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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 000-29609
================================================================================
ONVIA.COM, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1859172
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1260 Mercer Street
Seattle, Washington 98109
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code: (206) 282-5170
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [_] No [X]
Common stock, par value $.0001 per share: 80,525,509 shares outstanding as
of April 30, 2000.
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ONVIA.COM, INC.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 9
Item 3. Quantitative and Qualitative Disclosure about Market Risk. 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 19
Item 2. Changes in Securities and Use of Proceeds. 20
Item 3. Defaults Upon Senior Securities. 21
Item 4. Submission of Matters to a Vote of Security Holders. 21
Item 5. Other Information. 21
Item 6. Exhibits and Reports on Form 8-K. 22
SIGNATURES 24
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ONVIA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
---------------- ----------------
(Unaudited)
(In thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 224,306 $ 38,518
Short-term investments 19,232 -
Accounts receivable, net 827 510
Inventory 1,396 1,360
Prepaid expenses and other current assets 8,426 1,414
------------- ------------
Total current assets 254,187 41,802
Property and equipment, net 8,777 6,177
Other assets, net 6,030 2,300
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Total assets $ 268,994 $ 50,279
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 12,077 $ 6,719
Accrued expenses and other 12,057 7,294
Current portion of long-term debt 4,025 4,482
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Total current liabilities 28,159 18,495
Long-term debt 4,249 5,171
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Total liabilities 32,408 23,666
Commitments and contingencies (Notes 7 and 8)
Stockholders' equity:
Common stock and additional paid in capital 338,985 98,984
Unearned stock compensation (18,391) (14,195)
Accumulated deficit (84,008) (58,176)
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Total stockholders' equity 236,586 26,613
Total liabilities and stockholders' equity $ 268,994 $ 50,279
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</TABLE>
See accompanying notes to the condensed consolidated financial statements
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ONVIA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------------------
2000 1999
----------------- ----------------
(In thousands, except per share data)
(Unaudited)
<S> <C> <C>
Revenue $ 21,509 $ 1,476
Cost of goods sold 24,355 1,826
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Gross margin (2,846) (350)
Operating expenses:
Sales and marketing 14,529 170
Technology and development 4,655 76
General and administrative 3,389 498
Noncash stock-based compensation 1,526 431
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Total operating expenses 24,099 1,175
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Loss from operations (26,945) (1,525)
Interest income (expense), net 785 (75)
----------- ------------
Net loss (26,160) (1,600)
Reduction of beneficial conversion feature on
convertible preferred stock 287 -
----------- ------------
Net loss attributable to common stockholders $ (25,873) $ (1,600)
=========== =============
Basic and diluted net loss per common share $ (0.71) $ (0.17)
========== =============
Basic and diluted weighted average shares outstanding 36,377 9,635
========== =============
Comprehensive loss:
Net loss $ (26,160) $ (1,600)
Foreign currency translation loss (42) -
---------- --------------
Total $ (26,202) $ (1,600)
========== ==============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
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ONVIA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------------
2000 1999
----------------- -----------------
(In thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (26,160) $ (1,600)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,013 6
Noncash stock-based compensation 1,526 431
Amortization of debt discount 186 -
Noncash interest expense related to issuance of
common stock warrants - 242
Change in certain assets and liabilities:
Accounts receivable, net (320) 17
Inventory (37) (4)
Prepaid expenses and other current assets (6,937) -
Other assets (3,234) -
Accounts payable 5,364 94
Accrued expenses and other 5,868 -
------------ ------------
Net cash used in operating activities (22,731) (814)
Cash flows from investing activities:
Purchase of short-term investments (19,232) -
Additions to property and equipment, net (3,412) (260)
Additions to capitalized software (774) -
------------ ------------
Net cash used in investing activities (23,418) (260)
Cash flows from financing activities:
Proceeds from convertible debt - 975
Repayments on long-term debt (1,565) -
Proceeds from exercise of stock options and warrants 22 -
Net proceeds from issuance of Series A preferred stock - 10,252
Net proceeds from issuance of common stock 233,961 -
Repurchase of preferred stock (476) -
------------ ------------
Net cash provided by financing activities 231,942 11,227
Effect of exchange rate changes on cash (5) 3
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Net increase in cash and cash equivalents 185,788 10,156
Cash and cash equivalents, beginning of period 38,518 45
------------ ------------
Cash and cash equivalents, end of period $ 224,306 $ 10,201
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
5
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ONVIA.COM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of Onvia.com, Inc. and its wholly owned subsidiaries, collectively
referred to as the "Company". The unaudited interim condensed consolidated
financial statements and related notes thereto have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations. The accompanying interim condensed consolidated financial
statements and related notes thereto should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's Registration Statement on Form S-1 (No. 333-93273),
("Registration Statement"), including the related prospectus dated March 1,
2000.
The information furnished is unaudited, but reflects, in the opinion of
management, all adjustments, consisting of only normal recurring items,
necessary for a fair presentation of the results for the interim periods
presented. Interim results are not necessarily indicative of results for a
full year.
Certain prior year amounts have been reclassified for consistency with
current year financial statement presentation.
2. Net Loss Per Share
Historical basic and diluted earnings per share are calculated using the
weighted average shares of common stock outstanding, reduced for shares
subject to repurchase by the Company. Net loss per share as of March 31,
2000 includes the automatic conversion of the Company's Series A, Series B
and Series C preferred stock into shares of the Company's common stock
effective upon the closing of the Company's initial public offering on
March 1, 2000. Stock options, warrants and nonvested common stock are
excluded from the calculation of diluted net loss per share as they would
be anti-dilutive.
3. Stockholders' Equity
Authorized common shares
On January 27, 2000, the Board of Directors authorized the Company's
reincorporation in the State of Delaware and authorized an amendment to the
Delaware Certificate of Incorporation to issue 265,000,000 shares of which
250,000,000 shares are allocated as common stock and 15,000,000 shares as
undesignated preferred stock with a common par value of $0.0001 per share.
The Company's reincorporation in Delaware was effective on February 22,
2000 and included a two-for-one split of the Company's outstanding shares
of common stock and preferred stock. All equity information in these
condensed consolidated financial statements has been restated to reflect
this split.
Exercise of warrants
During the quarter ended March 31, 2000, warrants to purchase 705,144
shares of common stock were exercised at an exercise price of $.0025 per
share.
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Stock Repurchase
In February 2000, the Company repurchased 69,398 shares of its Series C
preferred stock at the original issuance price of $6.86 per share. The
beneficial conversion feature of $287,000 attributed to these shares, that
was charged to net loss attributable to common stockholders in 1999, was
reversed in the quarter ended March 31, 2000.
Initial Public Offering
In March 2000, the Company completed its initial public offering (the
"Offering") and issued 9,200,000 shares of its Common Stock to the public
at a price of $21.00 per share. The Company received net proceeds of
$177.9 million. Concurrent with this Offering, the Company issued an
additional 2,666,666 shares of its Common Stock to Internet Capital Group
at a price of $21.00 for net proceeds of $56.0 million. Upon closing of the
Offering, all of the preferred stock outstanding was converted into an
aggregate of 38,073,670 shares of common stock.
4. Employee Notes Receivable
In the first quarter of 2000, the Company issued loans in the aggregate
amount of $250,000 to two employees which increased total employee loans
outstanding to $750,000 at March 31, 2000. The loans are collateralized by
250,000 shares of the Company's common stock and bear interest at 6% per
annum. The principal and interest are payable upon demand at the expiration
of any lock-up period after the Offering. The notes also become due if
certain change of control events take place. Employee notes receivable is
included in other current assets and other assets on the balance sheet.
Subsequent to quarter end, the Company issued loans to three employees in
the aggregate amount of $600,000, collateralized by 600,000 shares of the
Company's common stock. The terms of these notes are consistent with the
terms described above. Subsequent to quarter end, employee loans aggregated
to $1,350,000, the amount authorized by the Board of Directors.
5. Segment Information
The operating business segments reported below are the segments of the
Company for which separate financial information is available and for which
operating profit and loss amounts are evaluated and used by the chief
operating decision maker for making operating decisions, assessing
performance and deciding on how to effectively allocate resources. The
Company evaluates its operations based on the geography of its two
operations, the United States and Canada. Intercompany transactions are
insignificant and have been recorded at cost as part of the parent's
investment in its subsidiaries. The operating segment information for 1999
and 2000 has been reported in accordance with the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
<TABLE>
<CAPTION>
U . S . Canada Totals
---------------- ---------------- --------------
(In thousands)
Three months ended March 31, 2000
- ---------------------------------
<S> <C> <C> <C>
Net revenue $ 18,774 $ 2,735 $ 21,509
Net loss (25,001) (1,159) (26,160)
Total assets 267,930 1,064 268,994
Property and equipment, net 8,434 343 8,777
Other assets 5,994 36 6,030
Depreciation and amortization 1,143 56 1,199
Interest income (expense), net 783 2 785
Noncash compensation expense 1,417 109 1,526
<CAPTION>
Three months ended March 31, 1999
- ---------------------------------
<S> <C> <C> <C>
Net revenue $ 823 $ 653 $ 1,476
Net loss (1,439) (161) (1,600)
Total assets 10,366 248 10,614
Property and equipment, net 253 22 275
Depreciation and amortization 4 2 6
Interest income (expense), net (31) (44) (75)
Noncash compensation expense 385 46 431
</TABLE>
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6. New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133, which will be effective for the Company for the
fiscal quarter beginning January 1, 2001, requires the Company to recognize
all derivatives as either assets or liabilities in the Company's balance
sheet and measure those instruments at fair value. The Company does not
expect the effect of adopting the provisions of SFAS No. 133 to have a
significant impact on the balance sheet, results of operations and cash
flows.
7. Agreement with America Online, Inc.
In February 2000, the Company entered into a strategic relationship with
America Online (AOL), under which AOL will provide its customers with
access to the Company's services and products, through an interactive co-
branded web site. As part of this relationship, the Company will provide to
AOL a web-based buying directory to act as the engine for AOL's business-
to-business ecommerce platform. In addition, AOL will promote the co-
branded site and will pay a percentage of the advertising revenue earned
from the co-branded web site. The Company has agreed to make fixed payments
of $18.2 million to AOL under this agreement, approximately $3.1 million of
which was paid following the execution of the agreement and $5.3 million of
which was due immediately following the closing of the Offering. The
remainder is payable in six equal quarterly payments commencing in May
2000. The Company is also required to make additional payments to AOL if
the number of new customers that it acquires from AOL exceeds a specified
level.
8. Commitments and Contingencies
From time to time the Company is subject to various other legal proceedings
that arise in the ordinary course of its business. Although the Company
cannot predict the outcomes of these proceedings with certainty, the
Company does not believe that the disposition of these matters will have a
material adverse effect on its financial position, results of operations or
cash flows.
In February 2000, the Company settled a lawsuit filed by a former employee
who claimed he was entitled to 100,000 shares of the Company's common
stock. The Company had recorded an allowance for any potential losses of
$1.1 million in December 1999 and recorded the expense as noncash stock-
based compensation at that time. The Company settled the lawsuit for
$550,000 in cash and consequently reversed the initial non-cash
compensation charge of $1.1 million and recorded a general and
administrative expense of $550,000.
In February 2000, a potential investor filed a lawsuit in the Supreme Court
of British Columbia, Canada against the Company and its chief executive
officer for 50% of the Company's assets and 50% of the executive's equity
interest in the Company. The lawsuit is based upon the allegation that the
potential investor and the Company's chief executive officer planned to
form a company similar to Onvia.com. Based upon investigations to date,
the Company believes that the allegations against it are without merit and
that the outcome of this action will not harm its business. The Company
believes that it has valid defenses to this claim and intends to vigorously
defend the action.
In February 2000, the Company signed an amended lease agreement for new
corporate office facilities. Monthly lease payments range from $218,000 to
$257,000 over the ten-year term of the lease. Total obligations over the
ten-year term of the agreement are $28.2 million. Minimum lease payments on
all of the non-cancelable operating leases range from $2.6 million to $3.3
million over the next five years.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This discussion contains forward-looking statements. These statements relate to
future events or the Company's future financial performance. In some cases, you
can identify forward-looking statements by terminology such as may, will,
should, expect, plan, intend, anticipate, believe, estimate, predict, potential
or continue, the negative of such terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should consider various
factors, including the risks outlined in the Risk Factors section below, and,
from time to time, in other reports the Company files with the SEC. These
factors may cause the Company's actual results to differ materially from any
forward-looking statement. The Company is under no duty to update any forward-
looking statements after the date of this Quarterly Report on Form 10-Q to
conform such statement to actual results or to changes in its expectation.
RESULTS OF OPERATIONS
Overview
For the first quarter of 2000, revenue was approximately $21.5 million compared
with $1.5 in the first quarter of 1999. The Company had a first quarter 2000
net loss of $26.2 million, or a loss of $.71 per share, compared with a loss of
approximately $1.6 million, or a loss of $.17 per share, in the first quarter of
1999.
Revenue
Revenue increased to $21.5 million for the quarter ended March 31, 2000 from
$1.5 million for the quarter ended March 31, 1999. The increase is primarily due
to continued growth and awareness of the Company's brand name that resulted in
increased sessions, or unique visits, and ultimately, customers.
International revenues were $2.7 million in the first quarter of 2000, up 313%
from $653,000 in the first quarter of 1999. The increase was due to continued
growth in the Company's Canadian operations. Through March 31, 2000,
substantially all of the Company's revenue was derived from product sales.
Gross Margin
Gross margin improved to a negative 13.2% for the quarter ended March 31, 2000
from negative 23.7% for the quarter ended March 31, 1999. The improvement in
gross margin is attributable to adjustments in product pricing, a shift in
product mix to products with improved gross margins, and lower product costs.
Sales and Marketing
Sales and marketing expenses were approximately $14.5 million for the quarter
ended March 31, 2000, compared to $170,000 for the quarter ended March 31, 1999.
The increase is due to higher advertising expenses associated with the Company's
ongoing advertising campaigns and increases in sales and marketing personnel.
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Technology and Development
Technology and development expenses were $4.7 million for the quarter ended
March 31, 2000, compared to $76,000 for the quarter ended March 31, 1999. This
increase is due to significant increases in technology and development personnel
and to consulting expenses associated with the implementation of contracted
engineering projects.
General and Administrative
General and administrative expenses were $3.4 million for the quarter ended
March 31, 2000, compared to $498,000 for the quarter ended March 31, 1999. This
increase is primarily attributable to increases in personnel and professional
and recruiting fees.
Interest Income (Expense), Net
Interest income (expense), net, was $785,000 in the first quarter of 2000,
compared to ($75,000) in the first quarter of 1999. This increase is due to
interest income earned on Offering proceeds held in money market funds and other
short-term investments.
Noncash Stock-based Compensation
The Company records unearned stock compensation in the equity section of the
balance sheet for the difference between the deemed value of its common stock
options for accounting purposes and the exercise price of employee options or
sale price of non-employee equity instruments. This amount is amortized on an
accelerated basis over the vesting period of the option, typically four years.
At March 31, 2000, unearned stock compensation was $18.4 million, and the
Company had amortized $1.5 million of noncash stock-based compensation expense
for the quarter ended March 31, 2000 compared to $431,000 in the first quarter
of 1999.
Provision for Income Taxes
The Company incurred net operating losses from March 25, 1997 (inception)
through March 31, 2000. Therefore, the Company has not recorded a provision for
income taxes. The Company has recorded a valuation allowance for the full amount
of the net deferred tax assets, as the future realization of the tax benefit is
not currently likely.
FINANCIAL CONDITION
Liquidity and Capital Resources
Prior to its initial public offering ("the Offering"), the Company had financed
its operations primarily through the issuance of equity and debt securities. In
March 2000, the Company completed its Offering and issued 9,200,000 shares of
its Common Stock to the public at a price of $21.00 per share, raising net
proceeds of $177.9 million. In addition, in March 2000, in a transaction that
was contingent upon the closing of its Offering, the Company sold to Internet
Capital Group, or ICG, 2,666,666 shares of its common stock at the initial
public offering price of $21.00 per share in a private placement transaction,
which generated net proceeds of $56.0 million.
The Company's combined cash and cash equivalents and short-term investments were
$243.5 million at March 31, 2000 versus $38.5 million at December 31, 1999. The
increase is due to proceeds received upon completion of the Company's Offering
and private placement in March 2000. The short-term investment portfolio is
invested in commercial paper and corporate debt securities with maturities of
one year or less. The portfolio is diversified among security types and issuers
and does not include any derivative products. At March 31, 2000, the Company's
working capital was $226.0 million compared to $23.3 million at December 31,
1999.
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Net cash used in operating activities was $22.7 million for the quarter ended
March 31, 2000 and $814,000 for the quarter ended March 31, 1999. The increase
is attributable to increases in net operating losses, prepaid expenses and other
current assets, accounts payable and accrued expenses, offset by noncash
charges.
Net cash used in investing activities was $23.4 million for the quarter ended
March 31, 2000 and $260,000 for the quarter ended March 31, 1999. The increase
is attributable to increases in short-term investments, fixed asset purchases
and capitalized software costs.
Net cash provided by financing activities was $231.9 million for the quarter
ended March 31, 2000 and $11.2 million for the quarter ended March 31, 1999. The
increase is attributable to the sale of equity securities in the Company's
Offering.
In February 2000, the Company signed an amended lease agreement for new
corporate office facilities. Monthly lease payments range from $218,000 to
$257,000 over the ten-year term of the lease. Total obligations over the ten-
year term of the agreement are $28.2 million. Minimum lease payments on all of
the Company's non-cancelable operating leases range from $2.6 million to $3.3
million over the next five years.
In February 2000, the Company signed an agreement with America Online, or AOL,
that requires the Company to make fixed payments totaling $18.2 million to AOL.
Approximately $3.1 million of this amount was paid immediately following the
execution of the agreement, and $5.3 million was due subsequent to the closing
of the Offering. The remainder is payable in six equal quarterly payments
commencing in May 2000. The Company is also required to make additional payments
to AOL if the number of new customers that it acquires from AOL exceeds a
specified level.
The Company's future liquidity and capital requirements will depend on numerous
factors. For example, the Company's pace of expansion will affect its future
capital requirements, as will the Company's decision to acquire or invest in
complementary businesses and technologies. However, the Company believes that
the net proceeds from issuances of its common stock, together with existing
cash, cash equivalents and short-term investments, will be sufficient to satisfy
its cash requirements for at least the next 18 months. Depending on the
Company's growth rate and cash requirements, the Company may require additional
equity or debt financing to meet future working capital needs, which may have a
dilutive effect on existing stockholders. The Company cannot make assurances
that additional financing will be available or, if available, that such
financing can be obtained on satisfactory terms.
RISK FACTORS
The Company has a limited operating history, making it difficult to evaluate its
future prospects
The Company was incorporated in March 1997. In July 1997, it launched the
initial version of its emarketplace, targeted at the Canadian market. In July
1998, it introduced its emarketplace for U.S. small businesses. The Company has
a limited operating history upon which an investor may evaluate its business and
prospects. The Company's potential for future profitability must be considered
in light of the risks, uncertainties, expenses and difficulties frequently
encountered by companies in their early stages of development, particularly
companies in new and rapidly evolving markets, such as emarketplaces in general
and those catering to small businesses in particular. The Company may not
successfully address any of these risks. If the Company does not successfully
address these risks, its business will be seriously harmed.
The Company has incurred losses in each quarter since inception, and it expects
to incur significant operating losses for the foreseeable future
The Company has incurred net losses from operations in each quarter since
inception. It expects to continue to incur losses for the foreseeable future.
Most of its revenue to date has been generated by selling products at or below
cost. The Company expects to increase significantly its operating expenses in
the near future as it attempts to build its brand, expand its customer base and
improve its technology infrastructure. To become profitable, the Company must
increase revenue substantially and achieve and maintain positive gross margins.
To increase revenue,
11
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the Company will need to continue to attract customers and suppliers to its
emarketplace and expand its service and product offerings. To improve its gross
margins, the Company will need to increase the proportion of revenue generated
from higher-margin services, reduce service and product discounts and lower
service and product costs. The Company may not be able to increase revenue and
gross margins sufficiently to achieve profitability.
The Company's quarterly financial results are subject to fluctuations which may
make it difficult to forecast its future performance
The Company expects its revenue and operating results to vary significantly from
quarter to quarter making it difficult to formulate meaningful comparisons of
its results between quarters. The Company's limited operating history and new
and unproven business model further contribute to the difficulty of making
meaningful quarterly comparisons. Factors that may affect its quarterly results
include those discussed throughout this section. Substantially all of the
Company's revenue for a particular quarter is derived from transactions that are
initiated and completed during that quarter.
The Company's current and future levels of operating expenses and capital
expenditures are based largely on its growth plans and estimates of future
revenue. These expenditure levels are, to a large extent, fixed in the short
term. The Company will not be able to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall, and any significant shortfall
in revenue relative to planned expenditures could harm its business and results
of operations. In addition, the Company's quarterly results will be affected by
the mix of revenue generated from the sale of services and products. If the
percentage of revenue from products increases and the percentage of revenue from
services decreases, the Company's gross margin will likely be negatively
impacted.
The Company's limited operating history and rapid growth make it difficult to
assess the seasonal factors in its business. Nevertheless, the Company expects
there to be seasonal fluctuations in its business, reflecting a combination of
seasonal trends for the services and products it offers, seasonal trends in the
buying habits of its target small business customers and seasonal trends
reflecting Internet usage. For example, Internet use generally declines during
the summer months.
The Company's network and software are vulnerable to security breaches and
similar threats which could result in its liability for damages and harm its
reputation
The Company's network infrastructure is vulnerable to computer viruses, break-
ins, network attacks and similar disruptive problems. This could result in the
Company's liability for damages, and its reputation could suffer, thus deterring
potential customers from transacting with the Company. Security problems caused
by third parties could lead to interruptions and delays or to the cessation of
service to its customers. Furthermore, inappropriate use of the network by third
parties could also jeopardize the security of confidential information stored in
its computer systems.
In July 1999, the Company's former web site in Canada, MegaDepot.com, was
subject to a security breach in which an outside party was able to gain access
to the private account information, including credit card numbers, of some of
its customers. This security breach occurred when the Company inadvertently
provided a few of its customers with the URL link to its internal database, and
also inadvertently left the password protection for its internal database turned
off. Information about this security breach was forwarded to a newspaper
reporter in Toronto, Canada, prior to the Company's becoming aware of the
breach. This resulted in negative publicity concerning the Company's former web
site for several days in several Canadian newspapers. Even though the Company
has taken steps to prevent the recurrence of this specific security breach as
well as other disruptive problems, a security breach could occur again in the
future.
To help reduce the Company's network's vulnerability to security breaches, the
Company has completed a network security audit, upgraded all of its network
components, updated its software to current release levels and implemented
extensive site monitoring software. Further, The Company has hired employees
dedicated solely to ensuring network security and developing related policies,
procedures and internal controls.
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The Company intends to continue to implement industry-standard security
measures, but it cannot assure you that the measures it implements will not be
circumvented. The costs and resources required to alleviate security problems
may result in interruptions, delays or cessation of service to its customers,
which could harm its business.
Success by John Meier in his action against the Company could negatively impact
its operating results and result in dilution to its stockholders
In February 2000, John Meier filed an action in the Supreme Court of British
Columbia, Canada asserting a claim against the Company and Glenn Ballman, its
founder, President and Chief Executive Officer. Mr. Meier's claim is based upon
allegations that he and Mr. Ballman had intentions to form a company similar to
the Company's and that Mr. Ballman's role in founding the Company breached an
alleged partnership with Mr. Meier and fiduciary duties owed to him. In this
action, Mr. Meier asserts that he is entitled to 50% of Mr. Ballman's interest
in Onvia.com, as well as 50% of the assets and business of Onvia.com. Based upon
the its investigation to date, the Company believes that the allegations against
it are wholly without merit and that the outcome of this action will not harm
its business. The Company believes that it has valid defenses to this claim and
intends to vigorously defend the action. The results of litigation proceedings
are inherently unpredictable, however, the Company is unable to provide
assurance regarding the outcome of this action or possible damages that may be
incurred. Although the Company believes that it is unlikely, if Mr. Meier were
to prevail on his claim against the Company in its entirety, this would severely
harm its business, operating results and financial condition. Any cash award or
settlement paid by the Company to Mr. Meier could have a material negative
impact on its operating results and financial condition. Any shares of common
stock awarded or issued to Mr. Meier by the Company would be dilutive to its
stockholders. It is also possible that defense of this claim will result in a
significant diversion of management attention. In the event that Mr. Meier is
successful in his claim against Mr. Ballman, it is possible that Mr. Meier could
become one of the Company's principal stockholders and have an ability to exert
influence over matters submitted to its stockholders
The development of the Company's brand is essential to its future success and
requires significant expenditures
The Company believes that development of the Onvia.com brand is crucial to its
future success. The importance of brand recognition will increase as more
companies engage in commerce over the Internet. Because the online commerce
aspects of its business model has limited legal, technological and financial
barriers to entry, if the Company is unable to establish a trusted brand name,
the Company's business will suffer. The Company currently intends to invest
significant capital resources to develop its brand, including spending
significant amounts of money on advertising and promotions. Furthermore, the
cost of advertising and promotions is growing rapidly. In addition, if the
Company's competitors significantly increase their advertising and promotions
spending, the Company may be forced to increase its expenditures accordingly.
The Company cannot be certain that its efforts to promote its brand will be
successful or that the Company will have adequate financial resources to
continue to promote its brand.
If the Company fails to increase traffic to its web site and the proportion of
visitors who purchase services or products, its business will not grow as it
expects
To generate revenue, the Company must drive traffic to its web site and convert
visitors into purchasers of services and products. The Company uses a number of
techniques to increase traffic to its web site, including developing
relationships with third parties, advertising, e-mail and contests. Currently,
the Company is using a variety of techniques to increase customer conversion
rates, including using discounts on selected items and other incentives. Many of
these techniques are new and unproven, and the Company cannot be certain that
any of them will be successful in helping the Company increase traffic or
conversion rates. If the Company is unable to draw significantly higher traffic
to its web site and convert a significant number of web site visitors into
customers, its business will not grow as expected.
Intense competition could impede the Company's ability to gain market share and
harm its financial results
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Emarketplaces are new, rapidly evolving and intensely competitive. In addition,
the traditional non-Internet-based markets for business products such as
computer hardware and software, office furniture, office equipment and office
supplies are also intensely competitive. The Company competes with both
traditional distribution channels as well as other online services. The
Company's current and potential competitors include:
. Internet sites that target the small business market including
BizBuyer.com, Digitalwork.com and Works.com;
. Internet sites targeting the consumer market that also sell to small
business customers, including Beyond.com, Buy.com and Onsale.com;
. companies such as America Online, Microsoft, NBCi and Yahoo! that offer a
broad array of Internet-related services and either offer business-to-
business e-commerce services presently or have announced plans to introduce
such services in the future; and
. traditional non-internet-based retailers that sell of resell business
service and products such as AT&T Wireless, Circuit City and CompUSA.
There are minimal barriers to entry to this market, and new competitors could
launch a competitive web site offering services and products targeted to the
small business market. To compete successfully and to gain market share, the
Company must significantly increase awareness of its brand name and its web
site. In addition, the Company must increase its customer base and the volume of
services and products sold through its web site. The Company's failure to
achieve these objectives could cause its revenue to decline and limit its
ability to achieve profitability.
The Company may not compete successfully against current or future competitors,
many of which have substantially more capital, longer operating histories,
greater brand recognition, larger customer bases and significantly greater
financial, technical and marketing resources than the Company does. These
competitors may also be more successful than the Company in engaging in more
extensive development of their technologies, adopting more aggressive pricing
policies and establishing more comprehensive marketing and advertising
campaigns. The Company's competitors may develop web sites that are more
sophisticated than the Company's with better online tools, and that have service
and product offerings superior to the Company's. For these or other reasons, the
Company's competitors' web sites may achieve greater acceptance than the
Company's, limiting its ability to gain market share and customer loyalty and to
generate sufficient revenue to achieve profitability.
The Company's business model is new, unproven and evolving and may not prove to
be viable in the long run
The Company's business model is new, unproven and continues to evolve. In
particular, its business model is based on several assumptions, any one of which
may not prove to be true, including the following:
. a significant number of small businesses will be willing to purchase their
business services and products online;
. a significant number of small businesses and small business service
providers will use the Company's emarketplace to buy and sell services and
products; or
. small business customers will provide the Company data about themselves. If
any of these assumptions does not prove to be true, the Company's business
may not be viable in the long run.
In addition, to date the Company has sold many of its products at or below its
cost, causing the Company to incur negative gross margins. The Company cannot
assure you that if, in the future, it chooses to increase the prices at which it
sells products, the Company will be able to retain existing customers and
attract new customers. If the Company is unable to retain and grow its existing
customer base, its business model may not prove to be viable.
If the Company fails to increase the proportion of revenue derived from
transaction fees, its gross margins will not improve
In general, the Company derives higher gross margins from transaction fees from
the sale of services than from the sale of products. If the Company is to
improve gross margins, it must increase the proportion of revenue generated from
transaction fees. To date, the Company's transaction fees have been minimal, and
the sale of services over the Internet has not yet achieved broad market
acceptance. The sale
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of services through the Internet may not achieve broad market acceptance, and,
even if it does, the Company may not achieve significant sales of services.
If the Company does not develop additional and maintain existing relationships
with third parties, the Company may be unable to increase traffic to its web
site
The Company depends on relationships with third parties to direct traffic to its
web site. Most of these agreements call for the third party to be paid a monthly
fee. Some of these relationships require the Company to pay the third party a
percentage of revenue generated from customers who make a purchase after linking
through from the third party's web site. Most of these relationships are for
terms of six months or less and many of them are cancelable by either party
without cause upon limited notice. The Company must maintain its existing
relationships and develop new relationships on terms acceptable to the Company
to continue to increase traffic to its web site. The termination of any of these
existing agreements, or the failure to secure similar relationships with new
third parties would limit the growth in traffic to the Company's web site or
cause it to decline, and would likely impede its ability to attract a large
enough customer base to make its business viable. Additionally, the Company does
not know if it will be able to renew any or all of these agreements on
acceptable terms.
Even if the Company maintains its existing relationships, because most of them
have been formed recently and several of them have not yet been fully
established, the Company does not have sufficient historical data to assess
accurately whether the relationships will be successful in drawing sufficient
traffic to its web site. Any unexpected decline in traffic to the web sites of
the third parties with whom the Company has relationships could have a negative
impact on the traffic to the Company's web site.
If the Company is unable to maintain its relationships on commercially favorable
terms with the small number of suppliers of the products it sells, its business
will suffer
The Company purchases substantially all of its products from only four major
vendors: Ingram Micro, TechData, Merisel and United Stationers, with the
majority of the Company's revenue being derived from sales of products supplied
by Ingram Micro.
The Company does not typically maintain physical inventory but may do so for
scarce resources or when otherwise appropriate. The Company's relationships with
its suppliers are in the form of standard agreements. The Company does not have
minimum commitments or guaranteed pricing with any of its suppliers. Individual
transactions become contracts by way of issuing purchase orders. The Company's
agreements with its suppliers are cancelable at any time by either party. The
Company's suppliers could:
. discontinue service to the Company at any time with little or no notice, in
which case it may be unable to obtain alternate supply sources on
comparable or acceptable terms;
. raise prices above the level at which the Company can profitably sell
products to its customers;
. establish more favorable pricing structures for its competitors; or
. establish strict payment terms that constrain its working capital.
Any unfavorable action or event concerning its supplier relationships that
hinders the Company's ability to fulfill orders quickly, accurately and on
competitive terms would harm its business.
The Company has grown very quickly and if it fails to manage this growth, its
ability to increase revenue and achieve profitability will be harmed
The Company has rapidly and significantly expanded its operations, and the
Company needs to grow quickly in the future. This growth has placed a
significant strain on the Company's employees, management systems and other
resources and will continue to do so. If the Company does not manage its growth
effectively, its revenue may not grow as expected, and the Company may never
achieve profitability.
Effectively managing its expected future growth will require, among other
things, that the Company successfully upgrade its operating systems, improve its
management reporting capabilities and strengthen internal controls. The Company
will also need
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to attract, hire and retain highly skilled and motivated officers and employees.
The Company must also maintain close coordination among its marketing,
operations, engineering and accounting departments. The Company may not succeed
in achieving any of these objectives.
Its business will suffer if the Company is unable to hire and retain highly
qualified employees
The Company's future success depends on its ability to identify, hire, train and
retain highly qualified sales and marketing, technical, managerial and
administrative personnel. As the Company continues to introduce new services,
products and features on its web site, and as its customer base and revenue
continue to grow, the Company will need to hire a significant number of
qualified personnel. Competition for qualified personnel, especially those with
Internet experience, is intense, and the Company may not be able to attract,
train, assimilate or retain qualified personnel in the future. The Company's
failure to attract, train, assimilate and retain qualified personnel could
seriously disrupt its operations and could increase its costs as the Company
would be required to use more expensive outside consultants.
The Company's executive officers and key employees are critical to its business,
and these officers and key employees may not remain with the Company in the
future
The Company's business and operations are substantially dependent on the
performance of its key employees, all of whom are employed on an at-will basis
and have worked together for only a short period of time. The Company does not
maintain "key person" life insurance on any of its executives other than Glenn
Ballman, its founder, President and Chief Executive Officer. The loss of Mr.
Ballman or other key employees would likely harm the Company's business.
The Company may require significant additional capital in the future, which may
not be available on suitable terms, or at all
The expansion and development of its business may require significant
additional capital, which the Company may be unable to obtain on suitable terms,
or at all. If the Company is unable to obtain adequate funding on suitable
terms, or at all, it may have to delay, reduce or eliminate some or all of its
advertising, marketing, co-branding relationships, engineering efforts, general
operations or any other initiatives. The Company may require substantial
additional funds to carry out and expand its planned advertising and marketing
activities and to continue to develop and upgrade its technology. If the Company
issues convertible debt or equity securities to raise additional funds, the
Company's existing stockholders will be diluted.
If the Company fails to expand its current technology infrastructure, it will be
unable to accommodate its anticipated growth
To be successful, the Company must continue to increase substantially traffic to
its web site and convert web site visitors into customers. Accommodating this
potential growth in web site traffic and customer transactions will require the
Company to continue to develop its technology infrastructure. To maintain the
necessary technological platform in the future, the Company must continue to
expand and stabilize the performance of its web servers, improve its transaction
processing system, optimize the performance of its network servers and ensure
the stable performance of its entire network. The Company may not be successful
in its ongoing efforts to upgrade its systems, or if it does successfully
upgrade its systems, the Company may not do so on time and within budget. If the
Company fails to achieve a stable technological platform in time to handle
increasing web site traffic or customer order volume, potential customers could
be discouraged from using the Company's emarketplace, its reputation could be
damaged and its business could be harmed.
The performance of its web site is critical to the Company's business and its
reputation
Any system failure that causes an interruption in the service of the Company's
web site or a decrease in its responsiveness could result in reduced user
traffic and reduced revenue. Further, prolonged or ongoing performance problems
on its web site could damage the Company's reputation and result in the
permanent loss of customers to its competitors' web sites. The Company has
occasionally experienced system
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interruptions that have made its web site totally unavailable, slowed its
response time or prevented the Company from efficiently fulfilling orders, and
these problems may occur again in the future.
In April 1999, the Company entered into an agreement with Exodus Communications
to maintain all of its web servers and database servers at Exodus's Seattle
location. The Company's operations depend on Exodus's ability to protect its
systems against damage from fire, power loss, water damage, telecommunications
failures, vandalism and similar unexpected adverse events. Any disruption in the
services provided by Exodus could severely disrupt the Company's operations. The
Company's backup systems may not be sufficient to prevent major interruptions to
its operations, and it does not have a formal disaster recovery plan. The
Company may not have sufficient business interruption insurance to cover losses
from major interruptions.
The Company's customers and visitors to its web site depend on their own
Internet service providers, online service providers and other web site
operators for access to the Onvia.com web site. Each of these providers has
experienced significant outages in the past, and could experience outages,
delays and other difficulties due to system failures unrelated to the Company's
systems.
The Company expects to engage in future acquisitions or investments, which may
harm its operating results
Although the Company has no current agreements relating to acquisitions or
investments in other companies, it expects in the future to make acquisitions or
investments designed to increase its customer base, broaden its offerings and
expand its technology platform. The Company has not made acquisitions or
investments in the past, and therefore its ability to conduct acquisitions and
investments is unproven. If the Company fails to evaluate and to execute
successfully acquisitions or investments, the acquisitions may seriously harm
the Company's business. To complete successfully an acquisition, the Company
must:
. properly evaluate the technology;
. accurately forecast the financial impact of the transaction, including
accounting charges and transaction expenses;
. integrate and retain personnel;
. combine potentially different corporate cultures; and
. effectively integrate services and products and technology, sales, marketing
and support operations.
If the Company fails to do any of these, it may suffer losses or its management
may be distracted from its day-to-day operations. In addition, if the Company
conducts acquisitions using convertible debt or equity securities, existing
stockholders may be diluted, which could affect the market price of the
Company's stock.
The Company's services and products depend upon the continued availability of
licensed technology from third parties
The Company licenses and will continue to license technology integral to its
services and products from third parties. If the Company is unable to acquire or
retain key third-party product licenses or integrate the related third-party
products into its services and products, the Company's service and product
development may be delayed. The Company also expects to require new licenses in
the future as its business grows and technology evolves. The Company may not be
able to obtain these licenses on commercially reasonable terms, if at all.
If the Company expands its international sales and marketing activities, its
business will be susceptible to numerous risks associated with international
operations
The Company is making preliminary plans to expand its international operations
and hire additional personnel outside of North America. Therefore, in the future
the Company may commit significant resources to expand its international sales
and marketing activities. If successful, the Company will be subject to a number
of risks associated with international business activities. These risks
generally include:
. currency exchange rate fluctuations;
. seasonal fluctuations in purchasing patterns;
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. unexpected changes in regulatory requirements;
. tariffs, export controls and other trade barriers;
. longer accounts receivable payment cycles and difficulties in collecting
accounts receivable;
. difficulties in managing and staffing international operations;
. potentially adverse tax consequences, including restrictions on the
repatriation of earnings;
. burdens of complying with a wide variety of foreign laws;
. risks related to the recent global economic turbulence; and
. political instability.
The Company will not be able to grow its business unless small businesses
increase their use of the Internet to conduct commerce and the Internet is able
to support the demands of this growth
The Company's success depends on the increasing use of the Internet by small
businesses. If use of the Internet as a medium for consumer and business
communications and commerce does not continue to increase, demand for the
Company's services and products will be limited and its financial results will
suffer.
Even if small businesses increase their use of the Internet, the Internet
infrastructure may not be able to support the demands of this growth. The
Internet infrastructure must be continually improved and expanded in order to
alleviate overloading and congestion. If the Internet's infrastructure is not
improved or expanded, the Internet's performance and reliability will be
degraded. Internet users may experience service interruptions as a result of
outages and other delays occurring throughout the Internet. Frequent outages or
delays may cause consumers and businesses to slow or stop their use of the
Internet as a transaction-based medium.
The Company may not be able to keep up with rapid technological and industry
changes
The Internet and online commerce markets are characterized by rapid
technological change, frequent introductions of new or enhanced hardware and
software products, evolving industry standards and changes in customer
preferences and requirements. The Company may not be able to keep up with any of
these or other rapid technological changes, and if it does not, its business
will be harmed. These changes and the emergence of new industry standards and
practices could render the Company's existing web site and operational
infrastructure obsolete. The widespread adoption of new Internet, networking or
telecommunications technologies or other technological changes could require the
Company to incur substantial expenditures to modify or adapt its operating
practices or infrastructure. To be successful, the Company must enhance its web
site responsiveness, functionality and features, acquire and license leading
technologies, enhance its existing service and product offerings, and respond to
technological advances and emerging industry standards and practices in a timely
and cost effective manner.
Future regulations could be enacted that either directly restrict the Company's
business or indirectly impact its business by limiting the growth of e-commerce
As e-commerce evolves, federal, state and foreign agencies could adopt
regulations covering issues such as privacy, content and taxation of services
and products. If enacted, government regulations could limit the market for the
Company's services and products. Although many regulations might not apply to
its business directly, the Company expects that laws regulating the collection
or processing of personal or consumer information could indirectly affect its
business. It is possible that legislation could expose companies involved in e-
commerce to liability, which could limit the growth of e-commerce generally.
Legislation could hinder the growth in Internet use and decrease its acceptance
as a medium for communication and commerce.
The Company's stock price may be volatile
The stock market and specifically the stock prices of Internet-related companies
have been very volatile. This broad market and industry volatility may reduce
the price of the Company's common stock, without regard to its operating
performance. Due to this volatility, the market price of the Company's common
stock could significantly decrease.
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The Company's principal stockholders, officers and directors own a controlling
interest in its voting stock
The Company's officers, directors and stockholders with greater than 5% holdings
beneficially own a majority of its outstanding common stock. As a result, these
stockholders, acting together, will have the ability to control substantially
all matters submitted to its stockholders for approval, including:
. election of the Company's board of directors;
. removal of any of the Company's directors;
. amendment of the Company's certificate of incorporation or bylaws; and
. adoption of measures that could delay or prevent a change in control or
impede a merger, takeover or other business combination involving the
Company.
These stockholders will have substantial influence over the Company's management
and its affairs.
The Company has implemented anti-takeover provisions that may discourage
takeover attempts and depress the market price of its stock
Provisions of the Company's amended and restated certificate of incorporation
and bylaws as well as provisions of Delaware law, can have the effect of making
it difficult for a third party to acquire the Company, even if doing so would be
beneficial to its stockholders.
The Company does not intend to pay dividends
The Company has never declared or paid any cash dividends on its capital stock
and does not intend to pay dividends in the foreseeable future. The Company
intends to invest its future earnings, if any, to fund its growth.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Due to the operations of the Company's wholly-owned subsidiary in Canada, its
results of operations, financial position and cash flows can be materially
affected by changes in the relative values of the Canadian dollar to the U.S.
dollar. However, due to the relative stability of these two currencies in
relation to one another, the Company's past results of operations have not been
materially affected by fluctuations in exchange rates. The Company does not use
derivative financial instruments to limit its foreign currency risk exposure.
The Company's investment portfolio consists of money market funds, commercial
paper and corporate debt securities. As of March 31, 2000, the Company
considers the reported amounts of these investments to be reasonable
approximations of their fair values. Therefore, changes in the market interest
rates have not had a material impact on the Company's financial position.
Historically, the Company's interest expense was not sensitive to the general
level of U.S. interest rates because all of its debt arrangements were based on
fixed interest rates.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In February 2000, the Company settled a lawsuit filed by a former employee who
claimed he was entitled to 100,000 shares of the Company's common stock. The
Company had previously accrued $1.1 million as noncash stock-based compensation
but settled the lawsuit for $550,000 in cash.
In February 2000, a potential investor filed a lawsuit in the Supreme Court of
British Columbia, Canada against the Company and its chief executive officer for
50% of the Company's assets and 50% of the executive's equity interest in the
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Company. The lawsuit is based upon the allegation that the potential investor
and the Company's chief executive officer planned to form a company similar to
Onvia.com. Based upon investigations to date, the Company believes that the
allegations against it are without merit and that the outcome of this action
will not harm its business. The Company believes that it has valid defenses to
this claim and intends to vigorously defend the action.
In addition, from time to time the Company is subject to various other legal
proceedings that arise in the ordinary course of its business. Although the
Company cannot predict the outcomes of these proceedings with certainty, the
Company does not believe that the disposition of these matters will have a
material adverse effect on its financial position, results of operations or cash
flows.
Item 2. Changes in Securities and Use of Proceeds.
(c) Recent Sales of Unregistered Securities
In March 2000, the Company sold to Internet Capital Group, (ICG), 2,666,666
shares of its unregistered common stock at $21.00 per share, which generated net
cash proceeds of $56.0 million. In issuing these securities, the Company relied
on Section 4(2) of the Securities Act, on the basis that the transaction did not
involve a public offering. ICG represented to Onvia.com that it was an
accredited investor within the meaning of Rule 501 of Regulation D and was able
to bear the financial risk of its investment. ICG further represented that its
intention to acquire the securities was for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities. Onvia.com did not make any offer to sell
the securities by means of any general solicitation or general advertising
within the meaning of Rule 502 of Regulation D of the Securities Act. Onvia.com
has used the net proceeds from the private placement to invest in interest
bearing investment grade instruments and to fund the general operations of the
Company. Onvia.com currently expects to use the net proceeds primarily for
working capital and general corporate purposes. In addition, Onvia.com may use a
portion of the net proceeds for further development of its product lines through
acquisitions of products, technologies and businesses.
In the quarter ended March 31, 2000, the Company issued 269,555 shares of
unregistered common stock to employees pursuant to the exercise of stock options
under its 1999 Stock Option Plan. These options were exercised at a weighted
average exercise price of $0.08 per share. The issuance of these securities was
deemed to be exempt from registration under the Securities Act in reliance of
Section 4(2) of the Securities Act as transaction by an issuer not involving any
public offering. Almost all these issuances were made in reliance upon Rule 701
promulgated under the Securities Act. Those issuances that were not made in
reliance upon Rule 701 were to officers of Onvia.com whose relationship with
Onvia.com provided for adequate access to information about Onvia.com.
(d) Use of Proceeds from Sales of Registered Securities.
On March 1, 2000, Onvia.com completed an initial public offering (the
"Offering")of its Common Stock, $0.0001 par value. The managing underwriters in
the Offering were Credit Suisse First Boston, Chase H&Q, BancBoston Robertson
Stephens, William Blair & Company, and E*Offering (the "Underwriters"). The
shares of Common Stock sold in the Offering were registered under the Securities
Act of 1933, as amended, on a Registration Statement on Form S-1 (the
"Registration Statement") (Reg. No. 333-93273) that was declared effective by
the SEC on February 29, 2000. The Offering commenced on March 1, 2000, on which
date, 9,200,000 shares of Common Stock (which includes 1,200,000 shares of
Common Stock issued upon exercise of the Underwriters' over-allotment option)
registered under the Registration Statement were sold at a price of $21.00 per
share. The aggregate gross proceeds of the Offering amount registered and sold
was $193,200,000. In connection with the Offering, Onvia.com paid $13,524,000 in
underwriting discounts and commissions to the Underwriters. In addition, the
following table sets forth the other material expenses incurred in connection
with the Offering through April 30,2000.
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Amount Paid
-----------
Securities and Exchange Commission registration fee $ 269,000
NASD filing fee 7,000
Nasdaq National Market listing fee 130,000
Printing and engraving expenses 266,000
Legal fees and expenses 466,000
Accounting fees and expenses 336,000
Blue Sky qualification fees and expenses 3,000
Transfer Agent and Registrar fees 3,000
Miscellaneous fees and expenses 240,000
-----------
Total $1,720,000
==========
After deducting the underwriting discounts and commissions and the Offering
expenses described above, Onvia.com received net proceeds from the Offering of
approximately $177.9 million. Onvia.com currently expects to use the net
proceeds primarily for working capital and general corporate purposes. In
addition, Onvia.com may use a portion of the net proceeds for further
development of its product lines through acquisitions of products, technologies
and businesses. Onvia.com has used the net proceeds from its Offering to invest
in interest bearing investment grade instruments and to fund the general
operations of Onvia.com. None of Onvia.com's net proceeds of the Offering were
paid directly or indirectly to any director, officer, general partner of
Onvia.com or their associates, persons owning 10% or more of any class of equity
securities of Onvia.com, or an affiliate of Onvia.com. Onvia.com has completed
the Offering.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Effective February 10, 2000, at least a majority of the holders of the common
stock of Onvia.com, at least a majority of the holders of the Series A preferred
Stock of Onvia.com, and at least a majority of the holders of the Series B and
Series C Preferred Stock of Onvia.com approved the following items in an action
by written consent:
. A reincorporation of Onvia.com from Washington into Delaware;
. A two-for-one forward split of the capital stock of Onvia.com;
. The adoption of the 2000 Employee Stock Purchase Plan;
. The adoption of the 2000 Directors' Stock Option Plan;
. An amendment to the 1999 Stock Option Plan to increase the number of shares
authorized thereunder to 18,000,000 and to make certain other changes;
The form of the post initial public offering Amended and Restated Certificate of
Incorporation of Onvia.com; and the form of the standard director and officer
indemnification agreements.
Item 5. Other Information.
None.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit
Number
3.1 Bylaws of Onvia.com (Incorporated by reference to exhibit number 3.4
to Onvia.com's registration statement on Form S-1 (file number 333-
93273), filed February 29, 2000).
3.2 Amended and Restated Certificate of Incorporation (Incorporated by
reference to exhibit number
3.5 to Onvia.com's registration statement on Form S-1 (file number 333-
93273), filed February 29, 2000).
4.1 Form of Onvia.com's common stock certificate (Incorporated by
reference to exhibit number 4.1 to Onvia.com's registration statement
on Form S-1 (file number 333-93273), filed February 29, 2000).
4.2 Amended and Restated Investors' Rights Agreement dated December 20,
1999, as amended (Incorporated by reference to exhibit number 4.2 to
Onvia.com's registration statement on Form S-1 (file number 333-
93273), filed February 29, 2000).
4.3 Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Comdisco, Inc. as of August 5, 1999 (Incorporated by
reference to exhibit number 4.5 to Onvia.com's registration statement
on Form S-1 (file number 333-93273), filed February 29, 2000).
4.4 Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Meier Mitchell & Company as of August 5, 1999
(Incorporated by reference to exhibit number 4.6 to Onvia.com's
registration statement on Form S-1 (file number 333-93273), filed
February 29, 2000).
10.1 Mercer Yale Building Amended and Restated Office Lease Agreement
between Onvia.com and Blume Yale Limited Partnership dated as of
February 8, 2000 (Incorporated by reference to exhibit number 10.24 to
Onvia.com's registration statement on Form S-1 (file number 333-
93273), filed February 29, 2000).
10.2 2000 Employee Stock Purchase Plan (Incorporated by reference to
exhibit number 10.25 to Onvia.com's registration statement on Form S-1
(file number 333-93273), filed February 29, 2000).
10.3 2000 Directors' Stock Option Plan (Incorporated by reference to
exhibit number 10.26 to Onvia.com's registration statement on Form S-1
(file number 333-93273), filed February 29, 2000).
10.4+ Interactive Marketing Agreement between America Online, Inc. and
Onvia.com dated as of February 4, 2000 (Incorporated by reference to
exhibit number 10.28 to Onvia.com's registration statement on Form S-1
(file number 333-93273), filed February 29, 2000).
10.5 Common Stock Purchase Agreement between Internet Capital Group, Inc.
and Onvia.com dated as of February 4, 2000 (Incorporated by reference
to exhibit number 10.29 to Onvia.com's registration statement on Form
S-1 (file number 333-93273), filed February 29, 2000).
10.6 Form of Indemnification Agreement (Incorporated by reference to
exhibit number 10.30 to Onvia.com's registration statement on Form S-1
(file number 333-93273), filed February 29, 2000).
10.7 Form of Secured Promissory Note (Officers) (Incorporated by reference
to exhibit number 10.32 to Onvia.com's registration statement on Form
S-1 (file number 333-93273), filed February 29, 2000).
27.1 Financial Data Schedule.
+ Confidential treatment has been requested as to certain portions of this
Exhibit.
(b) Reports on Form 8-K:
22
<PAGE>
On March 23, 2000, Onvia.com filed a report on Form 8-K describing the sale by
Onvia.com of 2,666,666 shares of its Common Stock to Internet Capital Group,
Inc. in a private placement transaction that closed on March 14, 2000, at a
price of $21.00 per share raising gross proceeds of $55,999,986.00.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONVIA.COM, INC.
By: /s/ [Conformed Signature]
----------------------------------
Mark Calvert
Chief Financial Officer
Date: May 12, 2000
24
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
3.1 Bylaws of Onvia.com (Incorporated by reference to exhibit number 3.4
to Onvia.com's registration statement on Form S-1 (file number 333-
93273), filed February 29, 2000).
3.2 Amended and Restated Certificate of Incorporation (Incorporated by
reference to exhibit number 3.5 to Onvia.com's registration statement
on Form S-1 (file number 333-93273), filed February 29, 2000).
4.1 Form of Onvia.com's common stock certificate (Incorporated by
reference to exhibit number 4.1 to Onvia.com's registration statement
on Form S-1 (file number 333-93273), filed February 29, 2000).
4.2 Amended and Restated Investors' Rights Agreement dated December 20,
1999, as amended (Incorporated by reference to exhibit number 4.2 to
Onvia.com's registration statement on Form S-1 (file number 333-
93273), filed February 29, 2000).
4.3 Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Comdisco, Inc. as of August 5, 1999 (Incorporated by
reference to exhibit number 4.5 to Onvia.com's registration statement
on Form S-1 (file number 333-93273), filed February 29, 2000).
4.4 Warrant to Purchase Shares of Series A Preferred Stock issued by
Onvia.com to Meier Mitchell & Company as of August 5, 1999
(Incorporated by reference to exhibit number 4.6 to Onvia.com's
registration statement on Form S-1 (file number 333-93273), filed
February 29, 2000).
10.1 Mercer Yale Building Amended and Restated Office Lease Agreement
between Onvia.com and Blume Yale Limited Partnership dated as of
February 8, 2000 (Incorporated by reference to exhibit number 10.24 to
Onvia.com's registration statement on Form S-1 (file number 333-
93273), filed February 29, 2000).
10.2 2000 Employee Stock Purchase Plan (Incorporated by reference to
exhibit number 10.25 to Onvia.com's registration statement on Form S-1
(file number 333-93273), filed February 29, 2000).
10.3 2000 Directors' Stock Option Plan (Incorporated by reference to
exhibit number 10.26 to Onvia.com's registration statement on Form S-1
(file number 333-93273), filed February 29, 2000).
10.4+ Interactive Marketing Agreement between America Online, Inc. and
Onvia.com dated as of February 4, 2000 (Incorporated by reference to
exhibit number 10.28 to Onvia.com's registration statement on Form S-1
(file number 333-93273), filed February 29, 2000).
10.5 Common Stock Purchase Agreement between Internet Capital Group, Inc.
and Onvia.com dated as of February 4, 2000 (Incorporated by reference
to exhibit number 10.29 to Onvia.com's registration statement on Form
S-1 (file number 333-93273), filed February 29, 2000).
10.6 Form of Indemnification Agreement (Incorporated by reference to
exhibit number 10.30 to Onvia.com's registration statement on Form S-1
(file number 333-93273), filed February 29, 2000).
10.7 Form of Secured Promissory Note (Officers) (Incorporated by reference
to exhibit number 10.32 to Onvia.com's registration statement on Form
S-1 (file number 333-93273), filed February 29, 2000).
27.1 Financial Data Schedule.
+ Confidential treatment has been requested as to certain portions of this
Exhibit.
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 224,306
<SECURITIES> 19,232
<RECEIVABLES> 827
<ALLOWANCES> 0
<INVENTORY> 1,396
<CURRENT-ASSETS> 254,187
<PP&E> 8,777
<DEPRECIATION> 1,013
<TOTAL-ASSETS> 268,944
<CURRENT-LIABILITIES> 28,159
<BONDS> 0
0
0
<COMMON> (338,985)
<OTHER-SE> 102,399
<TOTAL-LIABILITY-AND-EQUITY> (268,944)
<SALES> (21,509)
<TOTAL-REVENUES> (21,509)
<CGS> 24,355
<TOTAL-COSTS> 24,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 785
<INCOME-PRETAX> (26,160)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,160)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,160)
<EPS-BASIC> (0.71)
<EPS-DILUTED> (0.71)
</TABLE>
