringed its intellectual property rights.
Future regulations could be enacted that either directly restrict our business or indirectly impact our business by limiting the growth of e-commerce.
We are subject to laws and regulations governing the Internet and e-commerce. These laws and regulations may cover privacy, content, taxation, data protection, copyrights, electronic contracts and other communications, consumer protection, unencumbered Internet access to our services, the design and operations of websites, and the characteristics and quality of products and services. If enacted, unfavorable laws and regulations could limit the market for our services and offerings. Although many regulations might not apply to the 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 our acceptance as a medium for communication and commerce. If laws were enacted that made our products taxable at the state level, we may be required to pass those additional taxes along to our clients, which would increase the overall cost of our product to our end users and could impact the buying decisions of existing and potential new clients.
Our access to new content from governmental entities and other third parties may be restricted.
We aggregate new information from various public data sources and other third parties and do not have exclusive access to this content. 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 members of the public, may negatively impact our business and reduce the value of our services to clients. The loss or the unavailability of data sources in the future, or the loss of right to distribute some of the data sources, would harm our business.
Our proprietary content aggregation technology and processes are integral to our success. The content we collect primarily consists of facts related to specific public sector opportunities, transactions, and contacts. Although we endeavor to comply with all laws, rules and regulations applicable to the collection and distribution of our content, it’s possible that our collection and distribution activities may subject us to claims, including breach of contract and intellectual property infringement. We may also be subject to claims that the collection or provision of certain information breached laws and regulations relating to privacy and data security. Even if these claims do not result in liability to us, we could incur significant costs in investigating and defending against any claims.
If the process of content 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.
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| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable.
| ITEM 2. | PROPERTIES |
Our headquarters are located in Seattle, Washington. We lease approximately 29,606 square feet in two floors of a sixteen-story office complex located at 509 Olive Way, Seattle, Washington. The current lease term expires on April 30, 2021. We have a one-time right to surrender up to 8,898 square feet with payment of a fee equal to the landlord’s unamortized transaction costs. We also have the right to terminate the amended lease early in the event that Onvia is sold to a third party that will have no have a physical presence in the Seattle-Bellevue area with payment of an early termination fee. Both of these rights require at least 12 months’ prior notice to the landlord.
| ITEM 3. | LEGAL PROCEEDINGS |
For a discussion regarding our legal proceedings, please refer to the “Legal Proceedings” section of Note 10, “Commitments and Contingencies”, in the Notes to Consolidated Financial Statements in this Report, which is incorporated herein by reference.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
| Name | Age | Position |
| Russell Mann | 48 | Chief Executive Officer and President |
| Irvine N. Alpert | 65 | Executive Vice President |
| Naveen Rajkumar | 39 | Senior Vice President and Chief Information Officer |
| Cameron S. Way | 45 | Senior Vice President and Chief Financial Officer |
| Christian K. Woerner | 48 | Senior Vice President of Product |
| Alberto Sutton | 44 | Senior Vice President of Marketing |
Russell Mann, was appointed as Chief Executive Office, President and as a member of Onvia’s Board of Directors effective January 30, 2017. Since 2009 Mr. Mann has served on the Board of Ooma, Inc. a consumer and SMB VoIP company, and serves on both the Compensation Committee and Nomination and Governance committee. From May 2016 through January 2017, Mr. Mann served as Chief Marketing Officer and Senior Vice President of ecommerce for the ecoATM/Gazelle.com division of Outerwall Inc., a provider of retail products and services via self-service interactive kiosks. Gazelle e-commerce group is a marketplace for buying and selling recycled electronics. From October 2015 through May 2016 and in prior periods, Mr. Mann worked as an executive consultant to several companies from growth stage to publicly traded, including Cray, Inc., a manufacturer of supercomputers. From October 2014 through September 2015, Mr. Mann served as the Chief Marketing Officer of Nintex, a leading digital workflow automation software company. From 2006 through May 2014, Mr. Mann served as Chairman, CEO and co-founder of Covario, a leading digital marketing software and services firm with globally recognized enterprise clients. There he patented several analytics innovations, and completed three software company acquisitions, Covario was later acquired by Dentsu Aegis.
Irvine N. Alpert has served as Executive Vice President of the Company since July 2001. From February 1995 to July 2001, Mr. Alpert was the founder and Chief Executive Officer of ProjectGuides, Inc., an architecture, engineering, and construction market information service, which was acquired by Onvia in June 2001. From 1993 to 1995, Mr. Alpert served as President of RCI Environmental, Inc., a regional construction company.
Naveen Rajkumar has served as Senior Vice President and Chief Information Officer of the Company since August 2010. Prior to becoming Senior Vice President and Chief Information Officer, Mr. Rajkumar served as Chief Information Officer of the Company from January 2010 to July 2010. From July 1999 to December 2009, Mr. Rajkumar served at Aditi Technologies in various positions, most recently as General Manager.
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Cameron S. Way has served as Senior Vice President since August 2012 and Chief Financial Officer of the Company since April 2008. Mr. Way served as Chief Accounting Officer of the Company from June 2005 to April 2008, and as Controller from September 2001 to June 2005. Mr. Way held various other positions within the company prior to 2001. Mr. Way was an Assurance Manager with PricewaterhouseCoopers LLP from January 1994 to August 1999 prior to joining the Company.
Christian K. Woerner joined Onvia as Senior Vice President of Product in June 2015. From October 2004 to May, 2015, Mr. Woerner served in various positions at ADP Dealer Services, most recently as Vice President of Product Management. Prior to 2004, Mr. Woerner served in various software product management and software development positions for InstallShield Software, Quaker Oats and Andersen Consulting
Alberto Sutton joined Onvia as Senior Vice President of Marketing February 15, 2016. Prior to joining Onvia, Mr. Sutton served as Vice President of Global Marketing for Pyramid Analytics, a next generation analytics platform provider from November 2014 through January 2016. From 2010 through October 2014, Mr. Sutton served in various executive sales and marketing roles for Nintex, a workflow software provider, including as Vice President of Marketing beginning in 2013. From 2001 through 2009, Mr. Sutton served as Global Senior Product Manager for Microsoft.
| ITEM 5. | MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock currently trades on the NASDAQ Capital Market under the symbol “ONVI.” The table below lists the high and low sale prices per share of our common stock for each quarterly period during the past two fiscal years as reported on the NASDAQ Capital Market.
| Price Range | ||||||||||
| of Common Stock | ||||||||||
| High | Low | |||||||||
| Year ended December 31, 2015 | ||||||||||
| First Quarter | $ | 5.38 | $ | 4.40 | ||||||
| Second Quarter | 4.72 | 4.11 | ||||||||
| Third Quarter | 4.28 | 3.76 | ||||||||
| Fourth Quarter | 4.12 | 3.00 | ||||||||
| Year ended December 31, 2016 | ||||||||||
| First Quarter | $ | 3.76 | $ | 3.26 | ||||||
| Second Quarter | 4.49 | 3.35 | ||||||||
| Third Quarter | 5.22 | 3.68 | ||||||||
| Fourth Quarter | 5.25 | 4.20 | ||||||||
Holders
As of February 1, 2017, there were approximately 259 holders of record of Onvia common stock. The number of record holders was determined from the records of the Company’s transfer agent and does not include the number of persons whose stock is held in nominee or “street name” accounts through brokers.
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Dividends
No cash dividends were declared for the years ended December 31, 2016 and 2015 nor does the Company have the intention to pay cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
None
Stock Price Performance Graph
The registrant is a Smaller Reporting Company and, therefore, is not required to provide the information under this item.
Purchases of Equity Securities
None
| ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA |
The registrant is a Smaller Reporting Company and, therefore, is not required to provide the information under this item.
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying Notes hereto.
Management Overview – 2016 Results
In 2016, subscription revenue grew 6% compared to 2015. Throughout 2016 we made significant investments in product and development and content marketing programs to accelerate revenue growth and create leverage from our business model. These investments began to contribute to revenue growth in the second half of 2016. We are continuing to work on accelerating new workflows to improve net dollar retention for both first year and tenured accounts, and to improve new client conversion rates. Total revenue, which in addition to subscription revenue includes content license, management information report and other revenue, was up 4% over last year.
2016 operating expenses increased 8%, or $1.6 million, to $22.5 million compared to $20.9 million in 2015. The increase in operating expenses is primarily the result of approximately $487,000 of CEO transition costs and increased investments in our product team to support Onvia 8 and Onvia Exchange and leadership roles in sales and marketing.
Adjusted EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization, and non-cash stock-based compensation) for the year ended December 31, 2016 was $1.88 million, down 3% from $1.94 million in 2015. Due to the Company’s small size, increased variable sales costs and investment may exceed the incremental revenue generated each period, which could negatively impact short term Adjusted EBITDA. See “Non-GAAP Financial Measures” below for more information regarding Adjusted EBITDA.
Annual net loss was $813,000, or $0.11 per diluted share, for the year ended December 31, 2016 compared to a loss of $486,000, or $0.07 per diluted share, in 2015.
At December 31, 2016, we had $25 million of net deferred tax assets compared to $24.8 million in 2015, excluding valuation allowance, related to $77.5 million and $76.8 million in net operating loss carryforwards, respectively, available to offset future taxable net income. At December 31, 2016 and 2015, we recorded a full valuation allowance against our net deferred tax assets, resulting in $0 net deferred tax assets due to the uncertainty of future taxable income available to utilized these tax benefits, including accumulated net operating loss carryforwards, before expiration.
As of December 31, 2016 we held cash, cash equivalents and available for sale investments of $7.1 million compared to $6.8 million at the end of last year. In December 2015, we repurchased 349,497 shares of common stock at a price of $3.00 per share for an aggregate cost of $1.05 million. The repurchased shares are held as treasury stock and are excluded from outstanding shares for the purposes of earnings per share calculations.
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2017 Focus
In 2017 we are focused on driving top-line growth in bookings and ACV, which are key drivers of subscription revenue. We are focused on growing new client acquisition and net dollar retention rates, by improving the value of Onvia’s business to government intelligence system (B2GIS). We will continue to invest in workflow tools and integrations (Onvia 8) to help businesses efficiently qualify and pursue revenue opportunities, and in increasing content coverage to deliver unique data products to the marketplace.
Application of Critical Accounting Policies and Management Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from our estimates. In addition, any significant unanticipated changes in any of our assumptions could have a material adverse effect on our business, financial condition, and results of operations. We believe the following are our most significant accounting policies and estimates.
Revenue Recognition
Our revenues are primarily generated from subscriptions, content licenses and management reports. Our subscriptions are generally annual contracts; however, we also offer extended multi-year contracts to our subscription clients, and content licenses are generally multi-year agreements. Subscription and content licenses are recognized ratably over the term of the agreement. We also generate revenue from fees charged for management reports, document download services, and other services, and revenue from these types of services is recognized upon delivery, or, if report refreshes are included, ratably over the service period.
Our subscription services and management information reports are also sold together as a bundled offering. We allocate revenue from these bundled sales ratably between the subscription services and the management reports based on their relative fair values, which are consistent with established list prices for those offerings. We measure and allocate arrangement consideration to one or more units of accounting for separate deliverables. We also establish a selling price hierarchy for determining the selling price of a deliverable.
Unearned revenue consists of payments received for prepaid subscriptions, as well as the invoiced, but unpaid, portion of subscriptions and content licenses whose terms extend into periods beyond the balance sheet date.
Internal Use Software
We capitalize qualifying computer software costs incurred during the “application development stage.” Amortization of these costs begins once the product is ready for its intended use. These capitalized software costs are amortized on a straight-line basis over the estimated useful life of the product, typically 3 to 5 years. The amount of costs capitalized within any period is dependent on the nature of software development activities and projects in each period. We periodically review our estimates for reasonableness and test these assets for potential impairment. If the carrying value of the software exceeds the estimated future cash flows, an impairment will be recorded to reduce the carrying value to the expected realizable value. No assets were impaired during the years ended December 31, 2016 or 2015.
However, we changed the estimated useful lives of some of our software assets in the third quarter of 2016. We are in the process of developing new client workflows and improving the user experience of our platform as part of our Onvia 8 release, and we evaluated the impact of these future releases on our existing capitalized software costs. We determined that certain workflows and features will be replaced, and we shortened the expected useful lives of these software assets to coincide with the Onvia 8 release schedule. As a result, we accelerated the useful lives of $962,000 in unamortized internal software costs. During 2016 we accelerated $446,000 in amortization expense related to the reduced useful lives of the impacted assets. We expect that our 2017 results will include an additional $516,000 in accelerated amortization related to this change in accounting estimate.
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Stock-Based Compensation
We measure compensation cost for all stock-based awards at fair value on the date of grant and recognition of stock-based compensation cost over the requisite service period for awards expected to vest. The fair value of our stock options is determined using the Black-Scholes valuation model. Such value is recognized as expense over the service period, net of estimated forfeitures. The estimate of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including employee class and historical experience. There is also significant judgment required in the estimation of the valuation assumptions used to determine the fair value of options granted. Please refer to the discussion of valuation assumptions in Note 2 of the “Notes to Consolidated Financial Statements” of this Report for additional information on the estimation of these variables. Actual results, and future changes in estimates, may differ substantially from our current estimates.
Income Taxes
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and for net operating loss, or NOL, carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The deferred tax asset has been reduced by a valuation allowance that reduces the amount of our deferred tax asset to a level that is more-than-likely-than-not to be recognized. In determining the amount of the valuation allowance we consider whether it is more likely that some portion or all of the net deferred tax assets will not be realized. In particular, we consider our three-year earnings trend to determine if we have generated cumulative net income or net losses over that period, which the accounting guidance considers significant evidence to evaluate in determining the existence and amount of any valuation allowance. We also consider positive evidence, such as the improving trends in the leading indicators of revenue growth to evaluate the likelihood of generating taxable net income in the future. The ultimate realization of net deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to be deductible. We will continue to review the estimate of future taxable income and will adjust the valuation allowance accordingly as new information becomes available.
Utilization of the NOL carryforwards may be subject to a substantial annual limitation due to an ownership change that could occur in the future provided by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 of the Code, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
In April 2014, our Board approved and adopted a tax benefits preservation plan in the form of the Amended Rights Agreement, which amends and restates the previously approved Section 382 Rights Agreement, dated May 4, 2011. The Amended Rights Agreement is designed to preserve stockholder value and the value of certain income tax assets primarily associated with NOLs by acting as a deterrent to any person acquiring beneficial ownership of 4.9% or more of Onvia’s outstanding common stock without the approval of the Board. Ownership changes of greater than 5% could create an ownership change which could limit the realizable value of our NOLs.
Non-GAAP Financial Measures
We prepare and publicly release quarterly financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). The non-GAAP financial measures we may disclose include Adjusted EBITDA and client metrics such as ACV and ACVC. For a discussion regarding our client metrics, please refer the “Clients” section of Item 1 “Business.” We typically disclose Adjusted EBITDA measures in earnings releases, investor conference calls and filings with the Securities and Exchange Commission. Adjusted EBITDA is not a financial measure calculated and presented in accordance with GAAP and should not be considered as an alternative to net income, operating income or any other financial measures so calculated and presented, nor as an alternative to cash flow from operating activities or as a measure of the company’s liquidity. We define Adjusted EBITDA as net income / (loss) before interest and other non-cash financing costs; interest and miscellaneous income; taxes; depreciation; amortization; and non-cash stock-based compensation. Other companies (including our competitors) may define Adjusted EBITDA differently. We present Adjusted EBITDA because we believe Adjusted EBITDA to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in similar industries and size. Management also uses this information internally for forecasting and budgeting. It may not be indicative of our historical operating results nor is it intended to be predictive of potential future results. Investors should not consider Adjusted EBITDA in isolation or as a substitute for analysis of results as reported under GAAP.
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The following table provides reconciliation of GAAP Net Loss to Adjusted EBITDA for the indicated periods (in thousands):
| Twelve Months Ended December 31, | |||||||||
| 2016 | 2015 | ||||||||
| GAAP net loss | $ | (813 | ) | $ | (486 | ) | |||
| Reconciling items from GAAP to adjusted EBITDA | |||||||||
| Interest and other income, net | (38 | ) | (18 | ) | |||||
| Depreciation and amortization | 2,536 | 2,322 | |||||||
| Amortization of stock-based compensation | 198 | 121 | |||||||
| Adjusted EBITDA | $ | 1,883 | $ | 1,939 | |||||
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Consolidated Results of Operations
The following table provides our selected consolidated results of operations for the indicated periods (in thousands of dollars and as a percentage of total revenue):
| Years Ended December 31, | ||||||||||||||||
| 2016 | 2015 | |||||||||||||||
| Revenue: | ||||||||||||||||
| Subscription | $ | 22,851 | 93.0 | % | $ | 21,536 | 91.3 | % | ||||||||
| Content license | 1,357 | 5.5 | % | 1,705 | 7.2 | % | ||||||||||
| Management information reports | 191 | 0.8 | % | 133 | 0.6 | % | ||||||||||
| Other | 168 | 0.7 | % | 214 | 0.9 | % | ||||||||||
| Total revenue | 24,567 | 100.0 | % | 23,588 | 100.0 | % | ||||||||||
| Cost of revenue (exclusive of depreciation and amortization included below) | 2,878 | 11.7 | % | 3,186 | 13.5 | % | ||||||||||
| Gross margin | 21,689 | 88.3 | % | 20,402 | 86.5 | % | ||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing expenses | 12,060 | 49.1 | % | 11,108 | 47.1 | % | ||||||||||
| Technology and development expenses | 6,349 | 25.8 | % | 5,845 | 24.8 | % | ||||||||||
| General and administrative expenses | 4,131 | 16.8 | % | 3,953 | 16.8 | % | ||||||||||
| Total operating expenses | 22,540 | 91.6 | % | 20,906 | 88.5 | % | ||||||||||
| Loss from operations | (851 | ) | (3.4 | %) | (504 | ) | (2.0 | %) | ||||||||
| Interest and other income, net | 38 | 0.2 | % | 18 | 0.1 | % | ||||||||||
| Loss before income tax | (813 | ) | (3.3 | %) | (486 | ) | (2.1 | %) | ||||||||
| Provision for income taxes | - | 0.0 | % | - | 0.0 | % | ||||||||||
| Net loss | $ | (813 | ) | (3.3 | %) | $ | (486 | ) | (2.1 | %) | ||||||
Comparison of Years Ended December 31, 2016 and 2015
Revenue
Total revenue for the years ended December 31, 2016 and 2015, was $24.6 million and $23.6 million, respectively. Subscription revenue for the year ended December 31, 2016 grew 6% over the year ended December 31, 2015. In 2016 we were notified that our largest content license customer, representing $810,000 in annual revenue, elected not to continue with our partnership. This will negatively impact bookings, revenue and cash flow in 2017. Our annual operating initiatives are designed to drive subscription revenue growth as discussed in the Management Overview section above.
Cost of Revenue
Cost of revenue for the years ended December 31, 2016 and 2015 was as follows (in thousands):
| Year Ended December 31, | Increase / (Decrease) | |||||||||||||||
| 2016 | 2015 | Amount | Percent | |||||||||||||
| Total | $ | 2,878 | $ | 3,186 | $ | (308 | ) | (10 | %) | |||||||
| Percentage of revenue | 12 | % | 14 | % | ||||||||||||
Our cost of revenue primarily represents payroll-related expenses associated with the research and aggregation of the data in our proprietary database and third-party content fees, and also includes credit card processing fees. The decrease for the comparable periods reflects our continued efforts to efficiently collect and process content while managing to reduce the level of investment required.
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Sales and Marketing
Sales and marketing expenses for the years ended December 31, 2016 and 2015 were as follows (in thousands):
| Year Ended December 31, | Increase / (Decrease) | |||||||||||||||
| 2016 | 2015 | Amount | Percent | |||||||||||||
| Current period expenses | $ | 10,781 | $ | 9,995 | $ | 786 | 8 | % | ||||||||
| Depreciation and amortization | 1,208 | 1,113 | 95 | 9 | % | |||||||||||
| Stock based compensation | 71 | - | 71 | |||||||||||||
| Total | $ | 12,060 | $ | 11,108 | $ | 952 | 9 | % | ||||||||
| Percentage of Revenue | 49 | % | 47 | % | ||||||||||||
The increase in expenses for the comparable periods is primarily related to a $480,000 increased investment in sales and marketing leadership, $113,000 increase in marketing related expenses for client leads and new website development costs, and a $150,000 increase in amortization expense primarily related to the accelerated capitalized software amortization due to reduced estimated useful lives.
Technology and Development
Technology and development expenses for the years ended December 31, 2016 and 2015 were as follows (in thousands):
| Year Ended December 31, | Increase / (Decrease) | |||||||||||||||
| 2016 | 2015 | Amount | Percent | |||||||||||||
| Current period expenses | $ | 5,221 | $ | 4,838 | $ | 383 | 8 | % | ||||||||
| Depreciation and amortization | 1,082 | 971 | 111 | 11 | % | |||||||||||
| Stock based compensation | 46 | 36 | 10 | 28 | % | |||||||||||
| Total | $ | 6,349 | $ | 5,845 | $ | 504 | 9 | % | ||||||||
| Percentage of Revenue | 26 | % | 25 | % | ||||||||||||
The increase in expenses for the comparable periods is primarily due to a $940,000 increase in payroll related investment related to the additions of key roles to the product team to support Onvia 8 and Onvia Exchange. In addition, amortization expense increased by $155,000 primarily related to the accelerated capitalized software amortization, which was partially offset by an $180,000 decrease in contract labor incurred to launch the Onvia 7 ontology in 2015 compared to 2016, a $60,000 decrease in co-location fees, and higher capitalized labor due to the development of future product releases such as Onvia 8.
General and Administrative
General and administrative expenses for the years ended December 31, 2016 and 2015 were as follows (in thousands):
| Year Ended December 31, | Increase / (Decrease) | |||||||||||||||
| 2016 | 2015 | Amount | Percent | |||||||||||||
| Current period expenses | $ | 3,804 | $ | 3,648 | $ | 156 | 4 | % | ||||||||
| Depreciation and amortization | 246 | 220 | 26 | 12 | % | |||||||||||
| Stock based compensation | 81 | 85 | (4 | ) | (5 | %) | ||||||||||
| Total | $ | 4,131 | $ | 3,953 | $ | 178 | 5 | % | ||||||||
| Percentage of Revenue | 17 | % | 17 | % | ||||||||||||
The increase in expenses for the comparable periods is primarily related to $160,000 in payroll related investment. CEO transition related expenses of $487,000 were incurred in 2016 that were not incurred in 2015. For comparative purposes, these expenses were offset by $475,000 of special project legal and consulting fees incurred in 2015.
Interest and Other Income, Net
Interest and other income, net, consists of interest earned on our investment accounts, interest expense associated with capital leases and other miscellaneous income or expense. Interest and other income, net, was $38,000 and $18,000 for the years ended December 31, 2016 and 2015, respectively.
22
Provision for Income Taxes
We had approximately $25 million in net deferred tax assets, excluding valuation allowance, as of December 31, 2016 compared to $24.8 million in 2015. We consider our three-year earnings trend to determine if we have generated cumulative net taxable income or net taxable losses over that period, which the accounting guidance considers significant evidence to evaluate in determining existence and amount of any valuation allowance. As a result of our cumulative three-year net loss, it is our best judgment that we should conclude that our net deferred tax assets are not more-likely-than-not to be utilized. Accordingly, we have maintained the valuation allowance at 100% of our net deferred tax assets as of December 31, 2016 and 2015.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents and available for sale investments. Our combined cash and cash equivalents and available for sale investments were $7.1 million at December 31, 2016. At December 31, 2016 we held $4.8 million in FDIC insured or U.S. government backed short-term investments. In 2016 we were notified that our largest content license customer representing $810,000 in annual revenue elected not to continue with our partnership. This will negatively impact bookings, revenue and cash flow in 2017.
If we engage in merger or acquisition transactions or our overall operating plans change, we may require additional equity or debt financing to meet future working capital needs, which may have a dilutive effect on existing stockholders 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.
From December 31, 2015 to December 31, 2016, cash and cash equivalents increased by $823,000 for the reasons described below.
Operating Activities
Net cash provided by operating activities was $2.8 million and $1.8 million for the years ended December 31, 2016 and 2015, respectively. The increase in operating cash flow for the year ended December 31, 2016 compared to the same period in 2015 is primarily due to higher bookings compared to 2015, offset by incremental investments in sales and marketing leadership, and in product development to support Onvia 8 and Onvia Exchange.
Investing Activities
Net cash used by investing activities was $2.0 million and $1.0 million for the years ended December 31, 2016, and 2015, respectively.
Purchases of property and equipment and investments in internal use software increased by $296,000 in 2016 compared to the same period in 2015. We purchased $7.0 million and $9.1 million in short term investments during the twelve months of 2016 and 2015, respectively. During 2016 we received $7.5 million from the sale and maturity of investments, compared to $10.3 million during the same period of 2015.
Financing Activities
Net cash provided by financing activities was $38,000 for the year ended December 31, 2016, compared to $809,000 of net cash used in financing activities for the year ended December 31, 2015. The increase in net cash provided by financing activities is primarily due to the Company repurchasing stock with an aggregate purchase price of approximately $1.0 million in 2015, partially offset by decrease in proceeds from exercise of stock option and purchases under the 2000 Employee Stock Purchase Plan.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2016.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The registrant is a Smaller Reporting Company and, therefore, is not required to provide the information under this item.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Onvia, Inc.
We have audited the accompanying consolidated balance sheets of Onvia, Inc. (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended. Our audit also included the financial statement schedules listed in the Index and appearing in Item 15. These consolidated financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position Onvia, Inc. as of December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/s/ Moss Adams LLP
Seattle, Washington
March 2, 2017
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| ITEM 8. | CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
| December 31, 2016 | December 31, 2015 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 2,306 | $ | 1,483 | ||||
| Short-term investments, available-for-sale | 4,817 | 5,275 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $34 and $32 | 1,543 | 1,298 | ||||||
| Prepaid expenses and other current assets | 1,035 | 1,075 | ||||||
| Total current assets | 9,701 | 9,131 | ||||||
| LONG TERM ASSETS: | ||||||||
| Property and equipment, net of accumulated depreciation | 844 | 1,036 | ||||||
| Internal use software, net of accumulated amortization | 5,480 | 5,091 | ||||||
| Other long-term assets | 263 | 260 | ||||||
| Total long term assets | 6,587 | 6,387 | ||||||
| TOTAL ASSETS | $ | 16,288 | $ | 15,518 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 851 | $ | 499 | ||||
| Accrued expenses | 1,534 | 937 | ||||||
| Unearned revenue, current portion | 9,500 | 9,040 | ||||||
| Other current liabilities | 134 | 103 | ||||||
| Total current liabilities | 12,019 | 10,579 | ||||||
| LONG TERM LIABILITIES: | ||||||||
| Unearned revenue, net of current portion | 41 | 64 | ||||||
| Deferred rent, net of current portion | 529 | 575 | ||||||
| Other long-term liabilities | 16 | 43 | ||||||
| Total long term liabilities | 586 | 682 | ||||||
| TOTAL LIABILITIES | 12,605 | 11,261 | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 10) | ||||||||
| STOCKHOLDERS’ EQUITY: | ||||||||
| Preferred stock; $.0001 par value: 2,000,000 shares authorized; no shares issued or outstanding | - | - | ||||||
| Common stock; $.0001 par value: 11,000,000 shares authorized; 8,730,152 and 8,717,788 shares issued; and 7,137,848 and 7,125,484 shares outstanding | 1 | 1 | ||||||
| Treasury stock, at cost: 1,592,304 and 1,592,304 shares | (5,446 | ) | (5,446 | ) | ||||
| Additional paid in capital | 354,448 | 354,212 | ||||||
| Accumulated other comprehensive loss | - | (3 | ) | |||||
| Accumulated deficit | (345,320 | ) | (344,507 | ) | ||||
| Total stockholders’ equity | 3,683 | 4,257 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 16,288 | $ | 15,518 | ||||
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
YEARS ENDED DECEMBER 31, 2016 AND 2015
| 2016 | 2015 | |||||||
| (In thousands, except share data) | ||||||||
| Revenue | ||||||||
| Subscription | $ | 22,851 | $ | 21,536 | ||||
| Content license | 1,357 | 1,705 | ||||||
| Management information reports | 191 | 133 | ||||||
| Other | 168 | 214 | ||||||
| Total revenue | 24,567 | 23,588 | ||||||
| Cost of revenue (exclusive of depreciation and amortization included below) | 2,878 | 3,186 | ||||||
| Gross margin | 21,689 | 20,402 | ||||||
| Operating expenses: | ||||||||
| Sales and marketing | 12,060 | 11,108 | ||||||
| Technology and development | 6,349 | 5,845 | ||||||
| General and administrative | 4,131 | 3,953 | ||||||
| Total operating expenses | 22,540 | 20,906 | ||||||
| Loss from operations | (851 | ) | (504 | ) | ||||
| Interest and other income, net | 38 | 18 | ||||||
| Net loss | $ | (813 | ) | $ | (486 | ) | ||
| Unrealized loss on available-for-sale securities | 3 | (2 | ) | |||||
| Comprehensive loss | $ | (810 | ) | $ | (488 | ) | ||
| Basic and diluted net loss per common share | $ | (0.11 | ) | $ | (0.07 | ) | ||
| Basic and diluted weighted average shares outstanding | 7,130 | 7,421 | ||||||
See notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2016 AND 2015
| 2016 | 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (813 | ) | $ | (486 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 2,536 | 2,322 | ||||||
| Gain/Loss on sale of property and equipment | (4 | ) | 19 | |||||
| Stock-based compensation | 198 | 121 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (245 | ) | 437 | |||||
| Prepaid expenses and other assets | 37 | (471 | ) | |||||
| Accounts payable | 99 | (247 | ) | |||||
| Accrued expenses | 597 | (161 | ) | |||||
| Unearned revenue | 437 | 220 | ||||||
| Deferred rent | (16 | ) | 4 | |||||
| Net cash provided by operating activities | 2,826 | 1,758 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Additions to property and equipment | (321 | ) | (408 | ) | ||||
| Additions to internal use software | (2,185 | ) | (1,802 | ) | ||||
| Purchases of investments | (6,995 | ) | (9,120 | ) | ||||
| Sales of investments | 252 | 1,665 | ||||||
| Maturities of investments | 7,204 | 8,614 | ||||||
| Proceeds from sale of equipment | 4 | 8 | ||||||
| Net cash used in investing activities | (2,041 | ) | (1,043 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repurchase of stock | - | (1,048 | ) | |||||
| Proceeds from exercise of stock options and purchases under employee stock purchase plan | 38 | 239 | ||||||
| Net cash (used in ) / provided by financing activities | 38 | (809 | ) | |||||
| Net increase/(decrease) in cash and cash equivalents | 823 | (94 | ) | |||||
| Cash and cash equivalents, beginning of period | 1,483 | 1,577 | ||||||
| Cash and cash equivalents, end of period | $ | 2,306 | $ | 1,483 | ||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Property and equipment additions in accounts payable | (37 | ) | - | |||||
| Internal use software additions in accounts payable | (274 | ) | (58 | ) | ||||
See notes to consolidated financial statements.
27
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2016 AND 2015
(In thousands, except share data)
| Common stock | Treasury stock | Additional | Accumulated other comprehensive | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | paid in capital | gain/(loss) | deficit | Total | |||||||||||||||||||||||||
| BALANCE, January 1, 2015 | 7,400,653 | $ | 1 | 1,242,807 | $ | (4,398 | ) | $ | 353,852 | (1 | ) | $ | (344,021 | ) | $ | 5,433 | ||||||||||||||||
| Exercise of stock options | 64,877 | - | - | - | 206 | - | - | 206 | ||||||||||||||||||||||||
| Purchases under Employee Stock Purchase Plan | 9,451 | - | - | - | 33 | - | - | 33 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | 121 | - | - | 121 | |||||||||||||||||||||||||
| Stock repurchase | (349,497 | ) | - | 349,497 | (1,048 | ) | - | - | - | (1,048 | ) | |||||||||||||||||||||
| Unrealized loss on available-for-sale investments | - | - | - | - | - | (2 | ) | - | (2 | ) | ||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (486 | ) | (486 | ) | ||||||||||||||||||||||
| BALANCE, December 31, 2015 | 7,125,484 | $ | 1 | 1,592,304 | $ | (5,446 | ) | $ | 354,212 | $ | (3 | ) | $ | (344,507 | ) | $ | 4,257 | |||||||||||||||
| Exercise of stock options | 1,000 | $ | - | - | $ | - | $ | 3 | $ | - | $ | - | $ | 3 | ||||||||||||||||||
| Purchases under Employee Stock Purchase Plan | 11,364 | - | - | - | 35 | - | - | 35 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 198 | - | - | 198 | ||||||||||||||||||||||||
| Unrealized gain/(loss) on available-for-sale investments | - | - | - | - | - | 3 | - | 3 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | . | (813 | ) | (813 | ) | ||||||||||||||||||||||
| BALANCE, December 31, 2016 | 7,137,848 | $ | 1 | 1,592,304 | $ | (5,446 | ) | $ | 354,448 | $ | 0 | $ | (345,320 | ) | $ | 3,683 | ||||||||||||||||
See notes to consolidated financial statements.
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2016 AND 2015
Note 1: Summary of Significant Accounting Policies
Description of business
Onvia (“Onvia” or the “Company”) Onvia is a leading commerce intelligence company at the core of B2G marketplace that helps companies plan, market and sell to government agencies throughout the United States or (“U.S.”). Onvia’s business solution provides clients online access to a proprietary database of government procurement opportunities across the federal, state, local, and education sectors. The business intelligence derived from our database allows clients to identify new market opportunities, analyze market trends, and obtain insights about their competitors and channel partners. The Company believes its business solutions provide clients with a distinct competitive advantage, increased revenue opportunities, and strategic insight into the public sector market.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. Onvia’s Product team was previously developing both internal sales tools and the external B2G intelligence system. With a sole focus now on the external B2G system, the current period expenses are classified as technology and development expenses opposed to being included with sales and marketing as they were in the past. Related sales and marketing operating expenses of $1.7 million for the twelve-month period ended December 31, 2015 have been reclassified as technology and development operating expenses to conform to current period presentation. The reclassification has no impact on net income / (loss) as presented on the Condensed Consolidated Statements of Operations.
Basis of consolidation
Onvia had a wholly-owned subsidiary in Canada that was dissolved effective December 19, 2014; however, there was no business activity in this subsidiary in the fiscal year ended December 31, 2014. The wholly-owned subsidiary owned no assets or liabilities as of the date of dissolution.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires the Company’s management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the fair value of stock-based compensation, allowance for doubtful accounts, recoverability of long-lived assets, and the valuation allowance for net deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ significantly from the Company’s estimates. In addition, any significant unanticipated changes in any of the Company’s assumptions could have a material adverse effect on its business, financial condition, and results of operations.
During 2016, the Company determined it was appropriate to reduce the remaining estimated useful lives of certain internally developed software costs. See Note 7 below for further discussion of this reduction in remaining estimated useful lives and the corresponding impact to the results of operations.
Revenue recognition
Onvia’s revenues are primarily generated from client subscriptions, content licenses and management reports. Onvia’s subscriptions are generally annual contracts; however, the Company also offers extended multi-year contracts to its subscription clients, and content licenses are generally multi-year agreements. Subscription fees and content licenses are recognized ratably over the term of the agreement. Onvia also generates revenue from fees charged for management reports, document download services, and other services; revenue from these types of services is recognized upon delivery, or, if report refreshes are included, ratably over the service period.
Onvia’s subscription services and management reports are also sold together as a bundled offering. The Company allocates revenue from these bundled sales ratably between the subscription services and the management reports based on established list prices for those offerings. The Company measures and allocates arrangement consideration to one or more units of accounting for separate deliverables. The Company also establishes a selling price hierarchy for determining the selling price of a deliverable.
29
Unearned revenue consists of payments received for prepaid subscriptions, as well as the invoiced, but unpaid, portion of subscriptions and content licenses whose terms extend into periods beyond the balance sheet date.
Fair value of financial instruments
Onvia’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, security deposits, accounts payable, and accrued liabilities. The carrying amounts of the current portion of the financial instruments approximate fair value due to their short maturities. The carrying value of the long-term portion of security deposits approximates fair value as the interest rate is at market value. All investments, when held, are classified as available-for-sale and are reported at fair value based on market quotes, and unrealized gains or losses on these investments are recorded in stockholders’ equity and reported in comprehensive income.
Cash, cash equivalents and investments
Onvia considers all highly liquid instruments with maturities at purchase of 90 days or less to be cash equivalents. The fair value of the money market funds, included in cash equivalents, at December 31, 2016 and 2015, were based on quoted prices available in active markets for identical investments as of the reporting date. Investments with original maturities of greater than 90 days, but with remaining maturities of less than one year are classified as short-term, and investments with remaining maturities of 365 days or greater are classified as long-term. All investments are classified as available-for-sale and reported at fair value based on market quotes, and unrealized gains or losses on these investments are recorded in stockholders’ equity and reported in comprehensive income.
Management of credit risk
Onvia is subject to concentration of credit risk, primarily from its investments and customer contracts. Onvia manages its credit risk for investments by purchasing investment-grade securities and diversifying its investment portfolio among issuers and maturities. Currently, the Company invests primarily in FDIC insured or government backed funds and securities to mitigate the credit risk associated with its investment portfolio. The Company manages credit risks on customer contracts by adhering to common underwriting practices.
Property and equipment
Equipment and leasehold improvements are stated at cost, net of accumulated depreciation. Depreciation expense on software, furniture, and equipment is recorded using the straight-line method over estimated useful lives of three to five years. Leasehold improvements are depreciated over the shorter of their useful lives or the remaining term of the underlying lease.
The Company periodically evaluates its long-lived assets for impairment. An impairment loss would be recognized for assets to be disposed of or held-for-use when the carrying amount of an asset is deemed to not be recoverable. If events or circumstances indicate that any of the Company’s long-lived assets might be impaired, the Company analyzes the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company records an impairment loss to the extent that the carrying value of the asset exceeds the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. No assets were impaired during the years ended December 31, 2016 or 2015.
Internal use software
All qualifying costs related to the development of internal use software, other than those incurred during the application development stage, are expensed as incurred. Costs incurred during the application development stage are required to be capitalized and amortized over the estimated useful life of the software. Capitalized software costs are amortized on a straight-line basis over their expected economic lives, typically 3 to 5 years. The amount of costs capitalized within any period is dependent on the nature of software development activities and projects in each period.
Onvia periodically evaluates the remaining useful lives of internal use software and will record an abandonment if management determines that all or a portion of the asset will no longer be used, or will adjust the remaining useful life to reflect revised estimates for impairment as described above under “Property and equipment.” In addition, if the carrying value of the software exceeds the estimated future cash flows, an impairment will be recorded to reduce the carrying value to the expected net realizable value. No assets were impaired during the years ended December 31, 2016 or 2015.
30
Income taxes
Onvia accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and for net operating loss, or NOL, carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The deferred tax asset has been reduced by a valuation allowance that reduces the amount of our deferred tax asset to a level that is more-than-likely-than-not to be recognized. In determining the amount of the valuation allowance the Company considers whether it is more likely that some portion or all of the net deferred tax assets will not be realized. In particular, the Company considers its three-year earnings trend to determine if it has generated cumulative net income or net losses over that period, which the accounting guidance considers significant evidence to evaluate in determining the existence and amount of any valuation allowance. Onvia also considers positive evidence, such as improving trends in the leading indicators of revenue growth to evaluate the likelihood of generating taxable net income in the future. The ultimate realization of net deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to be deductible. The Company will continue to review the estimate of future taxable income and will adjust the valuation allowance accordingly as new information becomes available.
Treasury stock
Onvia accounts for treasury stock using the cost method. In December 2015, Onvia repurchased 349,497 shares of common stock as discussed in Note 13. As of December 31, 2016, the Company held 1,592,304 shares of treasury stock with a cost basis of $5,446,259.
Other comprehensive income or loss
Comprehensive income or loss is the change in equity from transactions and other events and circumstances other than those resulting from investments by and distributions to owners. Other comprehensive income or loss for Onvia consists of unrealized gains and losses on available-for-sale investments.
Net income or loss per share
Basic income or loss per share is calculated by dividing net income or loss for the period by the weighted average shares of common stock outstanding for the period. Diluted earnings per share is calculated by dividing net income or loss per share by the weighted average common stock outstanding for the period plus dilutive potential common shares using the treasury stock method. In periods with a net loss, basic and diluted earnings per share are identical because inclusion of potentially dilutive common shares would be antidilutive.
For the years ended December 31, 2016 and 2015, respectively, options to purchase 868,230 and 840,256 shares of common stock were not included in the calculation because the effect would have been anti-dilutive
Recent accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance for revenue from contracts with customers, which provides a single comprehensive revenue recognition model to apply in determining how and when to recognize revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. When applying the new revenue model to contracts with customers the guidance requires five steps to be applied, which include: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract and 5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance also requires both quantitative and qualitative disclosures, which are more comprehensive than existing revenue standards. The disclosures are intended to enable financial statement users to understand the nature, timing and uncertainty of revenue and the related cash flow. This guidance will be effective for Onvia in the first quarter of 2018 and early adoption is permitted beginning in the first quarter of 2017. Under ASU 2014-09, revenue is recognized as control transfers to the customer. As such, revenue for our contracts will generally be recognized ratably over time, which is consistent with the revenue recognition model we currently use for the majority of our contracts. Based on our evaluation of ASU 2014-09, we currently do not expect it to have a material impact on our financial statements upon adoption for our current product offerings, contracts with customers and revenue streams.
In November 2015, the FASB issued authoritative guidance on amending the accounting for income taxes and requiring all deferred tax assets and liabilities to be classified as non-current on the balance sheet. The objective of the guidance is to simplify the presentation as current accounting principles generally accepted in the United States of America (“GAAP”) requires the Company to separate the deferred tax assets into current and noncurrent amounts. The FASB concluded that the current presentation does not benefit the financial statement users because the classification does not align with the time period in which the deferred tax amounts are expected to be recovered. The guidance is effective for reporting periods beginning after December 15, 2016. The guidance may be adopted retrospectively. The Company is currently assessing the impact the guidance will have upon adoption but does not expect it to have an impact on the Consolidated Balance Sheet as the net deferred tax asset has been reduced by a valuation allowance to $0 at December 31, 2016.
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In February 2016, the FASB issued authoritative guidance which requires lessees to recognize on the balance sheet assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP—which requires only capital leases to be recognized on the balance sheet—the new guidance will require both types of leases to be recognized on the balance sheet. The guidance will take effect for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This guidance shall be applied at the beginning of the earliest period presented using the modified retrospective approach, which includes a number of practical expedients that an entity may elect to apply. Early application of the guidance is permitted. The Company has determined the office lease for the corporate headquarters is the only material lease affected by this guidance. The office space lease is currently classified as an operating lease and will continue to be classified as an operating lease under the new standard, and as such, Onvia will recognize a right-of-use asset and lease liability upon adoption of the new guidance.
In March 2016, the FASB issued authoritative guidance on accounting for share-based payment transactions. The guidance makes several modifications related to the accounting for forfeitures, employer tax withholding on share-based compensation and the financial statement presentation of excess tax benefits or deficiencies and clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently assessing how the adoption of this standard may impact its consolidated financial statements.
Note 2: Stock-Based Compensation and Stock Option Activity
Onvia measures compensation cost for all stock-based awards at fair value on the date of grant. The fair value of stock options is determined using the Black-Scholes valuation model. Such value is recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. Management considers many factors when estimating expected forfeitures, including employee class, historical experience and expected future activity. Actual results, and future changes in estimates, may differ substantially from management’s estimates.
Stock-Based Benefit Plans
Onvia, Inc. 2008 Equity Incentive Plan
The Onvia, Inc. 2008 Equity Incentive Plan, or the 2008 Plan, was adopted in September 2008 and it amended and restated the previous 1999 Stock Option Plan, or the 1999 Plan. Shares that were outstanding from the 1999 Plan will continue to be outstanding under that plan until forfeited, at which time they would be added back to the 2008 Plan. The 2008 Plan provides for the issuance of incentive and nonqualified common stock options, stock awards, restricted stock, restricted stock units and stock appreciation rights. Awards under this plan can be granted for ten years after the adoption date. The 2008 Plan requires that the exercise price for all options to be at least 100% of the fair market value of the underlying shares on the date of grant. The 2008 Plan contains specific provisions that govern awards in the event of a change in control and provides for compliance with the requirements of Section 409A of the Internal Revenue Code to the extent that awards are treated as deferred compensation. All employees, officers, directors and consultants of Onvia are eligible to participate in the 2008 Plan, although it is not anticipated that every eligible employee or consultant will receive awards. Options under this plan vest in increments over time, but typically have either a four or five year vesting schedule, normally with 25% or 20%, respectively, vesting one year from the grant date and ratable monthly vesting thereafter. As of December 31, 2016 the total number of options outstanding and the number of shares available for issuance under the 2008 Plan were 830,918 and 809,925 respectively.
2000 Directors’ Stock Option Plan
In March 2000, Onvia adopted a Directors’ Stock Option Plan or the Directors’ Plan. This plan expired on February 28, 2010. Options granted under this plan will remain active and will continue to vest according to the original grant provisions. Grants were made under this plan to each eligible board member on the date such person was first elected or appointed as a board member. At each annual stockholders’ meeting, each non-employee director was granted an additional option to purchase 1,000 shares of common stock under the Directors’ Plan, provided such person had been a board member of Onvia for at least the prior six months. The initial option grants under the Directors’ Plan vested 25% each year for four years on the anniversary of the date of grant, had a term of ten years, and an exercise price equal to the closing price of Onvia’s stock on the grant date. The annual grants vest in full one year from the date of grant, have a ten-year life, and an exercise price equal to the closing price on the date of grant.
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Employee Stock Purchase Plan
In May 2000, Onvia adopted the 2000 Employee Stock Purchase Plan, or ESPP, and initially authorized 60,000 shares of common stock for issuance under the ESPP. On the first day of each year beginning in 2001 and ending in 2010, the number of shares authorized for issuance under the ESPP was increased by the lesser of: 1% of the total number of shares of common stock then outstanding; 60,000 shares; or a lesser number of shares as determined by the Board of Directors. Under the ESPP, an eligible employee may purchase shares of Onvia common stock, based on certain limitations, at a price equal to the lesser of 85% of the fair market value of the common stock at the beginning or end of the respective offering period. This plan is compensatory under the provisions of ASC 718 and the fair value of purchases under the ESPP is recognized as compensation expense over the term of the awards. The ESPP purchases shares on a semi-annual basis. The total number of shares authorized for future issuance under the ESPP as of December 31, 2016 was 451,809 shares.
Impact on Results of Operations
The impact on Onvia’s results of operations of recording stock-based compensation for the years ended December 31 was as follows (in thousands):
| 2016 | 2015 | ||||||||
| Sales and marketing | $ | 71 | $ | - | |||||
| Technology and development | 46 | 36 | |||||||
| General and administrative | 81 | 85 | |||||||
| Total stock-based compensation | $ | 198 | $ | 121 | |||||
Valuation Assumptions
Onvia calculated the fair value of each option award on the date of grant using the Black-Scholes valuation model. The following weighted average assumptions were used for options granted in the years ending December 31:
| 2016 | 2015 | ||||||||
| Risk-free interest rate | 1.51 | % | 1.76 | % | |||||
| Expected volatility | 42 | % | 44 | % | |||||
| Expected dividends | 0 | % | 0 | % | |||||
| Expected life (in years) | 5.8 | 5.9 | |||||||
The fair value of each employee purchase under the ESPP is estimated on the first day of each purchase period using the Black-Scholes valuation model. Purchase periods begin on May 1 and November 1 of each year. The following weighted average assumptions were used for purchase periods beginning during the years ended December 31 under the ESPP:
| 2016 | 2015 | ||||||||
| Risk-free interest rate | 0.34 | % | 0.05 | % | |||||
| Expected volatility | 35 | % | 36 | % | |||||
| Expected dividends | 0 | % | 0 | % | |||||
| Expected life (in years) | 0.5 | 0.5 | |||||||
Risk-Free Interest Rate
The average risk free interest rate was determined based on the market yield for U.S. Treasury securities for the expected term of the grant at the time of grant.
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Expected Volatility
Management used the historical volatility of Onvia’s common stock to estimate the future volatility of its common stock over the expected term of the options granted for purposes of estimating the fair value of options granted.
Expected Dividends
Management does not currently intend to pay dividends; therefore, this assumption is set at 0%.
Expected Life
Onvia’s computation of expected life was determined based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting schedules and expectations of future employee behavior. Management estimated future exercise and cancellation behavior, generally by assuming that remaining shares would be exercised or cancelled ratably over their remaining contractual term, adjusted for certain expectations of future employee behavior. Management considers the behavior patterns separately for distinct groups of employees that have similar historical experience.
Stock Option Activity
The following table summarizes activity under Onvia’s equity incentive plans for the years ended December 31, 2016 and 2015:
| Options Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (1) | |||||||||||||
| Total options outstanding at January 1, 2015 | 889,592 | $ | 4.20 | |||||||||||||
| Options granted | 151,750 | 4.21 | ||||||||||||||
| Options exercised | (64,877 | ) | 3.17 | |||||||||||||
| Options expired | (23,417 | ) | 4.36 | |||||||||||||
| Options forfeited and cancelled | (131,297 | ) | 5.47 | |||||||||||||
| Total options outstanding at December 31, 2015 | 821,751 | $ | 4.08 | 5.95 | $ | 292,799 | ||||||||||
| Options exercisable at December 31, 2015 | 587,125 | $ | 4.08 | 4.83 | $ | 268,579 | ||||||||||
| Options vested and expected to vest at December 31, 2015 | 786,578 | $ | 4.11 | 5.87 | $ | 269,314 | ||||||||||
| Total options outstanding at January 1, 2016 | 821,751 | $ | 4.08 | |||||||||||||
| Options granted | 95,000 | 3.81 | ||||||||||||||
| Options exercised | (1,000 | ) | 3.40 | |||||||||||||
| Options expired | (31,500 | ) | 4.64 | |||||||||||||
| Options forfeited and cancelled | (4,333 | ) | 4.86 | |||||||||||||
| Total options outstanding at December 31, 2016 | 879,918 | $ | 4.03 | 5.60 | $ | 712,377 | ||||||||||
| Options exercisable at December 31, 2016 | 654,490 | $ | 4.03 | 4.53 | $ | 604,760 | ||||||||||
| Options vested and expected to vest at December 31, 2016 | 853,057 | $ | 4.03 | 5.50 | $ | 699,862 | ||||||||||
(1) Aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of Onvia’s common stock of $4.45 at December 31, 2016 for options that were in-the-money at December 31, 2016. The number of in-the-money options outstanding and exercisable at December 31, 2016 was 666,751 and 503,407, respectively.
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The weighted average grant date fair value of options granted during the years ended December 31, 2016 and 2015, was $1.57 and $1.86 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016 and 2015, was $584 and $67,168, respectively.
As of December 31, 2016, there was approximately $181,811 of unrecognized compensation costs related to unvested stock options. That cost is expected to be recognized over a weighted average period of 2.1 years.
Note 3: Short-Term and Long-Term Investments
Onvia classifies short-term and long-term investments in debt securities as available-for-sale, stated at fair value as summarized in the following table (in thousands):
| December 31, 2016 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| U.S. Government backed securities | $ | 110 | $ | - | $ | - | $ | 110 | ||||||||
| Certificates of Deposit (1) | 4,707 | - | - | 4,707 | ||||||||||||
| $ | 4,817 | $ | - | $ | - | $ | 4,817 | |||||||||
(1) We evaluated certificates of deposits held as of December 31, 2016 and concluded that they meet the definition of securities.
| December 31, 2015 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
| U.S. Government backed securities | $ | 902 | $ | - | $ | - | $ | 902 | ||||||||
| Certificates of Deposit (1) | 4,376 | - | (3 | ) | 4,373 | |||||||||||
| $ | 5,278 | $ | - | $ | (3 | ) | $ | 5,275 | ||||||||
(1) We evaluated certificates of deposits held as of December 31, 2015 and concluded that they meet the definition of securities.
Onvia accounts for short-term investments at fair value defined as the exchange price that would be received for an asset, or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Onvia applies a fair value hierarchy to its investments, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
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Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Onvia uses the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following tables summarize, by major security type, short-term and long-term investments classified as available-for-sale at December 31, 2016 and 2015, stated at fair value (in thousands):
| Fair Value Measurements as of December 31, 2016 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Balance as of December 31, 2016 | |||||||||||||
| U.S. Government backed securities | $ | - | $ | 110 | $ | - | $ | 110 | ||||||||
| Certificates of Deposit | - | 4,707 | - | 4,707 | ||||||||||||
| $ | - | $ | 4,817 | $ | - | $ | 4,817 | |||||||||
| Fair Value Measurements as of December 31, 2015 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Balance as of December 31, 2015 | |||||||||||||
| U.S. Government backed securities | $ | - | $ | 902 | $ | - | $ | 902 | ||||||||
| Certificates of Deposit | - | 4,373 | - | 4,373 | ||||||||||||
| $ | - | $ | 5,275 | $ | - | $ | 5,275 | |||||||||
There were no transfers in or out of Level 1 or Level 2 investments during the years ended December 31, 2016 and 2015, and there was no activity in Level 3 fair value measurements during these periods.
Note 4: Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following at December 31 (in thousands):
| 2016 | 2015 | ||||||||
| Prepaid software maintenance agreements | $ | 630 | $ | 690 | |||||
| Other prepaid expenses | 133 | 175 | |||||||
| Prepaid insurance | 107 | 108 | |||||||
| Other receivables | 78 | 94 | |||||||
| Prepaid rent | 76 | - | |||||||
| Interest receivable | 11 | 8 | |||||||
| $ | 1,035 | $ | 1,075 | ||||||
Note 5: Security Deposits
Pursuant to Onvia’s lease for its current corporate office space, Onvia has established a stand by letter of credit as security to the lease increasing from $100,000 in April 2013, to $125,000 in January 2014 and to $150,000 on January 2015. The letter of credit will be returned at lease termination in April 2021 or earlier as discussed above, subject to standard office lease conditions. As of December 31, 2016, the stand by letter of credit is secured by a security deposit of $150,000 and reported as other long-term assets on the Consolidated Balance Sheets.
Note 6: Property and Equipment
Property and equipment consists of the following at December 31 (in thousands):
| 2016 | 2015 | ||||||||
| Computer equipment | $ | 3,822 | $ | 3,932 | |||||
| Software | 1,805 | 1,856 | |||||||
| Furniture and fixtures | 119 | 117 | |||||||
| Leasehold improvements | 815 | 815 | |||||||
| Total cost basis | 6,561 | 6,720 | |||||||
| Less accumulated depreciation and amortization | (5,717 | ) | (5,684 | ) | |||||
| Net book value | $ | 844 | $ | 1,036 | |||||
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During the year ended December 31, 2016, Onvia disposed of fully depreciated computer software and equipment with a combined historical cost of $491,000 compared to the disposal of $139,000 in computer equipment and leasehold improvements for the same period in 2015. A gain on sale of assets totaling $4,000 and a loss on sale of assets totaling $19,000 were incurred with the 2016 and 2015 disposals respectively.
Depreciation expense was $524,000 and $630,000 for the years ended December 31, 2016 and 2015, respectively.
Note 7: Internal Use Software
Onvia capitalizes qualifying computer software costs incurred during the “application development stage” and other costs as permitted. Amortization of these costs begins once the product is ready for its intended use. These costs are amortized on a straight-line basis over the estimated useful life of the product, typically 3 to 5 years. The amount of costs capitalized within any period is dependent on the nature of software development activities and projects in each period.
Onvia periodically evaluates the remaining useful lives and carrying values of internal use software. If management determines that all or a portion of the asset will no longer be used, or the estimated remaining useful life differs from existing estimates, an abandonment will be recorded to reduce the carrying value or adjust the remaining useful life to reflect revised estimates. In addition, if the carrying value of the software exceeds the estimated future cash flows, an impairment will be recorded to reduce the carrying value to the expected realizable value.
During 2016 the Company determined that ongoing product development would replace the functionality of certain internal use software costs and evaluated the then current estimates of remaining useful lives of the affected internal use software. The Company determined that unamortized internal software costs of approximately $962,000 are subject to a reduced estimated remaining useful life. During 2016 we accelerated $446,000 in amortization expense related to the reduced useful lives of the impacted assets. In 2017, we expect our results will include an additional $516,000 in accelerated amortization related to this change in accounting estimate.
The following table presents a roll forward of capitalized internal use software for the years ended December 31, 2016 (in thousands):
| Balance at December 31, 2015 | Additions | Balance at December 31, 2016 | ||||||||||
| Capitalized internal use software | $ | 18,812 | $ | 2,401 | $ | 21,213 | ||||||
| Accumulated amortization | (13,721 | ) | (2,012 | ) | (15,733 | ) | ||||||
| $ | 5,091 | $ | 389 | $ | 5,480 | |||||||
Amortization expense related to capitalized software was $2.0 million and $1.7 million for the years ended December 31, 2016 and 2015, respectively.
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Note 8: Accrued Expenses
Accrued expenses consist of the following at December 31 (in thousands):
| 2016 | 2015 | ||||||||
| Payroll and related liabilities | $ | 1,430 | $ | 855 | |||||
| Taxes payable and other | 104 | 82 | |||||||
| $ | 1,534 | $ | 937 | ||||||
Other current liabilities consist of the following at December 31 (in thousands):
| 2016 | 2015 | ||||||||
| Deferred rent, current portion | $ | 107 | $ | 78 | |||||
| Obligations under capital leases, current portion | 27 | 25 | |||||||
| $ | 134 | $ | 103 | ||||||
Note 9: Income Taxes
The following table provides reconciliation between the statutory income tax rate and the Company’s effective tax rate for the years ended December 31:
| 2016 | 2015 | ||||||||
| Tax expense at statutory rate | -34.0 | % | -34.0 | % | |||||
| Stock-based compensation | 8.6 | % | 19.3 | % | |||||
| Amortization of goodwill | -0.9 | % | -3.5 | % | |||||
| Meals and entertainment | 2.3 | % | 3.1 | % | |||||
| Deferred tax asset adjustment | 0.0 | % | 0.0 | % | |||||
| Valuation allowance | 24.0 | % | 15.1 | % | |||||
| Net Tax expense | 0.0 | % | 0.0 | % | |||||
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Onvia’s deferred tax asset consists of the following as of December 31 (in thousands):
| 2016 | 2015 | ||||||||
| Deferred tax assets | |||||||||
| Net operating loss carryforward | $ | 26,352 | $ | 26,109 | |||||
| Accrued expenses not currently deductible | 671 | 652 | |||||||
| Depreciation different for tax purposes | 123 | 100 | |||||||
| Deferred tax asset total | $ | 27,146 | $ | 26,861 | |||||
| Deferred tax liability | |||||||||
| Prepaid expenses | (262 | ) | (305 | ) | |||||
| Depreciation different for tax purposes | (1,863 | ) | (1,731 | ) | |||||
| Deferred tax liabilities total | (2,125 | ) | (2,036 | ) | |||||
| Net deferred tax asset before valuation allowance | 25,021 | 24,825 | |||||||
| Valuation allowance | (25,021 | ) | (24,825 | ) | |||||
| Net deferred tax asset after valuation allowance | $ | - | $ | - | |||||
The Company had approximately $25 million in net deferred tax assets, before valuation allowance, as of December 31, 2016. Realization of net deferred tax assets ultimately depends on the existence of sufficient taxable income, including taxable income in prior carryback years, as well as future taxable income. Management regularly reviews the net deferred tax assets for usability based on a history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. In particular, the Company considers its three-year earnings trend to determine if it has generated cumulative net income or net losses over that period, which the accounting guidance considers significant evidence to evaluate in determining the existence and amount of any valuation allowance.
Based upon the analysis of all positive and negative evidence, it is management’s current judgment that due to the recent pattern of net losses, the Company has concluded that it is more-likely-than-not that some or all of the deferred tax assets will not be realized. Therefore, the Company has maintained its valuation allowance at 100% of its net deferred tax assets as of December 31, 2016.
The Company may reverse all or a portion of our valuation allowance in the future if it is determined that realization of these benefits is more likely than not. The Company will continue to evaluate the appropriateness of its valuation allowance in consideration of future operating results.
As of December 31, 2016 and 2015, Onvia had available U.S. federal net operating losses in the amount of $77,505,220 and $76,792,130, which expire at various times from 2021 through 2035.
Utilization of the NOL carryforwards may be subject to a substantial annual limitation due to an ownership change that could occur in the future provided by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 of the Code, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
Onvia performed a Section 382 analysis and identified an ownership change that occurred in September 2001. The Company believes that, as a result of the annual Section 382 limitation that resulted from the change in control that occurred in September 2001, it will permanently be unable to use a significant portion of our NOL carryforwards that arose before the change in control to offset future taxable income. As such, the Company reduced its NOL deferred tax asset by the amount of NOLs that it will permanently be unable to utilize, which in turn resulted in a reduction to its valuation allowance.
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Note 10: Commitments and Contingencies
Operating leases
Onvia has a lease agreement for its corporate offices located in Seattle, Washington that expires in April, 2021. Onvia also has a non-cancellable operating lease for office equipment, which expires in June 2019.
The office lease contains rent escalation clauses and rent holidays. Rent expense is recorded on a straight-line basis over the lease term with the difference between the rent paid and the straight-line rent expense recorded as a deferred rent liability. Total rent expense associated with real estate operating leases was $770,000 and $767,000 for the years ended December 31, 2016 and 2015, respectively.
Future minimum lease payments required on non-cancellable operating leases are as follows for the years ending December 31 (in thousands):
| Real Estate Operating Lease | Office Equipment Operating Lease | Total Operating Leases |
|||||||||||
| 2017 | $ | 873 | $ | 20 | $ | 893 | |||||||
| 2018 | 896 | 20 | 916 | ||||||||||
| 2019 | 918 | 9 | 927 | ||||||||||
| 2020 | 940 | - | 940 | ||||||||||
| 2021 | 320 | - | 320 | ||||||||||
| $ | 3,947 | $ | 49 | $ | 3,996 | ||||||||
Capital Leases
Onvia has non-cancellable capital leases for phone system server equipment and maintenance related to this equipment. Remaining future minimum lease payments required on these capital leases are as follows for the years ended December 31 (in thousands):
| Principal | Interest | Total | |||||||||||
| 2017 | $ | 40 | $ | 3 | $ | 43 | |||||||
| 2018 | 25 | - | 25 | ||||||||||
| $ | 65 | $ | 3 | $ | 68 | ||||||||
Purchase Obligations
Onvia has non-cancellable purchase obligations for software development and license agreements, co-location hosting arrangements, telecom agreements, marketing agreements and third-party content agreements. The agreements expire in dates ranging from 2017 to 2018. Future required payments under these non-cancellable agreements are as follows for the years ending December 31 (in thousands):
| Purchase Obligations |
|||||
| 2017 | $ | 444 | |||
| 2018 | 364 | ||||
| $ | 808 | ||||
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CEO Transition Agreement
On March 28, 2016, the Company and its then President and Chief Executive Officer (“Riner”) entered into a Transition and Release Agreement (the “Transition Agreement”).
The Transition Agreement, provides for, Riner to transition into planned retirement and a 12-month consulting relationship with the Company effective no later than June 30, 2017, or such earlier date that Onvia selects and announces a new Chief Executive Officer (“CEO”) (the “Transition Date”). Riner continued to serve as the Company’s President and CEO on a full-time basis through the Transition Date.
In exchange for Riner’s entry into the Transition Agreement, his covenants and promises described therein, and his entry into an additional Release of Claims Agreement on his last of date of employment with the Company, the Company has agreed to pay Riner a lump sum cash payment of $362,000 on July 8, 2017.
Costs related to the Transition Agreement are being accrued over the requisite service period and the expense is included in operating expenses in the interim unaudited Condensed Consolidated Statements of Operations.
On December 30, 2016 Onvia entered into an Employment and Noncompetition Agreement with Russell Mann to serve as the Company’s President and Chief Executive Officer. At a meeting held on January 6, 2017, the Board of Directors elected Mr. Mann to serve as a member of Onvia’s Board of Directors. These appointments were effective January 30, 2017. Please refer to the section above entitled “Executive Officers of the Registrant” for Mr. Mann’s biography.
Legal Proceedings
From time to time, legal proceedings may arise in the ordinary course of business. Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.
Note 11: Employee Retirement Plan
In March 2000, Onvia adopted a Savings and Retirement Plan (the “Retirement Plan”), which is a defined contribution plan. The Retirement Plan is a qualified salary reduction plan in which all eligible employees may elect to have a percentage of their pre-tax compensation contributed to the Retirement Plan, subject to certain guidelines issued by the Internal Revenue Service.
In January 2006, the Retirement Plan was amended to add a discretionary matching contribution, made in either cash or Onvia common stock, up to 25% of every dollar up to 6% of all eligible employee contributions. The matching contributions are subject to a four year vesting schedule, with vesting measured from the employee’s date of hire. The Company’s Board of Directors has the sole discretion to make matching contributions in the first quarter following each Plan year, and employees must be employed on the last day of the Plan year to be eligible to receive the matching contribution. Onvia’s Board of Directors authorized a 10% matching contribution for both 2016 and 2015. This contribution was made in cash in the amount of $56,000 and $39,000 for 2016 and 2015, respectively.
Note 12: Stockholders’ Equity
Authorized shares
At December 31, 2016, the number of authorized shares is 13,000,000 with a par value of $0.0001 per share. Authorized shares are comprised of 11,000,000 shares of common stock and 2,000,000 shares of undesignated preferred stock.
Note 13: Stock Repurchase
On December 18, 2015, Onvia entered into a stock repurchase agreement with Nadel and Gussman Energy, LLC (the “Repurchase Stockholders”) to repurchase shares of Onvia’s common stock, par value $0.0001 directly from the Repurchase Stockholders in a private transaction. Under the terms of the agreement, Onvia has repurchased from the Repurchase Stockholders 349,497 shares of common stock at a price of $3.00 per share for a total purchase price of approximately $1,050,000, excluding transaction fees. These shares were repurchased at discount to market price. This transaction does not have any impact on Onvia’s Section 382 tax benefits preservation plan. The repurchased shares are held in treasury and recorded at cost on the Company’s Consolidated Balance Sheet. The treasury shares are excluded from shares outstanding for purposes of calculating earnings per share.
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Selected Quarterly Financial Information (Unaudited)
The following tables summarize the quarterly financial data for the years ended December 31, 2016 and 2015:
| Three Months Ended | ||||||||||||||||
| March 31, 2016 | June 30, 2016 | September 30, 2016 | December 31, 2016 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
| Historical Consolidated Statements of Operations and Comprehensive Income Data: | ||||||||||||||||
| Revenue | $ | 6,062 | $ | 6,020 | $ | 6,173 | $ | 6,312 | ||||||||
| Gross margin (exclusive of depreciation and amortization) | 5,298 | 5,278 | 5,484 | 5,629 | ||||||||||||
| Total operating expenses | 5,286 | 5,411 | 5,989 | 5,854 | ||||||||||||
| Gain/(loss) from operations | 12 | (133 | ) | (505 | ) | (225 | ) | |||||||||
| Net income/(loss) | $ | 19 | $ | (125 | ) | $ | (492 | ) | $ | (215 | ) | |||||
| Basic net income/(loss) per common share | $ | 0.00 | $ | (0.02 | ) | $ | (0.07 | ) | $ | (0.03 | ) | |||||
| Diluted net income/(loss) per common share | $ | 0.00 | $ | (0.02 | ) | $ | (0.07 | ) | $ | (0.03 | ) | |||||
| Basic weighted average shares outstanding | 7,125 | 7,129 | 7,131 | 7,136 | ||||||||||||
| Diluted weighted average shares outstanding | 7,193 | 7,129 | 7,131 | 7,136 | ||||||||||||
| Three Months Ended | ||||||||||||||||
| March 31, 2015 | June 30, 2015 | September 30, 2015 | December 31, 2015 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
| Historical Consolidated Statements of Operations and Comprehensive Income Data: | ||||||||||||||||
| Revenue | $ | 5,845 | $ | 5,894 | $ | 5,887 | $ | 5,962 | ||||||||
| Gross margin (exclusive of depreciation and amortization) | 5,052 | 5,056 | 5,104 | 5,190 | ||||||||||||
| Total operating expenses | 5,531 | 4,998 | 5,101 | 5,276 | ||||||||||||
| Gain/(loss) from operations | (479 | ) | 58 | 3 | (86 | ) | ||||||||||
| Net income/(loss) | $ | (477 | ) | $ | 80 | $ | 9 | $ | (98 | ) | ||||||
| Basic net income/(loss) per common share | $ | (0.06 | ) | $ | 0.01 | $ | 0.00 | $ | (0.01 | ) | ||||||
| Diluted net income/(loss) per common share | $ | (0.06 | ) | $ | 0.01 | $ | 0.00 | $ | (0.01 | ) | ||||||
| Basic weighted average shares outstanding | 7,401 | 7,413 | 7,449 | 7,435 | ||||||||||||
| Diluted weighted average shares outstanding | 7,401 | 7,578 | 7,561 | 7,435 | ||||||||||||
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
The Company conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act")), under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e)) as of December 31, 2016. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 31, 2016.
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Report of Management on Internal Control over Financial Reporting
Onvia’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer and Principal Accounting Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 based on the framework and criteria established in Internal Control – Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2016.
This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts issuers that are neither accelerated filers nor large accelerated filers, as defined in Rule 12b-2 under the Exchange Act, from Section 404(b) of the Sarbanes-Oxley Act of 2002. This exemption permits us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2016 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
None.
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Certain information required by Part III is omitted from this Annual Report on Form 10-K because Onvia intends to file a definitive Proxy Statement for its Annual Meeting of Stockholders (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Form 10-K, and certain information to be included therein is incorporated herein by reference.
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item regarding the Company’s directors is incorporated herein by reference to the section entitled “Proposal No. 1: Election of Directors” in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 9, 2017 (“Proxy Statement”). Information relating to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. Information regarding the Company’s audit committee and audit committee financial expert is incorporated herein by reference to the section entitled “Corporate Governance” in the Proxy Statement. Information regarding the Company’s executive officers is set forth under the caption “Executive Officers of the Registrant” in Part 1 of this Annual Report and is incorporated by reference into this Item 10.
The Company adopted a code of ethics applicable to its Chief Executive Officer, Chief Financial Officer, Controller and other finance leaders, which is a “code of ethics” as defined by applicable rules of the Securities and Exchange Commission. This code is publicly available on the Company’s website at www.onvia.com. If the Company makes any amendments to this code other than technical, administrative or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision of this code to the Company’s Chief Executive Officer, Chief Accounting Officer or Controller, the Company will disclose the nature of the amendment or waiver, its effective date and to whom it applies on its website or in a report on Form 8-K filed with the Securities and Exchange Commission.
| ITEM 11. | EXECUTIVE COMPENSATION |
The information required by this item is incorporated by reference to the sections entitled “Executive Compensation,” “Director Compensation,” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
We currently maintain two active compensation plans that provide for the issuance of our common stock to officers, directors, employees, and equity consultants. The two active compensation plans consist of the Onvia, Inc. 2008 Equity Incentive Plan, or the 2008 Plan, and the 2000 Employee Stock Purchase Plan, or ESPP, both of which have been approved by stockholders.
We also have outstanding options under the stockholder approved 2000 Directors’ Stock Option Plan, or Directors’ Plan, which expired on February 28, 2010 and under the Amended and Restated 1999 Stock Option Plan, or the 1999 Plan, which was amended and restated in September 2008 as the 2008 Plan. Options outstanding under both the Directors’ Plan and the 1999 Plan will continue to vest and become exercisable according to the original terms of the grant. However, any options that are forfeited from the Directors’ Plan subsequent to the expiration date will not be available for reissuance. Any grants forfeited from the 1999 Plan will be returned to the 2008 Plan and will be available for future issuance.
The following table sets forth information regarding outstanding options and shares reserved for future issuance under the 2008 Plan, the 1999 Plan (amended and restated into the 2008 Plan), the Directors’ Plan, and the ESPP as of December 31, 2016. There were no equity plans not approved by security holders as of December 31, 2016.
44
EQUITY COMPENSATION PLAN INFORMATION
| Plan category | Number of Securities to be Issued on Exercise of Outstanding Options (1) | Weighted-average Exercise Price of Outstanding Options (2) | Securities Available for Future Grant (Excluding Shares Reflected in Column (1)) (3) | |||||||||
| Equity compensation plans approved by security holders | ||||||||||||
| Onvia, Inc. 2008 Equity Incentive Plan | 830,918 | $ | 3.86 | 809,925 | ||||||||
| Amended and Restated 1999 Stock Option Plan | 41,000 | 6.99 | - | |||||||||
| 2000 Directors' Stock Option Plan | 8,000 | 6.22 | - | |||||||||
| Employee Stock Purchase Plan | - | - | 451,809 | |||||||||
| Total | 879,918 | $ | 4.03 | 1,261,734 | ||||||||
The information required by Item 403 of Regulation S-K under this item is incorporated by reference to the section entitled “Common Stock Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated by reference to the sections entitled “Certain Relationships and Related Person Transactions” and “Board of Directors and Committee Information” in the Proxy Statement
| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated by reference to the sections entitled “Independent Registered Public Accounting Firm’s Fees and Services” in the Proxy Statement.
45
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Index to Consolidated Financial Statements and Financial Statement Schedules:
| 1. | INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
| Page | ||
| Report of Moss Adams LLP, Independent Registered Public Accounting Firm | 24 | |
| Consolidated Financial Statements: | ||
| Balance Sheets | 25 | |
| Statements of Operations and Comprehensive Loss | 26 | |
| Statements of Cash Flows | 27 | |
| Statements of Stockholders’ Equity | 28 | |
| Notes to Consolidated Financial Statements | 29 |
| 2. | FINANCIAL STATEMENT SCHEDULES |
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
| Additions | ||||||||||||||||||||
| Description (in thousands) | Balances at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts | Deductions(1) | Balances at End of Period | |||||||||||||||
| Allowance for doubtful accounts | ||||||||||||||||||||
| Year Ended December 31, 2015 | $ | 42 | 38 | - | (48 | ) | $ | 32 | ||||||||||||
| Year Ended December 31, 2016 | $ | 32 | 35 | - | (33 | ) | $ | 34 | ||||||||||||
______________________________
(1) Uncollectible accounts written off, net of recoveries.
| Additions(2) | ||||||||||||||||||||
| Description (in thousands) | Balances at Beginning of Period | Charged to Costs and Expenses | Charged to Other Accounts | Deductions(2) | Balances at End of Period | |||||||||||||||
| Deferred tax assets-valuation allowance | ||||||||||||||||||||
| Year Ended December 31, 2015 | $ | 24,752 | - | 73 | - | $ | 24,825 | |||||||||||||
| Year Ended December 31, 2016 | $ | 24,825 | - | 196 | - | $ | 25,021 | |||||||||||||
______________________________
(2) The additions to and reductions in the deferred tax assets-valuation allowance represent the portion of a deferred tax asset for which either: (i) it is more likely than not that a tax benefit will not be realized, or (ii) it is more likely than not a tax benefit will be realized.
Schedules not listed above have been omitted because they are not applicable, are not required, or the information required to be set forth in the schedules is included in the consolidated financial statements or related notes.
46
3. EXHIBITS
Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
| · | May have been qualified by disclosure that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; | |
| · | May apply standards of materiality that differ from those of a reasonable investor; and | |
| · | Were made only as of specified dates contained in the agreements and are subject to later developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and investors should not rely on them as statements of fact.
| Number | Description | |
| 3.1 | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i).1 to the Report on Form 10-Q for the quarter ended June 30, 2004, filed on August 12, 2004) | |
| 3.2 | Amended and Restated Bylaws of Onvia effective June 30, 2015 (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on July 2, 2015) | |
| 3.3 | Certificate of Designation, Preferences and Rights of Series RA Junior Participating Preferred Stock of Onvia, Inc., as filed with the Secretary of State of Delaware on May 4, 2011 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-A filed on May 5, 2011) | |
| 4.2 | Amended and Restated Section 382 Rights Agreement, dated April 24, 2014, by and between Onvia, Inc. and Computershare Trust Company, N.A., as Rights Agent, which includes the Form of Certificate of Designation of Series RA Junior Participating Preferred Stock as Exhibit A, the Form of Rights Certificate as Exhibit B, and the Summary of Rights as Exhibit C (incorporated by reference from Exhibit 4.1 to Onvia’s Form 8-A/A filed on April 29, 2014) | |
| 10.1* | Onvia, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Report on Form 10-Q for the quarter ended September 30, 2008, filed on November 14, 2008) | |
| 10.2* | Amended 2000 Employee Stock Purchase Plan (incorporated by Reference to Exhibit 10.4 to the Report on Form 10-Q for the quarter ended September 30, 2008, filed on November 14, 2008) | |
| 10.3* | 2000 Directors’ Stock Option Plan (incorporated by reference to Exhibit 10.26 to the Registration Statement on Form S-1/A filed on February 7, 2000 (File No. 333-93273)) | |
| 10.4* | Employment Agreement with Irvine N. Alpert dated February 22, 2002 and Commission and Bonus Plan with Irvine N. Alpert dated September 11, 2001 (incorporated by reference to Exhibit 10.4 to the Report on Form 10-K for the year ended December 31, 2001, filed on March 29, 2002) | |
| 10.5 | Medical Dental Building Lease Agreement between Onvia and GRE 509 Olive LLC, dated July 31, 2007 (incorporated by reference to Exhibit 10.12 to the Report on Form 10-Q for the period ended September 30, 2007, filed on November 14, 2007) | |
| 10.6* | Second Amendment to 2000 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.13 to the Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 17, 2010) | |
| 10.7* | Offer Letter to Henry G. Riner, dated August 26, 2010 (incorporated by reference to Exhibit 10.15 to the Report on Form 10-Q for the quarter ended September 30, 2010, filed on November 15, 2010) | |
| 10.8* | Form of Indemnification Agreement between Onvia and each of its officers and directors approved by Board of Directors on August 30, 2011 (incorporated by reference to exhibit 10.1 to the Report on Form 10-Q for the quarter ended March 31, 2012, filed May 14, 2012) | |
| 10.9 | First Amendment to Lease, dated as of April 4, 2013, by and between Onvia, Inc. and GRE 509 Olive LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on April 9, 2013) | |
| 10.10* | Executives Severance Arrangement (incorporated by Reference to Exhibit 10.10 to the Report on Form 10-K for the year ended December 31, 2014 filed on March 17, 2015) | |
| 10.11* | Onvia 2016 Management Incentive Plan (incorporated by referenced to Exhibit 10.11 to the Report on Form 10-K for the year ended December 31, 2015 filed on March 8, 2016) | |
| 10.12* | Leadership Team Equity Grant Program under Onvia, Inc. 2008 Equity Incentive Plan (incorporated by reference to Exhibit 10.13 to the Report on Form 10-K for the year ended December 31,2014 filed on March 17, 2015) | |
| 10.13 | Stock Repurchase Agreement, dated as of December 18, 2015, between Onvia, Inc. and Nadel and Gussman Energy, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 21, 2015) |
47
| 10.14* | Transition and Release Agreement, dated March 28, 2016, between Onvia, Inc. and Henry Riner (incorporated by reference to Exhibit 10.1 to the Current Report on Form 10-Q for the quarter ended March 31, 2016 filed May 9, 2016) | |
| 10.15* | Employment and Noncompetition Agreement dated December 30, 2016 between Russell Mann and Onvia, Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed January 6, 2017) | |
| 23.1++ | Consent of Moss Adams LLP, Independent Registered Public Accounting Firm | |
| 31.1++ | Certification of Russell Mann, Chief Executive Officer and President of Onvia, Inc., Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2++ | Certification of Cameron S. Way, Chief Financial Officer and Principal Accounting Officer of Onvia, Inc., Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1++ | Certification of Russell Mann, Chief Executive Officer and President of Onvia, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.2++ | Certification of Cameron S. Way, Senior Vice President and Chief Financial Officer of Onvia, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 101++ | 101.INS XBRL Instance Document | |
| 101.SCH XBRL Taxonomy Extension Schema | ||
| 101.CAL XBRL Taxonomy Extension Calculation Linkbase | ||
| 101.LAB XBRL Taxonomy Extension Label Linkbase | ||
| 101.PRE XBRL Taxonomy Extension Presentation Linkbase | ||
| 101.DEF XBRL Taxonomy Extension Definition Linkbase |
* Executive Compensation Plan or Agreement
++ Filed Herewith
48
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on March 2, 2017.
| ONVIA, INC. | |
| By: | /s/ RUSSELL MANN |
| Russell Mann | |
| President and Chief Executive Officer (Principal Executive Officer) | |
| By: | /S/ CAMERON S. WAY |
| Cameron S. Way | |
| Senior Vice-President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer of Onvia, Inc., a Delaware corporation (the “Company”), hereby constitutes and appoints Russell Mann and Cameron S. Way, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead in any and all capacities, to sign one or more Annual Reports for the Company’s fiscal year ended December 31, 2016, on Form 10-K under the Securities Exchange Act of 1934, as amended, any amendments thereto, and all additional amendments thereto, each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or re-substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated.
|
Signature |
Title |
Date |
|||
|
/S/ RUSSELL MANN |
Chief Executive Officer, President and Director | March 2, 2017 | |||
| Russell Mann | |||||
|
/S/ CAMERON S. WAY |
Senior Vice-President and Chief Financial Officer | March 2, 2017 | |||
| Cameron S. Way | |||||
|
/S/ JEFFREY C. BALLOWE |
Director | March 2, 2017 | |||
| Jeffrey C. Ballowe | |||||
|
/S/ JAMES L. BRILL |
Director | March 2, 2017 | |||
| James L. Brill | |||||
|
/S/ ROGER L. FELDMAN |
Director | March 2, 2017 | |||
| Roger L. Feldman | |||||
|
/S/ D. VAN SKILLING |
Chairman of the Board | March 2, 2017 | |||
| D. Van Skilling | |||||
|
/S/ GEORGE I. STOECKERT |
Director | March 2, 2017 | |||
| George I. Stoeckert | |||||
49