Onvia (ONVI) 10-Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2008

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 000-29609

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, including zip code)

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

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

Indicate by checkmark whether the registrant is 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 [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  [  ] Yes    [X] No

Common stock, par value $.0001 per share: 8,235,825 shares outstanding as of July 31, 2008.

ONVIA, INC.

INDEX

PART I.  FINANCIAL INFORMATION	1
Item 1.  Unaudited Condensed Consolidated Financial Statements	1
Condensed Consolidated Balance Sheets (Unaudited)	1
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)	2
Condensed Consolidated Statements of Cash Flows (Unaudited)	3
Notes To Condensed Consolidated Financial Statements (Unaudited)	4
1.        Basis of Presentation	4
2.        Use of Estimates	4
3.        Stock-Based Compensation and Stock Option Activity	4
4.        Net Loss per Share	6
5.        Prepaid Expenses and Other Current Assets	6
6.        Other Assets	6
7.        Property and Equipment	7
8.        Accrued Expenses	7
9.        Interest and Other Income, net	7
10.      New Accounting Pronouncements	7
11.      Commitments and Contingencies	8
12.      Provision for Income Taxes	10
13.      Security Deposits	10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Company Overview	11
Executive Summary of Operations and Financial Position	15
Seasonality	17
Results of Operations for the Three and Nine Months Ended September 30, 2007 Compared to the Three and Nine Months Ended September 30, 2006	18
Critical Accounting Policies and Management Estimates	21
Contractual Obligations	23
Liquidity and Capital Resources	24
Recent Accounting Pronouncements	25
Item 3. Quantitative and Qualitative Disclosures about Market Risk.	26
Item 4(T). Controls and Procedures	27
PART II. OTHER INFORMATION	28
Item 1.  Legal Proceedings	28
Item 1A.  Risk Factors	28
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.  Defaults Upon Senior Securities	30
Item 4.  Submission of Matters to a Vote of Security Holders	30
Item 5.  Other Information	30
Item 6.  Exhibits	31
SIGNATURES	33

           PART I.  FINANCIAL INFORMATION

Item 1.  Unaudited Condensed Consolidated Financial Statements

Onvia, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

	June 30, 2008			December 31, 2007
	(Unaudited)
	(In thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	15,814		$	14,301
Accounts receivable, net of allowance for doubtful accounts of $49 and $52		1,152			1,393
Prepaid expenses and other current assets		646			549
Reimbursable tenant improvements		248			2,663
Security deposits, current portion		134			3,500
Total current assets		17,994			22,406
LONG TERM ASSETS:
Property and equipment, net of accumulated depreciation of $2,866 and $6,209		1,829			957
Security deposits, net of current portion		404			538
Internal use software, net of accumulated amortization of $1,354 and $1,079		2,925			1,838
Other assets		4			2
Total long term assets		5,162			3,335
TOTAL ASSETS	$	23,156		$	25,741
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,158		$	2,220
Accrued expenses		1,187			1,335
Obligations under capital leases, current portion		120			113
Unearned revenue, current portion		8,689			9,096
Deferred rent, current portion		30			3
Total current liabilities		11,184			12,767
LONG TERM LIABILITIES:
Obligations under capital leases, net of current portion		27			89
Unearned revenue, net of current portion		168			342
Deferred rent, net of current portion		665			279
Total long term liabilities		860			710
TOTAL LIABILITIES		12,044			13,477
COMMITMENTS AND CONTINGENCIES (Note 11)
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; 8,243,746 and 8,224,383 shares issued; and 8,235,665 and 8,207,465 outstanding		1			1
Treasury stock, at cost: 8,081 and 16,918 shares		(40	)		(83	)
Additional paid in capital		351,769			351,268
Accumulated deficit		(340,618	)		(338,922	)
Total stockholders’ equity		11,112			12,264
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	23,156		$	25,741

See accompanying notes to the unaudited condensed consolidated financial statements.

1

Onvia, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
	(Unaudited)						(Unaudited)
	(In thousands, except per share data)						(In thousands, except per share data)
Revenue
Subscription	$	4,359		$	4,402		$	8,903		$	8,594
Content license		568			674			1,093			1,246
Management information reports		94			36			316			61
Other		97			60			153			124
Total revenue		5,118			5,172			10,465			10,025
Cost of revenue		1,125			939			2,161			1,771
Gross margin		3,993			4,233			8,304			8,254
Operating expenses:
Sales and marketing		3,062			2,784			5,785			5,865
Technology and development		980			1,132			2,093			2,367
General and administrative		1,339			930			2,433			1,888
Total operating expenses		5,381			4,846			10,311			10,120
Loss from operations		(1,388	)		(613	)		(2,007	)		(1,866	)
Interest and other income, net		136			255			311			497
Net loss	$	(1,252	)	$	(358	)	$	(1,696	)	$	(1,369	)
Unrealized loss on available-for-sale securities		-			(6	)		-			(5	)
Comprehensive loss	$	(1,252	)	$	(364	)	$	(1,696	)	$	(1,374	)
Basic and diluted net loss per common share	$	(0.15	)	$	(0.04	)	$	(0.21	)	$	(0.17	)
Basic and diluted weighted average shares outstanding		8,230			8,038			8,221			8,013

See accompanying notes to the unaudited condensed consolidated financial statements.

2

Onvia, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Six Months Ended June 30,
	2008			2007
	(Unaudited)
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,696	)	$	(1,369	)
Adjustments to reconcile net loss to net cash (used in) / provided by operating activities:
Depreciation and amortization		702			599
Loss on abandoned assets		97			-
Loss on sale of property and equipment		-			7
Stock-based compensation		428			453
Change in operating assets and liabilities:
Accounts receivable		241			(116	)
Prepaid expenses and other current assets		(97	)		(59	)
Other assets		10			1
Accounts payable		(1,062	)		199
Accrued expenses		(138	)		87
Idle lease accrual		-			(594	)
Unearned revenue		(581	)		1,342
Deferred rent		413			(14	)
Net cash (used in) / provided by operating activities		(1,683	)		536
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		(1,267	)		(50	)
Proceeds from sales of property and equipment		3			-
Additions to internal use software		(1,494	)		(153	)
Purchases of investments		-			(6,279	)
Maturities of investments		-			3,609
Return of security deposits		3,500			-
Reimbursable tenant improvements		2,415			-
Net cash provided by / (used in) investing activities		3,157			(2,873	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations		(55	)		(6	)
Proceeds from exercise of stock options and purchases under employee stock purchase plan		94			394
Net cash provided by financing activities		39			388
Net increase / (decrease) in cash and cash equivalents		1,513			(1,949	)
Cash and cash equivalents, beginning of period		14,301			8,430
Cash and cash equivalents, end of period	$	15,814		$	6,481
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Unrealized loss on available-for-sale investments	$	-		$	(5	)
Issuance of treasury stock for 401K matching contribution		(69	)		(83	)
Purchases under capital lease obligations		-			(250	)

See accompanying notes to the unaudited condensed consolidated financial statements.

3

Onvia, Inc.

Notes To Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Onvia, Inc. and its wholly owned subsidiary, collectively referred to as "Onvia" or “the Company.” There was no business activity in the subsidiary in the three or six month periods ended June 30, 2008 or 2007.  The unaudited interim condensed consolidated financial statements and related notes thereto have been prepared pursuant to accounting principles generally accepted in the United States of America, or GAAP, and the rules and regulations of the Securities and Exchange Commission, or SEC.  Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. The accompanying interim condensed consolidated financial statements and related notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2007 Annual Report on Form 10-K.

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

2. Use of Estimates

The preparation of financial statements in conformity with 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 and the allowance for doubtful accounts.  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.

3. Stock-Based Compensation and Stock Option Activity

The impact on Onvia’s results of operations of recording stock-based compensation was as follows for the periods presented (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2008		2007		2008		2007
Cost of sales	$	4	$	5	$	12	$	9
Sales and marketing		80		88		147		177
Technology and development		57		19		106		34
General and administrative		73		114		163		233
Total stock-based compensation	$	214	$	226	$	428	$	453

Since Onvia has a full valuation allowance for its deferred tax assets, there was no impact to its cash flows related to excess tax benefits associated with the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R, Share-Based Payment.

4

Valuation Assumptions

Stock Options

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 each respective period:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2008			2007			2008			2007
Risk-free interest rate		3.36	%		4.94	%		2.88	%		4.61	%
Expected volatility		38	%		41	%		40	%		45	%
Dividends		0	%		0	%		0	%		0	%
Expected life (in years)		4.7			4.2			5.0			4.5

Employee Stock Purchase Plan (“ESPP”)

The fair value of each employee purchase under Onvia’s 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 the purchase periods beginning during the three and six months ended June 30, 2008 and 2007:

	Three and Six Months Ended
	June 30,
	2008			2007
Risk-free interest rate		1.86	%		4.98	%
Expected volatility		28	%		28	%
Dividends		0	%		0	%
Expected life (in years)		0.5			0.5

Stock Option Activity

The following table summarizes activity under Onvia’s equity incentive plans for the three and six months ended June 30, 2008:

	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (1)
Total options outstanding at January 1, 2008		1,847,563		$	8.55
Options granted		95,000			9.35
Options exercised		(2,778	)		3.46
Options forfeited and cancelled		(3,317	)		9.49
Total options outstanding at March 31, 2008		1,936,468			8.59
Options granted		40,000			6.32
Options exercised		(835	)		3.86
Options forfeited and cancelled		(29,175	)		7.91
Total options outstanding at June 30, 2008		1,946,458			8.56		6.06	$	1,279,900
Options exercisable at June 30, 2008		1,272,971		$	8.31		5.09	$	1,272,901
Options vested and expected to vest at June 30, 2008		1,815,301		$	8.53		5.93	$	1,278,253

(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 $5.18 at June 30, 2008 for options that were in-the-money at June 30, 2008.  The number of in-the-money options outstanding and exercisable at June 30, 2008 was 592,885 and 566,782, respectively.

5

The weighted average grant date fair value of options granted during the three and six month periods ended June 30, 2008 was $2.10 and $2.40 per option, respectively, compared to $2.45 and $2.34 in the same periods in 2007.

As of June 30, 2008, there was approximately $900,000 of unrecognized compensation cost related to unvested stock options and estimated purchases under the ESPP.  That cost is expected to be recognized over a weighted average period of 1.42 years.

During the three and six months ended June 30, 2008 and 2007, approximately $3,000 and $13,000, respectively, was received for exercises of stock options, compared to $50,000 and $346,000 in the same periods in 2007.

4. Net Loss per Share

Basic net loss per share is calculated by dividing the net loss for the period by the weighted average number of shares of common stock outstanding for the period.  Diluted net loss per share is calculated by dividing the net loss per share by the weighted average number of shares of common stock outstanding for the period plus potentially dilutive common shares using the treasury stock method.  In periods with a net loss, basic and diluted net loss per share are identical because inclusion of potentially dilutive common shares would be antidilutive.

For the three and six month periods ended June 30, 2008 and 2007, options and warrants to purchase approximately 2.0 million and 1.9 million shares, respectively, of common stock are excluded from the calculation because they would have been antidilutive since Onvia was in a net loss position in those periods.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):

	June 30,		December 31,
	2008		2007
Prepaid expenses	$	624	$	511
Interest and other receivable		16		32
Other		6		6
	$	646	$	549

6. Property and Equipment

Property and equipment to be held and used consist of the following (in thousands):

	June 30,			December 31,
	2008			2007
Computer equipment	$	2,508		$	2,757
Software		1,014			1,074
Furniture and fixtures		601			531
Leasehold improvements		572			2,804
Total property and equipment		4,695			7,166
Less accumulated depreciation and amortization		(2,866	)		(6,209	)
Net book value	$	1,829		$	957

6

Property and equipment includes $222,000 of property financed under capitalized leases as of June 30, 2008 and December 31, 2007.

7. Internal Use Software

During the second quarter of 2008, Onvia abandoned $97,000 related to internal use software.  The abandoned assets relate to internal use code that was initially developed to enhance the functionality of existing products and internal workflow.  The Company no longer believes that the code will be compatible with the new platform currently being developed and believes that these costs have no future value to the Company.  The $97,000 abandonment represents the full unamortized value of these assets and is included in operating expenses under the general and administrative category in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2008.

8. Accrued Expenses

Accrued expenses consist of the following (in thousands):

	June 30,		December 31,
	2008		2007
Payroll and related liabilities	$	902	$	1,143
Accrued professional fees		54		112
State income and other taxes payable		231		80
	$	1,187	$	1,335

State income and other taxes payable at June 30, 2008 includes $167,000 for sales taxes owed to the state of Texas.  Onvia had outside sales representatives located in Texas during 2001 to 2003 and again from 2004 to 2006, creating nexus for Onvia in that state during these periods.  Onvia did not collect sales tax from its clients during this time, because it believed its services were proprietary and, thus, not subject to sales tax.  Onvia received a determination letter from Texas in May 2008 indicating that its services were taxable in Texas.

After receiving the determination letter, Onvia calculated the sales tax exposure for Texas clients and believes its maximum sales tax exposure is $167,000.  While Onvia will take reasonable measures to collect sales taxes from its affected clients to reduce its obligation to the state, the Company has accrued the entire amount of the assessment, which is included in the general and administrative category in Onvia’s Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2008.

9. Interest and Other Income, net

Net interest and other income consist of the following for the periods presented (in thousands):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2008			2007		2008			2007
Interest income	$	138		$	254	$	318		$	502
Interest expense		(6	)		-		(12	)
Other income / (expense)		4			1		5			(5	)
	$	136		$	255	$	311		$	497

10. New Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position, or FSP, EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This FSP is effective for fiscal years beginning after December 15, 2008. This FSP classifies unvested share-based payment grants containing non-forfeitable rights to dividends as participating securities that will be included in the computation of earnings per share. As of June 30, 2008, Onvia had no unvested share-based payment grants with non-forfeitable dividend rights. Onvia will adopt FSP EITF 03-6-1 on January 1, 2009, but does not expect the adoption of this FSP to have a material impact on its financial position, cash flows or results of operations.

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets, or FSP 142-3.  FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets.  This FSP is effective for financial statements issued for fiscal years or interim periods beginning after December 15, 2008.  Onvia does not currently hold any intangible assets that would be affected by this FSP and, as such, the adoption of this FSP is not expected to have a material impact on its financial position, cash flows or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement 133, or FAS 161.  This Statement changes the disclosure requirements for derivative instruments and hedging activities.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  Onvia does not currently hold any derivative instruments and is not involved in any hedging activities at June 30, 2008 and, as such, the adoption of this Statement is not expected to have a material impact on its financial position or results of operations.

In December 2007, the FASB issued SFAS No. 160, Non-Controlling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51, or FAS 160.  FAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  The Statement clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported separately as equity in the consolidated financial statements.  This statement is effective for fiscal years beginning after December 15, 2008 and, therefore, will be effective for Onvia beginning in 2009.  Onvia does not currently have any minority interests and, as such, the adoption of FAS 160 is not expected to have a material impact on the Company’s financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or FAS 159. FAS 159 permits entities to choose to measure selected financial instruments and certain other items at fair value that are not currently required or permitted to be measured at fair value. This Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective no later than fiscal years beginning on or after November 15, 2007 and, therefore, was adopted in January 2008. Adoption of this statement did not have a material impact on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or FAS 157.  This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  This Statement does

7

not require any new fair value measurements.  This Statement is effective for fiscal years beginning after November 15, 2007 and, therefore, was adopted in January 2008.  In February 2008, the FASB issued FSP 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. Adoption of FAS 157 with respect to financial assets and liabilities did not have a material impact on the Company’s financial position or results of operations.  The Company has not yet determined the impact of adoption of FAS 157 with respect to non-financial assets and liabilities.

In February 2008, the FASB issued FSP 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13.  FSP 157-1 amends FAS 157 to exclude SFAS No. 13, Accounting for Leases, or FAS 13, and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under FAS 13.  This FSP is effective upon initial adoption of FAS 157. Adoption of this FSP did not have a material impact on the Company’s financial position or results of operations.

11. Commitments and Contingencies

Operating Leases

Onvia was released from its non-cancellable operating lease on its former corporate headquarters building effective January 11, 2008.  Onvia has a new non-cancellable operating lease for its current office space, which expires in October 2015.  Rent is abated for the first nine months of the new office lease; however, rent expense is being recognized on a straight-line basis over the term of the lease.  Onvia also has a non-cancellable operating lease for office equipment. The lease for office equipment expires in January 2010.

As of June 30, 2008, remaining future minimum lease payments required on non-cancellable operating leases are as follows for the years ending December 31 (in thousands):

	Real Estate		Other		Total
	Operating Leases		Operating Leases		Operating Leases
Remainder of 2008	$	152	$	10	$	162
2009		1,002		19		1,021
2010		1,032		-		1,032
2011		1,062		-		1,062
2012		1,093		-		1,093
Thereafter		3,279		-		3,279
	$	7,620	$	29	$	7,649

Capital Leases

In June 2007, Onvia entered into non-cancellable capital leases for server equipment and maintenance related to this equipment.  Remaining future minimum lease payments required on these capital leases are as follows for the years ending December 31 (in thousands):

	Capital Leases
	Principal		Interest		Total
Remainder of 2008	$	58	$	9	$	67
2009		82		6		88
2010		6		1		7
	$	146	$	16	$	162

8

Purchase Obligations

Onvia has non-cancellable purchase obligations for marketing services, co-location hosting arrangements, software development and licensing agreements and third party content agreements. The current agreements expire in dates ranging from 2007 to 2010.

Remaining future required payments under these non-cancellable agreements are as follows for the years ending December 31 (in thousands):

	Purchase
	Obligations
Remainder of 2008	$	857
2009		563
2010		407
	$	1,827

Legal Proceedings

Class Action Securities Litigation

In 2001, five securities class action suits were filed against Onvia, certain former executive officers, and the lead underwriter of Onvia’s Initial Public Offering, or IPO, Credit Suisse First Boston, or CSFB.  The suits were filed in the U.S. District Court for the Southern District of New York on behalf of all persons who acquired securities of Onvia between March 1, 2000 and December 6, 2000.  In 2002, a consolidated complaint was filed.  The complaint charged defendants with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5 promulgated thereunder) and Sections 11 and 15 of the Securities Act of 1933, for issuing a Registration Statement and Prospectus that failed to disclose and contained false and misleading statements regarding certain commissions purported to have been received by the underwriters, and other purported underwriter practices in connection with their allocation of shares in the offering.  The complaint sought an undisclosed amount of damages, as well as attorneys’ fees.  This action is being coordinated with approximately 300 other nearly identical actions filed against other companies.

On December 5, 2006, the Court of Appeals for the Second Circuit vacated a decision by the district court granting class certification in six of the coordinated cases, which are intended to serve as test, or “focus,” cases.  The plaintiffs selected these six cases, which do not include Onvia.  On April 6, 2007, the Second Circuit denied a petition for rehearing filed by the plaintiffs, but noted that the plaintiffs could ask the district court to certify more narrow classes than those that were rejected.  On August 14, 2007, the plaintiffs filed amended complaints in the six focus cases. The amended complaints include a number of changes, such as changes to the definition of the purported class of investors and the elimination of the individual defendants as defendants. On September 27, 2007, the plaintiffs moved to certify classes in the six focus cases.  The six focus case issuers and the underwriters named as defendants in the focus cases filed motions to dismiss the amended complaints against them.  On March 26, 2008, the District Court dismissed the Section 11 claims of those members of the putative classes in the focus cases who sold their securities for a price in excess of the initial offering price and those who purchased outside the previously certified class period.  With respect to all other claims, the motions to dismiss were denied.  The Company is awaiting a decision from the Court on the class certification motion.

Due to the inherent uncertainties of litigation, the Company cannot accurately predict the ultimate outcome of this matter.   If Onvia is found liable, Onvia’s management is unable to estimate or predict the potential damages that might be awarded, whether such damages would be greater than Onvia’s insurance coverage, and whether such damages would have a material impact on its results of operations or financial condition in any future period.

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On October 2, 2007, Vanessa Simmonds, a purported stockholder of the Company, filed suit in the U.S. District Court for the Western District of Washington against Credit Suisse Group, JPMorgan Chase & Co. and Bank of America Corporation, the lead underwriters of the Company's IPO in March 2000, alleging violations of Section 16(b) of the Securities Exchange Act of 1934.  The complaint alleges that the combined number of shares of the Company's common stock beneficially owned by the lead underwriters and certain unnamed officers, directors, and principal stockholders exceeded ten percent of its outstanding common stock from the date of the Company's IPO on March 2, 2000, through at least February 28, 2001.  It further alleges that those entities and individuals were thus subject to the reporting requirements of Section 16(a) and the short-swing trading prohibition of Section 16(b), and failed to comply with those provisions.  The complaint seeks to recover from the lead underwriters any "short-swing profits" obtained by them in violation of Section 16(b).  The Company was named as a nominal defendant in the action, but has no liability for the asserted claims.  No directors or officers of the Company are named as defendants in this action.  On October 29, 2007, the case was reassigned to Judge James L. Robart along with fifty-four other Section 16(b) cases seeking recovery of short-swing profits from underwriters in connection with various IPOs.  On February 25, 2008, Ms. Simmonds filed an Amended Complaint asserting substantially similar claims as those set forth in the initial complaint.  The Company waived service.  On July 25, 2008, the Company joined with 29 other issuers to file the Issuer Defendants' Joint Motion to Dismiss.  Plaintiff's opposition is due by September 8, 2008, and issuers' replies in support are due by October 23, 2008.  The Judge has stayed discovery pursuant to the Private Securities Litigation Reform Act, or PSLRA, until he rules on all motions to dismiss. Onvia believes that the outcome of this litigation will not have a material adverse impact on its consolidated financial position and results of operations.

Potential Future Litigation

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

12. Provision for Income Taxes

Onvia has incurred net operating losses, or NOLs, from its inception through June 30, 2008, with the exception of the third quarter of 2007.  Because of this history of net operating losses Onvia does not currently believe that the future realization of the tax benefit associated with these NOL carryforwards is more likely than not; therefore, Onvia has recorded a valuation allowance for the full amount of its net deferred tax assets.  Onvia will continue to evaluate the likelihood that these tax benefits may be realized, and may reverse all or a portion of its valuation allowance in the future if it is determined that realization of these benefits is more likely than not.

Utilization of the NOL carryforwards to offset future taxable income and tax, respectively, may be subject to a substantial annual limitation due to ownership change limitations that may have occurred previously or that could occur in the future provided by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). 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.

13. Security Deposits

Pursuant to Onvia’s lease for its current corporate office space, Onvia provided a security deposit of $538,000, which will be reduced annually on a straight-line basis over a four year period beginning with the first anniversary of the commencement date of the lease.

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

FORWARD-LOOKING INFORMATION

Forward-looking information contained in this Report is subject to risk and uncertainty.

We have made forward-looking statements in this Report, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations.  We have tried, wherever possible, to identify such statements by using words such as “believes,” “anticipates,” “may,” “will,” “should,” “expects,” “plans,” “estimates,” “predicts,” “potential,” “continue,” “intends” and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans and prospects.  We believe it is important to communicate our expectations to investors.  However, there may be events in the future we are not able to predict accurately or that we do not fully control, which could cause actual results to differ materially from those expressed or implied by our forward-looking statements, including changes in general economic and business conditions, changes in the information and internet services industries, and changes in our business strategies.   Readers should bear this in mind as they consider forward-looking statements.  Additional information that may impact these forward-looking statements is included in “Part II - Item 1A - Risk Factors” and elsewhere in this Report, and in “Part I – Item 1A – Risk Factors” in our 2007 Annual Report on Form 10-K.  We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.  Readers are advised, however, to consult any further disclosures we make on related subjects in reports we file from time to time with the Securities and Exchange Commission, or SEC.

In this Report, the words “we,” “our,” “us,” “Onvia,” or the “Company” refer to Onvia, Inc. and its wholly owned subsidiary.

Company Overview

Onvia is a leading provider of business solutions that help companies plan, market and sell to targeted markets throughout the United States, or U.S.  We have developed a unique process for collecting and organizing transactional information, which we convert into actionable market intelligence.  We believe our business solutions provide our clients with a distinct competitive advantage.

Many companies react to business opportunities instead of proactively and intelligently pursuing the best prospects for their products and services.  Our business solutions help clients more effectively target federal, state, local and educational purchasing entities, and as of February 2008, our solutions include in-depth analysis on early stage commercial and residential infrastructure projects.  Our business solutions allow clients to track their competitors, analyze market trends, and identify new market opportunities to stay ahead of market changes.  Our clients can leverage our database to identify prospects, establish alerts for upcoming contracting opportunities, review history on public and private infrastructure projects, and research government agencies and private sector businesses to effectively establish and maintain lucrative business relationships.

Our proprietary database, Onvia Dominion®, has been compiled over the last ten years, and includes comprehensive, historical and real-time information on public and private infrastructure activities unavailable elsewhere in the marketplace.  Public sector information within the Onvia Dominion® database is classified and linked within four key hubs of data: project history, agency research, buyer research and competitive intelligence.  Our database provides information on approximately 5 million procurement related records connected to over 275,000 companies from across approximately 78,000 government agencies and purchasing offices nationwide.  Thousands of records are added to our database each day.  Private sector data includes over 110,000 current and historical opportunities covering activity within the top 85 U.S. markets, and comprehensive information on tens of thousands of companies, including architects, developers, owners and land use attorneys.  The data collected covers high demand land use planning details, including zoning changes, development type, proposed use and key contacts for each

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project.  We also provide contact information for over 24,000 planning and zoning officials.  Information in our database has been collected, formatted and classified by an in-house team of researchers and third-party providers so that our clients are able to quickly find and analyze information relevant to their businesses.

Historically, comprehensive market intelligence was only available to large companies with the resources to perform the research and store the data themselves, or companies that could afford to hire outside firms to perform the research for them.  Advances in technology, broad use of the Internet by government agencies, and the diligent work of our research team to collect and classify this information have enabled us to make the same high-value sales intelligence affordable to businesses of all sizes.

Our revenues are currently generated from three main business channels: client subscriptions, content licenses, and management information reports.  Contracts for our subscription-based services are typically prepaid, have a minimum term of one year and revenues are recognized ratably over the term of the subscription.  Subscriptions are priced based upon the geographic range, nature of content purchased and, with respect to certain products, the number of users or number of records purchased.

Revenue from content licenses is generated from clients who resell our business intelligence data to their customers.  Content license contracts are generally multi-year arrangements that are invoiced on a monthly or quarterly basis, and these agreements typically have a higher annual contract value than our subscription-based services.  Revenue from content license agreements is recognized ratably over the term of the agreement.

Revenue from fees charged for management information reports is recognized upon delivery of the report to the client.  Pricing for management information reports is generally based on one or a combination of the following: the number of records included in the report; the geographic range of the report; or a flat fee based on the type of report.  We also generate revenue from document download services and list rental services, and these fees are recognized upon delivery.

Onvia was incorporated in January 2000 in the state of Delaware.  Our principal corporate office is located in Seattle, Washington.  Our common stock trades on the NASDAQ Global Market under the symbol ONVI.

Industry Background

The infrastructure marketplace, defined as the industries supported by public and private construction projects and facilities maintenance, spends over $1 trillion annually on new projects and in support of new and existing facilities.  Over 3.4 million businesses compete for opportunities within this highly competitive marketplace and identifying qualified business partners and prospects is essential to a company’s success.  Identifying relevant infrastructure projects and partners can be difficult and companies spend a substantial amount of time and effort to locate and research new partners and opportunities to grow their businesses.  The Internet provides short-term visibility into government and private sector contracting information for both government agencies and businesses alike, but does not provide the on-demand intelligence required to guide strategic decisions.

Even after a new business opportunity is identified, many companies do not have enough information about the project to prequalify the opportunity, such as decision maker information, the purchasing history of the government agency or project owner, and who competes for similar projects.  This information is useful not only for companies contracting directly with the project owner, but also for subcontractors that would like to compete for work on awarded contracts.  This information is rarely available from one source, and may not be available at all for historical projects.

Success in the private commercial and residential construction marketplace is largely based upon strong business relationships and corporate positioning.  Development projects must be identified early in the planning and zoning process for a contractor or architect to be considered for the engagement.  Business relationships are essential for some specialties, such as environmental engineers, who may need to identify projects before presentation to the zoning and planning board.  Strong segment contacts are the primary

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way for companies to identify private sector projects at the very earliest stage.  Companies competing in this market need to understand who the key decision makers are within their segment and geographic footprint to ensure that they are properly positioned to win future opportunities.

Public sector opportunities are difficult to prequalify for most businesses.  Often, revenue opportunities are included within the specification documents behind the request for proposal, or RFP, and request for quote, or RFQ, documents.  Without tools to quickly identify the pertinent information, businesses must read the entire documents to determine if there are opportunities relevant to their business.  Our comprehensive database contains much of this information on both a historical and real-time basis and thousands of records are added to our database each day.  Much of the information in our database is linked, so clients can quickly research information relevant to a particular project in one centralized location.  Clients can also perform customized searches on both the public record and within the project specification documents to identify relevant opportunities using any number of variables, such as publication date, geographic location and contract value, among others.  Using our database and tools, our clients spend less time on research and more time preparing winning proposals, establishing relationships, and executing contracts.

Products and Services

Our products and services provide access to our proprietary Dominion® database of project specific information and provide clients specialized tools for analyzing information relevant to their business.  We expect to continue to expand our content and develop new database analysis and access tools to meet the needs of our existing clients as well as potential new categories of clients.

We leverage technology, tools and business processes to research, classify and publish actionable public and private sector opportunities from public and private sources. Through an automated process, we link related records within our database, prequalify business opportunities for our clients based upon the client’s profile, and provide access to the information in a timely manner, generally within 24 hours of their public release. Our database contains information on the largest industry verticals, with a focus on the infrastructure verticals, which include:

· Architecture and Engineering

· Construction and Building Supplies

· IT / Telecommunications

· Business Consulting Services

· Operations and Maintenance Services

· Transportation Equipment

Within these verticals we also provide hard to find content, which creates a comprehensive view of a project throughout the most critical phases of the procurement lifecycle. These transactional records include:

· Advance Notice – alerts businesses of projects in the early stages of the development process, before the bid or RFP is released in its final form, or before final zoning and planning board approval;

· RFPs, RFQs, and related amendments;

· Planholders and Bidders Lists – provides competitive intelligence by presenting a list of competitors that have acquired plans, specifications, bidding documents and/or proposals for specific projects in the active bid or proposal stage, and a list of competitors who submit bids for prime contracts with the owner of the project;

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· Bid Results and Awards Information – notifies businesses of awarded bids, providing valuable information for use in their own sales and marketing activities; and

· Grants – supplies federal grant information critical to anyone tracking or applying for publicly-funded projects.

Onvia’s public and private sector solutions are two distinct service offerings, but when used together, the combined information provides a comprehensive view of the infrastructure marketplace.

Onvia’s business solutions are comprised of the following products:

Onvia Business Builder

Onvia Business Builder is our most comprehensive public sector product and is intended to enable businesses of all sizes to compete more effectively in the government procurement marketplace.  This product leverages Onvia’s proprietary database of historical information gathered from local, state and federal government agencies and education entities to help clients evaluate and respond to new bid requests and RFPs with more competitive responses by allowing them to easily research competitor and buyer information.

Subscribers to Onvia Business Builder receive customized daily email notifications about relevant business opportunities focused on the verticals described above and associated around four key data hubs; project history, agency research, agency buyer research, and competitor research.   The association of each record makes it possible to evaluate purchasing trends by agency and by agency buyer and identify or evaluate potential competitors.

Project History

Project History tracks and provides information through a project’s life cycle, including advance notice information, planholder/bidder lists and bid results. This information offers competitive intelligence as well as leads on potential subcontracting opportunities.

Agency Research

Agency Research offers historical research into government agencies, including procurement archives, decision maker contact lists and purchasing contact lists.  This intelligence provides insight into purchasing trends within each agency and allows clients to tailor bids and proposals for each sales opportunity.

Buyer Research

Buyer Research provides clients with a more comprehensive view of their potential client, including their areas of expertise and past relationships with other vendors.  This information enables clients to effectively target their sales activity and manage relationships with government purchasers.

Competitor Research

Competitor Research is a public sector activity archive that informs clients about where their competitors have won work and provides detailed product and price information that enables clients to conduct competitive analysis prior to submitting bids and proposals.

Onvia Business Builder provides information necessary to qualify opportunities, improve decision making, prepare tailored bids, and manage agency relationships, all of which should improve the success rates of our clients.

Onvia Navigator

Onvia Navigator is our database research tool, which allows clients to easily identify market opportunities within our proprietary database and search the contents of the related specification documents. Onvia Navigator enables users to focus their research in many ways, including by procurement types, submittal dates, contract locations, agencies and contract values. Once the desired results are identified using Onvia Navigator, clients can employ Onvia Business Builder to provide detailed information on the search results.

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The Onvia Guide

Onvia Guide subscribers receive the same customized daily email notifications about relevant business opportunities that subscribers to the Onvia Business Builder product receive, without the user interface to research information in our database.  This product is an affordable entry level option for our clients.

Onvia Planning and Construction

In February 2008, Onvia expanded its business solutions to include information on the commercial and residential development market.  Onvia Planning and Construction provides early stage project information on commercial and residential development projects.  This market intelligence solution is comprehensive, covering the top 85 metropolitan areas within the U.S.  Our database of over 110,000 commercial and residential records provides a detailed overview of the commercial and residential marketplace.  This market intelligence can be leveraged to identify business expansion opportunities and growth markets, evaluate overall market conditions, forecast demand for specific products and services, and align personnel and resources with future opportunities.  At the tactical level, Onvia Planning and Construction helps companies identify upcoming projects and sales opportunities by monitoring land use planning and zoning information.  New and updated land use activities can be tracked with daily customized alerts delivered directly to our clients’ inbox.  Clients can research projects and the companies associated with each project, and track permit approval and project status as the engagement progresses.  The company and project information can be used to build relationships with corporate decision makers and planning officials to be in a good position to act upon future opportunities.

Management Information Reports

In addition to our subscription services, we also offer a number of custom market information reports. These reports are generally one-time deliverables and revenue is recognized upon delivery.

· Term Contracts – The Term Contract report contains actionable sales information on term or continuing service contracts at public agencies coming up for renewal.  With this report clients know what contracts exist, when they are coming up for renewal, who the incumbent is and who the buyers are, allowing them to perform an early evaluation of the opportunity so they can be more competitive with their proposals to increase their public sector business.

· Contact Lists – Provide our clients a comprehensive list of decision makers, agency procurement officers and zoning officials that can be used to develop relationships and identify potential business partners.

· Market Opportunity Reports – Provides vital market intelligence needed for strategic planning and marketing, such as:

o Year-over-year growth rates by market or category to help understand buying trends;

o Market growth rates to assist in business planning;

o Distribution of state and local opportunities by sales territory to help allocate resources;

o Competitive analysis; and

o Seasonality and buying trends.

· Winning Proposals Library – Compare and contrast winning proposals submitted by competing firms in order to gain valuable competitive insights.  Provides insight into how other companies position their qualifications and personnel, structure and format persuasive proposals, incorporate supporting materials, price goods and services, and differentiate themselves from their competitors.

Executive Summary of Operations and Financial Position

For the quarter ended June 30, 2008, revenue was slightly down at $5.1 million compared to $5.2 million in the second quarter of 2007, a decrease of 1%.  For the six months ended June 30, 2008, revenue was $10.5 million, compared to $10.0 million in the same period in 2007, representing an increase of 4%.  For the six months ended June 30, 2008, year-over-year revenue growth slowed to 4%, compared to 26% year-over-year growth in the same period in 2007 compared to 2006.  Because we recognize revenue ratably over the

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term of a subscription, current period sales impact GAAP revenue over the following twelve months.  The declining revenue growth rate is the result of weakness in our business during the latter part of 2007 and the first quarter of 2008.  The weakness we experienced was partly attributable to a planned change in focus of our sales organization, partly attributable to execution issues that we believe we have addressed over the past 6 months, and partly attributable to economic challenges facing a portion of our client base.

At the end of 2007, we changed the focus of our sales organization by significantly reducing our historic practice of offering early renewal opportunities to our clients.  These early renewals were often executed with a modest incentive, and were generally accepted by clients who were the most satisfied and were likely to renew anyway.  This change in focus allows our sales force to allocate more time to advise clients on the full suite of Onvia’s services, thereby creating up-sell and cross-sell opportunities.  We believe these changes will maximize the economic value of our existing customer base over the long term.  In the short-term, we underestimated the disruptive impact of this transition on revenue and client retention rates.  As a result of the ratable recognition of revenue, the effect of this change will continue to impact our results of operations for the next few quarters.

The execution issues mentioned above relate to the transfer of our first year clients to new account managers in the first quarter of 2008, which impacted our second quarter revenue growth.  This change was necessary to implement an enhanced on-boarding process for new clients, which we expect will improve first year client retention rates in the future.  This transfer of accounts was not smoothly executed and continues to negatively impact our first year client retention rates.  To address this, we have developed health scores for all of our clients, and the scores for our new clients indicate that our first year client retention should begin to noticeably improve toward the end of the third quarter of 2008.

We also believe our revenue growth has been affected by the increasing impact of the weak economy on a portion of our client and prospect base.  The majority of our clients and prospects are in the segments hardest hit by the economic slowdown; predominantly small to medium sized business in industries impacted by the soft construction market, including architects, engineers and construction companies.  While it’s difficult to estimate the impact of the weak economy on our business, we believe that new client acquisition and client retention has been slowed by the current economic environment.

Our net loss increased to $1.3 million, or $0.15 per share, in the second quarter of 2008 compared to a net loss of $358,000, or $0.04 per share, in the second quarter of 2007.  For the six month periods, net loss was $1.7 million, or $0.21 per share, in 2008, compared to $1.4 million, or $0.17 per share, in 2007.  We recognized charges totaling $264,000 during the second quarter of 2008 related to a sales tax assessment and abandonment of internal use software, which contributed to the increase in our net loss.  We also increased the size of our acquisition sales force to accelerate new client acquisition and incurred higher third party content costs in the first half of 2008 as a result of the launch of Onvia Planning and Construction.  These factors, combined with the decline in revenue discussed above, resulted in the increased net loss.

The above mentioned actions taken in the first half of 2008 have begun to have a positive impact.  The best evidence of this is demonstrated by a 4% sequential increase in Annual Contract Value in the second quarter of 2008 following three consecutive quarters of no increase. Annual contract value represents the aggregate subscription value of all of our active clients.   Additionally, the number of High Value Clients and Total Clients remained stable for the first time in over a year.

We evaluate the following four key operating metrics, among others, to assist in the evaluation of our operating performance, and believe these metrics provide a means to compare our business with other businesses in the information industry.

Annual Contract Value (“ACV”)

Annual contract value is the aggregate annual revenue value of our client base.  Growth in ACV demonstrates our success in increasing the number of high value clients and upgrading existing

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clients to new and higher valued products.  At June 30, 2008, ACV was $18.2 million, up 6% compared to $17.2 million at June 30, 2007 and up 4% compared to $17.5 million at March 31, 2008.

Number of Clients

Number of clients represents the number of individual businesses subscribing to our products.  At June 30, 2008 we had approximately 8,100 clients, down 10% from approximately 9,000 at June 30, 2007 and flat compared to 8,100 at March 31, 2008.  At June 30, 2008, high value clients, or clients subscribing at the state level or above, totaled 7,500, down 6% compared to 8,000 at June 30, 2007 and flat compared to 7,500 at March 31, 2008.  The second quarter of 2008 represents the first time in over a year that high value and total client counts have remained stable.

Annual Contract Value per Client (“ACVC”)

Annual contract value per client is the annual contract value divided by the number of clients and indicates the average value of each of our subscriptions.  At June 30, 2008, ACVC was $2,242, an increase of 17% compared to $1,920 at June 30, 2007.

Quarterly Contract Value per Client (“QCVC”)

Quarterly contract value per client represents the average annual contract value of all new and renewing clients transacting during the quarter and is a leading indicator of future annual contract value per client.  In the second quarter of 2008, QCVC was $2,393, an increase of 16% compared to $2,067 in the second quarter of 2007.

Seasonality

Our customer acquisition business is subject to some seasonal fluctuations.  The third quarter is generally our slowest quarter for customer acquisition.  The construction industry is our single largest market and these prospects are typically engaged on projects during the summer months, not prospecting for new work, which causes customer acquisition to decline compared to the remaining quarters in the year.  For this reason, it may not be possible to compare the performance of our business quarter to consecutive quarter, and our quarterly results 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.

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Results of Operations for the Three and Six Months Ended June 30, 2008 Compared to the Three and Six Months Ended June 30, 2007

The following table provides selected consolidated results of operations for the periods presented as a percentage of total revenue:

		Three Months Ended June 30,						Six Months Ended June 30,
		2008			2007			2008			2007
Revenue:
Subscription			85	%		85	%		85	%		86	%
Content license			11	%		13	%		11	%		12	%
Management information reports			2	%		1	%		3	%		1	%
Other			2	%		1	%		1	%		1	%
Total revenue			100	%		100	%		100	%		100	%
Cost of revenue			22	%		18	%		21	%		18	%
	��
Gross margin			78	%		82	%		79	%		82	%
Operating expenses:
Sales and marketing			60	%		54	%		55	%		58	%
Technology and development			19	%		22	%		20	%		24	%
General and administrative			26	%		18	%		23	%		19	%
Total operating expenses			105	%		94	%		98	%		101	%
Loss from operations			(27	%)		(12	%)		(19	%)		(19	%)
Interest and other income, net			3	%		5	%		3	%		5	%
Net loss			(24	%)		(7	%)		(16	%)		(14	%)

Revenue and Cost of Revenue

Revenue for the three and six months ended June 30, 2008 was $5.1 million and $10.5 million, respectively, compared to $5.2 million and $10.0 million for the same periods in 2007.  The decline in second quarter 2008 revenue compared to the same quarter in 2007 is the result of weakness in our business during the latter part of 2007 and the first quarter of 2008, which impacted first and second quarter revenue because we recognize revenue ratably over the subscription term of our products.  The reasons for this weakness are described in more detail under the “Executive Summary of Operations and Financial Position” section above.  Revenue for the six months ended June 30, 2008 increased by 4% primarily as a result of strong bookings growth in the first quarter of 2007, which impacted revenue in the first quarter of 2008 because we recognize revenue ratably over the term of our subscriptions, compared to the first quarter of 2006.

Costs of revenues increased to 22% and 21% of revenue for the three and six months ended June 30, 2008, respectively, compared to 18% in both respective periods in 2007.  In total, costs of revenues were $1.1 million and $2.2 million in the three and six month periods in 2008, respectively, compared to $939,000 and $1.8 million for these respective periods in 2007, representing an increase of $186,000, or 20%, for the three month period in 2008 and $390,000, or 22%, for the six month period in 2008.

Our costs of revenues primarily represent payroll-related expenses associated with the research and aggregation of the data in our proprietary database and third party content fees, but also include credit card processing fees. The increase for the comparable three and six month periods was primarily due to increases of $158,000 and $343,000, respectively, in third party content costs as a result of an increase in content requirements for our new Onvia Planning and Construction product.

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Sales and Marketing

Sales and marketing expenses increased in total and as a percentage of revenue to $3.1 million and 60% of revenue in the three months ended June 30, 2008, compared to $2.8 million and 54% in the same period in 2007.  In the six month periods ended June 30, 2008 sales and marketing expenses decreased in total and as a percentage of revenue to $5.8 million and 55% of revenue, compared to $5.9 million and 58% in the same period in 2007.

For the quarter ended June 30, 2008,  sales and marketing expenses increased $278,000, or 10%, compared to the same period in 2007.  The increase is primarily comprised of an increase of $308,000 in payroll-related expenses primarily due to a planned increase in headcount on these teams and increases in base salaries as a result of normal performance based increases.  In addition, commissions were higher in the second quarter of 2008 as a result of increased bookings compared to the same period in 2007.  Allocated expenses increased by $41,000 for this team because of an overall increase in amortization of internal use software and the increased headcount on the team.  Allocated expenses consist of depreciation, amortization and other allocated expenses, which are allocated based on headcount in the respective departments.  Weighted average headcount in our sales and marketing teams was 87 during the three months ended June 30, 2008, compared to 78 in the same period in 2007. These increases were partially offset by a decrease of $108,000 in marketing expenses.  Marketing expenses in the second quarter of 2007 were higher primarily as a result of costs incurred for the development of our website.  Website development costs incurred during the second quarter of 2007 were incurred during the planning stages of the project and costs incurred during this stage are required to be expensed pursuant the guidance in Emerging Issues Task Force, or EITF, Issue No. 00-2, Accounting for Website Development Costs.

For the six months ended June 30, 2008, sales and marketing expenses decreased $79,000, or 1%, compared to the same period in 2007.  The decrease was primarily related to a decrease of $65,000 in marketing expenses for the reason discussed above.  In addition, we saw a $30,000 decrease in non-cash stock-based compensation because of an increase in our estimated forfeiture rate compared to the prior year as a result of an increase in actual forfeitures.  These decreases were partially offset by an increase of $26,000 in payroll related expenses, primarily due to higher headcount on these teams.  Weighted average headcount in our sales and marketing teams was 86 during the six months ended June 30, 2008, compared to 80 in the same period in 2007.

Technology and Development

Technology and development expenses decreased in total and as a percentage of revenue in both the three and six month periods ended June 30, 2008.  For the three months ended June 30, 2008, technology and development expenses were $980,000 and 19% of revenue, compared to $1.1 million and 22% of revenue in the same period in 2007.  In the six months ended June 30, 2008, technology and development expenses were $2.1 million and 20% of revenue, compared to $2.4 million and 24% in the same period in 2007.

For the comparable three month periods, technology and development expenses decreased $152,000, or 13%.  The decrease in expenses is primarily attributed to an increase of $267,000 in the amount of capitalized internal use software development costs, which represent payroll related expenses for this group, during the quarter ended June 30, 2008 compared to the same period in 2007.  Capitalized internal use software development costs were higher in 2008 because of the development of the new Onvia Planning and Construction product and a new technology platform initiative scheduled for release in the fourth quarter of 2008.  This decrease was partially offset by an increase of $49,000 in third-party co-location fees, $37,000 in non-cash stock-based compensation and $19,000 in payroll related expenses.  Co-location fees increased because we moved our web, database and transaction-processing servers to an offsite facility as part of our disaster recovery plan.  Non-cash stock-based compensation expense increased for these teams primarily due to option grants to our new Chief Information Officer, which were granted in July 2007, and other senior technology personnel.  Although headcount on these teams decreased in the three months ended June 30, 2008 compared to the same period in the prior year, average base salaries on the teams increased because we hired more experienced employees to fill the vacated positions, which contributed to the overall increase in payroll related costs.  Weighted average headcount in our technology

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and development teams was 27 during the three and six months ended June 30, 2008, compared to 34 in the same periods in 2007.

For the six months ended June 30, 2008, technology and development expenses decreased $274,000, or 12%.  The decrease is primarily due to an increase of $444,000 in the amount of capitalized internal use software development costs as discussed above.  This decrease was partially offset by increases of $85,000 in third-party co-location fees, $81,000 in non-cash stock-based compensation and $27,000 in payroll related expenses for the reasons discussed above.

General and Administrative

General and administrative expenses increased in total and as a percentage of revenue in both the three and six months ended June 30, 2008.  For the three months ended June 30, 2008, general and administrative expenses were $1.3 million, or 26% of revenue, compared to $930,000, or 18% of revenue, in the same period in 2007.  In the six months ended June 30, 2008, general and administrative expenses were $2.4 million and 23% of revenue, compared to $1.9 million and 19% in the same period in 2007.

For the comparable three month periods, general and administrative expenses increased $409,000, or 44% in 2008 compared to 2007.  The increase is primarily related to two items.  We recognized a $167,000 expense related to an assessment for sales taxes due for the period from 2001 through mid 2006 when we had an outside sales representative domiciled in Texas. We also recorded a write-off of $97,000 in abandoned internal use software.  The expense associated with the Texas sales tax assessment is discussed in more detail below, and the write-off of abandoned internal use software is discussed in more detail under the “Application of Critical Accounting Policies and Management Estimates” section below.  In addition to these two items, we saw an increase of $95,000 in recruiting and relocation fees, primarily associated with the hire of our new Vice President of Marketing and senior technology personnel. We also saw an increase of $30,000 in professional dues and subscriptions, primarily related to subscription fees to market research organizations.  These increases were partially offset by a decrease of $42,000 in non-cash stock-based compensation, primarily due to the increase in our estimated forfeiture rate as discussed above.  Weighted average headcount in this group was 12 in both three months periods.

For the comparable six month periods, general and administrative expenses increased $545,000, or 29%, in 2008 compared to 2007.  The primary contributors to the increase, in addition to the two  expenses totaling $264,000 discussed above, were a $163,000 increase in office relocation expenses incurred during the first quarter of 2008 associated with the move to our new corporate headquarters building in January 2008, and a $137,000 increase in recruiting and relocation fees as discussed above.  We also saw an increase of $42,000 in professional dues and subscriptions as discussed above.  These increases were partially offset by a decrease of $71,000 in non-cash stock based compensation and $40,000 in professional fees.  Professional fees were higher in the six months ended June 30, 2007 because we incurred fees for an evaluation of the overall operating efficiency and effectiveness of our information technology organization.

We had outside sales representatives located in Texas during 2001 to 2003 and again from 2004 to 2006, creating nexus for us in that state during these periods.  We did not collect sales tax from our clients during this time, because we believed our services were proprietary and, thus, not subject to sales tax.  We received a determination letter from Texas in May 2008 indicating that our services were taxable in Texas.

After receiving the determination letter, we calculated the sales tax exposure for Texas clients and believe our maximum sales tax exposure is $167,000.  While we will take reasonable measures to collect sales taxes from our affected clients to reduce our obligation to the state, we have accrued the entire amount of the assessment, which is included in the general and administrative category in our Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2008.

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Interest and Other Income, Net

Net interest and other income was $136,000 and $311,000 for the three and six months ended June 30, 2008, respectively, compared to $255,000 and $497,000, respectively, for the same periods in 2007.  The decreases are primarily attributable to a decrease in short term interest rates in 2008 compared to 2007.  Interest expense was $6,000 and $12,000 in the three and six months ended June 30, 2008, respectively, compared to $0 in the three and six months ended June 30, 2007.  Interest expense relates to capital leases for server equipment.

Net Loss and Net Loss per Share

We reported net losses of $1.3 million and $1.7 million for the three and six months ended June 30, 2008, respectively, compared to net losses of $358,000 and $1.4 million in the same periods in 2007.  The increase in net loss resulted primarily from the increases in operating expenses and cost of revenue as discussed above.  On a per share basis, net losses were $0.15 and $0.21 for the three and six months ended June 30, 2008, respectively, compared to $0.04 and $0.17, respectively, for the same periods in 2007.

Critical Accounting Policies and Management Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or GAAP, requires management 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.

Revenue Recognition

Our revenues are primarily generated from client subscriptions and content licenses.  Our subscriptions are generally annual contracts and revenues are generally prepaid at the beginning of the subscription term. We also offer, on a limited basis, extended multi-year contracts to our subscription clients. Content licenses are generally multi-year agreements and are typically invoiced on a monthly or quarterly basis.  Subscription fees and content licenses are recognized ratably over the term of the agreement. We also generate revenue from fees charged for management information reports, document download services, and list rental services, and revenue from these types of services is recognized upon delivery.

Onvia’s subscription services and management information reports are also sold together as a bundled offering.  Pursuant to the provisions of EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, we allocate revenue from these bundled sales ratably between the subscription services and the management information reports based on their relative fair values, which are consistent with established list prices for those offerings.

Unearned revenue consists of payments received for prepaid subscriptions from our non-enterprise clients whose terms extend into periods beyond the balance sheet date, as well as the invoiced portion of enterprise contracts and content licenses whose terms extend into periods beyond the balance sheet date.

Internal Use Software

We account for the costs to develop or obtain software for internal use in accordance with Statement of Position, or SOP, No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, or SOP 98-1.  As a result, we capitalize qualifying computer software costs incurred during the “application development stage” and other costs as permitted by SOP 98-1.  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.  We capitalized $913,000 and $1.5 million in internal use software costs during the three and six months ended June 30, 2008, respectively, compared to $114,000 and $153,000, respectively, during the same periods in 2007. Capitalized costs during the three and six month periods in 2008 increased significantly compared to the same periods in 2007 as a result of the development of the Onvia Planning and Construction product, the implementation of a new CRM system, and development for the new technology platform initiative.  Amortization related to capitalized software was $181,000 and $310,000 for the three and six months ended June 30, 2008, respectively, compared to $65,000 and $125,000, respectively, in the same periods in 2007.

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During the second quarter of 2008, we abandoned $97,000 related to internal use software.  The abandoned assets relate to internal use code that was initially developed to enhance the functionality of existing products and internal workflow.  We no longer believe that the code will be compatible with the new technology platform currently being developed and we believe these costs have no future value.  The $97,000 abandonment represents the full unamortized value of these assets and is included in operating expenses under the general and administrative category in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2008.

Stock-Based Compensation

We account for stock-based compensation according to the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R, Share-Based Payment, or FAS 123R, which requires measurement of 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 estimation 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 3 of the “Notes to Condensed 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.

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 term of the underlying lease.

The Company periodically evaluates its long-lived assets for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, or FAS 144. FAS 144 requires that an impairment loss 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 our long-lived assets might be impaired, we will analyze the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, we will record 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 property and equipment was impaired during the three or six months ended June 30, 2008 or 2007.

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 bases, 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. A valuation allowance has been established for the full amount of the net deferred tax assets as we have determined that the recognition criteria for realization have not been met.

Utilization of the NOL carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred previously or 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

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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.

We plan to complete a Section 382 analysis regarding ownership changes that may have occurred, but at this time we cannot reasonably estimate whether such a change has occurred.  Any carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance.

We currently have a full valuation allowance for our deferred tax assets as the future realization of the tax benefit is not more likely than not.  Based on information currently available, we do not reasonably believe that the unrecognized tax benefit will change significantly within the next twelve months.

Accounts Receivable and Allowance for Doubtful Accounts

We record accounts receivable for the invoiced portion of our enterprise contracts and content license agreements once we have a signed agreement and amounts are billable under the contract.  We do not record an asset for the unbilled or unearned portion of our enterprise contracts or content licenses.  Accounts receivable are recorded at their net realizable value, after deducting an allowance for doubtful accounts.  Such allowances are determined based on a review of an aging of accounts and reflect either specific accounts or estimates based on historical incurred losses.  If the financial condition of our clients were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, and our ability to recognize sales to certain clients may be affected.

Contractual Obligations

Future required payments under operating leases excluding operating expenses, capital leases including interest, and other purchase obligations as of June 30, 2008 are as follows for the periods specified (in thousands):

	Payments due by period
	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Real estate operating lease obligations	$	7,620	$	652	$	3,142	$	2,252	$	1,574
Purchase obligations (1)		1,827		1,034		781		12		-
Capital lease obligations (2)		162		133		29		-		-
Other operating lease obligations (3)		29		20		9		-		-
Total	$	9,638	$	1,839	$	3,961	$	2,264	$	1,574

 (1) Purchase obligations relate to co-location hosting arrangements, software development and licensing agreements, marketing agreements, telecom agreements and third party content agreements.

(2) Capital lease obligations relate to server equipment and related maintenance agreements.

(3) Other operating lease obligations relate to office equipment leases.

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Liquidity and Capital Resources

Our principal sources of liquidity are cash, cash equivalents and short-term investments.  Our combined cash and cash equivalents were $15.8 million at June 30, 2008, and our working capital was $6.8 million. All of our investments at June 30, 2008 were in money market funds, which are considered cash equivalents; therefore, we did not hold any short-term investments at June 30, 2008.  From December 31, 2007 to June 30, 2008, our cash and cash equivalents increased $1.5 million.  The increase in cash and cash equivalents is primarily due to the return of our $3.5 million security deposit for the lease on our former corporate headquarters and the receipt of $2.4 million in reimbursable tenant improvement costs during the six months ended June 30, 2008.  These increases in cash and cash equivalents were partially offset by $1.3 million in purchases of property and equipment, $1.5 million in additions to internal use software, $842,000 of which was paid to external vendors, and $1.1 million in increased vendor payments primarily for our office relocation, prepaid software licenses and third party content providers.

Although we generated positive cash flow from operations in the first half of 2007 and for the fiscal year of 2007, we did not generate positive cash flow from operations in the first half of 2008, primarily because of increased vendor payments as discussed above and lower cash receipts as planned from the reduced focus on advance renewals.  We may not be able to generate positive cash flow from operations in the future; however, we do expect to generate recurring positive cash flows from operations before we would be required to seek additional financing to fund operations by increasing client retention and acquisition, and increasing our ACV. Until such time as we begin generating recurring positive cash flows from operations, we will utilize our current cash and cash equivalents and current revenues to fund operations.  We expect to increase revenue from current operations by increasing our ACV through a combination of expansion of our product offering and scheduled price increases.

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.

Operating Activities

Net cash used in operating activities was $1.7 million for the six months ended June 30, 2008, compared to net cash provided by operating activities of $536,000 in the same period in the prior year.  The change to net cash used in operating activities from net cash provided by operating activities was primarily attributable to a decrease in cash collected for prepaid subscriptions in the first and second quarters of 2008 compared to the same period in 2007 because of a planned reduction in advance renewals in 2008, and an increase in vendor payments associated with our office relocation in the first quarter of 2008, prepaid software licenses and third party content providers.  We do not expect to incur significant fees associated with our move in future quarters.

Investing Activities

Net cash provided by investing activities was $3.2 million in the six months ended June 30, 2008, compared to net cash used in investing activities of $2.9 million in the same period in 2007.  Net cash provided in the first half of 2008 is primarily attributable to the return of our $3.5 million security deposit on the lease for our former corporate headquarters as a result of the termination of that lease and reimbursement of $2.4 million in reimbursable tenant improvements.  These increases were partially offset by additions to property and equipment and internal use software.  The property and equipment purchases were primarily related to $570,000 in leasehold improvements for our new office building and hardware purchases required for the development of internal use software. We do not expect to incur significant new costs associated with leasehold improvements in future quarters.  Cash used in investing activities in the first half of 2007 was primarily related to purchases of investments.

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Financing Activities

Net cash provided by financing activities was $39,000 and $388,000 in the six months ended June 30, 2008 and 2007, respectively.  The decline in cash provided is primarily due to a reduction in stock option exercises in the first half of 2008 compared to the same period in 2007 and an increase in payments for capital leases.

Recent Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position, or FSP, EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This FSP is effective for fiscal years beginning after December 15, 2008. This FSP classifies unvested share-based payment grants containing non-forfeitable rights to dividends as participating securities that will be included in the computation of earnings per share. As of June 30, 2008, we had no unvested share-based payment grants with non-forfeitable dividend rights. We will adopt FSP EITF 03-6-1 on January 1, 2009, but do not expect the adoption of this FSP to have a material impact on our financial position, cash flows or results of operations.

In April 2008, the FASB issued FASB Staff Position, or FSP, No. FAS 142-3, Determination of the Useful Life of Intangible Assets, or FSP 142-3.  FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets.  This FSP is effective for financial statements issued for fiscal years or interim periods beginning after December 15, 2008.  We do not currently hold any intangible assets that would be affected by this FSP and, as such, the adoption of this FSP is not expected to have a material impact on our financial position, cash flows or results of operations.

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement 133.  This Statement changes the disclosure requirements for derivative instruments and hedging activities.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.  This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  We do not currently hold any derivative instruments and we are not involved in any hedging activities at June 30, 2008 and, as such, the adoption of this Statement is not expected to have a material impact on our financial position or results of operations.

In December 2007, the FASB issued SFAS No. 160, Non-Controlling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51, or FAS 160.  FAS 160 establishes new accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary.  The Statement clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported separately as equity in the consolidated financial statements.  This Statement is effective for fiscal years beginning after December 15, 2008 and, therefore, will be effective for us beginning in 2009.  We do not currently have any minority interests and, as such, the adoption of FAS 160 is not expected to have a material impact on our financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or FAS 159. FAS 159 permits entities to choose to measure selected financial instruments and certain other items at fair value that are not currently required or permitted to be measured at fair value. This Statement also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. This Statement is effective no later than fiscal years beginning on or after November 15, 2007 and, therefore, was adopted in January 2008. Adoption of this statement did not have a material impact on our financial position or results of operations.

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In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or FAS 157.  This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.  This Statement does not require any new fair value measurements.  This Statement is effective for fiscal years beginning after November 15, 2007 and, therefore, was adopted in January 2008.  In February 2008, the FASB issued FSP 157-2, Effective Date of FASB Statement No. 157, which delays the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) to fiscal years beginning after November 15, 2008. Adoption of FAS 157 with respect to financial assets and liabilities did not have a material impact on our financial position or results of operations.  We have not yet determined the impact of the adoption of FAS 157 with respect to non-financial assets and liabilities on our financial statements.

In February 2008, the FASB issued FSP 157-1 Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13.  FSP 157-1 amends FAS 157 to exclude SFAS No. 13, Accounting for Leases, or FAS 13, and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under FAS 13.  This FSP is effective upon initial adoption of FAS 157. Adoption of this FSP did not have a material impact on our financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Onvia is exposed to financial market risks, including changes in interest rates and equity prices; however, we consider our exposure to these risks to be insignificant as explained further below.

Interest Rate Risk

We have assessed our susceptibility to certain market risks, including interest rate risk associated with financial instruments. We manage our interest rate risk by purchasing investment-grade securities and diversifying our investment portfolio among issuers and maturities.  Due to the fact that we carry only $147,000 in debt related to capital leases as of June 30, 2008, and due to our investment policies and the short-term nature of our investments, we believe that our risk associated with interest rate fluctuations is negligible.

Historically, our investment portfolio consisted of any or all of the following (U.S. denominated only): money market funds, commercial paper, municipal securities, auction rate securities and corporate debt securities with remaining maturities of thirteen months or less; however, as of June 30, 2008 and December 31, 2007, our investments consisted entirely of money market funds.  Our primary investment objectives are preservation of principal, a high degree of liquidity and a maximum total return consistent with our investment objectives. Investments in U.S. government and agency securities (and money market funds investing in them) are exempt from size limitations; all other securities are limited to 10% of the portfolio at the time of purchase, per issuer. In addition, the cumulative investments in an individual corporation, financial institution or financial institution’s security are limited to $10 million. We consider the reported amounts of these investments to be reasonable approximations of their fair values.

Foreign Currency Risk

Our foreign currency risk exposure is insignificant, because all of our sales are currently denominated in U.S. currency; however, a portion of our NOLs are denominated in Canadian dollars.  We have recorded a full valuation allowance for the net deferred tax asset associated with these NOLs, because realization of the future tax benefit is not currently likely; therefore, we believe our foreign currency risk exposure associated with these NOLs is insignificant.

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Equity Price Risk

We do not own any equity instruments and we do not currently have plans to raise additional capital in the equity markets; therefore, our equity price risk is insignificant.

Item 4(T). Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed or submitted under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s, or SEC, rules and forms.  Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer as appropriate, to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

The information set forth under “Legal Proceedings” in Note 11, “Commitments and Contingencies”, of the notes to our unaudited condensed consolidated financial statements of this Report is incorporated herein by reference.

Item 1A.  Risk Factors

Our 2007 Annual Report on Form 10-K includes a detailed discussion of certain risk factors facing our company. The risk factors described below should be read in conjunction with the risk factors and information disclosed in our 2007 Annual Report.  There are no material changes to the risk factors previously disclosed in our 2007 Annual Report.

· Risks related to our growth strategy

o Weakness in the commercial-residential housing market could drive reduced spending by our clients and prospective clients on business intelligence services

o Weakness in the commercial-residential housing market, or in the U.S. economy in general, could reduce tax revenues collected by government agencies and may result in reduced government spending in the future

o We may not be able to meet our projected renewal rates

o We may not be able to increase subscribership to our high value products

o We may be required to increase our sales and marketing expenses in order to achieve our revenue goals

o We may not achieve our projections for adoption of our products by targeted enterprise clients

o We may not achieve our projections for adoption of new products by new and existing clients

o We may fail to attract, hire and retain sales associates who can effectively communicate the benefits of our products to our clients, and they may be unable to achieve expected sales targets

o If we cannot effectively satisfy our clients across all our industry verticals, we may decide to target fewer industries and, as a result, may lose clients

o Our competitors may develop similar technologies that are more broadly accepted in the marketplace

· Risks related to our new product strategy

o We may fail to introduce new content and products that are broadly accepted by our clients, and there may be delays in the introduction of new content and products

o 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

o We have invested significant capital into the development of new products, such as Onvia Planning and Construction and Term Contract Reports, and if new products fail to meet expectations we may not achieve our anticipated return on these investments

o We may improperly price our new product offerings for broad client acceptance

o We may overestimate the value of sales intelligence to companies in the infrastructure marketplace

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· Financial, economic and market risks

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

o We may not be able to generate recurring positive cash flows from operations

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

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

o Changes in accounting and reporting policies or practices, such as the adoption of FAS 123R, may affect our financial results or presentation of results, which may affect our stock price

· Operational risks

o System failures could cause an interruption in the services of our network and impact our ability to compile information and deliver our product to our clients

o 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

o We may be unable to retain the services of executive officers, directors, senior managers and other key employees, which would harm our business

o We may be required to leverage third party recruiting firms to a greater extent than anticipated to assist in hiring key employees, which would increase our cost of hiring

o 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 our clients resulting in client dissatisfaction

o We may be unable to effectively monitor and prevent unauthorized redistribution of our published information

o 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

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

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

· Regulatory, judicial or legislative risks

o Any settlement or claim awarded against Onvia in our ongoing litigation matters discussed in Note 11, “Commitments and Contingencies,” of the notes to our unaudited condensed consolidated financial statements in this Report could negatively impact our operating results

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

o Our access to new content from governmental entities and other third parties may be restricted if bid aggregation on the Internet is restricted by law or regulations

o Utilization of our net operating loss, or NOL, carryforwards may be subject to a substantial annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, which may limit the amount of

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NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None.

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

None.

Item 5.  Other Information

None.

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Item 6.  Exhibits

Number	Description
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i).1 to the Form 10-Q for the quarter ended June 30, 2004, filed on August 12, 2004)
3.2	Bylaws of Onvia (incorporated by reference to Exhibit 3.2 to the Form 10-K for the year ended December 31, 2000, filed on  April 2, 2001)
4.1	Form of Onvia’s Common Stock Certificate (incorporated by reference to the Registration Statement on Form S-1 dated December 21, 1999, as amended (File No. 333-93273))
4.2	Form of Rights Agreement between the Company and U.S. Stock Transfer Corp. as a Rights Agent (including as Exhibit A the form of Certificate of Designation, Preferences and Rights of the Terms of the Series RP Preferred Stock, as Exhibit B the form of the Right Certificate, and as Exhibit C the Summary of Terms of Rights Agreement) (incorporated by reference to Exhibit 4.1 from the Form 8-K, filed on November 25, 2002)
10.1*	Amended and Restated 1999 Stock Option Plan (incorporated by reference to Exhibit 10.1 from the Form 10-K for the year ended December 31, 2005, filed on March 31, 2006)
10.2*	Amended Onvia, Inc. Savings and Retirement Plan (incorporated by reference to Exhibit 10.1 from the Form 10-K for the year ended December 31, 2004, filed on March 25, 2005)
10.3*	Form of Indemnification Agreement between Onvia and each of its officers and directors (incorporated by reference to the Registration Statement on Form S-1 dated December 21, 1999, as amended (File No. 333-93273))
10.4*	2000 Employee Stock Purchase Plan (incorporated by reference to the Registration Statement on Form S-1 dated December 21, 1999, as amended (File No. 333-93273))
10.5*	2000 Directors’ Stock Option Plan (incorporated by reference to the Registration Statement on Form S-1 dated December 21, 1999, as amended (File No. 333-93273))
10.6*	Third Amendment to Employment and Noncompetition Agreement with Michael D. Pickett dated September 27, 2002 (incorporated by reference to Exhibit 10.2 to the Report on Form 10-Q for the quarter ended September 30, 2002, filed on November 6, 2002)
10.7*	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)
10.8	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)
10.9 *	2008 Management Incentive Plan

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31.1++	Certification of Michael D. Pickett, Chairman of the Board, 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 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 Michael D. Pickett, Chairman of the Board, 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, 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

* Executive Compensation Plan or Agreement

++ Filed Herewith

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SIGNATURES

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

                                      ONVIA, INC.

                                      By:  /s/ Michael D. Pickett

                                          ------------------------------

                                           Michael D. Pickett

                                           Chairman of the Board, President and

                                           Chief Executive Officer

                                      By:  /s/ Cameron S. Way

                                          ------------------------------

                                           Cameron S. Way

                                           Chief Financial Officer

Date:  August 14, 2008

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