UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2012
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-35164
ONVIA, INC.
(Exact Name of Registrant as Specified in its Charter)
| | |
| Delaware | 91-1859172 |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
509 Olive Way, Suite 400, Seattle, Washington 98101
(Address of Principal Executive Offices)
(206) 282-5170
(Registrant’s Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of each class | | Name of exchange on which registered |
| Common Stock, $.0001 par value per share | | The NASDAQ Capital Market |
| Rights to Purchase Series RA Junior Participating Preferred Stock | | The NASDAQ Capital Market |
| | | |
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the closing price on June 30, 2012, as reported on the NASDAQ Capital Market, was $20,297,166.
The number of shares of the registrant’s common stock outstanding at March 1, 2013 was 8,566,263.
ONVIA, INC.
FORM 10-K
For the Year Ended December 31, 2012
INDEX
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PART I
CAUTIONARY STATEMENT
In addition to the historical information contained herein, the discussion and analysis in this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding expected increases in revenue, clients, contracts and contract value, cash flow, profitability and stockholder value and expected stabilization of Annual Contract Value (or “ACV”). When used in this discussion, the words “believes,” “anticipates,” “may,” “will,” “should,” “expects,” “plans,” “estimates,” “predicts,” “potential,” “continue,” “intends”, “indicates” or the negative of these and similar expressions are intended to identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not a forward-looking statement. Forward-looking statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and are subject to risks and uncertainties that could cause actual results to differ materially from those expected or implied by these forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the factors described under “Risk Factors”, “Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report. Except as required by law, Onvia undertakes no obligation to publicly release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of anticipated events. Readers are urged, however, to review the factors and risks described in reports Onvia files from time to time with the Securities and Exchange Commission. The following discussion should also be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto included in this report.
In this report, we rely on and refer to information and statistics regarding the markets for various products. We obtained this information from third-party sources, discussions with our clients and our own estimates. We believe that these third-party sources are reliable, but we have not independently verified them and there can be no assurance that they are accurate.
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 information and research solutions that help companies plan, market and sell to government agencies throughout the United States (or U.S.). Onvia’s business solutions provide clients online access to proprietary information about government procurement activity across local, state, and federal government agencies. The business intelligence derived from our solutions allows clients to identify and research new market opportunities, analyze market trends, and obtain valuable insights about their competitors and channel partners. We believe our business solutions provide clients with a distinct competitive advantage, increased revenue opportunities, and strategic insight into the public sector market.
The Company’s powerful procurement solutions include proprietary content and analytical tools that deliver essential insight and intelligence necessary to win more business with state and local governments. Onvia targets a market of companies that have a long term strategic interest in the public sector, and for which the government market is a core part of their business. All three of our customer distribution channels, Small and Medium Business (or SMB), Enterprise, and Content Licensing, focus on this market. The high margins of this model provide the flexibility to price products based upon the value that we create for clients, not based upon the cost of fulfillment.
We developed a three-year business transformation plan and product roadmap in 2011 to leverage the Company’s investment in a rich public sector procurement database and execute on a strategy of transitioning the business from a low cost provider of government procurement information targeted at a large market of casual users to a high value and trusted partner to clients with a long-term strategic interest in the public sector. We achieved the first product milestone to execute this shift in business strategy in February 2012 with the launch of “Onvia 5,” which improved the usability and “find-ability” features of the database. In July 2012, Onvia launched a new solution, Term Contract Center, to provide our clients maximum visibility into over 150,000 recurring contracts. Term Contract Center helps clients identify which contracts to pursue, including the incumbent vendor and the price the agency has paid for the contract. In December 2012, we launched the first update to Spending Forecast Center with Project Previews, a data mining tool that helps clients focus on those future business opportunities from budgets and capital improvement plans where they have the greatest probability of winning.
We continue to invest in our business intelligence solutions to build new analytic tools in 2013 and 2014. We normalized agency names and expect to complete the normalization of public sector vendors by the end of the first quarter of 2013. For the first time in ten years we expanded our taxonomy with new categories in response to customer feedback for more relevant search results. All of these investments have changed our value proposition from an aggregator of public procurement documents to a robust, enhanced database of public procurement intelligence.
In 2012, we completed the first phase of the transformation plan evidenced by the stabilization of Annual Contract Value, or ACV, and revenue and we are now ready to leverage the foundation we have built over the last two years and grow the business. ACV represents aggregate annual value of our renewable subscriptions.
In the fourth quarter of 2012 we began investing in our most successful and mature channel, SMB sales to accelerate revenue growth. In October, we increased the SMB acquisition team by nearly 50% to a total of 20 sales professionals. By hiring these individuals now, the new team members should accelerate revenue growth throughout 2013.
Onvia’s solution includes access to the Onvia Database, Spending Forecast Center, Term Contract Center, and the Onvia Guide. These services are sometimes bundled with management information reports in multiple elements arrangements. Refer to the discussions below under “Products and Services” for a description of these products and services, and under “Critical Accounting Policies and Management Estimates” for a discussion of how sales price is allocated between the elements in a multiple elements arrangement and how revenue is recognized on each element. Subscriptions to the Onvia Database 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 the number of users accessing the database.
Most of Onvia’s revenues are generated from sales to companies that leverage our information for their own internal use, and to businesses that license our content for redistribution. Revenue from businesses who license our content for resale to their own clients is classified as Content License revenue. Content license contracts are generally multi-year arrangements and typically have higher annual contract values than our subscription-based services. Revenue from content license agreements is recognized over the term of the agreement.
Onvia was incorporated in January 2000 in the state of Delaware. Our principal corporate office is located in Seattle, Washington. Our securities trade on The NASDAQ Capital Market under the symbol ONVI.
Industry Background
Selling to the public sector is highly competitive and insight into this market is extremely valuable. The variety, volume and unstructured nature of public sector procurement information make it difficult for businesses to analyze, evaluate and target the market for their goods and services. The agency self- reporting process provides short term visibility into specific government contracting information and events, but does not provide businesses the value added business intelligence to strategically maximize their public sector business. There is a strong need for a strategic business partner that provides deep market intelligence as a key resource for decision making. This ideal partner will provide impactful insight that drives companies to select the right target market, allocate internal resources toward the most profitable segments, maximize public sector margins through intelligent pricing and develop strategic public sector relationships all with the long term objective of winning more government business.
The procurement capture process is complicated and comprised of multiple elements and information types. Businesses must evaluate a variety of different sources of procurement information and activities to understand their individual markets and to make strategic decisions. These data types include:
· Annual Budgets · Capital Improvement Plans · Requests for Quotes · Requests for Proposals · Amendments · Term contracts · Plan holders lists | · Bidders lists · Bid Results · Awards · Advance Notices · Subcontractor Solicitations · Other trigger events, such as City Council Minutes |
The aggregation of these public procurement events provides little value. This data must be normalized, enhanced, structured and classified to become business intelligence to help companies approach the public sector market strategically with the goal of winning more government business.
We have spent the last twenty four months building this structured and enhanced public procurement database. We believe the combination of this database and the new analytical tools we plan to release to the market during the next 24 months will position Onvia as the preferred business intelligence provider for those companies that have a strategic long term interest in the public sector market.
The Onvia Solution
Onvia’s solution includes tools to access a database of proprietary public sector information which has been built over more than 11 years, and includes comprehensive, historical and real-time information on public sector activities unavailable elsewhere in the marketplace. Our solution provides access to information on over 5.0 million procurement-related records connected to over 400,000 companies from across approximately 78,000 government agencies and purchasing offices nationwide. Thousands of records are standardized, added, formatted and classified within our database each day.
Information related to each stage of the procurement cycle is linked together to provide a comprehensive view of each project including:
| · | Advance Notices – alerts businesses of projects in the early stages of the development process, before the bid or request for proposal is released in its final form, or before final zoning and planning board approval; |
| · | Bids, request for proposals, request for quotes, cancellations, 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; |
| · | Bid Results and Awards Information – notifies businesses of awarded bids, providing information for use in their own sales and marketing activities; and |
| · | Grants – supplies federal grant information critical to businesses tracking or applying for publicly-funded projects. |
| · | Project Previews – proprietary summaries of future infrastructure and technology investments excerpted from constantly updated library of capital improvement plans and agency budgets. |
The database can be analyzed using many different search filters including:
· Industry Vertical · State · Publication Date · Submittal Date · Procurement Type | · Level of Government · Agency Function · Set Aside Requirements · Awarded Contract Value |
Our database includes many important data fields to further qualify opportunities as available, including:
· Request for proposals/Bid Information | · Agency Information |
o Document title and extract | o Agency name |
o Publication date | o Agency function |
o Pre-bid meeting date | o Agency bid number |
o Submittal date | o Address |
o Product documents | o Phone number |
o Contract term | o Website link |
o NIGP code | |
o Plan price | · Buyer information |
· Planholders/Bidders lists | o Buyer name |
o Vendor name | o Buyer address |
o Vendor address | o Buyer email |
o Contact name and title | o Buyer phone number |
o Contact email | o Buyer fax number |
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· Award Information | |
o Awarded vendors | |
o Contract value | |
Our government procurement solutions provide clients with the information necessary to make good business decisions. Through our end-to-end solutions, we provide market intelligence a business needs to design and manage a public sector strategy, build relationships with agency buyers and private sector contractors, and target more qualified revenue opportunities. The confluence of these activities should help clients create more winning proposals, increase close rates, increase contract size and, ultimately, increase public sector revenues.
Strategy
Our mission is to deliver essential, actionable business intelligence that our clients rely upon to win more government business. We intend to achieve this mission by delivering exceptional solutions that offer our clients significant value in defining and targeting their public sector market, identifying current and future public sector business opportunities, intelligently pricing their products in the competitive public sector market, and developing strategic relationships and partners required of a successful public sector strategy. If we are able to effectively achieve this mission, we believe we should see increased retention rates and, ultimately, increased stockholder value. Key elements of our strategy include:
| · | Target the right customer for Onvia, those companies with long term strategic interest in the public sector. We will focus our sales and marketing efforts on the prospects that fit the profile of our most valuable clients with highest contract value. During the last two years we have learned under the new business model, that companies with certain characteristics need the most services from Onvia, have the highest contract value and the highest client retention. We believe, these companies will also have the greatest need for the additional services we are planning in our future product roadmap. Using our own database we identify these companies that have a strategic, long-term interest in the public sector market based on the volume of their bidding activity and the geographical scope of their marketing program to the government. If we are effective in targeting these companies, we expect that retention rates and the long-term profitability of our clients will improve. A key measure of this initiative is the blended Annual Contract Value per Client, or ACVC of all new clients acquired during the quarter. In the fourth quarter, ACVC of our new clients ACVC, including both SMB and Enterprise acquisition, was $10,277, up 36% from $7,560 in the same quarter last year. Blended ACVC may fluctuate in sequential quarters until Enterprise results become more consistent. |
Our business solutions support the largest industry verticals, with a focus on the infrastructure verticals, which include:
| o | Architecture and Engineering |
| o | Construction and Building Supplies |
| o | IT / Telecommunications |
| o | Operations and Maintenance Services |
| o | Water and Energy / Alternative Energy |
Our marketing to our target market improved significantly in 2012. We re-launched our brand “as intelligence to win more government business” reflecting the future direction of our product roadmap. We revamped our lead generation program to the point where significant portion of our SMB sales now come from marketing generated activities such as trade shows, webinars, email campaigns, and white papers. We also re-launched our web site with more video content and continue to improve our SEO rankings, which all results in increasing volume of web leads generated. We have introduced a blog and are using social media to drive more traffic to our web site.
| · | Enhance our value proposition to our target customer: Historically, our clients have used Onvia for public sector sales leads notifications. While this will continue to be a major part of our value proposition, our product roadmap is built to transform Onvia into a technology enabled business intelligence provider that helps our clients win more government business. Our content and technology platform are key assets that can be leveraged to deliver additional, more strategic applications for our clients. These future applications include competitive analysis, channel partner selection and evaluation, market sizing, allocation of marketing spend, and pricing analyses. We utilize a Customer Advisory Board of ten of our largest clients to give us feedback on the strategic direction of our product roadmap. We also reach out to our clients with quarterly surveys, and obtain their feedback on strategic product prototypes before they are launched. By focusing on the right target market and by forming a closer connection with our clients, we believe we can deliver strategic products that offer our clients significant value in maximizing their business in the public sector market. |
In 2012, we launched Onvia 5 which improved the customer experience and user navigation. In July, we introduced Term Contract Center by publishing over 150,000 active term contracts. In December, we launched the first update to Spending Forecast Center providing project previews, a data mining tool, to allow our customers greater “find-ability” in searching the vast library of budgets and capital improvement plans.
Equally important we continued to invest in our database to build the required foundation to launch several analytical solutions in 2013 and 2014. We normalized agency names and expect to complete the normalization of vendor names the first half of 2013. For the first time in ten years we expanded our taxonomy with new categories in response to customer feedback for more relevant search results. All of these investments have started to change our value proposition from an aggregator of public procurement documents to a robust, enhanced database of public procurement intelligence.
In 2013 we plan to launch Onvia 6 with a workflow user interface, introduce vendor intelligence for competitor and partner analytics, improve the workflow of our lead generation service and expand the agency intelligence that we provide to our customers. In addition we plan to provide a mobile application that will provide real time leads to our clients. The success of this initiative will be measured by our ability to deliver the roadmap on schedule and within budget.
| · | Use consultative selling as our “go to market” strategy: We market to a select group of companies that have a strategic, long term interest in the public sector. Our sales organization (SMB and Enterprise) is organized by industry and sub-vertical market. A central part of our value proposition is the knowledge our sales people have of their clients and the industries of their clients. We strive to become “trusted partners” in helping our clients secure more public sector business. We identify our clients’ key business objectives, quantify and prioritize them, offer optimal solutions and finally measure our ability to deliver on these solutions during the course of the clients’ subscription with us. Our strategy is to stay focused on these key objectives throughout our engagement with the client. |
The consultative selling strategy is beginning to change our culture and our organization. We have become culturally more client-focused and organizationally more in alignment with the key business objectives of our clients. Every major investment (product, content, technology and marketing) is evaluated and prioritized against our clients’ key objectives and our current and future value proposition in meeting and exceeding these objectives.
Products and Services
Onvia’s business solutions are tailored to the business objectives of each client, and support both strategic planning and sales and marketing activities. We offer our clients public sector business intelligence through specialized self-service analytical tools that help our clients aggregate, analyze, identify and quality, evaluate and influence historical, real-time, and future spending information within local, state, and federal government agencies across the United States. Over time, we expect to continue to enhance our existing information, marketing and analytic services and develop additional services that make use of our comprehensive database to meet the needs of our existing clients as well as potential new categories of clients. Our key offerings are described below.
Onvia Database is Onvia’s flagship business solution base which provides rich search functionality on our proprietary analytics platform of local, state and federal government agency purchasing information. Our solution provides public sector business intelligence to customers across agencies, vendors, projects, and term contracts over a historical, real-time and future spending timeline.
Project Center provides our clients with a complete view of individual public sector procurement projects at each stage of the purchasing cycle. Project Center makes it easier for clients to identify and qualify opportunities to sell their goods and services into the public sector. Project Center is designed to help our clients:
| · | Analyze purchasing trends to refine existing target markets and identify new geographic markets |
| · | Identify and qualify projects or purchases for specific goods and services nationwide |
| · | Identify and monitor potential competitors using plan holders lists and bidder lists |
| · | Identify potential subcontracting opportunities on major projects |
| · | Evaluate awards for pricing analyses |
| · | Identify and build relationships with the agency buyers of specific goods and services |
| · | Understand agency relationships with existing vendors |
| · | Build marketing lists of agency buyers and potential vendor partners |
| · | Obtain bid documents, plans and specification documents to qualify projects |
Agency Center provides users with agencies’ procurement histories, current projects, and spending forecasts in a single application. Agency Center helps businesses identify and qualify government agencies, agency buyers and procurement opportunities within their target markets. By developing agency relationships, users can identify government purchases that never go out to formal bid. Four out of five government purchases never go out to formal bid, because they fall below agencies’ purchasing thresholds. Agency Center is included with standard access to the Onvia Online Database.
Spending Forecast Center provides insight into budgets and capital improvement plans of agencies within the top 366 Metropolitan Statistical Areas in the United States. Spending Forecast Center provides valuable, strategic information on future capital spending used by larger corporations to execute their public sector strategies. Most governmental bodies, such as departments of transportation, city and county governments, and boards of education publish a plan that maps out their major initiatives and forecasts spending over the next 3-6 years. These spending forecasts generally include the name of the initiative or type of expense, project timing, the funding source and the budget amount. Businesses can use spending forecasts to inform business development, evaluate and target markets, and for short to mid-term business planning. We collect plans from state, county and city government agencies, representing over 85% of all government spending. We add a powerful search tool that allows users to find plans based on keywords, as well as type of agency, location, spending focus, and other plan details. In December 2012, we launched the first update to Spending Forecast Center with Project Previews, which summarize individual projects extracted from the vast library of budgets and capital improvement plans. The project summaries are delivered directly to the end user, providing significant time savings to clients, enabling them to allocate resources to higher value activities.
Term Contract Center (launched in July 2012) helps Onvia’s clients take advantage of the growing trend by government agencies to make purchases using term contracts, or recurring contracts. We significantly increased our coverage and collection of term contracts and awards to provide clients with a single source they can rely on to grow revenues. Term Contract Center is designed to help clients identify and prioritize which contracts to pursue, including the competitor and partner information needed to qualify these opportunities.
Using Term Contract Center, our clients can:
| · | Search over 150,000 active state and local term contracts to create a pipeline of upcoming renewal opportunities; |
| · | Analyze term-contract buying trends to identify the right agencies to build relationships with; |
| · | Track competitors by searching for vendors who currently hold these contracts ; and |
| · | Locate potential teaming and subcontracting partners by accessing information about vendor representatives on term contracts and how to contact them. |
The Onvia Guide provides clients with frequent information about procurement activity of agencies, industries and markets customized for each client. Clients receive their tailored Onvia Guide delivered to their inbox every day. Daily use of the Onvia Guide provides clients with next day notification of key events and updates within their public sector market. The Onvia Guide can be purchased separately or comes bundled with a subscription to the Onvia Online Database.
Management Reports – provide our clients with customized management reports to help target upcoming contract renewals, identify agency buyers, and inform the proposal development process. These solutions include:
| · | Contact Lists – Provide 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. |
| · | Winning Proposals Library – Compare and contrast winning proposals submitted by competing firms in order to gain 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. |
Clients
Our clients are businesses that are strategically focused on selling their goods and services into the public sector. We sell into this target market through three distribution channels: Small/Medium Business (SMB), Enterprise, and Content Licenses. Our Enterprise sales channel targets the largest prospects within our target market. Content license clients incorporate our data into their own products, or resell our business intelligence directly to their clients.
Prior to 2011, our target market was extremely broad, and we acquired a large number of non-strategic clients which were not adequately profitable. We no longer invest in acquiring non-strategic clients, and our client base has declined as a result of this decision to transition to our more profitable target market.
We manage the business using the following key client metrics:
Annual Contract Value, or 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 clients to new and higher valued products. Content licenses contracts are excluded from ACV.
Number of Clients
Number of clients represents the number of individual businesses subscribing to our products.
Annual Contract Value per Client, or 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 the end of the fourth quarter, Onvia’s total client base decreased 12% to 3,950 clients compared to 4,500 clients in the same year-ago period and decreased 36% compared to 6,200 in the same two-year ago period.
ACV for the fourth quarter of 2012 increased by 1% to $18.8 million compared to the third quarter of 2012 and increased by 2% compared to the same quarter of the previous year, and decreased by 15% compared to the same quarter in the two previous years.
ACVC for the fourth quarter of 2012 grew 4% from the previous quarter, 16% from the same year-ago period, and 34% from the same two year-ago period to an average of $4,775 per client. ACVC improved, as a result of our strategy to target more strategic clients and, therefore, renewals were weighted toward strategic clients with higher contract values.
Sales and Marketing Strategy
As of December 31, 2012, we had 73 inside sales, marketing and customer support employees with the majority of our sales force located in our headquarters in Seattle, Washington, including two field sales representatives also headquartered in Seattle. This headcount compares to 74 and 70 as of December 31, 2011 and 2010, respectively.
We believe we have transformed our SMB sales team into a professional consultative selling organization. Under this business model, the acquisition sales force is responsible for identifying the business objectives of a prospect, and designing a solution to meet these business objectives. As part of the new client onboarding process, the account executive ensures that the client is smoothly transitioned to the account management organization. The account management sales team is vertically oriented, and clients are typically assigned to an account manager with expertise in the client’s industry. This team is responsible for training new and existing clients, executing our client contact strategy, providing as needed support, renewing client contracts and identifying cross sell and upsell opportunities. As part of the client contact strategy, the account manager is responsible for understanding the client’s business objectives, setting up profiles and saved searches, delivering customized management reporting and product training. The partnership between the client and its Onvia support team is an important part of the value proposition included in the Onvia business solution. In the fourth quarter of 2012 we began an investing in SMB acquisition sales to accelerate revenue growth. We increased the SMB acquisition team by nearly 40% to a total of 20 sales professionals as of December 31, 2012. By hiring these individuals during the fourth quarter, we expect these new team members become productive earlier in 2013 and help us to accelerate revenue growth throughout 2013.
The Enterprise sales organization targets the largest prospects within our target market universe. Our Enterprise staff will be organized by vertical market so they become “trusted advisors” in their area of expertise. Our objective is to be in a position by the end of 2013 to scale the Enterprise sales channel in 2014 with the right people, process and solutions. The success of this initiative will be measured by the development of this plan by the end of 2013.
Our marketing programs communicate a strong strategic message that conveys who we are today and more importantly who we will be in one or two years from now. We must deliver this message consistently and clearly across all of our marketing and communication channels to reposition and build our brand, improve sales effectiveness and drive revenue growth. Our strategic message is an important part of our transition from sales leads to analytics and market intelligence derived from a database of proprietary content with normalized data. Our primary marketing methods include web-based marketing, direct marketing; communication with our website, webinars, participation in trade shows and industry events, client referrals and educational tools, such as webinars. Client retention and nurture marketing campaigns are also an integral part of our strategy.
Marketing to our universe of target companies improved significantly in 2012. We re-launched our brand “as intelligence to win more government business” reflecting the future direction of our product roadmap. We revamped our lead generation program to the point where 50% of our SMB sales now come from marketing generated activities such as trade shows, webinars, email campaigns, and white papers. We also re-launched our web site with more video content and continue to improve our SEO rankings and the volume of web leads generated. We have introduced a blog and are using social media to drive more traffic to our web site.
Agency Relationships
Agency partners bring value through source contributed content and by providing referrals of their business suppliers. As of December 31, 2012, we had approximately 340 active partner agencies in key metropolitan areas nationwide. We continue to sign a variety of government agencies including cities, counties, housing authorities, transportation authorities and school districts.
Technology
We support our operations and business solutions using an advanced technology platform designed to serve a large and rapidly increasing volume of web traffic in a reliable and efficient manner without critical failures. Our systems are designed to:
| | • Provide fast, secure and highly available visitor access to our websites; |
| | • Validate and process client requests promptly and accurately; |
| | • Provide timely, comprehensive and accurate management-reporting capabilities; |
| | • Accommodate upgrades to features on our websites; |
| | • Scale to accommodate growth in users and content; and |
| | • Provide basic redundancy in case of component failures. |
Our systems use a combination of proprietary technologies and commercially available licensed technologies. The backbone of our technology infrastructure consists of database servers running Microsoft SQL Server on enterprise grade server hardware. The front end consists of multiple, redundant web servers that are scalable as operations grow.
Our web servers, database servers, transaction-processing servers and other core systems that conduct essential business operations are housed at a third-party offsite co-location facility. Our co-location vendor provides 24x7 monitoring and engineering support in a climate-controlled and physically secure environment and our on-call operations personnel have 24x7 access to the facility. Our data center has redundant communication lines from multiple Internet Service Providers and has its own emergency power and backup systems. We house some non-critical systems such as development servers, quality assurance servers, and internal application servers at our headquarters in Seattle. All our production platform related servers are in the Seattle area and we do not have a second production site outside this geographical area for redundancy in case of some natural calamity. During 2012, Onvia established a redundant disaster recovery site located outside the Seattle geographical area for the Company mail system which provides full functionality in the event of disaster. The onvia.com website and the CRM systems are not hosted by us: they are both remotely hosted solutions.
In addition to maintaining responsibility for the technical architecture, security and uptime of our business solutions, our technology department works closely with the sales and marketing departments to ensure that client feedback for new features is incorporated into new products and services and that our investment in new product development is aligned with our clients’ needs and expectations.
Competition
The market for comprehensive intelligence on the government procurement marketplace is underserved. Competitors include, to a limited extent, bid aggregators, industry analysts and government e-procurement platforms.
Our current and potential competitors include, but are not limited to, the following:
| • | Information companies that target specific industry verticals that are covered by our services, such as McGraw-Hill Dodge, Reed Construction Data, BidClerk, Contractors Register and Deltek. |
| Lead generation and bid matching companies such as FedMarket.com, BidNet, BidSync and GovernmentBids.com. |
We may face additional competition in the future as well-funded companies pursue new government procurement and private sector database products and services. We must differentiate ourselves by expanding our database, enhancing and normalizing our data, developing solutions with high switching costs, and maintaining a loyal base of repeat clients. To achieve this we must continually invest in content and software applications to provide our clients with business insight and intelligence on the government procurement market.
We believe that the principal competitive factors affecting our market include, but are not limited to, breadth, depth and timeliness of content, content quality, base of existing clients, and client service. In order to excel at these principal competitive factors, we strive to achieve a superior understanding of our clients, offer valuable solutions to maximize the return on our clients’ investment in the public sector market, and sustain an efficient operating model in delivering these solutions. We believe that our current solutions compare favorably to competitive offerings available in the marketplace today based on the depth and breadth of content, daily updates, a comprehensive archive of procurement intelligence and a structured and disciplined customer care program designed to provide sustainable value to our clients during the course of their subscriptions.
Seasonality
Our client acquisition business is subject to some seasonal fluctuations. The second and third quarters are generally slower than the first and fourth quarters for client acquisition. The construction industry is our single largest market and these prospects are typically engaged on projects during the spring and summer months, not prospecting for new work, which causes new client acquisition to decline compared to the first and fourth quarters in the year. For this reason, comparisons of the performance of our business quarter to consecutive quarter may not provide the most relevant information, and so in addition to sequential quarter comparisons our quarterly results and metrics should be considered on the basis of results for the whole year or by comparing results in a quarter with the results in the same quarter of the previous year.
Intellectual Property Rights
Our future success depends in part on intellectual property rights, proprietary rights, and technology. We rely on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other methods to protect our proprietary rights. We seek to protect our internally developed products, documentation, and other written materials under trade secret and copyright laws, which afford only limited protection. We cannot ensure that any of our proprietary rights will be viable or of value in the future since the validity, enforceability and type of protection of proprietary rights in Internet-related industries is uncertain and still evolving.
We license and will continue to license certain products integral to services from third parties, including products that are integrated with internally developed products and used jointly to provide key content and services. These third-party product licenses may not continue to be available on commercially reasonable terms and we may not be able to successfully integrate such third-party products into our solutions.
We presently have no issued U.S. patents. It is possible that we may not develop future proprietary products or technologies that are patentable and that the patents of others will seriously harm our ability to do business.
We own the following registered trademarks in the U.S. Patent and Trademark Office: ONVIA, ONVIA and Design (current logo with orange circular design), ONVIA DOMINION, DEMANDSTAR, DEMANDSTAR.COM, QUOTEWIRE, BIDWIRE-, and E-JOURNAL OF COMMERCE. We also own the following registered trademarks in Canada: ONVIA, ONVIA.COM, and ONVIA.COM and Design.
Employees
As of March 1, 2013, we had 132 employees working in the following departments: 68 in sales and marketing, 38 in research, which are included in cost of sales, 14 in technology and development and 12 in general and administrative.
None of our employees are represented by a union or collective bargaining agreement. We have never had a work stoppage and consider relations with our employees to be good.
Geographic Financial Information
During the years ended December 31, 2012 and 2011, substantially all of our revenues were generated from clients located in the United States or Canada, and all sales are denominated in U.S. currency. All of our long lived assets are located in the United States.
Available Information
We file with and furnish to the Securities and Exchange Commission, or SEC, periodic reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements, and other information, along with amendments to such reports. Our SEC filings are posted on the SEC’s Web site at http://www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Materials that we file with the SEC are also available at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. Information regarding the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our annual report on Form 10-K, all other reports and amendments filed with or furnished to the SEC, and our Code of Business Ethics and Conduct are available on the “Investor Relations” section of our website at www.onvia.com as soon as reasonably practicable after we have filed them with, or furnished them to, the SEC.
In addition to other information in this Report, the following risk factors should be carefully considered in evaluating our business, because such factors may have a significant impact on our business, results of operations and financial condition, and could cause our stock price to decline. As a result of the risk factors set forth below and elsewhere in this Report, and the risks discussed in our other Securities and Exchange Commission filings, actual future results could differ materially from historical results or those projected in any forward-looking statements.
Risks related to our growth strategy
Since early 2011 we have been transforming our business model, and due to the complexity of this turnaround, our quarterly financial results may be subject to fluctuations that may cause material variations in our quarterly operating results and make it difficult to forecast future performance.
We continue to execute our turnaround plan initiated in 2011. We believe we have executed the first stage of our turnaround to stabilize the business. In 2013 we are focused on leveraging the foundation we have built to accelerate growth. Based upon the number of variables within our turnaround plan, our business is subject to execution risk and it may be difficult to project results. Our operating plan considers our ability to execute these initiatives and generate results within a specific timeframe. If we are unable to execute our initiatives as planned, our quarterly financial results may fluctuate and future quarterly results will be affected. A significant portion of our subscription revenue for a particular quarter is derived from transactions that are initiated in previous quarters, because revenue is generally recognized ratably over the subscription term.
Our current and future levels of operating expenses and capital expenditures are based largely on our growth plans and estimates of future revenue. These expenditure levels are, to a large extent, fixed in the short term. We may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall, and any significant shortfall in revenue relative to planned expenditures could harm our business and results of operations.
Our new consultative sales approach may not scale SMB business as planned.
We are transitioning our SMB sales organization from a transactional sales process to a consultative sales process. The consultative selling process focuses on fewer, more targeted prospects, which we expect to renew at higher rates with higher ACVC. The consultative sales process requires a longer sales cycle than a transactional model and requires the development of a substantial pipeline of qualified prospects to achieve consistent and predictable results. Due to the complexity of a consultative sale, our SMB sales people may not be able to scale their individual results to maximize profitability. As a result of these risks, our SMB business may not scale as planned.
We may not be successful in the development and execution of an enterprise sales and marketing program.
We expect to derive a meaningful portion of our growth from sales to large businesses, who offer the highest lifetime value to our organization. In the past, we have attempted to grow our enterprise organization, and have not been successful in achieving our goals around these initiatives. If we are unsuccessful in driving growth through this channel, our growth rates will suffer.
We may not be successful in expanding our channel sales program.
We believe there are close to 1.9 million businesses who are “casual users” of government procurement data. These businesses are not part of our new target market, and a portion of our existing client base falls into this category. We intend to focus our sales and marketing efforts on what we believe is a more profitable target market of approximately 30,000 companies who are “power-users” of government procurement data. This strategy may cause lower retention rates for existing clients that are outside of this target market. We plan to partner with companies who can service the casual user segment more economically than we can. If we are unsuccessful in continuing to develop these partnerships, our growth rates will be impacted.
We may fail to attract, hire and retain sales associates who can effectively communicate the value of our products to our clients and prospects, and they may be unable to achieve expected sales targets.
In order to achieve growth targets, our sales teams must be able to effectively communicate the value of our products to existing and potential clients. We expect to see increases in client retention rates and in new client acquisition revenue. However, our sales goals are aggressive and may not be achieved.
Our competitors may develop similar technologies that are more broadly accepted in the marketplace.
The functionality in Onvia’s products provides business intelligence across industry verticals and geographic regions. If competitors introduce products with similar functionality or are able to more effectively market and price their products for broad client acceptance, new client acquisition and existing client retention would be adversely impacted. If we are unable to enhance functionality or increase marketing efforts to offset challenges from competitors, we may lose market share.
Rapid advances in technology and new mediums for distributing information may diminish the value of our service offerings.
Our business model is predicated on providing access to and analysis of hard to find public and private sector information. Information in general is quickly becoming more accessible at a low cost as new distribution mediums, such as blogs, and new search technologies are developed. We may be unable to keep up with the rapid advances in information collection, and new technologies and mediums may be developed that commoditize the value of our services. If this were to occur, our revenues would suffer.
Risks related to our new product strategy
We may fail to introduce new content and products that are broadly accepted by clients and prospects, and there may be delays in the introduction of these tools and products.
If client acceptance and adoption of our new products is below our expectations, projected growth rates and client acquisition and retention goals may not be achieved, and financial results would be harmed. We expect to utilize internally developed technology and technology licensed from third parties for the development of new tools and content. If we are unable to develop or acquire the required technology on time, or at all, or if the launch of these new products is delayed for any other reason beyond our anticipated launch dates, projected growth rates may not be achieved.
We may be unable to control the cost of ongoing content collection or the cost of collecting new content types to support new product offerings.
We will need to identify cost effective sources and develop efficient collection processes for new content types required to support new product development plans. If we are unable to find new ways to collect content efficiently, and aggregate new content types in a cost effective manner, gross margins may decline.
We may improperly price new product offerings for broad client acceptance.
We have developed pricing strategies for our existing products, and will be required to develop new pricing strategies for planned new product launches. If clients and prospects do not perceive that the pricing of our products is commensurate with the value they receive from the products, or if our sales staff is unable to communicate the value of the products, particularly in light of the current economic climate, new client adoption and existing client retention would be adversely impacted.
We may overestimate the value of sales and marketing intelligence to companies in the infrastructure marketplace.
We believe there is a large unmet market need for robust public sector sales and marketing information because information that is highly fragmented across different levels of agencies. Our business model assumes that clients will continue to pay recurring subscriptions for our content and delivery solutions and we expect increases in the annual value of these contracts as a result of this. If we have overestimated the value of this information, we will not achieve our forecasted revenue goals.
Financial, economic and market risks
Utilization of our net operating loss carryforwards may be subject to annual limitations under the Internal Revenue Code, or may not be usable at all in the future.
We have substantial net operating loss carryforwards (“NOLs”) that could be used to offset future tax liabilities arising from future taxable income. In 2011, we conducted a study and determined that an “ownership change” occurred in 2001, as defined under Section 382 of the Internal Revenue Code of 1986, as amended (which is generally a greater than a 50 percentage point increase by certain “5% shareholders” over a rolling three-year period). Section 382 imposes an annual limitation on the utilization of deferred tax assets, such as NOLs and other tax attributes, once an ownership change has occurred. The ownership change which occurred in 2001 resulted in a permanent loss of $180.0 million of our U.S. federal deferred tax assets. After this impairment, we had $72.4 million in NOLs as of December 31, 2012 available to offset future taxable net income.
It is possible that we could have an additional “ownership change” under Section 382 of the Code in the future and lose a significant portion of our deferred tax assets, which could have a material adverse effect on our future results of operations and financial condition. As discussed in the following risk factor, we adopted a tax benefits preservation plan in early 2011 to mitigate the risk of future ownership changes.
We regularly review our deferred tax assets for usability based on a history of earnings, expectations for future earnings and expected timing of reversals of temporary differences. Realization of deferred tax assets ultimately depends on the existence of sufficient taxable income, including taxable income in prior carryback years, as well as future taxable income. Prior to 2011, we maintained a 100% valuation allowance against our deferred tax assets because based upon our history of net operating losses, we were uncertain about our ability to generate future taxable net income. Since the end of 2011, we have determined, based on evaluation of all available objective positive and negative evidence related to the creation of future taxable net income, that a partial release of our valuation allowance is appropriate. As a result of this partial release, our full year and fourth quarter 2012 and 2011 net income includes a tax benefit of $1,559,000 and $616,000, respectively. We will continue to evaluate the appropriateness of our valuation allowance annually at a minimum, and more frequently if necessary, in consideration of future operating results. If our operating results do not continue to improve, we may be unable to realize the value of this asset in the future.
We adopted a tax benefits preservation plan, designed to preserve the value of our deferred tax assets, primarily related to net operating loss carryforwards (“NOLs”), which may discourage acquisition and sale of large blocks of our stock and may result in significant dilution for certain stockholders.
In May 2011, our Board of Directors (the “Board”) adopted a tax benefits preservation plan in the form of a Section 382 Rights Agreement (the “382 Agreement”), which amends and replaces the previously approved Preferred Stock Rights Agreement, dated November 22, 2002. The 382 Agreement is designed to preserve stockholder value and the value of certain income tax assets primarily associated with NOLs by acting as a deterrent to any person acquiring beneficial ownership of 4.9% or more of Onvia’s outstanding common stock without the approval of the Board.
Under the 382 Agreement, one Preferred Stock Purchase Right (each, a “Right”) was distributed for each share of Common Stock outstanding as of the close of business on May 23, 2011. Pursuant to the 382 Agreement and at the discretion of our Board, if any person or group becomes the beneficial owner (subject to certain restrictions) of 4.9% or more of the outstanding shares of Common Stock the Rights may become exercisable. Upon exercise of a Right and payment of the purchase price of $20.00 (the “Purchase Price”), the holder will be entitled to receive a number of shares of Common Stock having a market value equal to two times the Purchase Price.
The 382 Agreement may discourage existing 5% stockholders from selling their interest in a single block which may impact the liquidity of Onvia common stock, may deter institutional investors from investing in Onvia stock, and may deter potential acquirers from making premium offers to acquire Onvia, all factors which may depress the market price of our stock or prevent stockholders from receiving a premium in a change in control transaction.
Provisions of our charter documents and Delaware law may discourage takeover attempts and depress the market price of our stock.
Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, the state of our incorporation, can have the effect of making it difficult for a third-party to acquire us, even if doing so would be beneficial to our stockholders. These provisions include:
| | • | the classification of our Board of Directors into three classes so that the directors serve staggered three-year terms, which may make it difficult for a potential acquirer to gain control of our Board; |
| | • | authorizing the issuance of shares of undesignated preferred stock without a vote of stockholders; and |
| | • | non-cumulative voting for the election of directors. |
Political pressure as a result of deficits and budget shortfalls, including recent developments around the federal budget and the sequester, may lead to reduced spending by federal, state and local government agencies.
Should agencies reduce spending, there may be fewer revenue opportunities to deliver to our clients. Existing clients that leverage our products primarily for new sales leads may perceive a drop in opportunities as a reduction in their return on investment, which could lead to reduced retention rates. In addition, prospects considering an investment in our products may perceive a decline in government spending as a signal that there will be fewer opportunities and they may decide against purchasing a business intelligence solution, or may decide against pursuing public sector opportunities all together, which would negatively impact new client acquisition.
Operational risks
We may not effectively implement new technologies, and new product functionality could fail to perform as designed.
We periodically release products that employ new search technologies and complex database architecture in new and innovative ways. These technologies are usually built in house, or purchased from third party vendors and reengineered to meet our operational needs. If the creative application of these technologies does not work as planned or if we implement these new technologies poorly or in incompatible ways, our new products and services may not function properly, delivery of our products could be disrupted or delayed and our client retention and new client acquisition may suffer.
System failures could cause an interruption in the services of our network and impact our ability to compile information and deliver our products to clients.
Any system failure that causes an interruption in the service of our suite of products, disrupts our ability to aggregate, organize and publish new content, or reduces timely access to and delivery of our content could result in client dissatisfaction, which would impact client acquisition and retention rates. Further, prolonged or ongoing performance problems on our web sites or our application servers, which support bid creation and distribution, could damage our reputation and result in the permanent loss of clients. In the past, system interruptions have made our web sites and application servers totally unavailable, slowed their response time or prevented us from making service available to clients. These problems may occur again in the future.
We may not have sufficient business interruption insurance to cover losses from major interruptions. We deployed our primary business application servers to a secure offsite facility with backup utility power and redundant Internet connectivity in 2008. Our current physical and virtual tape drive based disaster recovery systems are not capable of recovering core business functionality in less than a period of several days depending on severity in the event of a disaster scenario at the offsite facility. Production Information Technology and Research department functions will be operational in the event of a local building disaster so that delivery of our products will not be significantly interrupted as long as the offsite facility is still operational. Our disaster recovery plan does not yet include automated failover of product distribution-related systems, requiring extensive manual intervention to complete the recovery process which could result in prolonged service interruptions and ultimately lower client satisfaction. In addition, all our platform related servers are in the Seattle area and we do not have redundancy outside this geographical area in case of some natural calamity.
Our current technology infrastructure and network software systems may be unable to accommodate our anticipated growth, and we may require a significant investment in these systems to accommodate performance and storage requirements of new and planned products.
Expansion of the historical content contained in our products and future product offerings to clients have and will place significant additional demands on our enterprise-grade technology infrastructure. We add thousands of records to our database each day, which has required us to expand the storage capacity of the database and clients access to this information requires significant computing power based on usage. If new content types or product introductions change current network and computing requirements or if growth in our client base exceeds our expectations, we may be required to make significant investments to upgrade our systems to accommodate such changes, which could negatively impact our cash flows and results of operations. We may not be successful in our efforts to upgrade our systems, or if we do successfully upgrade our systems, we may not do so on time and within budget. Failure to achieve a stable technological platform in time to handle increasing network usage may discourage potential clients from using our network.
We may not be able to retain the services of our executive officers, directors, senior managers and other key employees, which would harm our business.
Our business and operations are substantially dependent on the performance of senior management, directors and key employees. Our process for succession planning across all levels of the organization to provide business continuity includes developing, coaching and rewarding high performing employees. The loss and inability to replace any of these employees or directors, including Hank Riner (CEO), Cameron Way (CFO), and Naveen Rajkumar (CIO), and Irv Alpert (EVP), would likely harm our business.
We could incur substantial costs in the future as a result of cyber incidents.
In addition, as our dependence on digital technologies to conduct operations increases, so does the risk associated with cyber security. The Company may be unable to prevent targeted, random or accidental breaches of our security and could incur significant costs associated with lost or stolen information, including increased cyber security protection costs, lost revenues, reputational damage or increased litigation.
Political, social or environmental conditions in off-shore locations may impact the collection and delivery of our content and/or development of new products.
Portions of our content are aggregated and/or formatted by off-shore vendors. Delivery of that content may be impacted by local political, social or environmental conditions, which may result in delayed delivery to clients resulting in client dissatisfaction. We also outsource portions of the development of new products to off-shore vendors. Political, social or environmental conditions in those locations may result in delays of new product introductions.
We may be unable to effectively monitor and prevent unauthorized redistribution of our published information.
In the past we have identified a number of entities that have redistributed proprietary information without authorization and against our terms of use. We have been and will continue to be aggressive about monitoring and combating such unauthorized use, and are considering technological avenues for blocking such users from our database. However, if we fail to effectively combat such unauthorized use, our business could be harmed.
Our services and products depend upon the continued availability of licensed technology from third parties, and we may not be able to obtain those licenses on commercially reasonable terms, or at all.
We license, and will continue to license, technology integral to our services and products from third parties. If we are unable to acquire or retain key third-party product licenses or integrate the related third-party products into our network services, our service and product development may be delayed. We also expect to acquire new licenses in the future as our business grows and technology evolves. We may not be able to obtain these licenses on commercially reasonable terms, or at all.
Regulatory, judicial or legislative risks
Future regulations could be enacted that either directly restrict our business or indirectly impact our business by limiting the growth of e-commerce.
We are subject to laws and regulations governing the Internet and e-commerce. These laws and regulations may cover privacy, content, taxation, data protection, copyrights, electronic contracts and other communications, consumer protection, unencumbered Internet access to our services, the design and operations of websites, and the characteristics and quality of products and services. If enacted, unfavorable laws and regulations could limit the market for our services and offerings. Although many regulations might not apply to the business directly, we expect that laws regulating the collection or processing of personal or consumer information could indirectly affect our business. It is possible that legislation could expose companies involved in e-commerce to restrictions or liability, which could limit the growth of e-commerce generally. Legislation could hinder the growth in Internet use and decrease our acceptance as a medium for communication and commerce. If laws were enacted that made our products taxable at the state level, we may be required to pass those additional taxes along to our clients, which would increase the overall cost of our product to our end users and could impact the buying decisions of existing and potential new clients.
Our access to new content from governmental entities and other third parties may be restricted if bid aggregation on the Internet is restricted by law or regulations.
We aggregate new information from various public data sources and do not have exclusive access to this content. We cannot ensure that these data sources will continue to be available in the future. Moreover, public disclosure laws, which require governmental entities to produce bid information directly to members of the public, may negatively impact our business and reduce the value of our services to clients. The loss or the unavailability of data sources in the future, or the loss of right to distribute some of the data sources, would harm our business.
Our proprietary content aggregation technology is integral to our success. If the process of content aggregation becomes regulated in the future and our process for acquiring government bids is no longer cost-effective, our business will be significantly harmed. If new regulations restricting our ability to charge a fee for public bid information are enacted, our business will be significantly harmed.
| UNRESOLVED STAFF COMMENTS |
Not applicable.
Our headquarters are located in Seattle, Washington. Since January, 2008, we lease approximately 35,000 square feet in two floors of a sixteen-story office complex located at 509 Olive Way, Seattle, Washington. We believe this space is adequate to meet current and near term capacity requirements. The lease on our current office space expires in October 2015.
For a discussion regarding our legal proceedings, please refer to the “Legal Proceedings” section of Note 10, “Commitments and Contingencies”, in the Notes to Consolidated Financial Statements in this Report, which is incorporated herein by reference.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
| Name | Age | Position |
| Henry G. Riner | 62 | Chief Executive Officer and President |
| Cameron S. Way | 41 | Senior Vice President and Chief Financial Officer |
| Naveen Rajkumar | 35 | Senior Vice President and Chief Information Officer |
| Irvine N. Alpert | 61 | Executive Vice President |
Henry G. Riner was appointed President and Chief Executive Officer in October 2010. Mr. Riner has served as a Director of the Company since November 2010. From March 2009 until September 2010, Mr. Riner served as President and Chief Executive Officer of OSG Billing Services, an electronic bill presentment and payment company. From 2006 through 2008, Mr. Riner was President and Chief Executive Officer of CoAMS, a trade promotion information services company. From 1997 through 2005, Mr. Riner was President and Chief Executive Officer of SourceLink, a direct marketing information services company. Mr. Riner was President of UMI, a division of the Bell & Howell Company from 1994 through 1997.
Cameron S. Way has served as Senior Vice President since August 2012 and Chief Financial Officer of the Company since April 2008. Mr. Way served as Chief Accounting Officer of the Company from June 2005 to April 2008, and as Controller from September 2001 to June 2005. Mr. Way held various other positions within the company prior to 2001. Mr. Way was an Assurance Manager with PricewaterhouseCoopers LLP from January 1994 to August 1999 prior to joining the Company.
Naveen Rajkumar has served as Senior Vice President and Chief Information Officer of the Company since August 2010. Prior to becoming Senior Vice President and Chief Information Officer, Mr. Rajkumar served as Chief Information Officer of the Company from January 2010 to July 2010. From July 1999 to December 2009, Mr.Rajkumar served at Aditi Technologies in various positions, most recently as General Manager.
Irvine N. Alpert has served as Executive Vice President of the Company since July 2001. From February 1995 to July 2001, Mr. Alpert was the founder and Chief Executive Officer of ProjectGuides, Inc., an architecture, engineering, and construction market information service, which was acquired by Onvia in June 2001. From 1993 to 1995, Mr. Alpert served as President of RCI Environmental, Inc., a regional construction company.
PART II
| MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock currently trades on the NASDAQ Capital Market under the symbol “ONVI.” The table below lists the high and low closing prices per share of our common stock for each quarterly period during the past two fiscal years as reported on the NASDAQ Capital Market.
| | | Closing Price Range | | |
| | | of Common Stock | | |
| | | High | | | Low | | |
| Year ended December 31, 2011 | | | | | | | |
| First Quarter | | $ | 4.67 | | | $ | 4.05 | | |
| Second Quarter | | | 4.58 | | | | 3.90 | | |
| Third Quarter | | | 4.43 | | | | 3.22 | | |
| Fourth Quarter | | | 3.23 | | | | 2.67 | | |
| | | | | | | | | | |
| Year ended December 31, 2012 | | | | | | | | | |
| First Quarter | | $ | 4.24 | | | $ | 2.85 | | |
| Second Quarter | | | 3.99 | | | | 3.54 | | |
| Third Quarter | | | 3.98 | | | | 3.51 | | |
| Fourth Quarter | | | 3.90 | | | | 3.54 | | |
Holders
As of March 1, 2013, there were approximately 264 holders of record of Onvia common stock. The number of record holders was determined from the records of the Company’s transfer agent and does not include the number of persons whose stock is held in nominee or “street name” accounts through brokers.
Dividends
No cash dividends were declared for the years ended December 31, 2012 and 2011 nor does Onvia have the intention to pay cash dividends in the foreseeable future.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Stock Price Performance Graph
The registrant is a Smaller Reporting Company and, therefore, is not required to provide the information under this item.
| SELECTED CONSOLIDATED FINANCIAL DATA |
The registrant is a Smaller Reporting Company and, therefore, is not required to provide the information under this item.
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the Consolidated Financial Statements and accompanying Notes hereto.
Management Overview – 2012 Results and 2013 Priorities
Revenue declined by 5% to $22.0 million from $23.2 million in 2011. In sequential quarters, fourth quarter 2012 revenue declined by less than 1% over the same period last year compared to a 4% decline in the third quarter of 2012 compared to the same quarter of last year. Revenues are a lagging indicator of current operations because we primarily recognize revenue over the 12 month subscriptions. Due to this policy, the impact of operational improvements is not immediately reflected in our financial results. If our SMB team continues to improve as expected, we anticipate year over year revenue growth to be positive in 2013.
Annual Contract Value, or ACV, increased by 2% to $18.8 million as of December 31, 2012 from $18.5 million as of December 31, 2011, our first positive year over year increase since we began our business transformation in 2011. In the fourth quarter, ACV grew 1% compared to the third quarter of 2012. Growth of ACV indicates that client retention rates are improving and new client acquisitions are beginning to scale. We believe that ACV represents the aggregate annual value of our subscription contracts and is a leading indicator of future revenue growth.
At December 31, 2012, Onvia has 3,950 clients, down 12% from 4,500 clients at December 31, 2011. Our strategy is to continue to improve profitability by acquiring and managing fewer strategic clients at higher ACVC. As a result of this strategy, total clients declined in 2012, a trend which we expect to continue in 2013.
Annual Contract Value per Client, ACVC, increased 16% to $4,775 per client in the fourth quarter of 2012 compared to $4,114 in the fourth quarter of 2011. Growth in ACVC is a validation of our target market of companies that have a strategic interest in the public sector and we strive to provide these companies with exceptional value to help them win more government business.
2012 operating expenses decreased 1% to $18.5 million compared to $18.7 million in 2011. We continued to manage expenses and reallocate resources to high margin initiatives over the course of 2012.
Annual net income was $1.5 million or $0.17 per diluted share for the year ended December 31, 2012 compared to net income of $1.6 million, or $0.18 cents per diluted share in 2011. Due to our historical performance and future profitability projections we released $1.6 million and $616,000 of the valuation allowance against our deferred tax assets which resulted in the same amount being recognized as a tax benefit in our fourth quarter net income in 2012 and 2011, respectively. We will continue to review the estimate of future taxable income and will adjust the valuation allowance accordingly as new information becomes available. Excluding the effects of the valuation allowance, we had $25 million of deferred tax assets related to $72 million in net operating loss carryforwards available to offset future taxable net income at December 31, 2012.
As of December 31, 2012 we held cash and investments of $12.3 million compared to $11.5 million at the end of last year, representing an increase of $0.8 million during 2012. Our cash balance increased due to lower operating expenses, the timing of capital expenditures and improving ACV.
Over the last two years, Onvia has transformed from a transactional lead generation vendor to a customer centric business intelligence partner for businesses with a strategic long term interest in the public sector. We have redefined our target customer, identified their key objectives, and aligned our internal resources (product, marketing, content and sales) to deliver valuable solutions to meet and exceed our customer objectives. By the end of 2012 we believe we have stabilized the core business. We believe we are now well positioned to grow both revenue and net income in 2013 with our new business model offering a high percentage of recurring revenue, best in class customer retention and significant operating leverage.
We focused on four key priorities in 2012, three of which were successful:
| · | Our first 2012 initiative was to continue to drive improvement in our SMB sales organization. All of our key metrics showed improvement in 2012. In the fourth quarter of 2012 ACVC for SMB was $8,891, a 32% improvement over $6,739 in the same period last year. Higher ACVC and an increase in transactions drove a sales increase of 50% for SMB acquisition in 2012. These positive results influenced our decision to scale the SMB acquisition team by 40% to 20 salespeople in the fourth quarter of 2012. |
| · | Our second 2012 initiative was to continue to execute our product roadmap to enhance our solutions, further differentiate us from the competition, and be considered as a valued business intelligence provider to our clients. We launched Onvia 5 which improved the customer experience and user navigation. We introduced Term Contract Center by publishing over 150,000 active term contracts, more coverage than any other source in our industry. We launched the second update to Spending Forecast Center providing Project Previews, a data mining tool, to allow our customers greater ability to find the most relevant information while searching the vast library of budgets and capital improvement plans. |
| · | Our third 2012 initiative was to improve our marketing. We positioned our brand “as intelligence to win more government business” reflecting the future direction of our product roadmap. We revamped our lead generation program and enhanced our web site to improve leads volume and quality. |
One initiative was not as successful as planned:
| · | Overall we were not successful with our initiative to build our Enterprise business. While our enterprise client retention improved in 2012 when compared with 2011, new Enterprise client acquisitions did not grow to the extent we planned. |
In 2012 we stabilized the business, and we have identified four initiatives to accelerate growth in 2013:
| · | Our first initiative is to scale the successful SMB acquisition process with a team which is 40% larger than last year. The success of this initiative will be measured by improving ACVC and the growth rate in acquisition sales year over year. |
| · | Our second initiative is to maximize growth with our SMB customer base. We have proven that we can retain SMB customers with a stronger solution and a well-defined customer care program. We believe that many of our clients are underserved and do not receive the optimal Onvia solution for their public sector business objectives. The success of this initiative will be measured by percentage increase in upsell revenue we are able to generate in 2013 when compared with 2012. |
| · | Our third initiative is to strengthen the value of our database and continue to add solutions to help our customers win more government business. In 2013 we plan to launch Onvia 6 with a workflow user interface, introduce vendor intelligence for competitor and partner analytics, improve the workflow of our lead generation service and expand the agency intelligence that we provide to our customers. The success of this initiative will be measured by our ability to deliver the roadmap on schedule and within budget. |
· | Our fourth initiative is to develop and begin to execute a strategy for Enterprise sales that is scalable for 2014. We intend to define those enterprise accounts as prospects that are the “best fit” for Onvia’s value proposition and organize the sales force by vertical market. Our objective is to be in a position by the end of 2013 to scale Enterprise in 2014 with the right people, process and solutions. The success of this initiative will be measured by the development of this plan by the end of 2013. |
Application of Critical Accounting Policies and Management Estimates
Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from our estimates. In addition, any significant unanticipated changes in any of our assumptions could have a material adverse effect on our business, financial condition, and results of operations. We believe the following are our most significant accounting policies and estimates:
Revenue Recognition
Our revenues are primarily generated from subscriptions, content licenses and management reports. Our subscriptions are generally annual contracts; however, we also offer extended multi-year contracts to our subscription clients, and content licenses are generally multi-year agreements. Subscription and content licenses are recognized ratably over the term of the agreement. We also generate revenue from fees charged for management reports, document download services, and other services, and revenue from these types of services is recognized upon delivery, or, if report refreshes are included, ratably over the service period.
Our subscription services and management information reports are also sold together as a bundled offering. Pursuant to the provisions of Accounting Standard Codification, or ASC, 605-25 Revenue Recognition, we allocate revenue from these bundled sales ratably between the subscription services and the management reports based on their relative fair values, which are consistent with established list prices for those offerings. In October 2009, the FASB issued Accounting Standards Update, or ASU, No. 2009-13, Multiple-Deliverable Revenue Arrangements. This ASU amends the criteria for separating deliverables, and measuring and allocating arrangement consideration to one or more units of accounting. The amendments also establish a selling price hierarchy for determining the selling price of a deliverable. We have adopted the amendments in this ASU for arrangements entered into or materially modified on or after January 1, 2011. Adoption of this pronouncement did not materially impacted reported revenue.
Unearned revenue consists of payments received for prepaid subscriptions, as well as the invoiced, but unpaid, portion of subscriptions and content licenses whose terms extend into periods beyond the balance sheet date.
Internal Use Software
We account for the costs to develop or obtain software for internal use in accordance with ASC 350-40, Intangibles – Goodwill and Other subtopic Internal-Use Software. As a result, we capitalize qualifying computer software costs incurred during the “application development stage.” Amortization of these costs begins once the product is ready for its intended use. These capitalized software costs are amortized on a straight-line basis over the estimated useful life of the product, typically 3 to 5 years. The amount of costs capitalized within any period is dependent on the nature of software development activities and projects in each period.
During the first quarter of 2011, assets that were nearly fully amortized related to aging search technology were replaced with a new platform. Onvia recorded an immaterial loss on this abandonment in operating expenses under the general and administrative category in the twelve months ended December 31, 2011. There were no impairments determined from our analysis in 2012.
Stock-Based Compensation
We account for stock-based compensation according to the provisions of ASC 718 Compensation – Stock Compensation, 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 2 of the “Notes to Consolidated Financial Statements” of this Report for additional information on the estimation of these variables. Actual results, and future changes in estimates, may differ substantially from our current estimates.
Accounts Receivable and Allowance for Doubtful Accounts
We record accounts receivable for the invoiced portion of our contracts once we have a signed agreement and amounts are billable under the contract. All of our subscription contracts are non-cancellable upon activation. We do not record an asset for the unbilled or unearned portion of our contracts. 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.
Income Taxes
Onvia accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and for net operating loss, or NOL, carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance has been established for the majority of the net deferred tax assets as the Company has 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 an ownership change that could occur in the future. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to be deductible. The Company will continue to review the estimate of future taxable income and will adjust the valuation allowance accordingly as new information becomes available.
Non-GAAP Financial Measures
We prepare and publicly release quarterly financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP). The non-GAAP financial measures we may disclose include Adjusted EBITDA and client metrics such as ACV and ACVC. For a discussion regarding our client metrics, please refer the “Clients” section of Item 1 “Business”. We typically disclose Adjusted EBITDA measures in our earnings releases, investor conference calls and filings with the Securities and Exchange Commission. Adjusted EBITDA is not a financial measure calculated and presented in accordance with GAAP and should not be considered as an alternative to net income, operating income or any other financial measures so calculated and presented, nor as an alternative to cash flow from operating activities as a measure of the company’s liquidity. We define Adjusted EBITDA as net income / (loss) before interest and other non-cash financing costs; taxes; depreciation; amortization; and non-cash stock-based compensation. Other companies (including our competitors) may define Adjusted EBITDA differently. We present Adjusted EBITDA because we believe Adjusted EBITDA to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in similar industries and size. Management also uses this information internally for forecasting and budgeting. It may not be indicative of our historical operating results nor is it intended to be predictive of potential future results. Investors should not consider Adjusted EBITDA in isolation or as a substitute for analysis of results as reported under GAAP.
The following table provides reconciliation of GAAP Net Income to Adjusted EBITDA for the indicated periods (in thousands):
| | | Year Ended December 31, | | |
| | | 2012 | | | 2011 | | |
| GAAP net income | | $ | 1,525 | | | $ | 1,553 | | |
| | | | | | | | | | |
| Reconciling items from GAAP to adjusted EBITDA | | | | | | | | | |
| Interest and other income, net | | | (45 | ) | | | (37 | ) | |
| Depreciation and amortization | | | 2,841 | | | | 2,557 | | |
| Amortization of stock-based compensation | | | 239 | | | | 312 | | |
| Benefit for income tax | | | (1,559 | ) | | | (616 | ) | |
| | | | | | | | | | |
| Adjusted EBITDA | | $ | 3,001 | | | $ | 3,769 | | |
Consolidated Results of Operations
The following table provides our selected consolidated results of operations for the indicated periods (in thousands of dollars and as a percentage of total revenue):
| | | Years Ended December 31, | | |
| | | 2012 | | | 2011 | | |
| Revenue: | | | | | | | | | | | | | |
| Subscription | | $ | 18,795 | | | | 85.6 | % | | $ | 19,927 | | | | 86.0 | % | |
| Content license | | | 2,165 | | | | 9.9 | % | | | 2,217 | | | | 9.6 | % | |
| Management information reports | | | 651 | | | | 3.0 | % | | | 628 | | | | 2.7 | % | |
| Other | | | 341 | | | | 1.5 | % | | | 391 | | | | 1.7 | % | |
| Total revenue | | | 21,952 | | | | 100.0 | % | | | 23,163 | | | | 100.0 | % | |
| | | | | | | | | | | | | | | | | | |
| Cost of revenue | | | 3,497 | | | | 15.9 | % | | | 3,602 | | | | 15.6 | % | |
| | | | | | | | | | | | | | | | | | |
| Gross margin | | | 18,455 | | | | 84.1 | % | | | 19,561 | | | | 84.4 | % | |
| | | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | | |
| Sales and marketing expenses | | | 11,065 | | | | 50.4 | % | | | 10,634 | | | | 45.9 | % | |
| Technology and development expenses | | | 4,130 | | | | 18.8 | % | | | 3,914 | | | | 16.9 | % | |
| General and administrative expenses | | | 3,339 | | | | 15.2 | % | | | 4,113 | | | | 17.8 | % | |
| Total operating expenses | | | 18,534 | | | | 84.4 | % | | | 18,661 | | | | 80.6 | % | |
| (Loss) / Income from operations | | | (79 | ) | | | (0.3 | %) | | | 900 | | | | 3.8 | % | |
| Interest and other income, net | | | 45 | | | | 0.2 | % | | | 37 | | | | 0.2 | % | |
| (Loss) / Income before income tax | | | (34 | ) | | | (0.1 | %) | | | 937 | | | | 4.0 | % | |
| Benefit for income taxes | | | 1,559 | | | | 7.1 | % | | | 616 | | | | 2.7 | % | |
| Net income | | $ | 1,525 | | | | 7.0 | % | | $ | 1,553 | | | | 6.7 | % | |
Comparison of Years Ended December 31, 2012 and 2011
Revenue
Revenue decreased 5% to $22.0 million for the year ended December 31, 2012, compared to $23.2 million for the year ended December 31, 2011. Revenues are a lagging indicator of current operations because we mainly recognize revenue on service agreements over the contract period. Due to this policy, the impact of operational improvements is not immediately reflected in our financial results. We believe our declining year over year revenue is directly attributable to planned decline in non-strategic clients.
Cost of Revenue
Cost of revenues for the twelve months ended December 31, 2012 and 2011 were as follows (in thousands):
| | | | | | | | | Increase / (Decrease) | | |
| | | 2012 | | | 2011 | | | Amount | | | Percent | | |
| Twelve months ended December 31, | | $ | 3,497 | | | $ | 3,602 | | | $ | (105 | ) | | | (3 | %) | |
| Percentage of Revenue | | | 16 | % | | | 16 | % | | | | | | | | | |
Our cost of revenue primarily represents payroll-related expenses associated with the capture, research and categorization of the data in our proprietary database and third-party content fees, and also includes credit card processing fees. The decrease for the comparable periods was primarily related to decrease in the third party content costs due to a strategic change in our production model.
Sales and Marketing
Sales and marketing expenses for the twelve months ended December 31, 2012 and 2011 were as follows (in thousands):
| | | | | | | | | Increase / (Decrease) | | |
| | | 2012 | | | 2011 | | | Amount | | | Percent | | |
| Twelve months ended December 31, | | $ | 11,065 | | | $ | 10,634 | | | $ | 431 | | | | 4 | % | |
| Percentage of Revenue | | | 50 | % | | | 46 | % | | | | | | | | | |
The increase in expenses for the comparable periods is primarily comprised of $316,000 increase in payroll-related expenses as a result of realignment of responsibilities of four employees who were included in General and Administrative expenses in the prior period and are now included in Sales and Marketing expenses and higher commissionable sales, $199,000 increase in amortization expenses related to new products launched in 2012 and $92,000 increase in travel expenses primarily due to increased travel to enterprise clients. These increases were partially offset by $162,000 of internal software costs capitalized in 2012 compared to no capitalized internal software costs for the product team in 2011 due to the nature of product development efforts during each year.
Technology and Development
Technology and development expenses for the twelve months ended December 31, 2012 and 2011 were as follows (in thousands):
| | | | | | | | | Increase / (Decrease) | | |
| | | 2012 | | | 2011 | | | Amount | | | Percent | | |
| Twelve months ended December 31, | | $ | 4,130 | | | $ | 3,914 | | | $ | 216 | | | | 6 | % | |
| Percentage of Revenue | | | 19 | % | | | 17 | % | | | | | | | | | |
The increase in expenses for the comparable periods is primarily attributed to a $143,000 increase in amortization expenses due to launch of new products in 2012. This change was offset in part by an $115,000 decrease in capitalized internal software costs (primarily salaries and benefits) attributable to the nature of development efforts during the year and other individually immaterial changes. A smaller percentage of development efforts in 2012 were capitalized pursuant to ASC 350-40, Intangibles – Goodwill and Other Subtopic Internal-Use Software.
General and Administrative
General and administrative expenses for the twelve months ended December 31, 2012 and 2011 were as follows (in thousands):
| | | | | | | | | Increase / (Decrease) | | |
| | | 2012 | | | 2011 | | | Amount | | | Percent | | |
| Twelve months ended December 31, | | $ | 3,339 | | | $ | 4,113 | | | $ | (774 | ) | | | (19 | %) | |
| Percentage of Revenue | | | 15 | % | | | 18 | % | | | | | | | | | |
The decrease in expenses for the comparable periods is primarily related to a $494,000 decrease in payroll related costs due to realignment of responsibilities of four employees who were included in General and Administrative expenses in the prior period and are now included in Sales and Marketing expenses, a $228,000 decrease in facilities costs primarily related to lower rent expense due to the partial impairment of our office lease in 2011, a $51,000 increase in amortization expenses due to launch of new products and other individually immaterial changes. These decreases were offset by $181,000 increase in business taxes, primarily due to tax refund from the City of Seattle received in 2011.
Other Income, Net
Other income, net consists of interest earned on our investment accounts, interest expense associated with capital leases and other miscellaneous income or expense. Other income, net was $45,000, and $37,000 for the years ended December 31, 2012 and 2011, respectively.
Provision for 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 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 majority of the net deferred tax assets as we have determined that the recognition criteria for realization have not been met. Our valuation allowance reduces our deferred tax assets to a level that is more-than-likely-than-not to be recognized. In determining the amount of the valuation allowance we consider whether it is more likely that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to be deductible. We will continue to review the estimate of future taxable income and will adjust the valuation allowance accordingly as new information becomes available.
Utilization of the NOL carryforwards may be subject to a substantial annual limitation due to an ownership change that could occur in the future provided by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 of the Code, results from transactions increasing the ownership of certain “5% stockholders” or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
We performed a Section 382 analysis and identified an ownership change that occurred in September 2001. We believe that, as a result of the annual Section 382 limitation that resulted from the change in control that occurred in September 2001, we permanently will be unable to use a significant portion of our NOL carryforward that arose before the change in control to offset our future taxable income.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents and short-term investments. Our combined cash and cash equivalents and short term investments were $12.3 million at December 31, 2012, and our working capital was $4.3 million. From December 31, 2011 to December 31, 2012, our cash, cash equivalents and short-term investments increased by $0.8 million for the reasons described below under operating, investing and financing activities.
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 provided by operating activities was $2.5 million and $2.3 million for the years ended December 31, 2012 and 2011, respectively. The increase in operating cash flow is primarily due a reduction in operating expenses and improving ACV.
Investing Activities
Net cash used by investing activities was $2.0 million and $6.6 million for the years ended December 31, 2012, and 2011, respectively.
We purchased $15.2 million and $13.4 million in short term investments during the twelve months of 2012 and 2011, respectively. During the twelve months of 2012 we received $14.9 million from the sale and maturity of investments, compared to $8.7 million during the same period of 2011. Purchases of property and equipment and investments in our technology platform decreased by $228,000 in the twelve months of 2012 compared to the same period in 2011. In addition, $45,000 and $135,000 of our security deposit on the lease for our corporate headquarters was returned to us in both March 2012 and March 2011, respectively.
Financing Activities
Net cash used in financing activities was $21,000 for the year ended December 31, 2012 compared to net cash provided by financing activities of $152,000 for the year ended December 31, 2011. The decrease in cash provided by financing activities is due to $77,000 reduction in proceeds from stock options exercises and a $96,000 in principal payments on capital lease for technology equipment in 2012.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The registrant is a Smaller Reporting Company and, therefore, is not required to provide the information under this item.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Onvia, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Onvia, Inc. and subsidiary (the "Company") as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
March 18, 2013
| CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ONVIA, INC.
DECEMBER 31, 2012 AND 2011
| | | December 31, 2012 | | | December 31, 2011 | |
| ASSETS | | | | | | |
| | | | | | | |
| CURRENT ASSETS: | | | | | | |
| Cash and cash equivalents | | $ | 3,888,400 | | | $ | 3,378,006 | |
| Short-term investments, available-for-sale | | | 8,434,944 | | | | 8,148,522 | |
| Accounts receivable, net of allowance for doubtful accounts of $41,548 and $37,410 | | | 1,277,562 | | | | 1,124,306 | |
| Prepaid expenses and other current assets | | | 581,079 | | | | 551,258 | |
| | | | | | | | | |
| Total current assets | | | 14,181,985 | | | | 13,202,092 | |
| | | | | | | | | |
| LONG TERM ASSETS: | | | | | | | | |
| Property and equipment, net of accumulated depreciation | | | 1,729,689 | | | | 1,275,108 | |
| Internal use software, net of accumulated amortization | | | 5,539,834 | | | | 6,174,860 | |
| Deferred tax assets, net of current portion | | | 2,175,000 | | | | 587,830 | |
| Other long-term assets | | | 91,951 | | | | 92,174 | |
| | | | | | | | | |
| Total long term assets | | | 9,536,474 | | | | 8,129,972 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 23,718,459 | | | $ | 21,332,064 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| | | | | | | | | |
| CURRENT LIABILITIES: | | | | | | | | |
| Accounts payable | | $ | 855,348 | | | $ | 609,248 | |
| Accrued expenses | | | 822,740 | | | | 708,711 | |
| Unearned revenue, current portion | | | 7,535,268 | | | | 7,998,655 | |
| Other current liabilities | | | 630,672 | | | | 215,740 | |
| | | | | | | | | |
| Total current liabilities | | | 9,844,028 | | | | 9,532,354 | |
| | | | | | | | | |
| LONG TERM LIABILITIES: | | | | | | | | |
| Unearned revenue, net of current portion | | | 728,398 | | | | 489,316 | |
| Deferred rent, net of current portion | | | 394,277 | | | | 568,235 | |
| Other long-term liabilities | | | 241,463 | | | | 73,570 | |
| | | | | | | | | |
| Total long term liabilities | | | 1,364,138 | | | | 1,131,121 | |
| | | | | | | | | |
| TOTAL LIABILITIES | | | 11,208,166 | | | | 10,663,475 | |
| | | | | | | | | |
| COMMITMENTS AND CONTINGENCIES (Note 10) | | | | | | | | |
| | | | | | | | | |
| STOCKHOLDERS’ EQUITY: | | | | | | | | |
| Preferred stock; $.0001 par value: 2,000,000 shares authorized; no shares issued or outstanding | | | - | | | | - | |
| Common stock; $.0001 par value: 11,000,000 shares authorized; 8,528,307 and 8,494,290 shares issued; and 8,528,281 and 8,494,264 shares outstanding | | | 853 | | | | 849 | |
| Treasury stock, at cost: 26 and 26 shares | | | (129 | ) | | | (129 | ) |
| Additional paid in capital | | | 353,077,517 | | | | 352,761,746 | |
| Accumulated other comprehensive gain | | | 1,281 | | | | 781 | |
| Accumulated deficit | | | (340,569,229 | ) | | | (342,094,658 | ) |
| | | | | | | | | |
| Total stockholders’ equity | | | 12,510,293 | | | | 10,668,589 | |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | $ | 23,718,459 | | | $ | 21,332,064 | |
See notes to consolidated financial statements.
ONVIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011
| | | 2012 | | | 2011 | |
| | | | | | | |
| Revenue | | | | | | |
| Subscription | | $ | 18,795,370 | | | $ | 19,927,431 | |
| Content license | | | 2,165,169 | | | | 2,217,325 | |
| Management information reports | | | 650,909 | | | | 627,506 | |
| Other | | | 341,012 | | | | 391,133 | |
| | | | | | | | | |
| Total revenue | | | 21,952,460 | | | | 23,163,395 | |
| | | | | | | | | |
| Cost of revenue (exclusive of depreciation and amortization included below) | | | 3,497,271 | | | | 3,602,115 | |
| | | | | | | | | |
| Gross margin | | | 18,455,189 | | | | 19,561,280 | |
| | | | | | | | | |
| Operating expenses: | | | | | | | | |
| Sales and marketing | | | 11,065,096 | | | | 10,634,304 | |
| Technology and development | | | 4,130,396 | | | | 3,913,764 | |
| General and administrative | | | 3,338,606 | | | | 4,112,714 | |
| | | | | | | | | |
| Total operating expenses | | | 18,534,098 | | | | 18,660,782 | |
| | | | | | | | | |
| (Loss) / Income from operations | | | (78,909 | ) | | | 900,498 | |
| | | | | | | | | |
| Interest and other income, net | | | 45,338 | | | | 37,174 | |
| | | | | | | | | |
| (Loss) / Income before income tax | | | (33,571 | ) | | | 937,672 | |
| | | | | | | | | |
| Benefit for income taxes | | | 1,559,000 | | | | 616,000 | |
| | | | | | | | | |
| Net income | | $ | 1,525,429 | | | $ | 1,553,672 | |
| | | | | | | | | |
| Unrealized gain on available-for-sale securities | | | 500 | | | | 1,946 | |
| | | | | | | | | |
| Comprehensive income | | $ | 1,525,929 | | | $ | 1,555,618 | |
| | | | | | | | | |
| Basic net income per common share | | $ | 0.18 | | | $ | 0.18 | |
| | | | | | | | | |
| Diluted net income per common share | | $ | 0.17 | | | $ | 0.18 | |
| | | | | | | | | |
| Basic weighted average shares outstanding | | | 8,519,058 | | | | 8,468,375 | |
| | | | | | | | | |
| Diluted weighted average shares outstanding | | | 8,854,647 | | | | 8,508,692 | |
See notes to consolidated financial statements.
ONVIA, INC.
YEARS ENDED DECEMBER 31, 2012 AND 2011
| | | 2012 | | | 2011 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
| Net income | | $ | 1,525,429 | | | $ | 1,553,672 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 2,841,359 | | | | 2,556,730 | |
| Idle lease accrual | | | (69,108 | ) | | | 142,678 | |
| Stock-based compensation | | | 239,440 | | | | 311,539 | |
| Deferred taxes | | | (1,559,000 | ) | | | (616,000 | ) |
| Change in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (153,256 | ) | | | 626,222 | |
| Prepaid expenses and other assets | | | (102,383 | ) | | | 116,167 | |
| Accounts payable | | | 71,964 | | | | (473,100 | ) |
| Accrued expenses | | | 63,489 | | | | (282,668 | ) |
| Unearned revenue | | | (224,305 | ) | | | (1,521,754 | ) |
| Deferred rent | | | (146,632 | ) | | | (116,839 | ) |
| | | | | | | | | |
| Net cash provided by operating activities | | | 2,486,997 | | | | 2,296,647 | |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Additions to property and equipment | | | (371,738 | ) | | | (516,649 | ) |
| Additions to internal use software | | | (1,342,152 | ) | | | (1,425,666 | ) |
| Purchases of investments | | | (15,184,988 | ) | | | (13,443,560 | ) |
| Sales of investments | | | 2,273,152 | | | | 1,350,000 | |
| Maturities of investments | | | 12,625,914 | | | | 7,308,495 | |
| Return of security deposits | | | 44,615 | | | | 134,517 | |
| | | | | | | | | |
| Net cash used in investing activities | | | (1,955,197 | ) | | | (6,592,863 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Principal payments on capital lease obligations | | | (96,031 | ) | | | - | |
| Proceeds from exercise of stock options | | | 74,625 | | | | 151,648 | |
| | | | | | | | | |
| Net cash (used in) / provided by financing activities | | | (21,406 | ) | | | 151,648 | |
| | | | | | | | | |
| Net increase / (decrease) in cash and cash equivalents | | | 510,394 | | | | (4,144,568 | ) |
| | | | | | | | | |
| Cash and cash equivalents, beginning of period | | | 3,378,006 | | | | 7,522,574 | |
| | | | | | | | | |
| Cash and cash equivalents, end of period | | $ | 3,888,400 | | | $ | 3,378,006 | |
| | | | | | | | | |
| | | | | | | | | |
| SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | |
| Unrealized gain on available-for-sale investments | | $ | 500 | | | $ | 1,946 | |
| Purchases under capital lease obligations | | | (115,134 | ) | | | - | |
| Property and equipment additions in accounts payable | | | (152,383 | ) | | | (3,309 | ) |
| Property and equipment additions in accrued and other current and long-term liabilities | | | (581,066 | ) | | | - | |
| Internal use software additions in accounts payable | | | (185,973 | ) | | | (82,608 | ) |
| Non-cash proceeds from sale of equipment | | | - | | | | 2,790 | |
See notes to consolidated financial statements.
ONVIA, INC.
YEARS ENDED DECEMBER 31, 2012 AND 2011
| | | Common stock | | | Treasury stock | | | Additional | | | Accumulated other | | | Accumulated | | | | |
| | | Shares | | | Amount | | | Shares | | | Amount | | | paid in capital | | | comprehensive loss | | | deficit | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| BALANCE, January 1, 2011 | | | 8,430,579 | | | $ | 843 | | | | 26 | | | $ | (129 | ) | | $ | 352,297,822 | | | $ | (1,165 | ) | | $ | (343,648,330 | ) | | $ | 8,649,041 | |
| Exercise of stock options | | | 53,751 | | | | 5 | | | | | | | | | | | | 125,707 | | | | | | | | | | | | 125,712 | |
| Purchases under Employee Stock Purchase Plan | | | 9,934 | | | | 1 | | | | | | | | | | | | 25,935 | | | | | | | | | | | | 25,936 | |
| Stock-based compensation | | | | | | | | | | | | | | | | | | | 312,282 | | | | | | | | | | | | 312,282 | |
| Unrealized gain on available-for-sale investments | | | | | | | | | | | | | | | | | | | | | | | 1,946 | | | | | | | | 1,946 | |
| Net loss | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,553,672 | | | | 1,553,672 | |
| BALANCE, December 31, 2011 | | | 8,494,264 | | | | 849 | | | | 26 | | | | (129 | ) | | | 352,761,746 | | | | 781 | | | | (342,094,658 | ) | | | 10,668,589 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Exercise of stock options | | | 25,375 | | | | 3 | | | | | | | | | | | | 49,093 | | | | | | | | | | | | 49,096 | |
| Purchases under Employee Stock Purchase Plan | | | 8,642 | | | | 1 | | | | | | | | | | | | 25,528 | | | | | | | | | | | | 25,529 | |
| Stock-based compensation | | | | | | | | | | | | | | | | | | | 241,150 | | | | | | | | | | | | 241,150 | |
| Unrealized gain on available-for-sale investments | | | | | | | | | | | | | | | | | | | | | | | 500 | | | | | | | | 500 | |
| Net income | | | - | | | | - | | | | - | | | | - | | | | - | | | | - | | | | 1,525,429 | | | | 1,525,429 | |
| BALANCE, December 31, 2012 | | | 8,528,281 | | | $ | 853 | | | | 26 | | | $ | (129 | ) | | $ | 353,077,517 | | | $ | 1,281 | | | $ | (340,569,229 | ) | | $ | 12,510,293 | |
See notes to consolidated financial statements.
ONVIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011
| Note 1: | Summary of Significant Accounting Policies |
Description of business
Onvia (together with its subsidiary, “Onvia” or the “Company”) is a leading provider of business information and research solutions that help companies plan, market and sell to government agencies throughout the United States, or U.S. Onvia’s business solution provides clients online access to a proprietary database of government procurement opportunities across the federal, state, local, and education sectors. The business intelligence derived from our database allows clients to identify new market opportunities, analyze market trends, and obtain insights about their competitors and channel partners. We believe our business solutions provide clients with a distinct competitive advantage, increased revenue opportunities, and strategic insight into the public sector market.
Basis of consolidation
Onvia has a wholly-owned subsidiary in Canada; however, there was no business activity in this subsidiary in the fiscal years ended December 31, 2012 or 2011.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires the Company’s management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates include the fair value of stock-based compensation, allowance for doubtful accounts, recoverability of long-lived assets, idle lease accrual and the valuation allowance for Onvia’s net operating losses. 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.
Revenue recognition
Onvia’s revenues are primarily generated from client subscriptions, content licenses and management reports. Onvia’s subscriptions are generally annual contracts; however, the Company also offers extended multi-year contracts to its subscription clients, and content licenses are generally multi-year agreements. Subscription fees and content licenses are recognized ratably over the term of the agreement. Onvia also generates revenue from fees charged for management reports, document download services, and other services; revenue from these types of services is recognized upon delivery, or, if report refreshes are included, ratably over the service period.
Onvia’s subscription services and management reports are also sold together as a bundled offering. Pursuant to the provisions of Accounting Standard Codification, or ASC, 605-25 Revenue Recognition, the Company allocates revenue from these bundled sales ratably between the subscription services and the management reports based on established list prices for those offerings. Pursuant to the FASB Accounting Standards Update, or ASU, No. 2009-13, Multiple-Deliverable Revenue Arrangements the Company measures and allocates arrangement consideration to one or more units of accounting for seapate deliverables. The Company also establishes a selling price hierarchy for determining the selling price of a deliverable.
Unearned revenue consists of payments received for prepaid subscriptions, as well as the invoiced, but unpaid, portion of subscriptions and content licenses whose terms extend into periods beyond the balance sheet date.
Fair value of financial instruments
Onvia’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, security deposits, accounts payable, and accrued liabilities. The carrying amounts of the current portion of the financial instruments approximate fair value due to their short maturities. The carrying value of the long-term portion of security deposits approximates fair value as the interest rate is at market value. All investments, when held, are classified as available-for-sale and are reported at fair value based on market quotes, and unrealized gains or losses on these investments are recorded in stockholders’ equity and reported in comprehensive income.
Cash, cash equivalents and investments
Onvia considers all highly liquid instruments with remaining maturities at purchase of 90 days or less to be cash equivalents. The fair value of the money market funds, included in cash equivalents, at December 31, 2012 and 2011, was classified as Level 1 under Financial Accounting Standard Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, as amounts were based on quoted prices available in active markets for identical investments as of the reporting date. Investments with original maturities of greater than 90 days, but with remaining maturities of less than one year are classified as short-term, and investments with remaining maturities of 365 days or greater are classified as long-term. All investments are classified as available-for-sale with any gain/loss recorded in comprehensive income.
Management of credit risk
Onvia is subject to concentration of credit risk, primarily from its investments and customer contracts. Onvia manages its credit risk for investments by purchasing investment-grade securities and diversifying its investment portfolio among issuers and maturities. Currently, the Company invests primarily in FDIC insured or government backed funds and securities to mitigate the credit risk associated with its investment portfolio. The Company manages credit risks on customer contracts by adhering to common underwriting practices.
Property and equipment
Equipment and leasehold improvements are stated at cost, net of accumulated depreciation. Depreciation expense on software, furniture, and equipment is recorded using the straight-line method over estimated useful lives of three to five years. Leasehold improvements are depreciated over the shorter of their useful lives or the remaining term of the underlying lease.
The Company periodically evaluates its long-lived assets for impairment in accordance with ASC 360, Property, Plant, and Equipment – Impairment or Disposal of Long-Lived Assets. ASC 360-40 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 the Company’s long-lived assets might be impaired, the Company analyzes the estimated undiscounted future cash flows to be generated from the applicable asset. In addition, the Company records an impairment loss to the extent that the carrying value of the asset exceeds the fair value of the asset. Fair value is generally determined using an estimate of discounted future net cash flows from operating activities or upon disposal of the asset. No assets were impaired during the years ended December 31, 2012 or 2011.
Internal use software
ASC 350-40, Intangibles – Goodwill and Other subtopic Internal-Use Software, requires all costs related to the development of internal use software, other than those incurred during the application development stage, to be expensed as incurred. Costs incurred during the application development stage are required to be capitalized and amortized over the estimated useful life of the software. Capitalized software costs are amortized on a straight-line basis over their expected economic lives, typically 3 to 5 years. The amount of costs capitalized within any period is dependent on the nature of software development activities and projects in each period.
Pursuant to ASC 360, Property, Plant, and Equipment, Onvia periodically evaluates the remaining useful lives of internal use software and will record an abandonment if management determines that all or a portion of the asset will no longer be used, or will adjust the remaining useful life to reflect revised estimates for impairment in accordance with ASC 360 as described above under “Property and equipment.” In addition, if the carrying value of the software exceeds the estimated future cash flows, an impairment will be recorded to reduce the carrying value to the expected realizable value.
Income taxes
Onvia accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and for net operating loss, or NOL, carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance has been established for the majority of the net deferred tax assets as the Company has determined that the recognition criteria for realization have not been met. The deferred tax asset has been reduced by a valuation allowance that reduces the amount of our deferred tax asset to a level that is more-than-likely-than-not to be recognized. In determining the amount of the valuation allowance the Company considers whether it is more likely that some portion or all of the deferred tax assets will not be realized.
Utilization of the NOL carryforwards may be subject to a substantial annual limitation due to an ownership change that could occur in the future provided by Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 of the Code, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.
Onvia performed a Section 382 analysis and identified an ownership change that occurred in September 2001. We believe that, as a result of the annual Section 382 limitation that resulted from the change in control that occurred in September 2001, we permanently will be unable to use a significant portion of our NOL carryforwards that arose before the change in control to offset future taxable income. As such, we reduced our NOL deferred tax asset by the amount of NOLs that we will permanently be unable to utilize, which in turn resulted in a reduction to our valuation allowance.
Our valuation allowance reduces our deferred tax assets to a level that is more-than-likely-than-not to be recognized. In determining the amount of the valuation allowance we consider whether it is more likely that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to be deductible. We will continue to review the estimate of future taxable income and will adjust the valuation allowance accordingly as new information becomes available.
Treasury stock
Onvia accounts for treasury stock using the cost method. As of December 31, 2012, the Company held 26 shares of treasury stock with a cost basis of $129. The Company holds the treasury shares to fund matching contributions to its 401K retirement plan for employee contributions. As discussed in Note 11, no treasury shares were used to fund matching contributions for 2012 or 2011 employee contributions.
Other comprehensive income or loss
Comprehensive income or loss is the change in equity from transactions and other events and circumstances other than those resulting from investments by and distributions to owners. Other comprehensive income or loss for Onvia consists of unrealized gains and losses on available-for-sale investments.
Net income or loss per share
Basic income or loss per share is calculated by dividing net income or loss for the period by the weighted average shares of common stock outstanding for the period. Diluted earnings per share is calculated by dividing net income or loss per share by the weighted average common stock outstanding for the period plus dilutive potential common shares using the treasury stock method. In periods with a net loss, basic and diluted earnings per share are identical because inclusion of potentially dilutive common shares would be antidilutive.
For the year ended December 31, 2012, options to purchase 529,534 shares of common stock with exercise prices greater than the average fair market value of our stock during the year of $3.71, were not included in the calculation because the effect would have been anti-dilutive. For the year ended December 31, 2011, options to purchase 1,171,029 shares of common stock with exercise prices greater than the average fair market value of our stock during the year of $3.79, were not included in the calculation because the effect would have been anti-dilutive.
Recent accounting pronouncements
On January 1, 2012, we adopted guidance issued by the Financial Accounting Standards Board, or FASB, on accounting and disclosure requirements related to fair value measurements. The guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. Adoption of this new guidance did not have a material impact on our financial statements.
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. This update provides enhanced disclosure requirements regarding the nature of an entity’s right of offset related to arrangements associated with its financial instruments and derivative instruments. The new guidance requires the disclosure of the gross amounts subject to rights of set-off, the amounts offset in accordance with the accounting standards followed, and the related net exposure. The new guidance will be effective for the Company beginning in the first quarter of fiscal year 2014. This pronouncement is effective for financial reporting period beginning on or after January 1, 2013 and full retrospective application is required. The adoption of this amendment concerns disclosure only and the Company does not expect it to have an impact on the Company’s consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, which amends current comprehensive income guidance. This ASU requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. This ASU will be effective for public companies during the interim and annual periods beginning after December 15, 2011 with early adoption permitted. The early adoption of this ASU did not have an impact on the Company’s consolidated financial statements. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standard Update NO, 2011-05, which defers certain requirements within ASU 2011-05. The adoption of these ASUs does not have an impact on the Company’s consolidated financial statements.
| Note 2: | Stock-Based Compensation and Stock Option Activity |
Pursuant to the provisions of ASC 718, Compensation – Stock Compensation, or ASC 718, Onvia measures compensation cost for all stock-based awards at fair value on the date of grant. The fair value of stock options is determined using the Black-Scholes valuation model. Such value is recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from the Company’s current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. Management considers many factors when estimating expected forfeitures, including employee class, historical experience and expected future activity. Actual results, and future changes in estimates, may differ substantially from management’s current estimates.
Stock-Based Benefit Plans
Onvia, Inc. 2008 Equity Incentive Plan
The Onvia, Inc. 2008 Equity Incentive Plan, or the 2008 Plan, was adopted in September 2008 and it amended and restated the previous 1999 Stock Option Plan, or the 1999 Plan. Shares that were outstanding from the 1999 Plan will continue to be outstanding under that plan until forfeited, at which time they would be added back to the 2008 Plan. The 2008 Plan provides for the issuance of incentive and nonqualified common stock options, stock awards, restricted stock, restricted stock units and stock appreciation rights. Awards under this plan can be granted for ten years after the adoption date. The 2008 Plan requires that the exercise price for all options to be at least 100% of the fair market value of the underlying shares on the date of grant. The 2008 Plan contains specific provisions that govern awards in the event of a change in control and provides for compliance with the requirements of Section 409A of the Internal Revenue Code to the extent that awards are treated as deferred compensation. All employees, officers, directors and consultants of Onvia are eligible to participate in the 2008 Plan, although it is not anticipated that every eligible employee or consultant will receive awards. Options under this plan vest in increments over time, but typically have either a four or five year vesting schedule, normally with 25% or 20%, respectively, vesting one year from the grant date and ratable monthly vesting thereafter. As of December 31, 2012 the total number of options outstanding and the number of shares available for issuance under the 2008 Plan were 655,306 and 777,768, respectively.
2000 Directors’ Stock Option Plan
In March 2000, Onvia adopted a Directors’ Stock Option Plan or the Directors’ Plan. This plan expired on February 28, 2010. Options granted under this plan will remain active and will continue to vest according to the original grant provisions. Grants were made under this plan to each eligible board member on the date such person was first elected or appointed as a board member. At each annual stockholders’ meeting, each non-employee director was granted an additional option to purchase 1,000 shares of common stock under the Directors’ Plan, provided such person had been a board member of Onvia for at least the prior six months. The initial option grants under the Directors’ Plan vested 25% each year for four years on the anniversary of the date of grant had a term of ten years, and an exercise price equal to the closing price of Onvia’s stock on the grant date. The annual grants vest in full one year from the date of grant, have a ten year life, and an exercise price equal to the closing price on the date of grant. As of December 31, 2008, all shares available for issuance under the Directors’ Plan had been granted. Accordingly, on October 23, 2008, the Board of Directors approved the stock option grants with the same terms described above (historically made under our Directors’ Plan) under the Company’s 2008 Equity Incentive Plan.
Employee Stock Purchase Plan
In May 2000, Onvia adopted the 2000 Employee Stock Purchase Plan, or ESPP, and initially authorized 60,000 shares of common stock for issuance under the ESPP. Each year, the number of shares authorized for issuance under the ESPP is increased by the lesser of: 1% of the total number of shares of common stock then outstanding; 60,000 shares; or a lesser number of shares as determined by the Board of Directors. Under the ESPP, an eligible employee may purchase shares of Onvia common stock, based on certain limitations, at a price equal to the lesser of 85% of the fair market value of the common stock at the beginning or end of the respective offering period. This plan is compensatory under the provisions of ASC 718 and the fair value of purchases under the ESPP is recognized as compensation expense over the term of the awards. The ESPP purchases shares on a semi-annual basis. The total number of shares authorized for future issuance under the ESPP as of December 31, 2012 was 491,074 shares.
Impact on Results of Operations
The impact on Onvia’s results of operations of recording stock-based compensation for the years ended December 31 was as follows:
| | | 2012 | | | 2011 | | |
| Cost of sales | | $ | 1,027 | | | $ | 4,555 | | |
| Sales and marketing | | | (3,887 | ) | | | 48,455 | | |
| Technology and development | | | 54,225 | | | | 29,838 | | |
| General and administrative | | | 188,075 | | | | 228,691 | | |
| Total stock-based compensation | | $ | 239,440 | | | $ | 311,539 | | |
Stock-based compensation for the twelve months of 2012 includes the impact of options forfeited upon the departure of our Vice President of Enterprise Sales and Vice President of Content, which resulted in the reversal of approximately $62,000 in previously recognized expenses on forfeited options.
Valuation Assumptions
Onvia calculated the fair value of each option award on the date of grant using the Black-Scholes valuation model. The following weighted average assumptions were used for options granted in the years ending December 31:
| | | 2012 | | | 2011 | | |
| Risk-free interest rate | | | 1.00 | % | | | 1.95 | % | |
| Expected volatility | | | 52 | % | | | 50 | % | |
| Expected dividends | | | 0 | % | | | 0 | % | |
| Expected life (in years) | | | 4.9 | | | | 5.8 | | |
The fair value of each employee purchase under the ESPP is estimated on the first day of each purchase period using the Black-Scholes valuation model. Purchase periods begin on May 1 and November 1 of each year. The following weighted average assumptions were used for purchase periods beginning during the years ended December 31 under the ESPP:
| | | 2012 | | | 2011 | | |
| Risk-free interest rate | | | 0.15 | % | | | 0.08 | % | |
| Expected volatility | | | 48 | % | | | 53 | % | |
| Expected dividends | | | 0 | % | | | 0 | % | |
| Expected life (in years) | | | 0.5 | | | | 0.5 | | |
Risk-Free Interest Rate
The average risk free interest rate was determined based on the market yield for U.S. Treasury securities for the expected term of the grant at the time of grant.
Expected Volatility
ASC 718 requires companies to estimate expected volatility over the expected term of the options granted.
Management used the historical volatility of Onvia’s common stock to estimate the future volatility of its common stock for purposes of estimating the fair value of options granted during 2012 and 2011.
Expected Dividends
Management does not currently intend to pay dividends; therefore, this assumption is set at 0%.
Expected Life
Onvia’s computation of expected life was determined based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting schedules and expectations of future employee behavior. Onvia’s historical experience is limited, because the Company does not have complete life-cycle information on any of its options; therefore, management was required to estimate future exercise and cancellation behavior, generally by assuming that remaining shares would be exercised or cancelled ratably over their remaining contractual term, adjusted for certain expectations of future employee behavior. Management examined the behavior patterns separately for distinct groups of employees that have similar historical experience.
Stock Option Activity
The following table summarizes activity under Onvia’s equity incentive plans for the year ended December 31, 2012:
| | | Options Outstanding | | | Weighted Average Exercise Price | | | Weighted Average Remaining Contractual Term (in years) | | | Aggregate Intrinsic Value (1) | |
| | | | | | | | | | | | | |
| Total options outstanding at January 1, 2012 | | | 1,579,410 | | | $ | 6.81 | | | | | | | | | |
| Options granted | | | 241,000 | | | | 3.26 | | | | | | | | | |
| Options exercised | | | (25,375 | ) | | | 1.93 | | | | | | | | | |
| Options forfeited and cancelled | | | (697,799 | ) | | | 9.27 | | | | | | | | | |
| Total options outstanding at December 31, 2012 | | | 1,097,236 | | | $ | 4.58 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Options exercisable at December 31, 2012 | | | 660,828 | | | $ | 5.34 | | | | 4.00 | | | $ | 179,529 | |
| Options vested and expected to vest at December 31, 2012 | | | 1,064,995 | | | $ | 4.62 | | | | 5.76 | | | $ | 382,012 | |
(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 $3.68 at December 31, 2012 for options that were in-the-money at December 31, 2012. The number of in-the-money options outstanding and exercisable at December 31, 2012 was 526,702 and 195,715, respectively.
The weighted average grant date fair value of options granted during the years ended December 31, 2012 and 2011 was $1.44 and $1.85 per share, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012 and 2011 was $34,362 and $91,758, respectively.
As of December 31, 2012, there was approximately $317,000 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 1.58 years.
During the years ended December 31, 2012 and 2011, respectively, approximately $75,000 and $152,000 was received for exercises of stock options and purchases under Onvia’s ESPP.
Restricted Stock Units
The following table summarizes changes in non-vested restricted stock units (“RSUs”) for the twelve months ended December 31, 2012:
| | | Number of shares | | | Weighted Average Grant Date Fair Value | | |
| Non-vested balance at January 1, 2012 | | | 13,954 | | | $ | 4.12 | | |
| Granted | | | - | | | | - | | |
| Vested | | | - | | | | - | | |
| Forfeited / Expired | | | - | | | | - | | |
| Non-vested balance at December 31, 2012 | | | 13,954 | | | $ | 4.12 | | |
All RSUs were granted in the first quarter of 2011 and valued on the grant date based upon the fair value of the underlying common stock on the grant date. Prior to the first quarter of 2011, no RSUs had been granted. The value of the RSUs granted is recognized as compensation expense over the applicable vesting period. The RSUs granted during the first quarter of 2011 have a three year vesting period and were subject to accelerated vesting based upon achievement of 2011 financial targets. The 2011 financial targets were not achieved and therefore these RSU’s will fully vest on December 31, 2013. As of December 31, 2012, there was $19,593 of total unrecognized compensation cost related to non-vested RSU’s and remaining unrecognized compensation cost associated with these RSUs is expected to be recognized over a weighted average period of one year.
| Note 3: | Short-Term Investments |
In accordance with ASC 320, Investments – Debt and Equity Securities, Onvia classifies short-term investments in debt securities as available-for-sale at December 31, 2012, stated at fair value as summarized in the following table:
| | | December 31, 2012 | | |
| | | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value | | |
| | | | | | | | | | | | | | |
| U.S. Government backed securities | | $ | 3,922,428 | | | $ | 867 | | | $ | (211 | ) | | $ | 3,923,084 | | |
| Certificate of Deposit (1) | | | 4,056,977 | | | | 468 | | | | - | | | | 4,057,445 | | |
| Corporate Bonds | | | 454,233 | | | | 182 | | | | - | | | | 454,415 | | |
| | | $ | 8,433,638 | | | $ | 1,517 | | | $ | (211 | ) | | $ | 8,434,944 | | |
(1) We evaluated certificates of deposits held as of December 31, 2012 and concluded that they meet the definition of securities as defined in ASC 320.
Onvia accounts for short-term investments in accordance with ASC 820, Fair Value Measurements and Disclosures, which defines fair value as the exchange price that would be received for an asset, or paid to transfer a liability (an exit price), in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities;
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Onvia uses the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following table summarizes, by major security type, short-term investments classified as available-for-sale at December 31, 2012, stated at fair value:
| | | Fair Value Measurements as of December 31, 2012 | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Balance as of December 31, 2012 | | |
| Description | | | | | | | | | | | | | |
| U.S. Government backed securities | | $ | - | | | $ | 3,923,084 | | | $ | - | | | $ | 3,923,084 | | |
| Certificate of Deposit | | | - | | | | 4,057,445 | | | | - | | | | 4,057,445 | | |
| Corporate Bonds | | | - | | | | 454,415 | | | | - | | | | 454,415 | | |
| | | $ | - | | | $ | 8,434,944 | | | $ | - | | | $ | 8,434,944 | | |
There were no transfers in or out of Level 1 or Level 2 investments during the fourth quarter of 2012, and there was no activity in Level 3 fair value measurements during that period.
| Note 4: | Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets consist of the following at December 31:
| | | 2012 | | | 2011 | | |
| Prepaid expenses | | $ | 529,312 | | | $ | 452,015 | | |
| Interest receivable | | | 35,742 | | | | 18,511 | | |
| Other receivables | | | 16,025 | | | | 7,723 | | |
| Security deposits, current portion | | | - | | | | 44,839 | | |
| Deferred tax assets, current portion | | | - | | | | 28,170 | | |
| | | $ | 581,079 | | | $ | 551,258 | | |
Pursuant to Onvia’s current lease for corporate office space, Onvia provided a security deposit of $538,000, which is reduced annually on a straight line basis over the first three years of the lease beginning with the first anniversary of the commencement date. On the fourth anniversary of the commencement date, $45,000 will be returned to Onvia, and the balance of $90,000 will be returned in October 2015 upon termination of the existing lease agreement. In March 2012 and 2011, $45,000 and $135,000 was returned to the Company, respectively.
| Note 6: | Property and Equipment |
Property and equipment consists of the following at December 31:
| | | 2012 | | | 2011 | | |
| | | | | | | | |
| Computer equipment | | $ | 3,980,808 | | | $ | 3,829,731 | | |
| Software | | | 1,695,038 | | | | 956,916 | | |
| Furniture and fixtures | | | 107,113 | | | | 107,113 | | |
| Leasehold improvements | | | 882,602 | | | | 882,602 | | |
| | | | | | | | | | |
| Total cost basis | | | 6,665,561 | | | | 5,776,362 | | |
| | | | | | | | | | |
| Less accumulated depreciation and amortization | | | (4,935,872 | ) | | | (4,501,254 | ) | |
| | | | | | | | | | |
| Net book value | | $ | 1,729,689 | | | $ | 1,275,108 | | |
During the twelve months of 2012, Onvia disposed of fully depreciated computer equipment valued at $319,000 and $5,000 of fully depreciated software compared to disposal of $268,000 of fully depreciated computer equipment and $183,000 of fully depreciated software for the same period of 2011.
Depreciation expense was $759,000 and $763,000 for the twelve months ended December 31, 2012 and 2011, respectively.
| Note 7: | Internal Use Software |
Onvia capitalizes qualifying computer software costs incurred during the “application development stage” and other costs as permitted by ASC 350-40, Intangibles – Goodwill and Other Subtopic Internal-Use Software. Amortization of these costs begins once the product is ready for its intended use. These costs are amortized on a straight-line basis over the estimated useful life of the product, typically 3 to 5 years. The amount of costs capitalized within any period is dependent on the nature of software development activities and projects in each period.
Onvia periodically evaluates the remaining useful lives and carrying values of internal use software. If management determines that all or a portion of the asset will no longer be used, or the estimated remaining useful life differs from existing estimates, an abandonment will be recorded to reduce the carrying value or adjust the remaining useful life to reflect revised estimates. In addition, if the carrying value of the software exceeds the estimated future cash flows, an impairment will be recorded to reduce the carrying value to the expected realizable value.
The following table presents a rollforward of capitalized internal use software for the twelve months ended December 31, 2012:
| | | Balance at December 31, 2011 | | | Additions | | | Balance at December 31, 2012 | | |
| Capitalized Internal Use Software | | $ | 11,457,945 | | | $ | 1,447,227 | | | $ | 12,905,172 | | |
| Accumulated amortization | | | (5,283,085 | ) | | | (2,082,253 | ) | | | (7,365,338 | ) | |
| | | $ | 6,174,860 | | | $ | (635,026 | ) | | $ | 5,539,834 | | |
Amortization expense related to capitalized software was $2.1 million and $1.8 million for the twelve months ended December 31, 2012 and 2011, respectively.
Accrued expenses consist of the following at December 31:
| | | 2012 | | | 2011 | | |
| Payroll and related liabilities | | $ | 586,570 | | | $ | 575,298 | | |
| Taxes payable and other | | | 236,170 | | | | 133,413 | | |
| | | $ | 822,740 | | | $ | 708,711 | | |
Other current liabilities consist of the following at December 31:
| | | 2012 | | | 2011 | | |
| Idle lease accrual, current portion | | $ | 21,267 | | | $ | 69,108 | | |
| Obligations under capital leases, current portion | | | 94,082 | | | | - | | |
| Deferred rent, current portion | | | 173,958 | | | | 146,632 | | |
| Other current liabilities | | | 341,365 | | | | - | | |
| | | $ | 630,672 | | | $ | 215,740 | | |
The amount of current and deferred income tax (benefit) / expense included in the financial statements for the years ended December 31 was as follows:
| | | 2012 | | | 2011 | | |
| Current Tax (Benefit) / Expense | | $ | - | | | $ | - | | |
| Deferred Tax (Benefit) / Expense | | | (1,559,000 | ) | | | (616,000 | ) | |
| Total Income Tax (Benefit) / Expense | | $ | (1,559,000 | ) | | $ | (616,000 | ) | |
The following table provides reconciliation between the statutory income tax rate and the Company’s effective tax rate for the years ended December 31:
| | | 2012 | | | 2011 | | |
| Tax (benefit) / expense at statutory rate | | | 34.0 | % | | | 34.0 | % | |
| Stock-based compensation | | | -111.2 | % | | | 7.2 | % | |
| Amortization of goodwill | | | 50.6 | % | | | -1.8 | % | |
| Meals and entertainment | | | -20.5 | % | | | 1.4 | % | |
| Increase / (decrease) in valuation allowance | | | 4691.1 | % | | | -106.5 | % | |
| Net tax expense | | | 4644.0 | % | | | -65.7 | % | |
Onvia’s deferred tax asset consists of the following as of December 31:
| | | 2012 | | | 2011 | | |
| Deferred Tax Assets | | | | | | | |
| Net operating loss carryforward | | $ | 24,631,963 | | | $ | 24,900,758 | | |
| Accrued expenses not currently deductible | | | 1,176,721 | | | | 1,160,472 | | |
| Depreciation different for tax purposes | | | 1,054,235 | | | | 1,008,598 | | |
| Deferred Tax Asset Total | | | 26,862,919 | | | | 27,069,828 | | |
| | | | | | | | | | |
| Deferred Tax Liability | | | | | | | | | |
| Prepaid expenses | | | (182,139 | ) | | | (154,534 | ) | |
| Depreciation different for tax purposes | | | (1,880,736 | ) | | | (2,099,452 | ) | |
| Deferred Tax Liabilities Total | | | (2,062,875 | ) | | | (2,253,986 | ) | |
| | | | | | | | | | |
| Net deferred tax asset before valuation allowance | | | 24,800,044 | | | | 24,815,842 | | |
| Valuation allowance | | | (22,625,044 | ) | | | (24,199,842 | ) | |
| Net deferred tax asset after valuation allowance | | $ | 2,175,000 | | | $ | 616,000 | | |
The deferred tax asset has been reduced by a valuation allowance that reduces the amount of our deferred tax asset to a level that is more-than-likely-than-not to be recognized. In determining the amount of the valuation allowance we consider whether it is more likely that some portion or all of the deferred tax assets will not be realized. The Company weighed each piece of evidence in a qualitative and quantitative analysis and based upon its judgment determined that the weight of the positive evidence was sufficient to conclude that the Company will more-than-likely-than-not realize a portion of its U.S. deferred tax assets.
Accordingly, the Company released a valuation allowance on these deferred tax assets as of December 31, 2012, in the amount of $1.6 million and reflected this income tax benefit in the results from continuing operations. The financial projections supporting the Company’s conclusion to release a portion of its valuation allowance contain significant assumptions and estimates of future operations. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are expected to be deductible. Onvia considers the scheduled reversal of deferred tax liabilities, projected future taxable income and projections for future taxable income over the periods in which the deferred tax assets are expected to be deductible.
As of December 31, 2012 and 2011 Onvia had available U.S. federal net operating losses in the amount of $72,446,952 and 73,237,522 which expire at various times from 2022 through 2031.
The following is a summary of the changes in our net operating losses available for utilization in future years.
| Net operating loss available at December 31, 2011 | | $ | 73,237,522 | | |
| 2012 utilization | | | (790,570 | ) | |
| Net operating loss available at December 31, 2012 | | $ | 72,446,952 | | |
Onvia files an income tax return in the United States. We are no longer subject to federal income tax examination for years before 2009. Onvia also has available NOLs generated in tax years 2001 to 2010 that, if used, could be subject to examination by taxing authorities.
| Note 10: | Commitments and Contingencies |
Operating leases
Total rent expense associated with our real estate operating leases was $764,215 and $978,475 for the years ended December 31, 2012 and 2011, respectively. Onvia also has a non-cancellable operating lease for office equipment, which expires in July 2014.
Future minimum lease payments required on non-cancellable operating leases are as follows for the years ending December 31:
| | | Operating Leases | | | Operating Lease | | | Operating Leases | |
| | | | | | | | | | |
| 2013 | | | 1,011,903 | | | | 18,251 | | | | 1,030,154 | |
| 2014 | | | 1,042,260 | | | | 10,647 | | | | 1,052,907 | |
| 2015 | | | 894,171 | | | | - | | | | 894,171 | |
| | | $ | 2,948,334 | | | $ | 28,898 | | | $ | 2,977,232 | |
Capital Leases
In December 2011, 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 year ended December 31:
| | | Principal | | | Interest | | | Total | |
| 2013 | | | 94,081 | | | | 1,950 | | | | 96,031 | |
| | | $ | 94,081 | | | $ | 1,950 | | | $ | 96,031 | |
Purchase Obligations
Onvia has non-cancellable purchase obligations for software development and license agreements, co-location hosting arrangements, telecom agreements, marketing agreements and third-party content agreements. The agreements expire in dates ranging from 2013 to 2016. Future required payments under these non-cancellable agreements are as follows for the years ending December 31:
| | | Obligations | | |
| | | | | |
| 2013 | | | 865,909 | | |
| 2014 | | | 578,095 | | |
| Thereafter | | | 481,242 | | |
| | | $ | 1,925,246 | | |
Legal Proceedings
From time to time, legal proceedings may arise in the ordinary course of business. Although the outcomes of legal proceedings are inherently difficult to predict, we are not currently involved in any legal proceeding in which the outcome, in our judgment based on information currently available, is likely to have a material adverse effect on our business or financial position.
| Note 11: | Employee Retirement Plan |
In March 2000, Onvia adopted a Savings and Retirement Plan (the “Retirement Plan”), which is a defined contribution plan. The Retirement Plan is a qualified salary reduction plan in which all eligible employees may elect to have a percentage of their pre-tax compensation contributed to the Retirement Plan, subject to certain guidelines issued by the Internal Revenue Service.
In January 2006, the Retirement Plan was amended to add a discretionary matching contribution, made in either cash or Onvia common stock, up to 25% of every dollar up to 6% of all eligible employee contributions. The matching contributions are subject to a four year vesting schedule, with vesting measured from the employee’s date of hire. The Company’s Board of Directors has the sole discretion to make matching contributions in the first quarter following each Plan year, and employees must be employed on the last day of the Plan year to be eligible to receive the matching contribution. As of December 31, 2012, only 26 shares were available in treasury. In March 2009, Onvia transferred 8,055 shares from treasury stock into the Retirement Plan to match 2008 employee contributions. The Company recorded $82,000 in non-cash stock-based compensation in 2009 related to this match. Onvia’s Board of Directors authorized 10% matching contribution for both 2012 and 2011. This contribution was made in cash in the amount of $30,000 and 32,000 for 2012 and 2011, respectively.
| Note 12: | Stockholders’ Equity |
Authorized shares
At December 31, 2012, the number of authorized shares is 13,000,000 with a par value of $0.0001 per share. Authorized shares are comprised of 11,000,000 shares of common stock and 2,000,000 shares of undesignated preferred stock.
| Note 13: | Supplemental Cash Flow Information |
Interest expense paid on capital leases during the year ended December 31, 2012 was $5,000. No interest expenses were paid in 2011.
| Note 14: | Subsequent Events |
None.
Selected Quarterly Financial Information (Unaudited)
The following tables summarize the quarterly financial data for the years ended December 31, 2012 and 2011:
| | | Three Months Ended | |
| | | 2012 | | | 2012 | | | 2012 | | | 2012 | |
| | | (in thousands, except per share amounts) | |
| | | | | | | | | | | | | |
| Historical Consolidated Statements of Operations and Comprehensive Income Data: | | | | | | | | | | | | | | | | |
| Revenue | | $ | 5,496 | | | $ | 5,546 | | | $ | 5,419 | | | $ | 5,491 | |
| Gross margin | | | 4,636 | | | | 4,697 | | | | 4,520 | | | | 4,602 | |
| Noncash stock-based compensation | | | 20 | | | | 72 | | | | 73 | | | | 74 | |
| Total operating expenses | | | 4,592 | | | | 4,633 | | | | 4,480 | | | | 4,829 | |
| Income / (loss) from operations | | | 44 | | | | 64 | | | | 40 | | | | (227 | ) |
| Tax benefit | | | - | | | | - | | | | - | | | | 1,559 | |
| Net income | | $ | 60 | | | $ | 72 | | | $ | 49 | | | $ | 1,344 | |
| Unrealized gain / (loss) on available-for-sale investments | | | 0 | | | | (1 | ) | | | 1 | | | | 1 | |
| Comprehensive income | | | 60 | | | | 71 | | | | 50 | | | | 1,345 | |
| Basic net income per common share | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.16 | |
| Diluted net income per common share | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.01 | | | $ | 0.15 | |
| | | | | | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | | 8,505 | | | | 8,520 | | | | 8,524 | | | | 8,527 | |
| Diluted weighted average shares outstanding | | | 8,802 | | | | 8,852 | | | | 8,869 | | | | 8,864 | |
| | | Three Months Ended | |
| | | 2011 | | | 2011 | | | 2011 | | | 2011 | |
| | | (in thousands, except per share amounts) | |
| | | | | | | | | | | | | |
| Historical Consolidated Statements of Operations and Comprehensive Income Data: | | | | | | | | | | | | |
| Revenue | | $ | 6,143 | | | $ | 5,846 | | | $ | 5,630 | | | $ | 5,544 | |
| Gross margin | | | 5,238 | | | | 4,955 | | | | 4,741 | | | | 4,627 | |
| Noncash stock-based compensation | | | 63 | | | | 82 | | | | 90 | | | | 77 | |
| Total operating expenses | | | 4,856 | | | | 4,729 | | | | 4,501 | | | | 4,575 | |
| Income from operations | | | 382 | | | | 226 | | | | 240 | | | | 52 | |
| Tax benefit | | | - | | | | - | | | | - | | | | 616 | |
| Net income | | $ | 393 | | | $ | 235 | | | $ | 248 | | | $ | 677 | |
| Unrealized gain on available-for-sale investments | | | 1 | | | | 0 | | | | 0 | | | | 1 | |
| Comprehensive income | | | 394 | | | | 235 | | | | 248 | | | | 678 | |
| Basic net income per common share | | $ | 0.05 | | | $ | 0.03 | | | $ | 0.03 | | | $ | 0.08 | |
| Diluted net income per common share | | $ | 0.05 | | | $ | 0.03 | | | $ | 0.03 | | | $ | 0.08 | |
| | | | | | | | | | | | | | | | | |
| Basic weighted average shares outstanding | | | 8,435 | | | | 8,468 | | | | 8,477 | | | | 8,493 | |
| Diluted weighted average shares outstanding | | | 8,537 | | | | 8,558 | | | | 8,541 | | | | 8,511 | |
| CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
Disclosure Controls and Procedures
The Company conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act")), under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e)) as of December 31, 2012. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 31, 2012.
Report of Management on Internal Control over Financial Reporting
Onvia’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s management, under the supervision of and with the participation of the Chief Executive Officer and the Chief Financial Officer and Principal Accounting Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 based on the framework and criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2012.
This Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts issuers that are neither accelerated filers nor large accelerated filers, as defined in Rule 12b-2 under the Exchange Act, from Section 404(b) of the Sarbanes-Oxley Act of 2002. This exemption permits us to provide only management’s report in this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2012 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because Onvia intends to file a definitive Proxy Statement for its Annual Meeting of Stockholders (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Form 10-K, and certain information to be included therein is incorporated herein by reference.
| DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item regarding the Company’s directors is incorporated herein by reference to the section entitled “Proposal No. 1: Election of Directors” in the Proxy Statement for the Annual Meeting of Stockholders to be held on May 9, 2013 (“Proxy Statement”). Information relating to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. Information regarding the Company’s audit committee and audit committee financial expert is incorporated herein by reference to the section entitled “Corporate Governance” in the Proxy Statement. Information regarding the Company’s executive officers is set forth under the caption “Executive Officers of the Registrant” in Part 1 of this Annual Report and is incorporated by reference into this Item 10.
The Company adopted a code of ethics applicable to its Chief Executive Officer, Chief Financial Officer, Controller and other finance leaders, which is a “code of ethics” as defined by applicable rules of the Securities and Exchange Commission. This code is publicly available on the Company’s website at www.onvia.com. If the Company makes any amendments to this code other than technical, administrative or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision of this code to the Company’s Chief Executive Officer, Chief Accounting Officer or Controller, the Company will disclose the nature of the amendment or waiver, its effective date and to whom it applies on its website or in a report on Form 8-K filed with the Securities and Exchange Commission.
The information required by this item is incorporated by reference to the sections entitled “Executive Compensation,” “Director Compensation,” and “Compensation Committee Interlocks and Insider Participation” in the Proxy Statement.
| SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
We currently maintain two active compensation plans that provide for the issuance of our common stock to officers, directors, employees, and equity consultants. The two active compensation plans consist of the Onvia, Inc. 2008 Equity Incentive Plan, or the 2008 Plan, and the 2000 Employee Stock Purchase Plan, or ESPP, both of which have been approved by stockholders.
We also have outstanding options under the stockholder approved 2000 Directors’ Stock Option Plan, or Directors’ Plan, which expired on February 28, 2010 and under the Amended and Restated 1999 Stock Option Plan, or the 1999 Plan, which was amended and restated in September 2008 as the 2008 Plan. Options outstanding under both the Directors’ Plan and the 1999 Plan will continue to vest and become exercisable according to the original terms of the grant. However, any options that are forfeited from the Directors’ Plan subsequent to the expiration date will not be available for reissuance. Any grants forfeited from the 1999 Plan will be returned to the 2008 Plan and will be available for future issuance.
The following table sets forth information regarding outstanding options and shares reserved for future issuance under the 2008 Plan, the 1999 Plan, the Directors’ Plan, and the ESPP as of December 31, 2012. There were no equity plans not approved by security holders as of December 31, 2012.
EQUITY COMPENSATION PLAN INFORMATION
| Plan category | | Number of Securities to be Issued on Exercise of Outstanding Options (1) | | | Weighted-average Exercise Price of Outstanding Options (2) | | | Securities Available for Future Grant (Excluding Shares Reflected in Column (1)) (3) | |
| Equity compensation plans approved by security holders | | | | | | | | | |
| Onvia, Inc. 2008 Equity Incentive Plan | | | 655,306 | | | $ | 3.67 | | | | 777,768 | |
| Amended and Restated 1999 Stock Option Plan | | | 421,884 | | | | 5.91 | | | | | |
| 2000 Directors' Stock Option Plan | | | 34,000 | | | | 5.15 | | | | | |
| Employee Stock Purchase Plan | | | - | | | | N/A | | | | 491,074 | |
| Total | | | 1,111,190 | | | $ | 4.58 | | | | 1,268,842 | |
The information required by Item 403 of Regulation S-K under this item is incorporated by reference to the section entitled “Common Stock Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.
| CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required by this item is incorporated by reference to the sections entitled “Certain Relationships and Related Person Transactions” and “Board of Director and Committee Information” in the Proxy Statement.
| PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The information required by this item is incorporated by reference to the sections entitled “Independent Registered Public Accounting Firm’s Fees and Services” in the Proxy Statement.
PART IV
| EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
Index to Consolidated Financial Statements and Financial Statement Schedule:
| | | INDEX TO CONSOLIDATED FINANCIAL STATEMENTS |
| | Page | |
| Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm | 26 | |
| Consolidated Financial Statements: | | |
| Balance Sheets | 27 | |
| Statements of Operations and Comprehensive Loss | 28 | |
| Statements of Cash Flows | 29 | |
| Statements of Stockholders’ Equity | 30 | |
| Notes to Consolidated Financial Statements | 31 | |
| | 2. | FINANCIAL STATEMENT SCHEDULES |
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
| Description | | Balances at Beginning of Period | | | Charged to Costs and Expenses | | | Deductions(1) | | | Balances at End of Period | |
| | | | | | | | | | | | | |
| Allowance for doubtful accounts | | | | | | | | | | | | |
| Year Ended December 31, 2011 | | $ | 72,868 | | | $ | 9,889 | | | $ | (45,347 | ) | | $ | 37,410 | |
| Year Ended December 31, 2012 | | $ | 37,410 | | | $ | 89,033 | | | $ | (84,894 | ) | | $ | 41,548 | |
(1) Uncollectible accounts written off, net of recoveries.
Schedules not listed above have been omitted because they are not applicable, are not required or the information required to be set forth in the schedules is included in the consolidated financial statements or related notes.
Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:
| · | May have been qualified by disclosure that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; |
| · | May apply standards of materiality that differ from those of a reasonable investor; and |
| · | Were made only as of specified dates contained in the agreements and are subject to later developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and investors should not rely on them as statements of fact.
| Number | | Description |
| | | |
| 3.1 | | Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i).1 to the Form 10-Q for the quarter ended June 30, 2004, filed on August 12, 2004) |
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| 3.2 | | Amended and Restated Bylaws of Onvia (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed on September, 2011) |
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| 3.3 | | Certificate of Designation, Preferences and Rights of Series RA Junior Participating Preferred Stock of Onvia, Inc., as filed with the Secretary of State of Delaware on May 4, 2011 (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 8-A filed on May 5, 2011) |
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| 4.1 | | Amendment, dated May 4, 2011, to the Rights Agreement, dated as of November 22, 2002, by and between Onvia, Inc. and U.S. Stock Transfer Corp. as Rights Agent (the predecessor to Computershare Trust Company, N.A.) (incorporated by reference to Exhibit 4.3 to the Form 8-A/A Registration Statement filed on May 5, 2011) |
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| 4.2 | | Section 382 Rights Agreement, dated May 4, 2011, by and between Onvia, Inc. and Computershare Trust Company, N.A., as Rights Agent, which includes the Form of Certificate of Designation of Series RA Junior Participating Preferred Stock as Exhibit A, the Form of Rights Certificate as Exhibit B, and the Summary of Rights as Exhibit C (incorporated by reference to Exhibit 4.1 to the Form 8-A Registration Statement filed on May 5, 2011) |
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| 10.1* | | Onvia, Inc. 2008 Equity Incentive Plan (incorporated by Reference to the 2008 Proxy Statement filed on August 4, 2008) |
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| 10.2* | | Amended 2000 Employee Stock Purchase Plan (incorporated by Reference to Exhibit 10.4 to the Report on Form 10-Q for the quarter ended September 30, 2008, filed on November 14, 2008) |
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| 10.3* | | 2000 Directors’ Stock Option Plan (incorporated by reference to Exhibit 10.26 to the Registration Statement on Form S-1/A filed on February 2, 2000 (File No. 333-93273)) |
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| 10.4* | | Employment Agreement with Irvine N. Alpert dated February 22, 2002 and Commission and Bonus Plan with Irvine N. Alpert dated September 11, 2001 (incorporated by reference to Exhibit 10.4 to the Report on Form 10-K for the year ended December 31, 2001, filed on March 29, 2002) |
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| 10.5 | | Medical Dental Building Lease Agreement between Onvia and GRE 509 Olive LLC, dated July 31, 2007 (incorporated by reference to Exhibit 10.12 to the Report on Form 10-Q for the period ended September 30, 2007, filed on November 14, 2007) |
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| 10.6* | | Second Amendment to 2000 Employee Stock Purchase Plan (incorporated by Reference to Exhibit 10.13 to the Report on Form 10-Q for the quarter ended March 31, 2010, filed on May 17, 2010) |
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| 10.7* | | Offer Letter to Henry G. Riner, dated August 26, 2010 (incorporated by Reference to Exhibit 10.15 to the Report on Form 10-Q for the quarter ended September 30, 2010, filed on November 15, 2010) |
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| 10.8* | | Form of Indemnification Agreement between Onvia and each of its officers and directors approved by Board of Directors on August 30, 2011 (incorporated by reference to exhibit 10.1 to the Report on Form 10-Q for the quarter ended March 31, 2012, filed May 14, 2012) |
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| 10.9*++ | | 2013 Variable Compensation Plan for Irvine N. Alpert |
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| 10.10*++ | | Management Incentive Plan |
| 23.1 | | Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm |
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| 31.1++ | | Certification of Henry G. Riner, 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 |
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| 31.2++ | | Certification of Cameron S. Way, Chief Financial Officer and Principal Accounting Officer of Onvia, Inc., Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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| 32.1++ | | Certification of Henry G. Riner, 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 |
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| 32.2++ | | Certification of Cameron S. Way, Senior Vice President and Chief Financial Officer of Onvia, Inc., Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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| 101++ | | The following financial information from Onvia’s Quarterly Report on Form 10-K for the year ended December 31, 2012 is formatted in XBRL: (i) the Audited Condensed Consolidated Balance Sheets, (ii) the Audited Condensed Consolidated Statements of Operations and Comprehensive Income, (iii) the Audited Condensed Consolidated Statements of Cash Flows, and (iv) the Notes to Audited Condensed Consolidated Financial Statements, tagged as blocks of text. |
* Executive Compensation Plan or Agreement
++ Filed Herewith
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, State of Washington, on March 18, 2013.
| ONVIA, INC. | |
| | | |
| By: | /s/ Henry G. Riner | |
| | Henry G. Riner | |
| | President and Chief Executive Officer | |
| | | |
| By: | /s/ Cameron S. Way | |
| | Cameron S. Way | |
| | Senior Vice-President and Chief Financial Officer | |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer of Onvia, Inc., a Delaware corporation (the “Company”), hereby constitutes and appoints Henry G. Riner and Cameron S. Way, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead in any and all capacities, to sign one or more Annual Reports for the Company’s fiscal year ended December 31, 2012, on Form 10-K under the Securities Exchange Act of 1934, as amended, any amendments thereto, and all additional amendments thereto, each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or re-substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1934, this Report has been signed below by the following persons, on behalf of the Registrant and in the capacities and on the dates indicated.
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| Signature | | Title | | Date |
| | | | | |
| /S/ HENRY G. RINER | | Chief Executive Officer, President and | | March 18, 2013 |
| Henry G. Riner | | Director | | |
| | | | | |
| /S/ CAMERON S. WAY | | Senior Vice-President and Chief Financial | | March 18, 2013 |
| Cameron S. Way | | Officer | | |
| | | | | |
| /S/ JEFFREY C. BALLOWE | | Director | | March 18, 2013 |
| Jeffrey C. Ballowe | | | | |
| | | | | |
| /S/ JAMES L. BRILL | | Director | | March 18, 2013 |
| James L. Brill | | | | |
| | | | | |
| /S/ ROBERT G. BROWN | | Lead Director | | March 18, 2013 |
| Robert G. Brown | | | | |
| | | | | |
| /S/ ROGER L. FELDMAN | | Director | | March 18, 2013 |
| Roger L. Feldman | | | | |
| | | | | |
/S/ Michael E.S. Frankel | | Director | | March 18, 2013 |
| Michael E.S. Frankel | | | | |
| | | | | |
| /S/ D. VAN SKILLING | | Chairman of the Board | | March 18, 2013 |
| D. Van Skilling | | | | |
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