**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K**






**FOR
      ANNUAL AND TRANSITION REPORTS**


**PURSUANT
      TO SECTIONS 13 OR 15(D) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**




**x**  **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**


**For
      the fiscal year ended December 31, 2006**


**OR**


** ̈**  **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**


**For
      the transition period from** ** **** **to** **** ****




**Commission
      File Number 000-29609**




**ONVIA,
      INC.**


**(Exact
      Name of Registrant as Specified in its Charter)**


**Delaware**
            **91-1859172****(State
                or Other Jurisdiction**
              **of
                Incorporation or Organization)**
            **(I.R.S.
                Employer**
              **Identification
                No.)**


**1260
      Mercer Street, Seattle, Washington 98109**


**(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:**


**Common
      Stock, $.0001 Par Value per Share**


**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 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 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, or a non-accelerated filer (as defined in Rule 12b-2 of
      the
      Exchange Act):


Large
      accelerated filer  ̈ Accelerated
      filer  ̈ Non-accelerated
      filer 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 nonvoting common stock held by
      nonaffiliates of the registrant, based on the closing price on June 30, 2006,
      as
      reported on the NASDAQ Global Market, was $30,516,725.




The
      number of shares of the registrant’s common stock outstanding at March 1, 2007
      was 7,992,198.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Portions
      of the definitive Proxy Statement for the Registrant’s Annual Meeting of
      Stockholders to be held on May 4, 2007 have been incorporated by reference
      into
      Part III of this Annual Report on Form 10-K.










**ONVIA,
      INC.**




**FORM
      10-K**


**For
      the Year Ended December 31, 2006**




**INDEX**


**PART
                  I**ITEM
                  1.
              BUSINESS
              1ITEM
                  1A.
              RISK
                  FACTORS
              7ITEM
                  1B.
              UNRESOLVED
                  STAFF COMMENTS
              13ITEM
                  2.
              PROPERTIES
              13ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              13ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              15


**PART
                  II**ITEM
                  5.
              MARKET
                  FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
                  AND ISSUER
                  PURCHASES OF EQUITY SECURITIES
              16ITEM
                  6.
              SELECTED
                  CONSOLIDATED FINANCIAL DATA
              18ITEM
                  7.
              MANAGEMENT'S
                  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                  OPERATIONS
              19ITEM
                  7A.
              QUANTITATIVE
                  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              26ITEM
                  8.
              CONSOLIDATED
                  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
              28ITEM
                  9.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              44ITEM
                  9A.
              CONTROLS
                  AND PROCEDURES
              44ITEM
                  9B.
              OTHER
                  INFORMATION
              44
  **PART
                  III**ITEM
                  10.
              DIRECTORS,
                  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
              45ITEM
                  11.
              EXECUTIVE
                  COMPENSATION
              45ITEM
                  12.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                  STOCKHOLDER MATTERS
              45ITEM
                  13.
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                  INDEPENDENCE
              45ITEM
                  14.
              PRINCIPAL
                  ACCOUNTANT FEES AND SERVICES
              45
  **PART
                  IV**ITEM
                  15.
              EXHIBITS
                  AND FINANCIAL STATEMENT SCHEDULES
              46SIGNATURES
              
              48


**PART
      I** ****




**CAUTIONARY
      STATEMENT**




*In
      addition to the historical information contained herein, the disclosure and
      analysis in this report contains forward-looking statements. When used in this
      discussion, the words “believes,” “anticipates,” “may,” “will,” “should,”
“expects,” “plans,” “estimates,” “predicts,” “potential,” “continue,” “intends”
or the negative of these and similar expressions are intended to identify
      forward-looking statements, but the absence of these words does not necessarily
      mean that a statement is not forward-looking. Forward-looking statements
      include, but are not limited to, statements about our plans, objectives,
      expectations and intentions and are subject to risks and uncertainties that
      could cause actual results to differ materially from those expected or implied
      by these forward-looking statements. 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” and elsewhere in this report. We undertake no
      obligation to publicly release any revisions to these forward-looking statements
      that may be made to reflect events or circumstances after the date hereof or
      to
      reflect the occurrence of anticipated events. Readers are urged, however, to
      review the factors and risks described in reports we file from time to time
      with
      the Securities and Exchange Commission.*




**ITEM 1.**  **BUSINESS** ****




In
      this
      report, the words “we,” “our,” “us,” “Onvia,” or the “Company” refer to Onvia,
      Inc. and its wholly owned subsidiary. Certain previously reported amounts have
      been reclassified to conform to the Company’s current presentation.





**Company
      Overview**




Onvia
      is
      a leading provider of market intelligence about actionable public sector revenue
      opportunities. Onvia’s proprietary database, Onvia Dominion®, has been compiled
      over the last ten years, and includes comprehensive, historical and real-time
      information unavailable elsewhere in the marketplace. Access to Onvia Dominion
      provides businesses with insight and intelligence on relevant public sector
      revenue opportunities, which is classified and linked within four key hubs
      of
      data: project history, agency research, buyer research and competitive
      intelligence. Onvia’s database provides information on over 3.5 million
      procurement records connected to over 275,000 companies from across
      approximately 73,000 government agencies nationwide, and thousands of records
      are added to our database each day. Information in Onvia’s database has been
      collected, formatted and classified by an in-house team of researchers and
      third
      party providers so that clients are able to quickly find and analyze information
      relevant to their businesses.





Since
      2001, Onvia’s strategy has been to provide business professionals with critical
      knowledge to explore and research opportunities and win new business by offering
      comprehensive, timely and standardized information on government procurement
      opportunities.





Beginning
      in 2005, Onvia developed a strategic plan designed to differentiate the Company
      within the public-sector information marketplace with the long-term objective
      of
      consistent revenue growth and increasing return on investment. The accessibility
      of the unique information contained in the Onvia Dominion® database was
      significantly enhanced with the introduction of Onvia Business Builder in 2005.
      Prior to the release of Onvia Business Builder, data integration at this level
      was only available to large companies with the resources to perform the research
      and store the data themselves, or companies that could afford to hire outside
      firms to perform the research for them. Advances in technology, broad use of
      the
      Internet by government agencies, and the diligent work of the Company’s research
      team to collect and classify this information have enabled Onvia to make the
      same high-value sales intelligence affordable for businesses of all sizes.





In
      April
      2006, Onvia launched Onvia Navigator, an online search tool allowing customized
      searches of its government business intelligence database providing clients
      with
      self-directed access to its proprietary database of government procurement
      information. In January 2007, the Company enhanced the functionality of Onvia
      Navigator by adding the ability to search the contents of documents in its
      database, which should significantly increase the number and relevancy of
      self-directed search results.





Onvia’s
      revenues are currently generated from two main business channels: client
      subscriptions and content licenses. Contracts for its subscription based
      services are typically prepaid, have a minimum term of one year and revenues
      are
      recognized ratably over the term of the subscription. Subscriptions are priced
      based upon the geographic range, nature of content purchased and, in certain
      products, the number of users.





Revenue
      from content licenses is generated from clients who resell Onvia’s business
      intelligence data to their customers. Content license contracts are generally
      multi-year arrangements that are invoiced on a monthly or quarterly basis.
      Revenue from content license agreements is recognized ratably over the term
      of
      the agreement, and these agreements generally have a higher annual contract
      value than the Company’s subscription based services. Onvia also generates
      revenue from fees charged for document download services, list rental services,
      and other market intelligence reports, and these fees are recognized upon
      delivery.




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




1


**Industry
      Background**




Government
      agencies spend billions of dollars annually on the procurement of a large array
      of goods and services. These public sector projects can provide businesses
      with
      a significant source of new sales opportunities. Tracking these public sector
      projects can be difficult and companies spend a substantial amount of time
      and
      effort to locate and research these new opportunities to grow their businesses.
      The Internet provides short-term visibility into government contracting
      information for both government agencies and business suppliers but does not
      provide the on-demand intelligence required to guide strategic
      decisions.





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





Often,
      revenue opportunities are included within the specification documents behind
      the
      RFP and RFQ documents, and without tools to quickly identify the pertinent
      information businesses must read the entire documents to determine if there
      are
      opportunities relevant to their business.





Onvia’s
      comprehensive database contains much of this information on both a historical
      and real-time basis and thousands of records are added to our database each
      day.
      Much of the information in our database is linked, so clients can quickly
      research information relevant to a particular project in one centralized
      location. Clients can also perform customized searches on both the public record
      and within the project specification documents to identify relevant
      opportunities using any number of variables, such as publication date,
      geographic location and contract value, among others. Using Onvia’s database and
      tools, our clients spend less time on research and more time on preparing
      winning proposals, establishing relationships and executing
      contracts.








**Products
      and Services**




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





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




•  Architecture
      and Engineering




•  Construction
      and Building Supplies




•  IT
      /
      Telecom




•  Consulting
      Services




•  Operations
      and Maintenance Services




•  Transportation
      Equipment




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




•  Advance
      Notice - alerts businesses of projects in the development process, before the
      bid is released in its final form;




•  Requests
      for proposal (“RFPs”), request for quotes (“RFQs”), and related amendments;





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





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





•  Grants
      -
      supplies federal and state grant information critical to anyone tracking or
      applying for publicly-funded projects.





Content
      in our Dominion database is linked and associated around four key data points;
      project, agency, agency buyer, and vendor. The association of each record makes
      it possible to evaluate purchasing trends by agency and by agency buyer and
      identify or evaluate potential competitors.





Our
      suite
      of information services is comprised of the following products:




2


***Onvia’s
      Solutions for Business Suppliers***




**Onvia
      Business Builder**


Onvia
      Business Builder, launched in July 2005, is our most comprehensive product
      and
      is intended to enable businesses of all sizes to compete more effectively in
      the
      government procurement marketplace. This product leverages Onvia’s proprietary
      database of historical information gathered from local, state and federal
      government agencies and education entities to help clients evaluate and respond
      to new bid requests and RFPs with more competitive bids by allowing them to
      easily research competitor and buyer information.





Subscribers
      to Onvia Business Builder receive customized daily email notifications about
      relevant business opportunities focused on the verticals described above and
      an
      online user interface that provides business intelligence oriented around the
      following four key hubs of data:





*Project
      History*


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





*Agency
      Research*


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





*Buyer
      Research*


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




*Competitor
      Research*


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





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




**Onvia
      Navigator**


In
      April
      2006, we launched our database search tool, Onvia Navigator. Onvia Navigator
      allows clients to easily identify market opportunities within our proprietary
      database and search the contents of the related specification documents. Onvia
      Navigator enables users to focus their research in many ways, including by
      procurement types, submittal dates, contract locations, agencies, and contract
      values. Once the desired results are identified using Onvia Navigator, clients
      can employ Onvia Business Builder to provide detailed information on the search
      results.





**The
      Onvia Guide**


We
      also offer a product that delivers the same customized daily email notifications
      about relevant business opportunities that subscribers to the Onvia Business
      Builder product receive, without the user interface to research information
      in
      our database. This product is available at a lower price point and is published
      as The Onvia Guide.






***Onvia’s
      Solutions for Government Agencies***




Government
      agencies are faced with inefficient notification systems requiring significant
      paperwork and high costs associated with the procurement process. Although
      many
      government agencies maintain long-term supplier relationships, the agencies
      still must publicize contract opportunities to both existing and potential
      suppliers. The Onvia platform offers increased distribution of their RFPs and
      RFQs to potential business suppliers. By using our solution, government agencies
      can reduce operating costs, increase administrative efficiency, heighten
      competition leading to more competitive pricing, and quickly and efficiently
      notify businesses of their requirements online.




Onvia’s
      agency tools automate the process of RFP and RFQ creation, posting, and document
      distribution. Our tools provide agencies with a variety of benefits: our online
      tools eliminate many manual steps traditionally found in the RFP and RFQ
      process; agencies save time and money by outsourcing the bid package production
      and distribution to us; and, by posting bids and quotes to a database of
      suppliers, agencies increase the number of businesses competing for their
      projects, which can drive contract prices down.




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




QuoteWire
      provides agencies requesting quotes with the same efficiencies as BidWire does
      for RFPs. Some of QuoteWire’s primary features include: tools that allow the
      agency to modify standard RFQ forms and create individual line items for each
      quote; a specialized version of the RFQ form, whereby business suppliers can
      input prices and other information; automatic tabulation of business supplier
      responses for comparison and award; and specific award notification to the
      selected business supplier.




3


**Strategy**




Onvia’s
      mission is to become the authoritative source that businesses rely on for
      relevant information, insight and intelligence required to grow their
      public-sector related business. Onvia’s strategic plan calls for differentiating
      the Company within the public-sector information marketplace with the long-term
      objective of consistent revenue growth and increasing return on investment.
      Key
      elements of the Company’s strategy include:


·
            ***Expand
                the valuable content included in our database***.
                In 2005, Onvia began collecting new, hard to find information types
                to
                increase the value of its content to its clients. New information
                types
                include planholders lists, bidders lists, and agency decision makers
                lists
                and coverage of premium, hard to find content. By expanding the coverage
                of current and historical information, Onvia’s content will be applicable
                to broader market segments, and should improve retention of its existing
                client base. ***·***
            ***Enhance
                our existing research tools.*********In
                2005, the Company introduced Onvia Business Builder, which significantly
                enhanced the access to information contained in its database by providing
                access to historical information in addition to the real time notification
                that it already provided. In 2006, the Company launched Onvia Navigator,
                which allows clients to easily identify market opportunities within
                our
                proprietary database and search the contents of the related specification
                documents. By continuing to enhance our product offering through
                the
                introduction of new tools and services that further improve our clients’
                ability to tailor the information they choose to see, we expect that
                we
                will increase the satisfaction of our existing clients, thereby increasing
                retention rates, and also will broaden the appeal of our products
                to
                potential new categories of customers.****** ·
            ***Understand
                client needs***.
                Onvia is committed to intimately understanding the needs of its business
                clients and government agencies. The Company performed a comprehensive
                market research study to gain further insight on the needs of its
                clients
                and results of this research led to the introduction of new information
                research tools in 2005 and 2006 and we expect to continue to introduce
                new
                content and tools to enhance the appeal of our products to existing
                and
                potential clients in 2007 and beyond. ·
            ***Increase
                annual contract value***.
                Annual contract value represents the aggregate annual subscription
                value
                of the Company’s client base. Growth in annual contract value demonstrates
                success in increasing the number of clients and upgrading existing
                clients
                into new and higher valued products. We intend to increase annual
                contract
                value by upgrading existing clients to higher value products, increasing
                prices and introducing new products during 2007. ·
              ***Drive
                  adoption of our higher value products***.
                  Clients that purchase Onvia’s higher value products, including premium
                  data, generally receive the most comprehensive information specific
                  to
                  their businesses. These products have also historically produced
                  higher
                  client retention rates. We seek to better serve our non-premium
                  clients by
                  migrating them to higher value products.




**Clients**




Onvia
      serves two primary and distinct client groups: businesses and government
      agencies.




***Businesses***




Onvia
      serves two separate business channels for its business clients: client
      subscriptions and content licenses. Client subscriptions are sold directly
      to
      the end user of the business intelligence. At December 31, 2006, Onvia had
      approximately 9,200 subscribing clients. Client subscriptions contributed
      approximately 86% of the Company’s revenue in 2006, compared to 88% in 2005. At
      December 31, 2006, the annual contract value of Onvia’s client subscribers was
      approximately $15.5 million, compared to $13.1 million at December 31,
      2005.





Onvia’s
      second business channel, content licenses, represents clients who resell Onvia’s
      business intelligence to their customers. These clients represented
      approximately 13% of the Company’s revenue in 2006, compared to 11% in 2005. The
      annual contract value of Onvia’s content license clients was approximately $2.1
      million at December 31, 2006 and 2005 .





We
      also
      generate revenue from fees charged for document download services, list rental
      services, and one-time informational reports, and these fees represented 1%
      of
      our revenue in 2006.




***Government
      Agencies***




Although
      many government agencies maintain long-term supplier relationships, the agencies
      still must publicize contract opportunities to both existing and potential
      suppliers. By using Onvia’s solution, government agencies reduce operating costs
      by quickly and efficiently notifying business suppliers of their requirements,
      and improve competition through the increased distribution of their RFPs and
      RFQs. In addition, Onvia’s agency relationships provide a direct connection
      between business suppliers and buying agencies, providing business suppliers
      with bid documents and online response tools. At December 31, 2006, Onvia had
      approximately 400 government agencies signed to use its service.




**Sales
      Strategy**




The
      primary objective of Onvia’s sales strategy is to increase annual contract value
      and client retention. The Company’s sales strategy is based on organizational
      design, increased efficiencies and establishing a predictable model of new
      client acquisition:




·
            Increase
                the specialization of our account management resources and reduce
                the
                number of accounts each representative manages to deliver greater
                client
                service and increase client satisfaction;
                and


·
            Increase
                the efficiency and predictability of our acquisition team through
                consistent and proactive prequalification of prospects and selective
                targeting of ideal prospects that do business in verticals served
                well
                within our product offering.




The
      Onvia
      2007 sales strategy also has strong emphasis on performance management processes
      around forecasting, managing activities and results, and prioritizing activity
      around at risk clients.


4




**Marketing
      Strategy**




Onvia
      deploys an integrated approach to its marketing, incorporating email direct
      marketing, online search engine marketing, public relations, and supporting
      sales tools and collateral. Client retention and upgrade marketing are an
      integral part of the Company’s marketing strategy. Marketing programs are
      intended to keep the Onvia name and solutions in front of its clients in a
      relevant and meaningful way, through informative newsletters, new product
      updates, government best practice emails and personalized renewal reminders,
      among others.





In
      2006,
      Onvia focused its marketing efforts on generating high quality sales leads
      at
      the lowest cost, while providing the proper sales tools to support high-value
      sales. The Company refined its online marketing program to drive more qualified
      leads from people using search engines to identify revenue opportunities. In
      2007 the Company’s lead generation efforts will focus on driving high quality,
      targeted leads and will supplement this effort by building a prospect marketing
      database that will aid in prioritizing and targeting prospects for
      sales and marketing efforts. In 2007 the Company will also build a new website
      to drive more targeted leads with the same characteristics of our ideal clients
      and create a more efficient web experience. In addition, the Company will
      continue to provide sales tools and collateral to support customer acquisition
      and retention efforts.





**Agency
      Relationships**




Agency
      partners bring value through source contributed content and by providing
      referrals of their business suppliers. As of December 31, 2006, Onvia had
      approximately 400 active partner agencies nationwide. These relationships are
      established in key metropolitan areas nationwide. Onvia continues to sign a
      variety of government agencies including cities, counties, housing authorities,
      transportation authorities and school districts. Some recent agency additions
      include the City of Palo Alto, CA and Metropolitan Transportation Authority
      of
      NY.





**Technology**




Onvia
      supports its operations and online 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. Onvia’s systems
      are designed to:




•  Provide
      fast, secure and uninterrupted visitor access to its web site;




•  Validate
      and process client requests promptly and accurately;




•  Provide
      timely, comprehensive and accurate management-reporting capabilities;




•  Accommodate
      upgrades to tools and features on its web site;




•  Scale
      to
      accommodate growth in its operations; and




•  Provide
      redundancy in case of component system failures.




Onvia’s
      systems use a combination of proprietary technologies and commercially available
      licensed technologies. The backbone of its technology infrastructure consists
      of
      database servers running Microsoft SQL Server 2000 on HP/Compaq hardware. The
      front end consists of multiple, redundant web servers that are expandable as
      operations grow.




Onvia’s
      web servers, database servers, transaction-processing servers and other core
      systems that conduct essential business operations are housed at its corporate
      headquarters in Seattle, Washington. The Company’s network operations personnel
      provide 24x7 monitoring and engineering support in a climate-controlled and
      physically secure environment. Onvia’s onsite data center has redundant
      communication lines from multiple Internet service providers and has its own
      emergency power and backup systems. The Company also houses all non-critical
      systems such as development servers, quality assurance servers, and internal
      network servers at its headquarters in Seattle.




In
      addition to maintaining responsibility for the technical architecture, security
      and uptime of its online solutions, the Company’s 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.




**Competition**




The
      market for comprehensive intelligence around government procurement is
      underserved. Competitors include, to a limited extent, bid aggregators, industry
      analysts and government e-procurement platforms.




Onvia’s
      current and potential competitors include, but are not limited to, the
      following:





•  Information
      companies who target specific verticals also covered by its services, such
      as
      McGraw-Hill, Contractors Register and Input; and


•  Lead
      generation and bid matching companies such as FedMarket, BidNet, GovernmentBids
      and True Advantage.





5


Onvia
      may
      face additional competition in the future as well-funded companies look to
      develop new government procurement database products and services. Onvia must
      differentiate itself by increasing the value of its database, developing
      products and services with high switching costs, and by creating a loyal,
      recurring base of clients and agency users. To achieve this Onvia must
      continually enhance its content and sources, and provide its clients with
      relevant, customized views of its database.




The
      Company believes that the principal competitive factors affecting its market
      include, but are not limited to, breadth and depth of content, content quality,
      base of existing clients and client service. In order to excel at these
      principal competitive factors, Onvia strives to achieve a superior understanding
      of its target clients, offer greater value in its content and services and
      sustain a more efficient operating model. Onvia also mitigates some potential
      competitive pressures by selling its content to some of its competitors for
      redistribution to their clients. The Company believes that its current database
      offering compares favorably to select offerings available in the marketplace
      today based on the depth and history of its information, breadth of content
      types, and daily updates.




**Seasonality**




The
      new
      client acquisition side of Onvia’s business is subject to some seasonal
      fluctuations. The third quarter is generally the Company’s slowest quarter for
      new client acquisition. The construction industry is its single largest market
      and these prospects are typically engaged on projects during the summer months,
      not prospecting for new work, which causes new client acquisition to decline
      compared to the remaining quarters in the year. For this reason, it may not
      be
      possible to compare the performance of Onvia’s business quarter to consecutive
      quarter, and the Company’s quarterly results should be considered on the basis
      of results for the whole year or by comparing results in a quarter with the
      results in the same quarter for the previous year.




**Intellectual
      Property Rights**




Onvia’s
      future success depends in part on its intellectual property rights, proprietary
      rights, and technology. Onvia relies on a combination of copyright, trademark
      and trade secret laws, employee and third-party nondisclosure agreements and
      other methods to protect its proprietary rights. Onvia seeks to protect its
      internally developed products, documentation, and other written materials under
      trade secret and copyright laws, which afford only limited protection. Onvia
      cannot ensure that any of its proprietary rights with respect to its
      e-marketplace 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.




Onvia
      licenses and will continue to license certain products integral to its 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 the Company may not be able to successfully integrate
      such
      third-party products into its solutions.




Onvia
      presently has no issued U.S. patents and has one U.S. patent application
      pending. Onvia filed a U.S. patent application for its Onvia Business Builder
      product in 2006. It is possible that the Company may not develop future
      proprietary products or technologies that are patentable and that the patents
      of
      others will seriously harm its ability to do business.




Onvia
      has
      registered trademarks in the United States for Onvia, Onvia and the design
      (current logo with the orange circular design), Onvia Dominion, DemandStar.com,
      DemandStar, the DemandStar.com logo, QuoteWire, BidWire, Bidline, and
      e-Journal of Commerce. Onvia also has registered trademarks in Canada for Onvia
      (previous logo), the Onvia checkmark logo, and Onvia.com.




**Employees**




As
      of
      March 1, 2007, Onvia had 174 employees working in the following departments:
      82
      in sales and marketing, 47 in research included in cost of sales, 34 in
      technology and development and 11 in general and administrative.




None
      of
      Onvia’s employees is represented by a union or collective bargaining agreement.
      Onvia has never had a work stoppage and considers relations with its employees
      to be good.




**Geographic
      Financial Information**





During
      the years ended December 31, 2006, 2005 and 2004, all of Onvia’s revenues were
      generated from clients located in the United States. All of Onvia’s long lived
      assets are located in the United States. A portion of Onvia’s net operating
      losses (“NOLs”) are denominated in Canadian dollars; however, a full valuation
      allowance has been recorded for the net deferred tax asset associated with
      these
      NOLs, because realization of the future tax benefit is not currently
      likely.




6


**ITEM 1A.**  **RISK
      FACTORS** ****




In
      addition to other information in this Report, the following risk factors should
      be carefully considered in evaluating Onvia and its business because such
      factors may have a significant impact on 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
      results could differ materially from historical results or those projected
      in
      any forward-looking statements.




**Risks
      related to our growth strategy**




***We
      may not be able to meet our projected renewal rates.***




Our
      ability to continually enhance our products and services to provide relevant
      information to our clients, appropriately classify and distribute information,
      provide excellent client service, maintain competitive pricing and meet our
      clients’ expectations for source coverage and new content will significantly
      impact our clients’ satisfaction with our products and services and will impact
      their decision to renew. If we are unable to meet our clients’ expectations, our
      renewal rates and our projected growth and profitability will suffer.




***The
      change in our sales methodology may not be successful and we may be required
      to
      increase our sales and marketing expenses in order to achieve our revenue goals.***




We
      have
      historically generated a significant portion of our marketing prospects and
      sales leads from our in-house database of vendors. Our new team of sales and
      marketing executives has implemented a new sales methodology that is intended
      to
      place much lower reliance on direct marketing to generate sales, and we have
      reallocated resources previously used in direct marketing efforts towards sales
      operations and sales processes. We have a limited history on which to evaluate
      this new sales methodology and if we are unable to increase sales as a result
      of
      this new methodology, we may be required to increase marketing expenses to
      generate additional sales.




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




We
      expect
      that a significant portion of our future growth will come from increasing our
      annual contract value per client, and we expect this to be driven by increased
      adoption of our high value products. Subscribers to our high value products
      have
      higher annual contract value, higher renewal rates and provide greater lifetime
      value to the Company. Failure to increase subscribership to these products
      would
      adversely impact our future growth.




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




We
      anticipate that a significant portion of our future revenue will be generated
      from sales to larger businesses. Our enterprise sales team targets larger
      companies that will purchase multiple licenses for our database products, for
      redistribution of our data to their employees or clients, or for remarketing
      their own products. If we fail to achieve our targeted adoption rates by
      enterprise clients, our operating results would be harmed.




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





We
      made
      significant investments in 2005 and 2006 to expand our database and develop
      the
      Onvia Business Builder and Onvia Navigator research tools and we plan to launch
      additional content and tools in 2007 and beyond. We expect to see an increase
      in
      retention rates for our existing clients because of the added features in these
      new products and an increase in new customer acquisition as a result of the
      launch of these products. Adoption of these products by new and existing clients
      may not be consistent with our estimates.





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




In
      order
      to achieve our projected revenue growth rates, our sales teams must be able
      to
      effectively communicate the benefits of our products to existing and potential
      clients. We expect to see increases in client retention rates and in new client
      acquisition revenue, and our sales goals are aggressive. If we are unable to
      retain our current sales associates and hire and train new sales associates
      with
      the appropriate skills, we may not be able to achieve our projected sales
      targets and revenue growth rates.




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




Our
      growth depends in part on increased use of the Internet by government agencies
      and businesses. If use of the Internet as a medium for government, consumer
      and
      business communications and commerce does not continue to increase, demand
      for
      our services and products will be limited.




***We
      may lose the right to use the content that we distribute, which we collect
      from
      governmental entities and other third parties.***




We
      do not
      own or create the content distributed to our vendors in the form of requests
      for
      proposal and related information. We aggregate this information from various
      public data sources and we do not have an exclusive right 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 our clients. Governmental
      entities and other third parties could terminate their contracts to provide
      data
      or restrict the distribution of such data. The loss or the unavailability of
      our
      data sources in the future, or the loss of our right to distribute some of
      the
      data sources, would harm our business.




7


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




If
      we
      find that our retention and acquisition rates in any of our focused verticals
      are not meeting our expectations due to lack of bid-flow or for other reasons,
      we may choose to target fewer industry verticals to improve client satisfaction
      and retention in core verticals, and we may lose clients in our other non-core
      verticals. Focusing on these core verticals may not generate the expected level
      of increased retention and acquisition.




***Intense
      competition could impede our ability to gain market share and could harm our
      financial results.***




Our
      business could be severely harmed if we are not able to compete successfully
      against current or future competitors. Although we believe that there may be
      opportunities for several providers of products and services similar to ours,
      a
      single provider may dominate the market.




Our
      current and potential competitors include Internet-based and traditional
      companies such as BidNet (Govbids), TrueAdvantage, FedMarket, McGraw-Hill,
      Contractors Register, Input and other companies focused on providing services
      to
      government agencies and their vendors.




Many
      of
      our current and potential competitors have longer operating histories, larger
      client bases and/or greater brand recognition in business and Internet markets
      and significantly greater financial, marketing and technical resources than
      we
      do. Our competitors may be more successful than we are in developing their
      technologies, adapting more aggressive pricing policies and establishing more
      comprehensive marketing and advertising campaigns.




Our
      competitors may develop web sites that are more sophisticated than ours, with
      better online tools, or service and product offerings superior to ours. For
      these and other reasons, our competitors’ web sites may achieve greater
      acceptance than ours, limiting our ability to gain market share and client
      loyalty and to generate sufficient revenue to achieve profitability.
      We may be required to increase our source coverage due to competitive pressures,
      and we may be required to add additional resources to our research team to
      offset these competitive pressures, which would increase our cost of sales.




**Risks
      related to our new product strategy**





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




We
      expect
      to introduce new content products in 2007 that will complement our current
      suite
      of products. If client acceptance and adoption of these new products is below
      our expectations, our projected growth rates may not be achieved, and our
      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 their anticipated launch dates, our 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
      continue to adopt more efficient content collection methods which allow us
      to
      increase our content collection without significantly increasing our cost of
      revenue. We will need to identify cost effective sources and develop efficient
      collection processes for new content types required to support our new product
      development plan. If we are unable to find new ways to collect content
      efficiently, and aggregate new content types in a cost effective manner, our
      gross margins may decrease.




***We
      have invested significant capital into the development of new products, such
      as
      Onvia Business Builder and Onvia Navigator, and if new products fail to meet
      expectations we may not achieve our anticipated return on these
      investments.***





Onvia
      Business Builder was launched in July 2005 and Onvia Navigator was launched
      in
      April 2006 and we have been pleased with the adoption of these products. We
      expect to launch additional new products in 2007 and expect to see continued
      increases in adoption of Onvia Business Builder and Onvia Navigator throughout
      2007 and beyond. If adoption of these and other new product introductions is
      not
      consistent with our expectations, we will not see the expected return on these
      investments.





***Our
      clients may be dissatisfied with the accuracy, coverage and timeliness of our
      content and performance of our new products.***





We
      expect
      to see an increase in both new client acquisition and retention rates for our
      existing clients, as well as an improvement in annual contract value per client
      resulting in part from the introduction of new products offering more
      comprehensive and timely access to the information in our database. If our
      clients become dissatisfied with the performance, coverage or content of our
      new
      products, they may not renew at expected renewal rates and new client
      acquisition may be adversely impacted.





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





We
      plan
      to implement price increases to some of our existing products in 2007 and we
      will be required to develop new pricing strategies for planned new product
      launches in 2007. If existing clients 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, new client
      adoption and existing client retention would be adversely impacted.




***We
      may overestimate the value of sales intelligence to companies doing business
      with the government.***





We
      believe there is a large unmet market need for robust public-sector sales and
      marketing information. Our business model assumes that clients will pay us
      an
      annual fee for this information and that we will see increases in the annual
      value of these contracts in the near-term and in the long-term. If we have
      overestimated the value of this information, we will not achieve our forecasted
      revenue goals.




8


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





The
      functionality in Onvia Business Builder is robust, and we expect that if
      adoption of this tool is in line with our expectations that our competitors
      may
      introduce products with similar functionality. If our competitors introduce
      products with similar functionality or are able to more effectively market
      their
      products for broad customer acceptance, new client acquisition and existing
      client retention would be adversely impacted. If we are unable to enhance our
      functionality or increase our marketing efforts to offset challenges from our
      competitors, we may lose market share.





**Financial,
      economic and market risks**




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




Onvia
      has
      been serving businesses since March 1997 and have been focusing on including
      government agencies in our network since April 2001. We have a limited operating
      history upon which an investor may evaluate our business and prospects. Our
      potential for future profitability must be considered in light of the risks,
      uncertainties, expenses and difficulties frequently encountered by companies
      in
      early stages of development, particularly companies in new and rapidly evolving
      markets, such as e-marketplaces. We may not successfully address any of these
      risks.




***We
      have incurred negative cash flows from operations in each quarter since
      inception, and under our current operating plan we expect to continue to incur
      negative cash flows in the near term.***




To
      increase revenue, we will need to continue to attract new clients and improve
      retention of existing clients and expand our service offerings. We expect
      operating expenses in 2007 to be relatively flat compared to 2006; however,
      we
      expect to increase revenues through more efficient and effective marketing
      and
      sales processes. If we are unable to generate expected efficiencies in our
      sales
      and marketing efforts, we may be required to increase expenses, which would
      extend the timeline to achieve profitability in the future.




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




We
      have
      experienced some seasonal fluctuations in our business, reflecting a combination
      of seasonal trends for the services and products we offer, as well as seasonal
      trends in the buying habits of our target business clients and government
      agencies. We expect our revenue and operating results to continue to vary
      significantly from quarter to quarter, making it difficult to formulate
      meaningful comparisons of our results between quarters. Our limited operating
      history and evolving business model further contribute to the difficulty of
      making meaningful quarterly comparisons. A significant portion of our
      subscription revenue for a particular quarter is derived from transactions
      that
      are initiated in previous quarters, because revenue is 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.




***We
      may require significant additional capital in the future, which may not be
      available on suitable terms, or at all.***




The
      expansion and development of our business may require significant additional
      capital, which we may be unable to obtain on suitable terms, or at all. If
      we
      are unable to obtain adequate funding on suitable terms, or at all, we may
      have
      to delay, reduce or eliminate some or all of our advertising, marketing,
      engineering efforts, general operations or other initiatives.




We
      may
      require substantial additional funds to expand our marketing activities, to
      continue to develop and upgrade our technology and to make corporate
      acquisitions. If we issue convertible debt or equity securities to raise
      additional funds, our existing stockholders will be diluted.




***Our
      stock price has fluctuated significantly in the past and could fluctuate
      significantly in the future in response to various factors, some of which are
      beyond our control.***




Factors
      which may cause fluctuations in Onvia’s stock price include:




•  actual
      or
      anticipated variations in quarterly results of operations;




•  announcements
      of technological innovations or new products or services by Onvia or our
      competitors;




•  announcements
      of or expectations regarding significant acquisitions, strategic relationships,
      joint ventures, capital commitments, dividends, cash distributions or other
      corporate transactions;




•  additions
      or departures of key personnel;




9


•  changes
      in financial estimates or recommendations by securities analysts;




•  conditions
      or trends in the Internet and online commerce industries;




•  changes
      in the market values of other Internet or online service companies;




•  actual
      or
      anticipated changes in governmental spending;





•  sales,
      repurchases or splits of our common stock;




•  general
      market conditions; and




•  other
      events or factors, many of which are beyond our control.




In
      addition, the stock market in general, and the NASDAQ Global Market and the
      market for Internet and technology companies in particular, have experienced
      extreme price fluctuations that have often been unrelated or disproportionate
      to
      the operating performance of these companies. These broad market and industry
      conditions may materially and adversely affect our stock price, regardless
      of
      our operating performance.




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




Provisions
      of our certificate of incorporation and bylaws, as well as provisions of
      Delaware law, Onvia’s state of incorporation, can have the effect of making it
      difficult for a third party to acquire Onvia, even if doing so would be
      beneficial to our stockholders. These provisions include:




•  the
      classification of Onvia’s 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.




In
      addition, in 2002, our Board of Directors adopted a Stockholders Rights
      Agreement, designed to protect stockholder interests in the event of an
      unsolicited takeover attempt by distributing one preferred stock purchase right
      for each outstanding share of common stock. The Rights Agreement may make it
      more difficult for a third party to acquire Onvia.





***Changes
      in accounting and reporting policies or practices may affect our financial
      results or presentation of results, which may affect our stock
      price.***





Changes
      in accounting and reporting policies or practices could increase our net loss,
      and such increases may be independent of changes in our operations. These
      increases in reported net losses could cause our stock price to decline. For
      example, beginning January 1, 2006, we were required to adopt the provisions
      of
      Statement of Financial Accounting Standards ("SFAS") No. 123R, *Share-Based
      Payment,* which
      required us to record an operating expense charge associated with the calculated
      fair value of new and outstanding stock options and purchases under our employee
      stock purchase plan. We incurred approximately $1.2 million in operating
      expenses in 2006 as a result of adopting this Statement. If other changes in
      accounting and reporting policies or practices are made in the future, these
      changes may also impact our reported operating results and the price of our
      stock.




**Risks
      related to integrating future mergers, acquisitions or other corporate
      transactions**




***We
      may fail to successfully evaluate, execute and integrate future mergers,
      acquisitions or other corporate transactions.***




Management
      is often exploring acquisition opportunities to increase stockholder value.
      There are significant challenges to implementing any corporate transaction.
      Integrating companies and technologies involves significant challenges and
      is a
      complex process, and the anticipated benefits of any corporate transaction
      may
      not be achieved within the anticipated timeline, or at all. Some of the
      challenges involved in corporate transactions include:




•  properly
      evaluating the technology, personnel and clients;




•  retaining
      existing clients and strategic partners;




•  retaining
      and integrating management and other key employees;




•  coordinating
      research and development activities to enhance the introduction of new products,
      services and technologies;




10


•  addressing
      public perceptions of changes in our business focus;




•  combining
      service and product offerings quickly and effectively;




•  implementing
      consistent integrated internal controls;




•  transitioning
      the business systems to a common information technology system;




•  persuading
      employees of both businesses that the business cultures are compatible;




•  offering
      the services and products of both businesses to each other’s clients and
      business associates;




•  marketing
      the combined company;




•  blending
      the pricing models;




•  developing
      and maintaining uniform standards, controls, procedures and policies;




•  minimizing
      the potential disruption of both businesses and distraction of the Company’s
      management;




•  incorporating
      the acquired technology, products and services into existing product and service
      offerings; and




•  controlling
      expenses related to the implementation of the transaction.




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




In
      the
      event that our common stock does not maintain sufficient value, or potential
      acquisition candidates are unwilling to accept our common stock as consideration
      for the sale of their businesses, we may be required to use more cash, if
      available, in order to make acquisitions. If we do not have sufficient cash,
      our
      growth through acquisitions could be limited unless we are able to obtain
      capital through additional debt or equity financings.




***If
      a merger, acquisition or other corporate transaction does not meet the
      expectations of financial or industry analysts or Onvia’s investors, the market
      price of our common stock may decline.***




We
      may
      make incorrect assumptions about potential acquisitions, mergers or other
      corporate transactions, such as the ability to secure additional business from
      government clients and vendors selling to those clients as a result of any
      such
      transaction. Consequently, we may not achieve the forecasted benefits of the
      transaction, including improved financial results, to the extent anticipated
      by
      us or by financial or industry analysts. In addition, significant stockholders
      of Onvia following any corporate transaction may decide to dispose of their
      shares if the transaction fails to meet their expectations. In either event,
      the
      market price of our common stock may decline.




**Operational
      risks**




***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.***





Our
      new
      Onvia Business Builder and Onvia Navigator research tools and future product
      offerings will place additional demands on our network and on our database.
      We
      add thousands of records to our database each day, which has required us to
      expand the storage capacity of our database. As part of the $5 million strategic
      investment in new products approved by our Board of Directors at the end of
      2004, we believe we addressed the immediate and near term database and storage requirements
      of our expanding database. However, if new content types or product
      introductions change current network and database 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
      traffic 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 our
      senior management, directors and key employees. The loss of any of these
      employees or directors would likely harm our business.




11


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




Our
      network infrastructure is vulnerable to computer viruses, break-ins, network
      attacks and similar disruptive problems. This could result in Onvia’s liability
      for related damages, and our reputation could suffer, thus deterring existing
      and potential clients from transacting business with Onvia. Security problems
      caused by third parties could lead to interruptions and delays or to the
      cessation of service to our clients. Furthermore, inappropriate use of the
      network by third parties could also jeopardize the security of confidential
      information stored in our computer systems.




We
      intend
      to continue to implement industry-standard security measures, but we cannot
      ensure that the measures we implement will not be circumvented. The costs and
      resources required to alleviate security problems may result in interruptions,
      delays or cessation of service to our clients.




***We
      may be unable to effectively combat unauthorized redistribution of our published
      information.***




In
      the
      past we have identified a number of entities that have redistributed our
      proprietary information without our 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.




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




Any
      system failure that causes an interruption in the service of our suite of
      products or a decrease in their responsiveness could result in reduced activity
      and reduced revenue. Further, prolonged or ongoing performance problems on
      our
      web sites or our application servers, which support bid creation and
      distribution, could damage our reputation and result in the permanent loss
      of
      clients. In the past, system interruptions have made our web sites and our
      application servers totally unavailable, slowed their response time or prevented
      us from making our service available to our clients, and these problems may
      occur again in the future.




All
      of
      our business application servers operate within secure data centers at our
      corporate headquarters in Seattle, Washington. Our experience and expertise
      in
      maintaining servers may not be adequate to prevent all possible interruptions
      and failures of our services. Our electrical power backup systems may not be
      sufficient to sustain business operations during a major interruption to public
      utility service. We may not have sufficient business interruption insurance
      to
      cover losses from major interruptions. We have deployed our disaster recovery
      site to a secure offsite facility with backup utility power and redundant
      Internet connectivity. Our current disaster recovery systems are designed to
      ensure that a portion of our Information Technology and Research department
      functions will be operational in the event of a local building disaster, so
      that
      delivery of our product will not be significantly interrupted. Our disaster
      recovery plan is not yet finalized to include automated failover of product
      distribution-related systems; requiring some manual intervention to complete
      the
      failover process. During 2006 and 2007, we will focus on expanding our disaster
      recovery system to cover additional operating functions within the Company.




Clients
      and visitors to our web site depend on their own Internet service providers,
      online service providers and other web site operators for access to our web
      sites. These providers have experienced significant outages in the past, and
      could experience outages, delays and other difficulties due to system failures
      unrelated to Onvia’s systems.




***Our
      services and products depend upon the continued availability of licensed
      technology from third parties, 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 require new licenses in the future as our business grows and
      technology evolves. We may not be able to obtain these licenses on commercially
      reasonable terms, or at all.




***Increased
      blocking of our emails could negatively impact client satisfaction with our
      products and could inhibit the effectiveness of our marketing efforts.***




Portions
      of our content are currently delivered in the form of an attached file via
      email. Some network administrators could flag and block emails from Onvia due
      to
      increased filtering of email attachments as a result of the threat of email
      borne viruses or unwanted “spam”, or for other reasons. We also conduct
      marketing campaigns to our customer base and occasionally these campaigns are
      done via email. Excessive filtering of our emails could negatively impact client
      satisfaction and could inhibit our marketing efforts.




**Regulatory,
      judicial or legislative risks**




***Any
      settlement or claim awarded against Onvia in our ongoing litigation matters
      could negatively impact our operating results.***




Onvia
      is
      defending against the litigation matters as detailed in the legal proceedings
      section in Item 3 of Part I of this report. We have directors and officers
      insurance of $30 million that would cover defense costs and any award or
      settlement, less our deductible of $250,000, in the securities class action
      suit; however, our directors and officers policy does not cover defense costs,
      awards or settlements under the unsolicited facsimile suit. While we believe
      we
      have strong defenses in both cases, we cannot be certain that the outcome of
      either case will be favorable to Onvia. A settlement or award in these or other
      potential suits could negatively impact our operating results. It is also
      possible that defense of these and future claims may result in a significant
      diversion of management attention.




12


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




As
      e-commerce evolves, federal, state, local and foreign agencies could adopt
      regulations covering issues such as privacy, content and taxation of services
      and products. If enacted, government regulations could limit the market for
      our
      services and offerings. Although many regulations might not apply to our
      business directly, we expect that laws regulating the collection or processing
      of personal or consumer information could indirectly affect our business. It
      is
      possible that legislation could expose companies involved in e-commerce to
      restrictions or liability, which could limit the growth of e-commerce generally.
      Legislation could hinder the growth in Internet use and decrease its acceptance
      as a medium for communication and commerce. 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 customers, 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.




***If
      regulations or legal restrictions are imposed upon bid aggregation on the
      Internet or upon charging a fee for publicly available bid information, our
      business will be materially harmed.***




Our
      proprietary bid aggregation technology is integral to our success. If the
      process of bid aggregation becomes regulated in the future and our process
      for
      acquiring government bids is no longer cost-effective, our business will be
      significantly harmed. If new regulations restricting our ability to charge
      a fee
      for public bid information are enacted, our business will be significantly
      harmed.




**Available
      Information**




Onvia
      files with and furnishes to the Securities and Exchange Commission ("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. Onvia’s 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 the
      Company files 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. Onvia’s annual report on Form 10-K, along with all
      other
      reports and amendments filed with or furnished to the SEC are available on
      the
“About Onvia” section of the Company’s website at *www.onvia.com* as soon
      as reasonably practicable after they file them with, or furnish them to, the
      SEC.







**ITEM
      1B.**  **UNRESOLVED
      STAFF COMMENTS**





None.








**ITEM 2.**  **PROPERTIES** ****




Onvia’s
      headquarters are located in Seattle, Washington, where the Company leases 29,785
      square feet in two floors of a four-story office complex. As of January 1,
      2007,
      Onvia is fully utilizing the 29,785 square feet and believes the space is
      adequate to meet current and near term capacity requirements. The lease expires
      in April 2010.





In
      September 2006, Onvia entered into an amended lease on its corporate
      headquarters building, reducing its lease obligation by 49,215 square feet.
      The
      amendment coincided with a direct lease between Onvia’s landlord and the Bill
      and Melinda Gates Foundation (“Gates”) to lease all of its previously idle
      office space in this building. Onvia retains 29,785 square feet in the same
      building through April 2010 subsequent to the amendment. Onvia’s total future
      lease obligation decreased by approximately $3.2 million as a result of the
      lease amendment.




In
      August
      2006, Onvia’s lease of approximately 19,000 square feet on its former corporate
      headquarters in Seattle, Washington expired. This space had been subleased
      to
      another party and the sublease also expired in August 2006. Onvia has no further
      obligation on this space.







**ITEM 3.**  **LEGAL
      PROCEEDINGS** ****




**Class
      Action Securities Litigation**





During
      the year ended December 31, 2001, five securities class action suits were filed
      against Onvia, former executive officers Glenn S. Ballman and Mark T. Calvert,
      and Onvia’s lead underwriter, Credit Suisse First Boston (“CSFB”). The suits
      were filed in the United States District Court for the Southern District of
      New
      York on behalf of all persons who acquired securities of Onvia between March
      1,
      2000 and December 6, 2000. On or around April 19, 2002, these five suits were
      consolidated, a lead plaintiff was appointed, and the consolidated complaint
      was
      filed. The complaint charged defendants with violations of Sections 10(b) and
      20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5 promulgated
      thereunder) and Sections 11 and 15 of the Securities Act of 1933, for issuing
      a
      Registration Statement and Prospectus that contained material misrepresentations
      and/or omissions. The complaint alleged that the Registration Statement and
      Prospectus were false and misleading because they failed to disclose (i) the
      agreements between CSFB and certain investors to provide them with significant
      amounts of restricted Onvia shares in the initial public offering (“IPO”) in
      exchange for excessive and undisclosed commissions; and (ii) the agreements
      between CSFB and certain customers under which the underwriters would allocate
      shares in the IPO to those customers in exchange for the customers’ agreement to
      purchase Onvia shares in the after-market at predetermined prices. The complaint
      sought an undisclosed amount of damages, as well as attorneys’ fees. On October
      9, 2002, an order of dismissal without prejudice was entered, dismissing former
      officers Glenn S. Ballman and Mark T. Calvert. This action is being coordinated
      with approximately 300 other nearly identical actions filed against other
      companies. On October 13, 2004, the Court certified a class in six of the
      approximately 300 other actions (the “focus cases”). In her Opinion, Judge
      Scheindlin noted that the decision is intended to provide strong guidance to
      all
      parties regarding class certification in the remaining cases. The Underwriter
      Defendants appealed the decision and the Second Circuit vacated the district
      court’s decision granting class certification in those six cases on December 5,
      2006. Plaintiffs have not yet moved to certify a class in the Onvia case.





13


In
      June
      2003, Onvia, along with most of the companies named as defendants in this
      litigation, approved a settlement agreement negotiated among plaintiffs,
      underwriters, and issuers. It is unclear what impact the Second Circuit’s
      decision vacating class certification in the six focus cases will have on the
      settlement, which has not yet been finally approved by the Court. On December
      14, 2006, Judge Scheindlin held a hearing. Plaintiffs informed the Court that
      they planned to file a petition for rehearing and rehearing en banc. The Court
      stayed all proceedings, including a decision on final approval of the settlement
      and any amendments of the complaints, pending the Second Circuit’s decision on
      Plaintiffs’ petition for rehearing. Plaintiffs filed a petition for rehearing
      and rehearing en banc on January 5, 2007.


Among
      other provisions, the settlement, if it receives final approval by the Court,
      provides for a release of Onvia and the individual defendants for the conduct
      alleged in the action to be wrongful. Onvia would agree to undertake certain
      responsibilities, including agreeing to assign away, not assert, or release
      certain potential claims Onvia may have against its underwriters. The settlement
      agreement also provides a guaranteed recovery of $1 billion to plaintiffs for
      the cases relating to all of the approximately 300 issuers. To the extent that
      the underwriter defendants settle all of the cases for at least $1 billion,
      no
      payment will be required under the issuers’ settlement agreement. To the extent
      that the underwriter defendants settle for less than $1 billion, the issuers
      are
      required to make up the difference. On April 20, 2006 JPMorgan Chase and the
      Plaintiffs reached a preliminary agreement to settle for $425 million. The
      JPMorgan Chase preliminary agreement has not yet been approved by the Court.
      In
      an amendment to the issuers’ settlement agreement, the issuers’ insurers agreed
      that the JPMorgan preliminary agreement, if approved, would offset the insurers’
obligation to cover the remainder of Plaintiffs’ guaranteed $1 billion recovery
      by 50% of the value of the JPMorgan settlement, or $212.5 million. Therefore,
      if
      the JPMorgan preliminary agreement to settle is preliminarily and then finally
      approved by the Court, then the maximum amount that the issuers’ insurers will
      be potentially liable for is $787.5 million. However, future settlements with
      other underwriters would further reduce that liability. It is unclear what
      impact the Second Circuit’s decision vacating class certification in the focus
      cases will have on the JPMorgan preliminary agreement.





It
      is
      anticipated that any potential financial obligation of Onvia to plaintiffs
      pursuant to the terms of the issuer’s settlement agreement and related
      agreements will be covered by existing insurance. The Company currently is
      not
      aware of any material limitations on the expected recovery of any potential
      financial obligation to plaintiffs from its insurance carriers. Its carriers
      are
      solvent, and the company is not aware of any uncertainties as to the legal
      sufficiency of any insurance claim with respect to any recovery by plaintiffs.
      Therefore, we do not expect that the settlement will involve any payment by
      Onvia. If material limitations on the expected recovery of the potential
      financial obligation to the plaintiffs from Onvia’s insurance carriers should
      arise, Onvia’s maximum financial obligation to plaintiffs pursuant to the
      settlement agreement would be less than $3.4 million. However, if the JPMorgan
      Chase preliminary agreement is preliminarily and then finally approved, Onvia’s
      maximum financial obligation to the plaintiffs pursuant to the settlement
      agreement would be approximately $2.7 million.





There
      is
      no assurance that the court will grant final approval to the issuers’
settlement. If the settlement agreement is not approved and Onvia is found
      liable, we are unable to estimate or predict the potential damages that might
      be
      awarded, whether such damages would be greater than Onvia’s insurance coverage,
      and whether such damages would have a material impact on our results of
      operations or financial condition in any future period.





**Class
      Action Faxing Litigation**





On
      February 3, 2005, a lawsuit was filed against Onvia in King County, Washington
      by Responsive Management Systems. The complaint alleged that Onvia had sent
      unsolicited facsimiles to recipients in violation of the federal Telephone
      Consumer Protection Act, Washington’s facsimile law, and the Washington Consumer
      Protection Act. The complaint sought injunctive relief as well as incidental
      statutory damages allowed under the federal and Washington facsimile laws on
      behalf of the plaintiff and each member of the proposed class who received
      a
      facsimile in 2001-2004. We send facsimiles to customers with whom we have an
      existing business relationship, or to vendors with whom our agency partners
      have
      an existing relationship. The parties reached a settlement on April 28, 2006,
      which was preliminarily approved by the court on July 13, 2006. Under the
      settlement agreement, Onvia has no liability, but Onvia has agreed to assign
      its
      rights and claims under its general commercial liability insurance to the
      plaintiff class. We received final court approval on the settlement agreement
      on
      November 19, 2006. Onvia’s commercial insurance company St. Paul Fire and Marine
      Insurance Company appealed the final court approval of the settlement. The
      outcome of the appeal will not impact Onvia’s release under the settlement
      agreement.





On
      or
      around July 28, 2006, Onvia’s commercial insurance company St. Paul Fire and
      Marine Insurance Company filed a complaint for declaratory relief against Onvia
      and Responsive Management Systems in the United States District Court for the
      Western District of Washington. St. Paul is seeking determination that it owes
      no duty to defend Onvia in the lawsuit brought by Responsive Management Systems
      and that it has no coverage obligation under our commercial insurance policy.
      Onvia was dismissed from this declaratory action on March 7, 2007.





Onvia
      considers this matter closed.





**Potential
      Future Litigation**





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




14


**ITEM 4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS** ****




No
      matters were submitted to a vote of security holders during the fourth quarter
      ended December 31, 2006.







**EXECUTIVE
      OFFICERS OF THE REGISTRANT**





The
      executive officers of the Company are as follows:




**Name**
              **Age**
              **Position**Michael
                  D. Pickett
              59
              Chief
                  Executive Officer, President and Chairman of the BoardIrvine
                  N. Alpert
              55
              Executive
                  Vice PresidentMatthew
                  S. Rowley
              43
              Chief
                  Information OfficerPeter
                  W. Noble
              43
              Senior
                  Vice President of SalesTeri
                  L. Wiegman
              48
              Vice
                  President of MarketingMichael
                  S. Balsam
              39
              Vice
                  President of ProductsCameron
                  S. Way
              35
              Chief
                  Accounting Officer





*Michael
      D. Pickett* has
      served as Chief Executive Officer and Chairman of the Board of the Company
      since
      April 2001. Mr. Pickett has also served as President of the Company since
      September 2004.




*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. Mr. Alpert holds a Bachelor of Arts from the University
      of
      California, Santa Cruz and a Master of Environmental Planning from the
      University of California, Berkeley.




*Matthew
      S. Rowley* has
      served as Chief Information Officer of the Company since July 2001. Prior to
      becoming Chief Information Officer of the Company, Mr. Rowley served as Vice
      President of Development from June 2001 to July 2001, Director of Site
      Development from December 2000 to June 2001, and Development Manager from August
      2000 to December 2000. From November 1999 to August 2000, Mr. Rowley served
      as
      Director of Electronic Commerce of Hardware.com, Inc., an online source for
      total home improvement solutions, which was acquired by Onvia in September
      2000.
      From May 1999 to November 1999, Mr. Rowley was Director of Electronic Commerce
      Operations of Multiple Zones International, a direct reseller of name-brand
      information technology products and services to small to medium businesses.
      Mr.
      Rowley holds a Bachelor of Arts in History from Seattle Pacific University.




*Peter
      W. Noble* served
      as Senior Vice President of Sales of the Company since July 2005. From October
      2001 to June 2005, Mr. Noble was Regional Vice President with Gartner, Inc.,
      a
      provider of research and analysis on the global IT industry. Mr. Noble holds
      a
      Bachelor of Arts in Business Administration from University of Puget Sound.




*Teri
      L. Wiegman* served
      as Vice President of Marketing of the Company from March 2005 until her
      departure in January 2007. Ms. Wiegman continues to serve as an independent
      consultant for the Company. From May 2002 to March 2005, Ms. Wiegman was a
      consultant with The Resonance Group, working with clients Hewlett-Packard and
      Microsoft. From January 1999 to October 2001, Ms. Wiegman served as Vice
      President of Marketing for Content Technologies, makers of MIMEsweeper email
      security software. Ms. Wiegman holds a Bachelor of Science in Communications
      from University of Idaho.




*Michael
      S. Balsam* served
      as Vice President of Products and Services of the Company since January 2005.
      Prior to becoming Vice President, Mr. Balsam served as Director of Product
      Management since November 2002. From June 2001 to November 2002, Mr. Balsam
      served as a Product Marketing Manager with the Company. Mr. Balsam holds a
      Bachelor of Science in Zoology from University of New Hampshire.




*Cameron
      S. Way* has
      served as Chief Accounting Officer of the Company since January 2003. Mr. Way
      served as Controller from September 2001 to June 2005, Assistant Controller
      from
      December 2000 to September 2001, and finance manager from August 1999 to
      December 2000. Mr. Way was an audit manager with PricewaterhouseCoopers LLP
      from
      January 1999 to August 1999 prior to joining the Company. Mr. Way holds a
      Bachelor of Arts from Claremont McKenna College.





There
      are
      no family relationships between any directors or executive officers of the
      Company.


15


**PART
      II** ****




**ITEM 5.**  **MARKET
      FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS** **AND ISSUER PURCHASES OF EQUITY SECURITIES**




**Market
      Information**




Onvia
      common stock trades on the NASDAQ Global Market under the symbol ONVI. The
      table
      below lists the high and low closing prices per share of Onvia’s common stock
      for each quarterly period during the past two fiscal years as reported on the
      NASDAQ Global Market.





**Closing
                  Price Range****of
                  Common Stock****High**
              
              **Low****Year
                  ended December 31, 2005**First
                  Quarter
              
              $
              6.24
              
              $
              5.06Second
                  Quarter
              
              
              5.18
              
              
              4.10Third
                  Quarter
              
              
              5.32
              
              
              4.90Fourth
                  Quarter
              
              
              5.30
              
              
              4.03


**Year
                  ended December 31, 2006**First
                  Quarter
              
              $
              6.42
              
              $
              4.10Second
                  Quarter
              
              
              5.93
              
              
              4.85Third
                  Quarter
              
              
              5.35
              
              
              4.93Fourth
                  Quarter
              
              
              6.19
              
              
              5.02




**Holders**




As
      of
      March 1, 2007, there were approximately 521 holders of record of Onvia common
      stock. The number of recordholders 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.




**Securities
      Authorized for Issuance Under Equity Compensation Plans**




The
      information required by this item is incorporated by reference to the section
      entitled “Equity Compensation Plan Information” in the Proxy Statement for our
      Annual Meeting of Stockholders to be filed not later than April 30, 2007.




**Recent
      Sales of Unregistered Securities**




None.








**Issuer
      Purchases of Equity Securities**




None.




16
 **Stock
        Price Performance Graph**
  The
        following graph compares the cumulative total return to shareholders on Onvia’s
        common stock during the five years ending December 31, 2006 to the cumulative
        total returns on the NASDAQ Composite Index and the AMEX Interactive Week
        Internet Index. The comparison assumes $100 was invested on December 31,
        2001 in
        shares of Onvia’s common stock and in each of the indices shown. The stock price
        performance shown on the following graph is not necessarily indicative of
        future
        performance of Onvia’s common stock.


17


**ITEM 6.**  **SELECTED
      CONSOLIDATED FINANCIAL DATA** **** FAS
        123R
        requires companies to estimate expected volatility over the expected term
        of the
        options granted. Management has primarily 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 2006; however,
        management also considered the volatility of the common stock of other companies
        with business models similar to Onvia’s to the extent necessary given the
        expected life of the options. Prior to adoption of FAS 123R, Onvia’s expected
        volatility was calculated in a similar manner.




The
      following selected consolidated financial data for the fiscal years ended
      December 31 for the years presented should be read in conjunction with the
      consolidated financial statements and related notes of Onvia and its
      subsidiaries included in this and previous Annual Reports on Form 10-K, as
      well
      as the section of this and previous reports entitled “Management’s Discussion
      and Analysis of Financial Condition and Results of Operations.” Historical
      results are not necessarily indicative of future results.


**Year
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002****(in
                  thousands, except per share data)****Consolidated
                  Statements of Operations Data:**Revenue
              
              $
              16,739
              
              $
              14,714
              
              $
              13,076
              
              $
              9,991
              
              $
              7,234Gross
                  margin
              
              
              13,344
              
              
              11,433
              
              
              11,434
              
              
              8,815
              
              
              5,885Noncash
                  stock-based compensation(1)
              
              
              1,258
              
              
              84
              
              
              10
              
              
              408
              
              
              1,377Idle
                  lease accrual and restructuring charges(2)
              
              
              (67
              )
              
              1,228
              
              
              916
              
              
              2,021
              
              
              6,243Total
                  operating expenses
              
              
              19,840
              
              
              19,095
              
              
              15,827
              
              
              17,408
              
              
              26,547Loss
                  from operations
              
              
              (6,496
              )
              
              (7,662
              )
              
              (4,393
              )
              
              (8,593
              )
              
              (20,662
              )Net
                  loss before cumulative effect of change in accounting
                  principle
              
              
              (5,544
              )
              
              (6,920
              )
              
              (3,900
              )
              
              (7,913
              )
              
              (19,280
              )Cumulative
                  effect of change in accounting principle
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (16,468
              )Net
                  loss
              
              $
              (5,544
              )
              $
              (6,920
              )
              $
              (3,900
              )
              $
              (7,913
              )
              $
              (35,748
              )Unrealized
                  gain (loss) on available-for-sale securities
              
              
              17
              
              
              8
              
              
              (31
              )
              
              -
              
              
              -Comprehensive
                  loss
              
              $
              (5,527
              )
              $
              (6,912
              )
              $
              (3,931
              )
              $
              (7,913
              )
              $
              (35,748
              )Basic
                  and diluted net loss per common share
              
              $
              (0.70
              )
              $
              (0.89
              )
              $
              (0.51
              )
              $
              (1.03
              )
              $
              (4.66
              )Basic
                  and diluted weighted average shares outstanding
              
              
              7,888
              
              
              7,814
              
              
              7,720
              
              
              7,678
              
              
              7,673






(1)
            Noncash
                stock-based compensation increased in 2006 as a result of the adoption
                of
                SFAS 123R on January 1, 2006.


(2)
            The
                net annual reduction in idle lease charges in 2006 represents the
                difference between Onvia’s original sublease estimates and the actual
                negotiated terms included in the lease amendment negotiated in September
                2006.





**As
                  of December 31,****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002****(in
                  thousands, except per share data)****Consolidated
                  Balance Sheet Data:**Cash,
                  cash equivalents and short-term investments
              
              $
              14,435
              
              $
              20,540
              
              $
              27,944
              
              $
              30,382
              
              $
              38,603Long-term
                  investments, net of currrent portion
              
              
              1,478
              
              
              -
              
              
              -
              
              
              2,001
              
              
              -Total
                  assets
              
              
              23,991
              
              
              28,635
              
              
              36,030
              
              
              39,866
              
              
              47,198Idle
                  lease and restructuring accrual, including current portion
              
              
              3,779
              
              
              6,538
              
              
              7,451
              
              
              9,061
              
              
              10,187Total
                  liabilities
              
              
              14,396
              
              
              15,001
              
              
              15,459
              
              
              15,681
              
              
              15,540Total
                  stockholders' equity
              
              
              9,595
              
              
              13,634
              
              
              20,571
              
              
              24,185
              
              
              31,658Cash
                  distribution per share
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              3.90




18


**ITEM 7.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




**CAUTIONARY
      STATEMENT**




*In
      addition to the historical information contained herein, the disclosure and
      analysis in this report contains forward-looking statements. When used in this
      discussion, the words “believes,” “anticipates,” “may,” “will,” “should,”
“expects,” “plans,” “estimates,” “predicts,” “potential,” “continue,” “intends”
or the negative of these and similar expressions are intended to identify
      forward-looking statements, but the absence of these words does not necessarily
      mean that a statement is not forward-looking. Forward-looking statements
      include, but are not limited to, statements about our plans, objectives,
      expectations and intentions and are subject to risks and uncertainties that
      could cause actual results to differ materially from those expected or implied
      by these forward-looking statements. 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” and elsewhere in this report. We undertake no
      obligation to publicly release any revisions to these forward-looking statements
      that may be made to reflect events or circumstances after the date hereof or
      to
      reflect the occurrence of anticipated events. Readers are urged, however, to
      review the factors and risks described in reports we file from time to time
      with
      the Securities and Exchange Commission.*




**Management
      Overview**




Beginning
      in 2005, Onvia developed a strategic plan designed to differentiate the Company
      within the public-sector information marketplace with the long-term objective
      of
      consistent revenue growth and increasing return on investment. In 2005 we
      launched the Onvia Dominion® database, a comprehensive resource for government
      agency research, agency buyer history, competitive intelligence, and government
      project histories unavailable elsewhere in the marketplace. Onvia’s product line
      expanded to include Onvia Business Builder, our flagship market intelligence
      product, along with the original Onvia Guide lead notification product.





Consistent
      with the strategic plan, we successfully executed initiatives in 2006 intended
      to accelerate revenue growth, including new product releases, improving the
      execution of our sales force and improvements in client retention rates. During
      2006 we launched a new database search tool, Onvia Navigator, which allows
      clients to easily identify market opportunities within the database and search
      the contents of the related specification documents. Nearly 34% of our client
      base has purchased one of our new products, Onvia Business Builder or Onvia
      Navigator, since launch.





The
      next
      stages of our strategic plan will be executed over the next three years. The
      current phase of the Company’s strategic plan focuses on new product releases,
      continued improvement in all aspects of sales and marketing, and constant focus
      on efficiency in 2007.





Management
      evaluates four key operating metrics, among others, to assist in the evaluation
      of Onvia’s operating performance, and believes these metrics provide a means to
      compare our business with other businesses in the information industry. The
      operating metrics used to measure our two business channels are as follows:
      number of clients, annual contract value, annual contract value per client,
      and
      quarterly contract value per client.





During
      2006 we announced that we were discontinuing our county-level product, and
      during the third quarter of 2006 we made a change to our client metrics. County
      clients have an average contract value of $62 per client, and in the aggregate,
      represent less than 1% of total contract value. Because our county product
      is
      not part of our ongoing business, and is inconsequential to our total contract
      value, we have excluded county clients from our client metrics and historical
      metrics have been recast to reflect this change.





*Number
      of Clients*


Number
      of
      clients represents the number of individual businesses subscribing to our
      products. At December 31, 2006 we had approximately 9,200 clients, down from
      approximately 9,600 at December 31, 2005 and unchanged from September 30, 2006.
      This decline in the number of clients is almost exclusively due to the loss
      of
      metropolitan coverage clients who receive the least amount of content due to
      their small geographic scope. The value of the non-renewed metropolitan coverage
      clients represented less than 1% of our annual contract value.





*Annual
      Contract Value (“ACV”)*


Annual
      contract value is the aggregate annual revenue value of our subscription client
      base. Growth in annual contract value demonstrates our success in increasing
      the
      number of high value clients and upgrading existing clients into new and
      higher valued products. At December 31, 2006, annual contract value was $15.5
      million, up 18% compared to $13.1 million at December 31, 2005, and up 4% from
      $14.9 million at September 30, 2006.





*Annual
      Contract Value per Client (“ACVC”)*


Annual
      contract value per client is the annual contract value divided by the number
      of
      clients and indicates the average value of each of our subscriptions. At
      December 31, 2006, ACVC was $1,692, compared to $1,371 at December 31, 2005,
      an
      increase of 23%, and an increase of 4% compared to $1,629 at September 30,
      2006.
      These increases were driven by increased adoption of Onvia Business Builder
      and
      Onvia Navigator and scheduled price increases.





*Quarterly
      Contract Value per Client (“QCVC”)*


Quarterly
      contract value per client represents the average annual contract value of all
      new and renewing clients transacting during the quarter and is a leading
      indicator of future annual contract value per client. QCVC increased to $1,810
      in the fourth quarter of 2006 compared to $1,500 in the fourth quarter of 2005,
      and decreased slightly from $1,823 during the third quarter of 2006. Quarterly
      contract value per client was slightly lower than in the third quarter of 2006
      due to a higher number of Onvia Guide products sold in the fourth quarter.
      The
      Onvia Guide is Onvia’s lower cost entry level lead notification product, and its
      users represent an excellent opportunity for expansion into our higher valued,
      new product offerings.




19


In
      2006,
      we increased revenue 14% to $16.7 million, compared to $14.7 million in 2005,
      as
      a result of increases in ACVC. Gross margin improved to 80% in 2006, compared
      to
      78% in 2005, as a result of efficiencies in our research group. Operating
      expenses increased 4% to $19.8 million, compared to $19.1 million in 2005,
      primarily as a result of planned growth in our sales organization and increased
      selling expenses as a result of increased sales during 2006 and increases in
      noncash stock-based compensation as a result of the adoption of Statement of
      Financial Accounting Standards (“SFAS”) No. 123(R), *Share-Based
      Payments* (“FAS
      123R”). Net loss decreased 20% to $5.5 million in 2006, compared to $6.9 million
      in 2005. Net loss per share decreased 21% to $0.70 in 2006, compared to $0.89
      in
      2005.





Cash
      used
      in operations decreased 45% to $3.6 million in 2006, compared to $6.6 million
      in
      2005, primarily due to increased sales during 2006. Year over year, unearned
      revenue increased 41% to $8.8 million at December 31, 2006, compared to $6.3
      million at December 31, 2005. Unearned revenue represents the unrecognized
      value
      of paid or billed client subscriptions and content license
      contracts.





In
      the
      fourth quarter of 2006, we leased all of our idle office space through the
      remainder of our lease, which expires in April 2010. A direct lease between
      our
      landlord and The Bill and Melinda Gates Foundation (“Gates”) resulted in an
      amendment of Onvia’s lease, effective January 1, 2007, reducing our lease
      obligation by 49,215 square feet, leaving us with 29,785 square feet. The lease
      of this idle space decreases our future lease obligation by approximately $3.2
      million over the remaining term of the lease. The remaining idle lease accrual
      of $3.8 million represents the difference between Onvia’s original contractual
      obligation on the 49,215 square feet and the rates negotiated in the direct
      lease between our landlord and Gates.




**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 client subscriptions and content licenses.
      Subscription revenues are generally prepaid at the beginning of the subscription
      term and we offer annual, quarterly and monthly payment options. We also offer,
      on a limited basis, extended multi-year contracts to our subscription clients.
      Content licenses are generally multi-year agreements and are typically invoiced
      on a monthly or quarterly basis. Subscription fees and content licenses are
      recognized ratably over the term of the agreement. Unearned revenue consists
      of
      payments received for prepaid subscriptions from our non-enterprise clients
      whose terms extend into periods beyond the balance sheet date, as well as the
      invoiced portion of enterprise contracts and content licenses whose terms extend
      into periods beyond the balance sheet date. We also generate
      revenue from fees charged for document download services, informational reports
      and list rental services and revenue from these services are recognized upon
      delivery.





***Internal
      Use Software***





We
      account for the costs to develop or obtain software for internal use in
      accordance with Statement of Position No. 98-1 ("SOP 98-1"), *Accounting
      for Costs of Computer Software Developed for or Obtained for Internal
      Use* .
      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.




***Noncash
      Stock-Based Compensation***




On
      January 1, 2006, we adopted the provisions of FAS 123R, which requires
      measurement of compensation cost for all stock-based awards at fair value on
      the
      date of grant and recognition of stock-based compensation cost over the
      requisite service period for awards expected to vest. The fair value of stock
      options is determined using the Black-Scholes valuation model, which is
      consistent with our valuation techniques previously utilized for options in
      footnote disclosures required under SFAS No. 123, *Accounting
      for Stock-Based Compensation* ,
      as
      amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation — Transition and Disclosure—an amendment of FASB
      Statement No. 123* .
      Such
      value is recognized as expense over the service period, net of estimated
      forfeitures, using the accelerated method under Financial Accounting Standards
      Board (“FASB”) Interpretation No. 28, *Accounting
      for Stock Appreciation Rights and Other Variable Stock Option or Award
      Plans* .
      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 to the consolidated financial
      statements for additional information on the estimation of these variables.
      Actual results, and future changes in estimates, may differ substantially from
      our current estimates.




20


***Lease
      Obligations***




In
      September 2006, we entered into an amended lease on our current corporate
      headquarters building, reducing our lease obligation by 49,215 square feet
      effective January 1, 2007. We recorded a net decrease to operating expenses
      of
      $67,000 in the year ended December 31, 2006 to adjust our estimated idle lease
      accrual to the actual remaining obligation pursuant to the terms of the amended
      lease. Idle lease charges in the years ending December 31, 2005 and 2004 were
      $1.2 million and $916,000, respectively. Our remaining idle lease accrual of
      $3.8 million at December 31, 2006 represents the difference between our original
      contractual obligation on the 49,215 square feet and the lease rates in the
      direct lease between Gates and our landlord for the remainder of our lease
      term.
      The balance of the accrual will be paid out through the remainder of our lease
      term, which runs through April 2010.





In
      August
      2006 our lease on 19,000 square feet of office space in a former corporate
      facility in Seattle, Washington expired. This space had been subleased to
      another party and the sublease also expired in August 2006. We have no further
      obligation on this space.




***Accounts
      Receivable and Allowance for Doubtful Accounts***




We
      record
      accounts receivable for the invoiced portion of our enterprise contracts and
      content licenses once we have a signed agreement and an invoice has been
      created. We do not record a receivable for the unbilled portion of our
      enterprise contracts or content licenses. As of December 31, 2006 and 2005,
      the
      unbilled portion of enterprise contracts and content licenses was approximately
      $3.1 million and $2.5 million, respectively. 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.




**Contractual
      Obligations**




Future
      required payments under contracts, excluding operating expenses for our lease
      obligations, as of December 31, 2006 are as follows for the periods specified:


**Payments
                  due by period****Contractual
                  obligations**
              
              
              **Total**
              
              
              **Less
                  than 1 year**
              
              
              **1
                  - 3 years**
              
              
              **3
                  - 5 years**
              
              
              **More
                  than 5 years**Real
                  estate operating lease obligations
              
              $
              5,411
              
              $
              1,593
              
              $
              3,818
              
              $
              -
              
              $
              -Other
                  operating lease obligations(1)
              
              
              59
              
              
              20
              
              
              39
              
              
              -
              
              
              -Purchase
                  obligations(2)
              
              
              361
              
              
              361
              
              
              -
              
              
              -
              
              
              -Total
              
              $
              5,831
              
              $
              1,974
              
              $
              3,857
              
              $
              -
              
              $
              -






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


(2)  Purchase
      obligations relate to annual installments for software licenses, third party
      content agreements and telecom contracts.







**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):





**Year
                  ending December 31,****2006**
              
              **2005**
              
              **2004**Revenue
              
              $
              16,739
              
              
              100.0
              %
              $
              14,714
              
              
              100.0
              %
              $
              13,076
              
              
              100.0
              %Cost
                  of revenue
              
              
              3,395
              
              
              20.3
              
              
              3,281
              
              
              22.3
              
              
              1,642
              
              
              12.6Gross
                  margin
              
              
              13,344
              
              
              79.7
              
              
              11,433
              
              
              77.7
              
              
              11,434
              
              
              87.4Sales
                  and marketing expenses
              
              
              11,712
              
              
              70.0
              
              
              10,347
              
              
              70.3
              
              
              9,037
              
              
              69.1Technology
                  and development expenses
              
              
              4,215
              
              
              25.2
              
              
              4,036
              
              
              27.4
              
              
              2,622
              
              
              20.1General
                  and administrative expenses
              
              
              3,980
              
              
              23.7
              
              
              3,484
              
              
              23.7
              
              
              3,252
              
              
              24.9Restructuring
                  charges
              
              
              (67
              )
              
              (0.4
              )
              
              1,228
              
              
              8.3
              
              
              916
              
              
              7.0Total
                  operating expenses
              
              
              19,840
              
              
              118.5
              
              
              19,095
              
              
              129.7
              
              
              15,827
              
              
              121.1Other
                  income, net
              
              
              952
              
              
              5.7
              
              
              742
              
              
              5.0
              
              
              493
              
              
              3.8Net
                  loss
              
              $
              (5,544
              )
              
              (33.1
              %)
              $
              (6,920
              )
              
              (47.0
              %)
              $
              (3,900
              )
              
              (29.9
              %)





21


**Comparison
      of Years Ended December 31, 2006 and 2005**




***Revenue
      and Cost of Revenue***


Revenue
      increased 14% to $16.7 million for the year ended December 31, 2006, compared
      to
      $14.7 million for the year ended December 31, 2005. The increase is primarily
      driven by an increase in ACVC, which is attributable to increased adoption
      of
      our Onvia Business Builder and Onvia Navigator products, upgrading clients
      into
      higher valued products and scheduled price increases. If adoption of Onvia
      Business Builder and other anticipated new products is consistent with our
      expectations, we expect to continue to see improvement in our ACV as well as
      an
      increase in client retention rates in future periods.




Cost
      of
      revenue increased 3% to $3.4 million, or 20.3% of revenue, for the year ended
      December 31, 2006, compared to $3.3 million, or 22.3% of revenue, for the year
      ended December 31, 2005. Our cost of revenue consist primarily of payroll
      related expenses associated with collecting, categorizing and publishing our
      content, and also include third party content fees and credit card processing
      fees. Third party content and credit card processing fees were approximately
      $995,000 and $1.1 million for the years ended December 31, 2006 and 2005,
      respectively. Cost of revenue increased in total due in part to an increase
      of
      $235,000 in payroll related expenses as a result of headcount growth in our
      research team. Weighted average headcount on our research team was 53 during
      2006, compared to 43 during 2005. The headcount increase resulted from increased
      information requirements for new product introductions. This increase was
      partially offset by a decrease of $157,000
      in third party content fees as a result of the expiration and renegotiation
      of
      content contracts. We expect to see a comparable increase in cost of revenue
      in
      2007, as we add additional content and new products to our offering.




***Sales
      and Marketing***


Sales
      and
      marketing expenses were $11.7 million, or 70.0% of revenue, and $10.3 million,
      or 70.3% of revenue, for the years ended December 31, 2006 and 2005,
      respectively, representing an increase of $1.4 million, or 13%. The increase
      in
      total is attributable in part to an increase of $1.9 million in payroll-related
      expenses due to planned increases in headcount, increases in commissions due
      to
      higher sales in 2006 and normal merit increases. Weighted average headcount
      in
      our sales and marketing teams was 91 in 2006, compared to 77 in 2005. We also
      saw increases of $443,000 in stock-based compensation related to the adoption
      of
      FAS 123R, $334,000 in allocated expenses due to growth in headcount, and
      $141,000 in telecom expenses primarily attributable to the increased use of
      web
      conferencing under our new sales methodology. Allocated expenses consist of
      depreciation, amortization and other allocated expenses, and they are allocated
      based on headcount in the respective departments. These increases were partially
      offset by a decrease of $1.3 million in marketing-related expenses due to a
      decrease in direct marketing expenses as a result of the implementation of
      a new
      sales methodology, and a decrease of $93,000 in consulting expenses. Consulting
      expenses incurred during 2005 related to fees to assist in the implementation
      of
      the new sales methodology and these fees were not incurred during
      2006.




***Technology
      and Development***


Technology
      and development expenses were $4.2 million, or 25.2% of revenue, and $4.0
      million, or 27.4% of revenue, for the years ended December 31, 2006 and 2005,
      respectively, representing an increase of $179,000, or 4%. The increase in
      total
      is attributable to increases of $81,000 in payroll related expenses due to
      normal performance-based increases and increases in recruiting fees for new
      hires, an increase of $80,000 in stock-based compensation expense due to
      adoption of FAS 123R, and an increase of $48,000 in amortization of software
      maintenance and license fees and other allocated expenses. Weighted average
      headcount in this group was 33 in 2006, compared to 35 in 2005. Capitalization
      of internally developed software costs increased by $29,000 in 2006 compared
      to
      2005, partially offsetting the increases in total expenses discussed
      above.




***General
      and Administrative***


General
      and administrative expenses were $4.0 million, or 23.7% of revenue, and $3.5
      million, or 23.7% of revenue, for the years ended December 31, 2006 and 2005,
      respectively, representing an increase of $496,000, or 14%. The increase in
      total was primarily attributable to increases of $625,000 in stock-based
      compensation due to the adoption of FAS 123R, and $52,000 in payroll-related
      expenses due to normal performance-based salary increases, and increases in
      contract labor and consultants. Weighted average headcount in this group was
      11
      in both 2006 and 2005. These increases were partially offset by a decrease
      of
      $62,000 in recruiting fees due to fewer senior management hires in 2006, $56,000
      in travel-related expenses due to a reduction in travel, and $39,000 in
      insurance expenses due to a reduction in our insurance premiums.




***Noncash
      Stock-Based Compensation***


We
      adopted FAS 123R using the modified prospective method beginning January 1,
      2006. Under this transition method, our reported stock-based compensation
      expense includes: a) expense related to the remaining unvested portion of awards
      granted prior to January 1, 2006, which is based on the grant date fair value
      estimated in accordance with the original provisions of SFAS No. 123 using
      the
      Black-Scholes valuation model; and b) expense related to awards granted
      subsequent to January 1, 2006, which is based on the grant date fair value
      estimated in accordance with the provisions of FAS 123R using the Black-Scholes
      valuation model. We recognize compensation expense for all grants using the
      accelerated amortization method under Financial Accounting Standards Board
      (“FASB”) Interpretation No. 28, *Accounting
      for Stock Appreciation Rights and Other Variable Stock Option or Award
      Plans* (“FIN
      28”).





FAS
      123R
      requires that stock-based compensation expense be based on awards that are
      ultimately expected to vest; therefore, stock-based compensation for the year
      ended December 31, 2006 has been reduced for estimated forfeitures. When
      estimating forfeitures, we consider trends of actual option forfeitures as
      well
      as expected future activity.





Onvia’s
      Savings and Retirement Plan (the “Retirement Plan”) has a provision to allow a
      discretionary matching contribution, made in Onvia common stock, equivalent
      to
      25% of every dollar up to 6% of all eligible employee contributions. Matching
      contributions are made 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. Matching contributions were authorized for
      both the 2005 and 2006 plan years. Stock-based compensation expense associated
      with this match was $94,051 and $69,895 for the years ending December 31, 2006
      and 2005, respectively.





We
      recorded $1.3 million and $84,000 of noncash stock-based compensation expense
      for the years ended December 31, 2006 and 2005, respectively.




22


***Idle
      Lease Charges***


Onvia
      recorded a net decrease to operating expenses of $67,000 in the year ended
      December 31, 2006 to adjust our estimated idle lease accrual to the actual
      remaining obligation pursuant to the terms of the amended lease. Our remaining
      idle lease accrual of $3.8 million at December 31, 2006 represents the
      difference between our original contractual obligation on the 49,215 square
      feet
      and the lease rates in the direct lease between Gates and our landlord for
      the
      remainder of the lease term. The balance of the accrual will be paid out through
      the remainder of the lease term, which runs through April 2010. Please refer
      to
      the discussion under “Lease Obligations” above for a discussion of the
      adjustment to the idle lease accrual in 2006 and 2005.




The
      following table displays rollforwards of the accruals included in the
      restructuring charge through December 31, 2006 by type (in thousands):


**Amounts****Accruals
                    at**
              
              
              
              
              
              **Paid,
                  Net**
              
              
              **Accruals
                  at****December
                    31,**
              
              
              **2006**
              
              
              **of
                  Sublease**
              
              
              **December
                  31,****2005**
              
              
              **Reduction**
              
              
              **Income**
              
              
              **2006**Real
                  estate and other exit costs
              
              $
              6,538
              
              $
              (67
              )
              $
              (2,692
              )
              $
              3,779




***Interest
      and Other Income, Net***


Net
      interest and other income consists of interest earned on our investment
      accounts, letter of credit fees associated with our security deposits and other
      miscellaneous income. Net interest and other income was $952,000 and $742,000
      for the years ended December 31, 2006 and 2005, respectively. The increase
      in
      2006 is primarily attributable to an increase in short term interest rates
      compared to 2005. Other income in 2005 was partially offset by a $50,000 loss
      on
      the settlement of a note receivable from our former Chief Strategy Officer.




***Net
      Loss, Net Loss per Share and Comprehensive Loss***


Net
      loss
      decreased by 20% to $5.5 million for the year ended December 31, 2006, or $0.70
      per share, compared with a loss of $6.9 million, or $0.89 per share, for the
      year ended December 31, 2005. The decrease in net loss is primarily related
      to
      increases in revenue, and improvement in gross margin, as well as the impact
      of
      the $67,000 reduction to our idle lease accrual compared to an increase in
      the
      accrual of $1.2 million in 2005. These improvements were offset by the increase
      in stock-based compensation as discussed above. Comprehensive loss was $5.5
      million and $6.9 million for the years ended December 31, 2006 and 2005,
      respectively.




***Provision
      for Income Taxes***


We
      have
      incurred net operating losses from March 25, 1997 (inception) through December
      31, 2006, and therefore have not recorded a provision for income taxes. At
      December 31, 2006 and 2005, we had net operating loss carryforwards for tax
      purposes of $252.8 million and $246.9 million, respectively. These loss
      carryforwards are available to reduce future taxable income and expire at
      various dates beginning in 2007 through 2026. Under the provisions of the
      Internal Revenue Code, certain substantial changes in our ownership may limit
      the amount of net operating loss carryforwards that could be utilized annually
      in the future to offset taxable income. We have recorded a valuation allowance
      for the full amount of our net deferred tax assets, as the future realization
      of
      the tax benefit is not currently likely.




**Comparison
      of Years Ended December 31, 2005 and 2004**




***Revenue
      and Cost of Revenue***


Revenue
      increased 13% to $14.7 million for the year ended December 31, 2005,
      compared to $13.1 million for the year ended December 31, 2004. The
      increase was primarily driven by an increase in ACV attributable to adoption
      of
      our Onvia Business Builder product and upgrading clients to our higher value
      products.





Cost
      of
      revenue increased 100% to $3.3 million, or 22.3% of revenue, for the year ended
      December 31, 2005, compared to $1.6 million, or 12.6% of revenue, for the
      year ended December 31, 2004. Third party content and credit card
      processing fees were approximately $1.1 million and $537,000 for the years
      ended
      December 31, 2005 and 2004, respectively. Cost of revenue increased in
      total and as a percentage of revenue due in part to an increase of $991,000
      in
      payroll related expenses as a result of headcount growth in our research team
      and normal merit increases. Weighted average headcount on our research team
      was
      43 during 2005, compared to 24 during 2004. The headcount increase resulted
      from
      increased information requirements for new product introductions. In addition,
      we saw an increase of $682,000 in third party content fees as a result of new
      agreements to supplement our content for new product introductions.




***Sales
      and Marketing***


Sales
      and
      marketing expenses were $10.5 million, or 71.3% of revenue, and $9.0 million,
      or
      69.1% of revenue, for the years ended December 31, 2005 and 2004,
      respectively, representing an increase of $1.5 million, or 16%. The increase
      in
      total and as a percentage of revenue is attributable in part to an increase
      in
      headcount and commissions in our sales and marketing teams, which resulted
      in an
      increase of $991,000 in payroll expenses in 2005. Weighted average headcount
      in
      our sales and marketing teams was 77 in 2005, compared to 67 in 2004. We also
      experienced increases of $441,000 in marketing related expenses attributable
      to
      the launch of Onvia Business Builder in the third quarter of 2005, $116,000
      in
      consulting expenses related to the development of a new consultative sales
      methodology, and an increase of $67,000 in travel related expenses due to growth
      in and increased travel by the sales teams. These increases were offset by
      a
      decrease of $242,000 in allocated expenses; although headcount increased
      compared to the prior year in our sales and marketing teams, it decreased as
      a
      percentage of total headcount due to higher growth in our research and
      technology teams, resulting in a smaller allocation of these expenses.




***Technology
      and Development***


Technology
      and development expenses were $3.9 million, or 26.4% of revenue, and $2.6
      million, or 20.1% of revenue, for the years ended December 31, 2005 and
      2004, respectively, representing an increase of $1.3 million, or 48%. The
      increase in total and as a percentage of revenue is attributable in part to
      an
      increase of $637,000 in payroll related expenses due to an increase in headcount
      in our technology and development teams. Weighted average headcount in these
      teams was 35 in 2005, compared to 25 in 2004. In addition, allocated expenses
      increased by $290,000 due to an increase in headcount in our technology and
      development teams. Research headcount is included in technology and development
      for purposes of allocating these expenses. We also experienced an increase
      of
      $218,000 in facilities expenses primarily due to the relocation of our research
      department to a previously idle floor in our corporate headquarters building,
      and an increase of $173,000 in software license fees due to new product
      requirements and growth in our overall headcount. These increases in operating
      expenses were partially offset by the capitalization of $113,000 in payroll
      related costs for the internal development of software.


23


***General
      and Administrative***


General
      and administrative expenses were $3.5 million, or 23.7% of revenue, and $3.3
      million, or 24.9% of revenue, for the years ended December 31, 2005 and
      2004, respectively, representing an increase of $232,000, or 7%. The increase
      is
      partially attributable to an increase in amortization of capitalized software
      costs of $136,000 as a result of the launch of Onvia Business Builder and the
      launch of other internally developed software during the year. We also
      experienced an increase of $99,000 in payroll related expenses in this group
      as
      a result of normal merit increases and a fractional increase in weighted average
      headcount in this group during 2005 compared to 2004. Business taxes increased
      $84,000 in 2005 as a result of the increase in revenue over the prior year,
      professional services increased $83,000 due primarily to an increase in legal
      fees incurred in defense of the faxing lawsuit, and training and strategic
      planning expenses increased $62,000 as a result of a new management training
      program and expenses associated with our new product launch. These increases
      were partially offset by a decrease of $143,000 in recruiting expenses and
      a
      decrease of $94,000 in insurance expenses. Recruiting fees were higher in 2004
      because of searches to fill vacancies on our Board of Directors and retainer
      fees paid for other senior management positions. The Board of Directors
      vacancies were filled in 2004 and we did not incur these expenses in 2005 and
      a
      majority of the retainer fees for senior management searches were paid in 2004.
      The decrease in insurance expenses is due to a reduction in our directors and
      officers (“D&O”) insurance premiums. Our D&O policy renews in March each
      year and premiums were significantly higher in January and February of 2004.




***Noncash
      Stock-Based Compensation***


Prior
      to
      the adoption of FAS 123R on January 1, 2006, we elected to account for our
      employee and director stock-based awards under the provisions of Accounting
      Principles Board ("APB") Opinion No. 25, *Accounting for Stock Issued to
      Employees*. Accordingly, for employee and director options, unearned stock
      compensation was recorded as the excess, if any, of the fair market value of
      the
      underlying common stock at the date of grant over the exercise price of the
      options. These amounts were amortized on an accelerated basis over the vesting
      period of the option, typically four or five years. We applied the provisions
      of
      SFAS No. 123, *Accounting for Stock-Based Compensation*, for
      stock-based awards to those other than employees and directors.





In
      January 2005, Onvia’s Savings and Retirement Plan (the “Retirement Plan”) was
      amended to add a discretionary matching contribution, made in Onvia common
      stock, equivalent to 25% of every dollar up to 6% of all eligible employee
      contributions. Matching contributions are made 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. Stock compensation
      associated with this match was $69,895 in 2005.





We
      recorded $84,239 and $9,593 of noncash stock-based compensation expense for
      the
      years ended December 31, 2005 and 2004, respectively.


***Idle
      Lease Charges***


During
      the year ended December 31, 2005, we recorded net restructuring charges of
      $1.2 million, compared to $916,000 for the year ended December 31, 2004.
      Restructuring charges recorded during 2005 and 2004 related entirely to
      contractual obligations and operating expenses on our lease arrangements and
      estimated broker fees associated with the assumed sublease of our idle office
      space based on information available at the time of the estimate.





The
      following table displays rollforwards of the accruals included in the
      restructuring charge through December 31, 2005 by type (in thousands):


**Amounts****Accruals
                  at**
              
              
              
              **Paid,
                  Net**
              
              **Accruals
                  at****December
                  31,**
              
              
              **2005**
              
              
              **of
                  Sublease**
              
              
              **December
                  31,****2004**
              
              
              **Charges**
              
              
              **Income**
              
              
              **2005**Real
                  estate and other exit costs
              
              $
              7,451
              
              $
              1,228
              
              $
              (2,141
              )
              $
              6,538






***Interest
      and Other Income, Net***


Net
      other
      income was $742,000 and $493,000 for the years ended December 31, 2005 and
      2004,
      respectively. The increase in 2005 is primarily attributable to an increase
      in
      short term interest rates compared to 2004. The increase in 2005 was partially
      offset by a $50,000 loss on the settlement of a note receivable from our former
      Chief Strategy Officer.




***Net
      Loss, Net Loss per Share and Comprehensive Loss***


Net
      loss
      increased by 77% to $6.9 million for the year ended December 31, 2005, or $0.89
      per share, compared with a loss of $3.9 million, or $0.51 per share, for the
      year ended December 31, 2004. The increase is primarily attributable to the
      increase in costs of revenues and operating costs as a result of the
      implementation of our growth strategy in 2005, combined with an increase in
      our
      idle lease accrual. Other comprehensive loss was $6.9 million and $3.9 million
      for the years ended December 31, 2005 and 2004, respectively. Other
      comprehensive gain of $8,000 in 2005 and other comprehensive loss of $31,000
      in
      2004 represent unrealized gains and losses, respectively, on available-for-sale
      investments.




***Provision
      for Income Taxes***


We
      have
      incurred net operating losses from March 25, 1997 (inception) through December
      31, 2006, and therefore have not recorded a provision for income taxes. At
      December 31, 2005 and 2004, we had net operating loss carryforwards for tax
      purposes of $246.9 million and $236.3 million, respectively. We have recorded
      a
      valuation allowance for the full amount of our net deferred tax assets, as
      the
      future realization of the tax benefit is not currently likely.






24


**Liquidity
      and Capital Resources**




Our
      principal sources of liquidity are cash, cash equivalents and short-term
      investments. Our combined cash, cash equivalents and short-term investments
      were
      $14.4 million at December 31, 2006, and our working capital was $4.9 million.
      From December 31, 2005 to December 31, 2006, our cash, cash equivalents and
      short-term investments decreased $6.1 million, partially due to the purchase
      of
      $1.5 million in long-term investments and partially due to planned increases
      in
      our sales force and the development of new products. We also used approximately
      $2.7 million on net payments for our idle office space leases. In September
      2006
      we entered into an amended office lease on our current corporate headquarters
      building which reduces our square footage in the building by 49,215 square
      feet
      and reduces our future lease obligation over the remaining term by approximately
      $3.2 million. Our total remaining contractual obligation on the operating lease
      for our corporate headquarters is $5.4 million, excluding operating costs.
      This
      amount will be paid over the remaining term, which expires in April
      2010.





We
      currently have no debt and, under current operating plans, do not expect to
      incur any debt in the near-term. We expect to begin generating positive cash
      flows from operations before we would be required to seek additional financing
      to fund operations by increasing client retention and acquisition, increasing
      our ACVC, and reducing our cash used for idle leased office space. Until such
      time as we begin generating positive cash flows from operations, we will utilize
      our current cash and cash equivalents and current revenues to fund operations.




We
      expect
      to increase revenue from current operations by improving retention rates for
      our
      existing clients and increasing our ACV through a combination of expansion
      of
      our product offering, and scheduled price increases. ACVC at December 31, 2006
      was $1,692, compared to $1,371 at December 31, 2005, representing an increase
      of
      23%. The increase over the previous year is primarily attributable to sales of
      our new Onvia Business Builder and Onvia Navigator products, which
      have a higher price-point than our entry-level Onvia Guide product, combined
      with a scheduled price increase that occurred in April 2006.





If
      we
      engage in merger or acquisition transactions or our overall operating plans
      change, we may require additional equity or debt financing to meet future
      working capital needs, which may have a dilutive effect on existing stockholders
      or may include securities that have rights, preferences or privileges senior
      to
      those of the rights of our common stock. We cannot make assurances that if
      additional financing is required, it will be available, or that such financing
      can be obtained on satisfactory terms.




***Operating
      Activities***




Net
      cash
      used by operating activities was $3.6 million, $6.6 million and $4.1 million
      for
      the years ended December 31, 2006, 2005 and 2004, respectively. The decrease
      in
      net cash used in 2006 compared to 2005 was primarily attributable to an increase
      in cash collected for unearned revenue in 2006 compared to 2005, and a reduction
      in the payment of prepaid expenses related to timing of payments. These
      increases were partially offset by planned increases in operating expenses
      due
      to the implementation of our growth strategy related to additional headcount
      and
      new product introductions.





The
      increase in cash used in 2005 compared to 2004 is the result of an increase
      in
      cost of sales and operating expenses as a result of the strategic investment
      made during 2005 to develop and launch new products and grow our sales team.
      Timing differences in the collection of accounts receivable and payments on
      accounts payable also contributed to the increase in cash used.




***Investing
      Activities***




Net
      cash
      used in investing activities was $269,000 for the year ended December 31, 2006,
      compared to net cash provided by investing activities of $12.8 million and
      $2.4
      million for the years ended December 31, 2005 and 2004, respectively.




The
      change to net cash used in investing activities in 2006 from net cash provided
      by investing activities in 2005 is primarily due to a decrease in sales and
      maturities of investments in 2006 compared to 2005 due to timing of investment
      maturity dates. In addition to the decrease in sales and maturities, we saw
      an
      increase in the purchase of property and equipment in 2006 compared to 2005
      as a
      result of additional requirements related to the deployment of new products
      and
      build-out of our existing office space to accommodate existing staff in a new
      floor plan subsequent to the lease amendment. These increases in net cash used
      were partially offset by the return of our security deposit on our lease for
      our
      previous corporate headquarters, which expired in August 2006.





The
      increase in net cash provided by investing activities in 2005 compared to 2004
      is primarily due to an increase in maturities of investments compared to the
      prior year due to timing of investment maturity dates. Increases in maturities
      were partially offset by an increase in purchases of new investments, and
      increases in the purchase of property and equipment and additions to internally
      developed software as a result of new product development and deployment
      pursuant to our strategic plan.




***Financing
      Activities***




Net
      cash
      provided by financing activities was $260,000, $181,000 and $307,000 for the
      years ended December 31, 2006, 2005 and 2004, respectively. All cash provided
      by
      financing activities in 2006, 2005 and 2004 relates to the exercise of stock
      options and purchases of stock under our employee stock purchase plan.







**Recent
      Accounting Pronouncements**




In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“FAS
      159”). FAS 159 permits entities to choose to measure selected financial
      instruments and certain other items at fair value that are not currently
      required or permitted to be measured at fair value. This Statement also
      establishes presentation and disclosure requirements designed to facilitate
      comparisons between entities that choose different measurement attributes for
      similar types of assets and liabilities. This Statement is effective no later
      than fiscal years beginning on or after November 15, 2007. The Company is
      currently evaluating the impact adoption of FAS 159 will have on its financial
      position and results of operations.





25


In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“FAS
      157”). This Statement defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles, and expands disclosures
      about fair value measurements. This Statement does not require any new fair
      value measurements. This Statement is effective for fiscal years beginning
      after
      November 15, 2007. Onvia does not believe that adoption of this Statement will
      have a significant impact on its financial position, results of operations
      or
      cash flows.





In
      September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* ("SAB
      108"). SAB 108 was issued in order to eliminate the diversity of practice in
      how
      public companies quantify financial statement misstatements, including
      misstatements that were not material to prior years' financial statements.
      Application of this guidance did not have a material impact on our results
      of
      operations, financial position, or cash flows.





In
      July
      2006 the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes—an Interpretation of FASB Statement
      109* (“FIN
      48”). The rule clarifies what criteria must be met prior to recognition of the
      financial statement benefit of a position taken in a tax return. The effective
      date for FIN 48 is for fiscal years beginning after December 15, 2006. Onvia
      is
      currently analyzing the impact, if any, the rule will have on its results of
      operations, financial position, and cash flows.




In
      May
      2006 the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB
      Statement No. 3* (“FAS
      154”). This Statement changes the requirements for the accounting for and
      reporting of a change in accounting principle. The Statement applies to all
      voluntary changes in accounting principle, as well as changes required by an
      accounting pronouncement in the event the new pronouncement does not include
      specific transition provisions. APB Opinion No. 20 previously required that
      most
      voluntary changes in accounting principle be recognized by including in net
      income of the period of the change the cumulative effect of changing to the
      new
      accounting principle. This Statement requires retrospective application to
      prior
      periods’ financial statements of changes in accounting principle, unless it is
      impracticable to determine the period-specific effects or the cumulative effect
      of the change. This Statement is effective for fiscal years beginning after
      December 15, 2005. Adoption of this statement did not have an impact on Onvia’s
      results of operations, financial position or cash flows.





**ITEM 7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




We
      are
      exposed to financial market risks, including changes in interest rates and
      equity prices; however, we consider our exposure to these risks to be
      insignificant.




**Interest
      Rate Risk**




We
      have
      assessed our susceptibility to certain market risks, including interest rate
      risk associated with financial instruments. We manage our interest rate risk
      by
      purchasing investment-grade securities and diversifying our investment portfolio
      among issuers and maturities. Due to the fact that we carry no debt at December
      31, 2006 and due to our investment policies and the short-term nature of our
      investments, we believe that our risk associated with interest rate fluctuations
      is negligible.




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




**Foreign
      Currency Risk**




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




**Equity
      Price Risk**




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





26


**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, 2006 and 2005, and the related
      consolidated statements of operations and other comprehensive loss, cash flows,
      and changes in stockholders’ equity for each of the three years in the period
      ended December 31, 2006. Our audits also included the consolidated 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 these 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, 2006 and
      2005, and the results of its operations, cash flows, and changes in
      stockholders' equity for each of the three years in the period ended
      December 31, 2006, in conformity with accounting principles generally accepted
      in the United States of America. Also, in our opinion, such consolidated
      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.





As
      discussed in Note 2 to the consolidated financial statements, the Company
      changed its method of accounting for share-based compensation upon adoption
      of
      Statement of Financial Accounting Standards No. 123(R), *Share-Based
      Payment* .




/s/    DELOITTE
      & TOUCHE LLP




Seattle,
      Washington


March
      27,
      2007





27


**ITEM 8.**  **CONSOLIDATED
      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**




**ONVIA,
      INC.**




**CONSOLIDATED
      BALANCE SHEETS**


**DECEMBER
      31, 2006 AND 2005**




**2006**
              
              **2005**ASSETSCURRENT
                  ASSETS:Cash
                  and cash equivalents
              
              $
              8,430,178
              
              $
              12,086,693Short-term
                  investments, available-for-sale
              
              
              6,004,955
              
              
              8,453,574Accounts
                  receivable, net of allowance for doubtful accounts of $48,157 and
                  $44,397
              
              
              814,628
              
              
              789,725Prepaid
                  expenses and other current assets
              
              
              780,773
              
              
              937,905Security
                  deposits, current portion
              
              
              -
              
              
              230,548Total
                  current assets
              
              
              16,030,534
              
              
              22,498,445LONG
                  TERM ASSETS:Property
                  and equipment, net of accumulated depreciation of $4,640,545 and
                  $3,805,351
              
              
              2,145,426
              
              
              1,929,810Long-term
                  investments, available-for-sale
              
              
              1,478,372
              
              
              -Security
                  deposits, net of current portion
              
              
              3,500,000
              
              
              3,500,000Other
                  assets, net
              
              
              836,772
              
              
              707,217Total
                  long term assets
              
              
              7,960,570
              
              
              6,137,027TOTAL
                  ASSETS
              
              $
              23,991,104
              
              $
              28,635,472LIABILITIES
                  AND STOCKHOLDERS’ EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              455,229
              
              $
              827,719Accrued
                  expenses
              
              
              1,107,361
              
              
              1,152,980Idle
                  lease accrual, current portion
              
              
              1,070,884
              
              
              3,350,109Unearned
                  revenue, current portion
              
              
              8,481,060
              
              
              6,100,799Deferred
                  rent, current portion
              
              
              28,563
              
              
              3,677Total
                  current liabilities
              
              
              11,143,097
              
              
              11,435,284LONG
                  TERM LIABILITIES:Idle
                  lease accrual, net of current portion
              
              
              2,708,331
              
              
              3,187,626Unearned
                  revenue, net of current portion
              
              
              359,377
              
              
              159,833Deferred
                  rent, net of current portion
              
              
              185,717
              
              
              218,791Total
                  long term liabilities
              
              
              3,253,425
              
              
              3,566,250TOTAL
                  LIABILITIES
              
              
              14,396,522
              
              
              15,001,534COMMITMENTS
                  AND CONTINGENCIES (Note 12)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; 7,929,153
                  and
                  7,836,110 shares issued and outstanding
              
              
              793
              
              
              784Treasury
                  stock, at cost: 32,369 and 45,000 shares
              
              
              (158,932
              )
              
              (220,950
              )Additional
                  paid in capital
              
              
              349,174,289
              
              
              347,749,246Accumulated
                  other comprehensive loss
              
              
              (5,604
              )
              
              (23,022
              )Accumulated
                  deficit
              
              
              (339,415,964
              )
              
              (333,872,120
              )Total
                  stockholders’ equity
              
              
              9,594,582
              
              
              13,633,938TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              23,991,104
              
              $
              28,635,472
 See
      notes
      to consolidated financial statements.


28


**ONVIA,
      INC.**




**CONSOLIDATED
      STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS**


**YEARS
      ENDED DECEMBER 31, 2006, 2005 AND 2004**




**2006**
                
                **2005**
                
                **2004**Revenue:Subscription
                
                $
                14,411,914
                
                $
                12,961,473
                
                $
                11,488,533Content
                    license
                
                
                2,110,634
                
                
                1,546,447
                
                
                1,285,061Other
                
                
                215,972
                
                
                205,951
                
                
                302,426Total
                    revenue
                
                
                16,738,520
                
                
                14,713,871
                
                
                13,076,020Cost
                    of revenue (including stock based compensation of $25,063, $0
                    and
                    $0)
                
                
                3,394,612
                
                
                3,281,070
                
                
                1,642,241Gross
                    margin
                
                
                13,343,908
                
                
                11,432,801
                
                
                11,433,779Operating
                    expenses:Sales
                    and marketing (including stock-based compensation of $477,533,
                    $34,603 and
                    $0)
                
                
                11,712,294
                
                
                10,346,978
                
                
                9,037,395Technology
                    and development (including stock-based compensation of $103,927,
                    $23,764
                    and $0)
                
                
                4,215,098
                
                
                4,036,168
                
                
                2,622,055General
                    and administrative (including stock-based compensation of $651,338,
                    $25,872 and $9,593)
                
                
                3,979,526
                
                
                3,483,135
                
                
                3,251,522Idle
                    lease expense
                
                
                (66,691
                )
                
                1,228,160
                
                
                915,637Total
                    operating expenses
                
                
                19,840,227
                
                
                19,094,441
                
                
                15,826,609Loss
                    from operations
                
                
                (6,496,319
                )
                
                (7,661,640
                )
                
                (4,392,830
                )Interest
                    and other income, net
                
                
                952,475
                
                
                741,921
                
                
                492,768Net
                    loss
                
                $
                (5,543,844
                )
                $
                (6,919,719
                )
                $
                (3,900,062
                )Unrealized
                    gain / (loss) on available-for-sale investments
                
                
                17,418
                
                
                7,664
                
                
                (30,686
                )Comprehensive
                    loss
                
                $
                (5,526,426
                )
                $
                (6,912,055
                )
                $
                (3,930,748
                )Basic
                    and diluted net loss per common share
                
                $
                (0.70
                )
                $
                (0.89
                )
                $
                (0.51
                )Basic
                    and diluted weighted average shares outstanding
                
                
                7,887,989
                
                
                7,813,996
                
                
                7,720,198


See
      notes
      to consolidated financial statements.




29


**ONVIA,
      INC.**




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**YEARS
      ENDED DECEMBER 31, 2006, 2005 AND 2004**




**2006**
                
                **2005**
                
                **2004**CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                $
                (5,543,844
                )
                $
                (6,919,719
                )
                $
                (3,900,062
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                1,075,894
                
                
                832,368
                
                
                666,134(Gain)
                    / loss on sale of property and equipment
                
                
                (2,430
                )
                
                5,911
                
                
                (7,758
                )Noncash
                    stock-based compensation
                
                
                1,257,861
                
                
                84,239
                
                
                9,593Change
                    in certain assets and liabilities:Accounts
                    receivable
                
                
                (24,903
                )
                
                (178,532
                )
                
                (268,016
                )Prepaid
                    expenses and other current assets
                
                
                157,132
                
                
                (83,712
                )
                
                (323,001
                )Other
                    assets
                
                
                68,964
                
                
                193,900
                
                
                (37,906
                )Accounts
                    payable
                
                
                (372,490
                )
                
                (108,912
                )
                
                275,175Accrued
                    expenses
                
                
                (76,765
                )
                
                308,609
                
                
                56,755Deferred
                    rent
                
                
                (8,188
                )
                
                16,721
                
                
                29,665Payments
                    on idle lease accrual, net of sublease income
                
                
                (2,691,829
                )
                
                (2,141,787
                )
                
                (2,525,586
                )(Reduction
                    of) / additions to idle lease accrual
                
                
                (66,691
                )
                
                1,228,160
                
                
                915,637Unearned
                    revenue
                
                
                2,579,804
                
                
                170,693
                
                
                1,025,812Net
                    cash used in operating activities
                
                
                (3,647,485
                )
                
                (6,592,061
                )
                
                (4,083,558
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Additions
                    to property and equipment
                
                
                (1,070,051
                )
                
                (436,401
                )
                
                (540,250
                )Proceeds
                    from sales of property and equipment
                
                
                5,192
                
                
                7,479
                
                
                7,673Sales
                    of investments
                
                
                3,010,000
                
                
                12,825,000
                
                
                14,650,000Maturities
                    of investments
                
                
                19,060,181
                
                
                34,860,174
                
                
                11,110,688Purchases
                    of investments
                
                
                (21,082,516
                )
                
                (33,905,505
                )
                
                (22,711,465
                )Return
                    of security deposits
                
                
                230,548
                
                
                -
                
                
                -Additions
                    to internally developed software
                
                
                (422,390
                )
                
                (571,239
                )
                
                (100,045
                )Net
                    cash (used in) / provided by investing activities
                
                
                (269,036
                )
                
                12,779,508
                
                
                2,416,601CASH
                    FLOWS FROM FINANCING ACTIVITIES:Proceeds
                    from purchases under employee stock purchase plan and exercise
                    of stock
                    options
                
                
                260,006
                
                
                181,221
                
                
                307,466Net
                    cash provided by financing activities
                
                
                260,006
                
                
                181,221
                
                
                307,466Net
                    (decrease) / increase in cash and cash equivalents
                
                
                (3,656,515
                )
                
                6,368,668
                
                
                (1,359,491
                )Cash
                    and cash equivalents, beginning of period
                
                
                12,086,693
                
                
                5,718,025
                
                
                7,077,516Cash
                    and cash equivalents, end of period
                
                $
                8,430,178
                
                $
                12,086,693
                
                $
                5,718,025SUPLEMENTAL
                    SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIESUnrealized
                    (gain) / loss on available-for-sale investments
                
                $
                (17,418
                )
                $
                (7,664
                )
                $
                30,686Issuance
                    of treasury stock for 401K matching contribution
                
                
                (62,904
                )
                
                -
                
                
                -Treasury
                    stock acquired as settlement of note receivable
                
                
                -
                
                
                220,950
                
                
                -Accrual
                    of 401K matching contribution in Onvia stock
                
                
                -
                
                
                69,895
                
                
                -


See
      notes
      to consolidated financial statements.







30


**ONVIA,
      INC.**




**CONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**


**YEARS
      ENDED DECEMBER 31, 2006, 2005 AND 2004**






Common
                    stock
                
                Treasury
                    stock
                
                Additional
                
                Accumulated
                    other
                
                Unearned
                
                AccumulatedShares
                
                Amount
                
                Shares
                
                Amount
                
                paid
                    in capital
                
                comprehensive
                    loss
                
                compensation
                
                deficit
                
                TotalBALANCE,
                    January 1, 2004
                
                
                7,682,214
                
                $
                768
                
                
                -
                
                $
                -
                
                
                347,238,607
                
                $
                -
                
                $
                (1,968
                )
                $
                (323,052,339
                )
                $
                24,185,068Exercise
                    of stock options
                
                
                130,137
                
                
                13
                
                
                
                
                
                
                
                
                275,319
                
                
                
                
                
                
                
                
                
                
                
                275,332Purchases
                    under Employee Stock Purchase Plan
                
                
                10,376
                
                
                1
                
                
                
                
                
                
                
                
                32,133
                
                
                
                
                
                
                
                
                
                
                
                32,134Amortization
                    of unearned compensation on stock options
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,968
                
                
                
                
                
                1,968Noncash
                    stock-based compensation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                7,625
                
                
                
                
                
                
                
                
                
                
                
                7,625Unrealized
                    loss on available-for-sale investments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (30,686
                )
                
                
                
                
                
                
                
                (30,686
                )Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (3,900,062
                )
                
                (3,900,062
                )BALANCE,
                    December 31, 2004
                
                
                7,822,727
                
                
                782
                
                
                -
                
                
                -
                
                
                347,553,684
                
                
                (30,686
                )
                
                -
                
                
                (326,952,401
                )
                
                20,571,379Exercise
                    of stock options
                
                
                42,434
                
                
                4
                
                
                
                
                
                
                
                
                122,521
                
                
                
                
                
                
                
                
                
                
                
                122,525Purchases
                    under Employee Stock Purchase Plan
                
                
                15,949
                
                
                2
                
                
                
                
                
                
                
                
                58,693
                
                
                
                
                
                
                
                
                
                
                
                58,695Treasury
                    stock acquired as settlement of note receivable
                
                
                (45,000
                )
                
                (4
                )
                
                45,000
                
                
                (220,950
                )
                
                4
                
                
                
                
                
                -
                
                
                
                
                
                (220,950
                )Noncash
                    stock-based compensation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                14,344
                
                
                
                
                
                
                
                
                
                
                
                14,344Unrealized
                    gain on available-for-sale investments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                7,664
                
                
                
                
                
                
                
                
                7,664Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (6,919,719
                )
                
                (6,919,719
                )BALANCE,
                    December 31, 2005
                
                
                7,836,110
                
                
                784
                
                
                45,000
                
                
                (220,950
                )
                
                347,749,246
                
                
                (23,022
                )
                
                -
                
                
                (333,872,120
                )
                
                13,633,938Exercise
                    of stock options
                
                
                59,739
                
                
                6
                
                
                
                
                
                
                
                
                166,999
                
                
                
                
                
                
                
                
                
                
                
                167,005Purchases
                    under Employee Stock Purchase Plan
                
                
                20,673
                
                
                2
                
                
                
                
                
                
                
                
                92,999
                
                
                
                
                
                
                
                
                
                
                
                93,001Treasury
                    stock issued for matching retirement plan contributions
                
                
                12,631
                
                
                1
                
                
                (12,631
                )
                
                62,018
                
                
                884
                
                
                
                
                
                -
                
                
                
                
                
                62,903Noncash
                    stock-based compensation
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,164,161
                
                
                
                
                
                
                
                
                
                
                
                1,164,161Unrealized
                    gain on available-for-sale investments
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                17,418
                
                
                
                
                
                
                
                
                17,418Net
                    loss
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (5,543,844
                )
                
                (5,543,844
                )BALANCE,
                    December 31, 2006
                
                
                7,929,153
                
                $
                793
                
                
                32,369
                
                $
                (158,932
                )
                $
                349,174,289
                
                $
                (5,604
                )
                $
                -
                
                $
                (339,415,964
                )
                $
                9,594,582


31


**ONVIA,
      INC.**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED DECEMBER 31, 2006, 2005 AND 2004**




**Note 1:**  **Summary
      of Significant Accounting Policies**




***Description
      of Business***


Onvia
      (together with its subsidiary, “Onvia” or the “Company”) is a primary research
      company and a provider of business intelligence to business professionals about
      actionable public sector revenue opportunities. Compiled over the last ten
      years, Onvia Dominion®, Onvia’s proprietary database of comprehensive,
      historical and real-time information unavailable elsewhere in the market
      provides businesses with insight and intelligence on relevant public sector
      revenue opportunities, which is classified and linked within four key hubs
      of
      data: project history, agency research, buyer research and competitive
      intelligence. Information in Onvia’s database has been collected, formatted and
      classified by its in-house team of researchers and third party providers so
      that
      clients are able to quickly find and analyze information relevant to their
      businesses.





***Basis
      of consolidation***


Onvia
      has
      a wholly-owned subsidiary in Canada; however, there was no business activity
      in
      this subsidiary in any of the fiscal years ending December 31, 2006, 2005 or
      2004.





***Reclassifications***


Approximately
      $151,000 previously reported as sales and marketing expenses for the year
      ended December 31, 2005 has been reclassified to technology and development
      expenses to conform to the Company’s current presentation.




***Use
      of estimates***


The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions 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. Actual results could differ from those estimates.




***Revenue
      recognition***


Onvia's
      revenues are primarily generated from client subscriptions and content licenses.
      Subscription
      revenues are generally prepaid at the beginning of the subscription term and
      are
      offered with annual, quarterly and monthly payment options. The Company also
      offers, on a limited basis, extended multi-year contracts to its subscription
      clients. Content licenses are generally multi-year agreements and are typically
      invoiced on a monthly or quarterly basis. Subscription fees and content licenses
      are recognized ratably over the term of the agreement. Unearned revenue consists
      of payments received for prepaid subscriptions from its non-enterprise clients
      whose terms extend into periods beyond the balance sheet date, as well as the
      invoiced portion of enterprise contracts and content licenses whose terms extend
      into periods beyond the balance sheet date. Onvia also generates revenue from
      fees charged for document download services, informational reports and list
      rental services and revenue from these services are recognized upon
      delivery.




***Fair
      value of financial instruments***


Onvia’s
      financial instruments consist of cash and cash equivalents, short and long-term
      investments, accounts receivable, security deposits, accounts payable, and
      accrued liabilities. The carrying amounts of the financial instruments
      approximate fair value due to their short maturities. The fair value of Onvia's
      short and long-term investments, which is the amount recorded in the financial
      statements, is based on market quotes. All investments are classified as
      available-for-sale, and unrealized gains or losses on these investments are
      recorded in stockholders’ equity and reported in comprehensive income.




***Cash
      and cash equivalents***


Onvia
      considers all highly liquid instruments with remaining maturities of
      90 days or less to be cash equivalents.




***Short-term
      and long-term investments***


Onvia’s
      investment portfolio is classified as available-for-sale and is segregated
      between short-term investments and long-term investments based on the remaining
      term of the instrument. Except for auction rate securities, the Company
      classifies investments with remaining maturities of more than three months
      and
      less than one year as short-term investments, and investments with remaining
      maturities of more than one year as long term investments (except auction rate
      securities). Although auction rate securities have long-term stated maturities,
      these securities are typically classified as short-term investments, because
      management’s intention is to liquidate these instruments, if needed, on their
      stated auction dates, which are
      typically less than one year. Long term investments are limited to original
      maturities of no more than thirteen months. Onvia’s primary investment
      objectives are preservation of principal, a high degree of liquidity and a
      maximum total return consistent with the investment objectives. Onvia's
      investment portfolio consists of any or all of the following (U.S. denominated
      only): money market funds, commercial paper, municipal securities, auction
      rate
      securities and corporate debt securities with remaining maturities of thirteen
      months or less (except auction rate securities). Pursuant to Onvia's investment
      policy, investments in U.S. government and agency securities (and money market
      funds investing in them) are exempt from size limitations; all other securities
      are limited to 10% of the portfolio at the time of purchase, per issuer. In
      addition, the cumulative investments in an individual corporation, financial
      institution or financial institution’s security are limited to $10 million.
      Interest earned on these securities is included in Interest and other income.
      Realized gains and losses on investments during the years ended December 31,
      2006, 2005 and 2004 were immaterial. Available-for-sale securities are carried
      at fair value based on quoted market prices, and any unrealized gain or loss
      on
      the securities is included in stockholders’ equity and reported in other
      comprehensive income. The cost of securities sold is calculated using the
      specific identification method.




32


***Management
      of credit risk***


Onvia
      is
      subject to concentration of credit risk, primarily from its investments. Onvia
      manages its credit risk for investments by purchasing investment-grade
      securities and diversifying its investment portfolio among issuers and
      maturities.




***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 years. Leasehold
      improvements are depreciated over the shorter of their useful lives or the
      term
      of the underlying lease.





The
      Company periodically evaluates its long-lived assets for impairment in
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .
      SFAS
      No. 144 requires that an impairment loss be recognized for assets to be disposed
      of or held-for-use when the carrying amount of an asset is deemed to not be
      recoverable. If events or circumstances were to indicate that any of the
      Company’s long-lived assets might be impaired, the Company would analyze the
      estimated undiscounted future cash flows to be generated from the applicable
      asset. In addition, the Company would record an impairment loss to the extent
      that the carrying value of the asset exceeded 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. As of December
      31, 2006, the Company had no impairments.




***Internally
      Developed Software***


Statement
      of Position (“SOP”) No. 98-1, *Accounting
      for the Costs of Computer Software Developed or Obtained for Internal
      Use* ,
      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.
      Onvia capitalized $422,390, $571,239 and $100,045 in internally developed
      software costs during the years ended December 31, 2006, 2005 and 2004,
      respectively. Capitalized software costs are amortized on a straight-line basis
      over their expected economic lives, typically 3 to 5 years. Amortization related
      to capitalized software was $209,552, $144,791 and $80,597 for the years ended
      December 31, 2006, 2005 and 2004, respectively.





***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 bases and operating loss carryforwards. Deferred tax assets
      and
      liabilities are measured using enacted tax rates expected to apply to taxable
      income in the years in which those temporary differences are expected to be
      recovered or settled. A valuation allowance has been established for the full
      amount of the net deferred tax assets as the Company has determined that the
      recognition criteria for realization have not been met.




***Treasury
      stock***


Onvia
      accounts for treasury stock using the cost method. As
      of
      December 31, 2006, the Company held 32,369 shares of treasury stock with a
      cost
      basis of $158,932. The Company acquired 45,000 shares of treasury stock with
      a
      cost basis of $220,950 as settlement of a note receivable from its former Chief
      Strategy Officer in April 2005. In February 2006, Onvia issued 12,631 treasury
      shares to partially fund matching contributions to its 401K retirement plan
      for
      2005 employee contributions. In February 2007, the Company issued 15,451
      treasury shares to fully fund matching contributions to its 401K retirement
      plan
      for 2006 employee contributions.




***Other
      Comprehensive loss***


Comprehensive
      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 loss for Onvia consists of unrealized gains
      and
      losses on its available-for-sale investments.




***Net
      loss per share***


Basic
      net
      loss per share is computed by dividing net loss by the weighted average number
      of common shares outstanding during the period, including contingently issuable
      shares for which all necessary conditions have been satisfied. Diluted net
      loss
      per share is computed by dividing net loss by the weighted average number of
      common shares and dilutive potential common shares outstanding during the
      period. For the years ended December 31, 2006, 2005 and 2004, 2,133,035,
      2,161,341 and 1,900,320 shares, respectively, which relate to options and
      warrants, have been excluded from the computation of diluted net loss per share
      as their effects would be antidilutive.




***New
      accounting pronouncements***


In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“FAS
      159”). FAS 159 permits entities to choose to measure selected financial
      instruments and certain other items at fair value that are not currently
      required or permitted to be measured at fair value. This Statement also
      establishes presentation and disclosure requirements designed to facilitate
      comparisons between entities that choose different measurement attributes for
      similar types of assets and liabilities. This Statement is effective no later
      than fiscal years beginning on or after November 15, 2007. The Company is
      currently evaluating the impact adoption of FAS 159 will have on its financial
      position and results of operations.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“FAS
      157”). This Statement defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles, and expands disclosures
      about fair value measurements. This Statement does not require any new fair
      value measurements. This Statement is effective for fiscal years beginning
      after
      November 15, 2007. Onvia does not believe that adoption of this Statement will
      have a significant impact on its financial position, results of operations
      or
      cash flows.





33


In
      September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements* ("SAB
      108"). SAB 108 was issued in order to eliminate the diversity of practice in
      how
      public companies quantify financial statement misstatements, including
      misstatements that were not material to prior years' financial statements.
      Application of this guidance did not have a material impact on the Company's
      results of operations, financial position, or cash flows.





In
      July
      2006 the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes—an Interpretation of FASB Statement
      109* (“FIN
      48”). The rule clarifies what criteria must be met prior to recognition of the
      financial statement benefit of a position taken in a tax return. The effective
      date for FIN 48 is for fiscal years beginning after December 15, 2006. Onvia
      is
      currently analyzing the impact, if any, the rule will have on its results of
      operations, financial position, and cash flows.




In
      May
      2006 the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections - a replacement of APB Opinion No. 20 and FASB
      Statement No. 3* (“FAS
      154”). This Statement changes the requirements for the accounting for and
      reporting of a change in accounting principle. The Statement applies to all
      voluntary changes in accounting principle, as well as changes required by an
      accounting pronouncement in the event the new pronouncement does not include
      specific transition provisions. APB Opinion No. 20 previously required that
      most
      voluntary changes in accounting principle be recognized by including in net
      income of the period of the change the cumulative effect of changing to the
      new
      accounting principle. This Statement requires retrospective application to
      prior
      periods’ financial statements of changes in accounting principle, unless it is
      impracticable to determine the period-specific effects or the cumulative effect
      of the change. This Statement is effective for fiscal years beginning after
      December 15, 2005. Adoption of this statement did not have an impact on Onvia’s
      results of operations, financial position or cash flows.




**Note 2:**  **Stock-Based
      Compensation and Stock Option Activity**





On
      January 1, 2006, Onvia adopted the provisions of SFAS No. 123R, *Share
      Based Payment* ,
      (“FAS
      123R”) which requires measurement of compensation cost for all stock-based
      awards at fair value on the date of grant and recognition of compensation over
      the service period for awards expected to vest. The fair value of stock options
      is determined using the Black-Scholes valuation model, which is consistent
      with
      valuation techniques previously utilized for options in footnote disclosures
      required under SFAS No. 123, *Accounting
      for Stock-Based Compensation* (“FAS
      123”), as amended by SFAS No. 148, *Accounting
      for Stock-Based Compensation — Transition and Disclosure—an amendment of FASB
      Statement No. 123* (“FAS
      148”). Such value is recognized as expense over the service period, net of
      estimated forfeitures, using the accelerated method under Financial Accounting
      Standards Board (“FASB”) Interpretation No. 28, *Accounting
      for Stock Appreciation Rights and Other Variable Stock Option or Award
      Plans* (“FIN
      28”). 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.





Onvia
      adopted FAS 123R using the modified prospective method. Under this transition
      method, the Company's reported stock-based compensation expense includes: a)
      expense related to the remaining unvested portion of awards granted prior to
      January 1, 2006, which is based on the grant date fair value estimated in
      accordance with the original provisions of FAS 123 using the Black-Scholes
      valuation model; and b) expense related to awards granted subsequent to January
      1, 2006, which is based
      on
      the grant date fair value estimated in accordance with the provisions of FAS
      123R using the Black-Scholes valuation model. Onvia’s consolidated financial
      statements for the year ended December 31, 2006 reflect the impact of adopting
      FAS 123R. In accordance with the modified prospective method, the consolidated
      financial statements for prior periods have not been restated to reflect, and
      do
      not include, the impact of FAS 123R.





**Stock-Based
      Benefit Plans**





***1999
      Stock Option Plan***


In
      February 1999, Onvia adopted a stock option plan (the “1999 Plan”) which
      provides for the issuance of incentive and nonqualified common stock options
      to
      employees, directors and consultants of Onvia. The options expire 10 years
      after
      the date of grant. The options 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. The total number of shares authorized for future issuance under
      the
      1999 Plan as of December 31, 2006 was 267,720 shares.





***2000
      Directors’ Stock Option Plan***


In
      March
      2000, Onvia adopted a Directors’ Stock Option Plan (the “Directors’ Plan”).
      Grants are made under this plan to each eligible board member on the date such
      person is first elected or appointed as a board member. At each annual
      stockholders’ meeting, each non-employee director will be granted an additional
      option to purchase 1,000 shares of common stock under the Directors’ Plan,
      provided such person has been a board member of Onvia for at least the prior
      six
      months. The initial option grant under the Directors’ Plan vests 25% each year
      for four years on the anniversary of the date of grant, has 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.
      The total number of shares authorized for future issuance under the Directors’
Plan as of December 31, 2006 was 12,000 shares.





***Employee
      Stock Purchase Plan***


In
      May
      2000, Onvia adopted the 2000 Employee Stock Purchase Plan (“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 FAS 123R 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, 2006 was 344,677
      shares.




34


**Impact
      of the Adoption of FAS 123R**





The
      impact on Onvia’s results of operations of recording stock-based compensation
      for the year ended December 31, 2006 was as follows:


**Year
                    Ended****December
                    31,****2006**Cost
                    of sales
                
                $
                25,063Sales
                    and marketing
                
                
                477,533Technology
                    and development
                
                
                103,927General
                    and administrative
                
                
                651,338Total
                    stock-based compensation
                
                $
                1,257,861





Onvia
      recorded $84,239 and $9,593 of noncash stock-based compensation expense for
      the
      years ended December 31, 2005 and 2004, respectively. Since Onvia is in a
      net loss position as of December 31, 2006 and has a full valuation allowance
      for
      its deferred tax assets, there was no impact to its cash flows related to excess
      tax benefits associated with the adoption of FAS 123R.





**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:


**2006**
              
              **2005**
              
              **2004**Average
                  risk free rate
              4.52%
              
              4.06%
              
              3.67%Volatility
              59%
              
              51%
              
              54%Dividends
              0%
              
              0%
              
              0%Expected
                  life (in years)
              5.0
              
              6.8
              
              6.8




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:




**2006**
              
              **2005**
              
              **2004**Average
                  risk free rate
              5.08%
              
              3.81%
              
              2.53%Volatility
              39%
              
              35%
              
              48%Dividends
              0%
              
              0%
              
              0%Expected
                  life (in years)
              0.5
              
              0.5
              
              0.9





***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***


FAS
      123R
      requires companies to estimate expected volatility over the expected term of
      the
      options granted. In 2001, Onvia changed from a business-to-business exchange
      to
      a business-to-government model, which represented a substantial change in our
      business and significantly lowered our revenues, expenses and capital
      requirements. This change prompted a cash dividend and a one-for-ten reverse
      stock split in May and July 2002, respectively, to modify our capital structure
      based on our revised business model. Management has primarily 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 2006; however, because of the change in business model that occurred
      in
      2001, management also considered the volatility of the common stock of other
      companies with business models similar to Onvia’s for periods prior to Onvia’s
      change in business model to estimate future volatility of Onvia’s stock to the
      extent necessary given the expected life of the options. Prior to adoption
      of
      FAS 123R, Onvia’s expected volatility was calculated in a similar
      manner.





***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 groups of
      employees that have similar historical experience.




35


**Stock
      Option Activity**





The
      following table summarizes activity under Onvia’s equity incentive plans for the
      year ended December 31, 2006:




**Options
                  Outstanding**
              
              **Weighted
                  Average Exercise Price**
              
              **Weighted
                  Average Remaining Contractual Term (in years)**
              
              **Aggregate
                  Intrinsic Value**(1)Total
                  options outstanding at December 31, 2005
              
              
              2,111,400
              
              $
              7.94Options
                  granted
              
              
              148,500
              
              
              6.39Options
                  exercised
              
              
              (59,778
              )
              
              2.79Options
                  forfeited and cancelled
              
              
              (117,028
              )
              
              8.06Total
                  options outstanding at December 31, 2006
              
              
              2,083,094
              
              $
              7.97
              
              
              6.84
              
              $
              2,229,056Options
                  exercisable at December 31, 2006
              
              
              1,144,336
              
              $
              8.03
              
              
              5.95
              
              $
              2,040,265Options
                  vested and expected to vest at December 31, 2006
              
              
              1,961,279
              
              $
              7.97
              
              
              6.76
              
              $
              2,207,774


(1) Aggregate
      intrinsic value is calculated as the difference between the exercise price
      of
      the underlying awards and the quoted price of Onvia’s common stock of $5.90 at
      December 31, 2006 for options that were in-the-money at December 31, 2006.
      The
      number of in-the-money options outstanding and exercisable at December 31,
      2006
      was 690,765.





The
      weighted average grant date fair value of options granted during the years
      ended
      December 31, 2006, 2005 and 2004 was $2.40, $2.51 and $2.95 per share,
      respectively.





As
      of
      December 31, 2006, there was approximately $1.2 million 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 1.55 years.





During
      the year ended December 31, 2006, $260,000 was received for exercises of stock
      options and purchases under Onvia's ESPP.





**Pro-Forma
      Information for Periods Prior to Adoption of FAS 123R**





Prior
      to
      the adoption of FAS 123R, Onvia elected to account for its employee and director
      stock-based awards and purchases under the ESPP under the provisions of
      Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      provided the pro-forma disclosures required under FAS 123, as amended by FAS
      148. Accordingly, employee stock-based compensation expense was not reflected
      in
      Onvia’s results of operations because all of its employee and director grants
      were granted with exercise prices equal to or greater than the fair market
      value
      of Onvia’s common stock on the date of grant. The ESPP was deemed
      non-compensatory under the provisions of APB No. 25. Forfeitures of awards
      were
      recognized as they occurred.





Pro-forma
      information for the years ended December 31, 2005 and 2004 is as
      follows:




**2005**
              
              **2004**Net
                  loss:As
                  reported
              
              $
              (6,919,719
              )
              $
              (3,900,062
              )Add:
                  Stock-based compensation included in reported net income
              
              
              84,239
              
              
              9,593Deduct:
                  Stock-based compensation determined under fair-value based
                  method
              
              
              (1,661,484
              )
              
              (757,577
              )Pro
                  forma net loss
              
              $
              (8,496,964
              )
              $
              (4,648,046
              )Net
                  loss per share:As
                  reported - basic and diluted
              
              $
              (0.89
              )
              $
              (0.51
              )Pro
                  forma - basic and diluted
              
              $
              (1.09
              )
              $
              (0.60
              )





36


**Note 3:**  **Short-term
      and Long-term Investments**




The
      following table summarizes, by major security type, short-term and long-term
      investments classified as available-for-sale at December 31, 2006 and 2005,
      stated at fair value:




**December
                  31, 2006**
              
              **December
                  31, 2005****Amortized
                  Cost**
              
              
              **Gross
                  Unrealized Gains**
              
              
              **Gross
                  Unrealized Losses**
              
              
              **Fair
                  Value**
              
              
              **Amortized
                  Cost**
              
              
              **Gross
                  Unrealized Gains**
              
              
              **Gross
                  Unrealized Losses**
              
              
              **Fair
                  Value**Corporate
                  bonds
              
              $
              3,617,677
              
              $
              862
              
              $
              (5,086
              )
              $
              3,613,453
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Municipal
                  bonds
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,302,953
              
              
              -
              
              
              (7,691
              )
              
              2,295,262US
                  government obligations
              
              
              3,871,465
              
              
              169
              
              
              (1,760
              )
              
              3,869,874
              
              
              6,170,748
              
              
              -
              
              
              (12,436
              )
              
              6,158,312$
              7,489,142
              
              $
              1,031
              
              $
              (6,846
              )
              $
              7,483,327
              
              $
              8,473,701
              
              $
              -
              
              $
              (20,127
              )
              $
              8,453,574


Maturity
      information is as follows for short-term and long-term investments classified
      as
      available-for-sale at December 31, 2006:


**Amortized
                    Cost**
                
                **Gross
                    Unrealized Gains**
                
                **Gross
                    Unrealized Losses**
                
                **Fair
                    Value**Within
                    one year
                
                $
                6,009,142
                
                $
                1,031
                
                $
                (5,218
                )
                $
                6,004,9551
                    year through 2 years
                
                
                1,480,000
                
                
                -
                
                
                (1,628
                )
                
                1,478,372$
                7,489,142
                
                $
                1,031
                
                $
                (6,846
                )
                $
                7,483,327




**Note 4:**  **Security
      Deposits**





Security
      deposits are required pursuant to the lease obligation for Onvia's current
      corporate headquarters. The
      Company is required to maintain a deposit in the amount of $3.5 million through
      the remaining term of its lease on its current corporate headquarters building,
      which runs through April 2010. Security deposits on the Company’s former
      corporate headquarters totaling $230,548 were returned during the fourth quarter
      of 2006 due to the expiration of that lease in August 2006.




**Note 5:**  **Other
      Assets**





Other
      assets consist of the following at December 31:


**December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Internally
                  developed software
              
              $
              1,640,094
              
              $
              1,217,704Intangible
                  assets
              
              
              100,000
              
              
              100,000Long-term
                  portion of prepaid sofware licenses
              
              
              9,276
              
              
              77,890Accumulated
                  amortization of internally developed software
              
              
              (812,721
              )
              
              (603,169
              )Accumulated
                  amortization of intangible assets
              
              
              (99,877
              )
              
              (85,208
              )$
              836,772
              
              $
              707,217





Onvia
      capitalized $100,000 related to the purchase of clients from a third party
      in
      the year ended December 31, 2003. The net amount is included in other assets
      at
      December 31, 2006 and 2005. The intangible asset is being amortized over the
      expected economic life of three years. Amortization related to the intangible
      asset was $14,669, $28,425 and $42,454 for the years ended December 31, 2006,
      2005 and 2004, respectively. This asset was fully amortized in January 2007.




37


**Note 6:**  **Property
      and Equipment**




Property
      and equipment consists of the following at December 31:


**2006**
                
                **2005**Computer
                    equipment
                
                $
                2,477,324
                
                $
                1,766,592Software
                
                
                975,137
                
                
                794,191Furniture
                    and fixtures
                
                
                530,825
                
                
                522,738Leasehold
                    improvements
                
                
                2,802,685
                
                
                2,651,6406,785,971
                
                
                5,735,161Less
                    accumulated depreciation and amortization
                
                
                (4,640,545
                )
                
                (3,805,351
                )Net
                    book value
                
                $
                2,145,426
                
                $
                1,929,810




**Note 7:**  **Accrued
      Expenses**




Accrued
      expenses consist of the following at December 31:


**December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**Payroll
                  and related liabilities
              
              $
              920,639
              
              $
              931,175Income
                  and other taxes payable
              
              
              43,169
              
              
              61,805Accrued
                  professional fees
              
              
              143,553
              
              
              160,000$
              1,107,361
              
              $
              1,152,980





**Note 8:**  **Interest
      and Other Income, net**




Net
      interest and other income consists of the following at December 31:


**December
                    31,**
                
                **December
                    31,**
                
                **December
                    31,****2006**
                
                **2005**
                
                **2004**Interest
                    income
                
                $
                968,551
                
                $
                801,655
                
                $
                494,411Loss
                    on promissory note
                
                
                -
                
                
                (50,330
                )
                
                -Letter
                    of credit fees
                
                
                (17,993
                )
                
                (19,393
                )
                
                (18,620
                )Other
                
                
                1,917
                
                
                9,989
                
                
                16,977$
                952,475
                
                $
                741,921
                
                $
                492,768





**Note 9:**  **Income
      Taxes**




At
      December 31, 2006, 2005 and 2004, Onvia had tax net operating loss carryforwards
      of $252,841,667, $246,946,368 and $236,298,630, respectively, which may be
      used
      to offset future taxable income. These carryforwards expire at various dates
      beginning in 2007 through 2026. The utilization of the net operating loss is
      subject to annual limitations due to ownership changes of stock in prior years.
      The provision for income taxes is different from that which would be obtained
      by
      applying the statutory federal income tax rate as follows:




**Year
                    ended**
                
                **Year
                    ended**
                
                **Year
                    ended****December
                    31,**
                
                **December
                    31,**
                
                **December
                    31,****2006**
                
                **2005**
                
                **2004**Tax
                    benefit at statutory rate
                
                
                (34.0
                )%
                
                (34.0
                )%
                
                (34.0
                )%Stock-based
                    compensation
                
                
                2.7
                
                
                0.0
                
                
                (2.8
                )Nondeductible
                    goodwill
                
                
                (0.2
                )
                
                (0.1
                )
                
                (0.1
                )Other
                
                
                0.4
                
                
                (1.1
                )
                
                0.6Change
                    in valuation allowance
                
                
                31.1
                
                
                35.2
                
                
                36.30.0
                %
                
                0.0
                %
                
                0.0
                %





38


Onvia’s
      net deferred tax assets, calculated by applying the United States federal
      statutory income tax rate of 34% to total deferrals, consist of the following
      at
      December 31:


**2006**
                
                **2005**
                
                **2004**Net
                    operating loss carryforwards
                
                $
                85,966,168
                
                $
                83,961,767
                
                $
                80,341,535Prepaid
                    expenses and other assets currently deductible
                
                
                (152,392
                )
                
                (216,250
                )
                
                (264,131
                )Accrued
                    expenses not currently deductible
                
                
                1,766,149
                
                
                2,485,998
                
                
                2,788,296Property,
                    plant and equipment due to different depreciation for tax
                    purposes
                
                
                1,414,185
                
                
                1,466,970
                
                
                1,704,595Net
                    deferred tax assets
                
                
                88,994,110
                
                
                87,698,485
                
                
                84,570,295Less:
                    Valuation allowance
                
                
                (88,994,110
                )
                
                (87,698,485
                )
                
                (84,570,295
                )Net
                    deferred tax asset
                
                $
                -
                
                $
                -
                
                $
                -




Onvia
      has
      recorded a full valuation allowance equal to the net deferred tax asset balance
      based upon management’s determination that the realization is not more likely
      than not.




**Note 10:**  **Idle
      lease accrual**




In
      September 2006, Onvia entered into an amended lease on its current corporate
      headquarters building, reducing its lease obligation by 49,215 square feet.
      The
      amendment coincided with a direct lease between Onvia’s landlord and the Bill
      and Melinda Gates Foundation (“Gates”) to lease all of Onvia’s previously idle
      office space in this building. Onvia will retain 29,785 square feet in the
      same
      building through April 2010. Onvia’s total remaining future lease obligation
      decreased by approximately $3.2 million as a result of the lease
      amendment.





The
      Company recorded a net decrease to operating expenses of $67,000 in the year
      ended December 31, 2006 to adjust its estimated idle lease accrual to the actual
      remaining obligation pursuant to the terms of the amended lease. Onvia’s
      remaining idle lease accrual of $3.8 million at December 31, 2006 represents
      the
      difference between its original contractual obligation on the 49,215 square
      feet
      and the lease rates in the direct lease between Gates and Onvia’s landlord for
      the remainder of the lease term. The balance of the accrual will be paid out
      through the remainder of the lease term, which runs through April
      2010.





In
      August
      2006 Onvia’s lease on 19,000 square feet of office space in a former corporate
      facility in Seattle, Washington expired. This space had been subleased to
      another party and the sublease also expired in August 2006. Onvia has no further
      obligation on this space. Security deposits of approximately $231,000 were
      returned to Onvia in October 2006 as a result of the lease expiration.





The
      following table displays a rollforward of the idle lease accrual for the years
      ending December 31, 2006, 2005 and 2004:


**Amounts****Accruals
                      at**
                  
                  
                  
                  **Paid,
                      Net**
                  
                  **Accruals
                      at****December
                      31,**
                  
                  **2004**
                  
                  **of
                      Sublease**
                  
                  **December
                      31,****2003**
                  
                  **Charges**
                  
                  **Income**
                  
                  **2004**Real
                      estate and other exit costs
                  
                  $
                  9,061,311
                  
                  $
                  915,637
                  
                  $
                  (2,525,586
                  )
                  $
                  7,451,362
 **Amounts****Accruals
                        at**
                    
                    
                    
                    **Paid,
                        Net**
                    
                    **Accruals
                        at****December
                        31,**
                    
                    **2005**
                    
                    **of
                        Sublease**
                    
                    **December
                        31,****2004**
                    
                    **Charges**
                    
                    **Income**
                    
                    **2005**Real
                        estate and other exit costs
                    
                    $
                    7,451,362
                    
                    $
                    1,228,160
                    
                    $
                    (2,141,787
                    )
                    $
                    6,537,735
 **Amounts****Accruals
                        at**
                    
                    
                    
                    **Paid,
                        Net**
                    
                    **Accruals
                        at****December
                        31,**
                    
                    **2006**
                    
                    **of
                        Sublease**
                    
                    **December
                        31,****2005**
                    
                    **Reduction**
                    
                    **Income**
                    
                    **2006**Real
                        estate and other exit costs
                    
                    $
                    6,537,735
                    
                    $
                    (66,691
                    )
                    $
                    (2,691,829
                    )
                    $
                    3,779,215
  39


**Note 11:**  **Management
        Agreements and Related Party Transactions**




In
      February 2000 Onvia received a non-recourse promissory note from Kristin
      McLaughlin, its then current Chief Strategy Officer, in the amount of $100,000,
      collateralized by 10,000 shares of Onvia’s common stock. In April 2000 the
      Company received another promissory note from Ms. McLaughlin in the amount
      of
      $350,000, collateralized by 35,000 shares of Onvia’s common stock. Both
      promissory notes carried interest at 6% per annum. Principal and interest were
      due in April 2005.




In
      April
      2005, Onvia accepted the 45,000 collateralized shares as settlement for the
      notes receivable from Ms. McLaughlin. The settlement agreement stipulated that
      Onvia could accept the collateralized shares in full satisfaction of the
      non-recourse note: (1) at any time between February 22, 2005, the date of the
      agreement, and April 10, 2005, the due date of the note (“the term”), if the
      closing price of Onvia’s stock closed at a price at which the fair market value
      of the collateralized shares was equivalent to, or greater than, the balance
      of
      the note; or (2) on April 11, 2005 at the closing price on that date if Onvia’s
      stock failed to close at a price equal to or greater than the balance of the
      note during the term. Onvia’s stock did not close at a price at which the fair
      market value of the collateralized shares was equal to or greater than the
      balance of the note during the term; therefore, the Company accepted the
      collateralized shares on April 11, 2005 in full satisfaction of the note. The
      closing price of Onvia common stock on April 11, 2005 was $4.91, and the balance
      of the note was $271,280. Onvia recorded a loss on the settlement of the note
      equivalent to the shortfall of $50,330 and the loss is included in Interest
      and
      other income on its consolidated statement of operations for the year ended
      December 31, 2005.




**Note
      12:**  **Commitments
      and Contingencies**




***Operating
      leases*** **


Onvia
      has
      a noncancellable operating lease for its current office space. The lease expires
      in April 2010. Total rent expense was $898,716, $918,220 and $771,169 for the
      years ended December 31, 2006, 2005 and 2004, respectively, excluding idle
      lease
      charges.




In
      January 2005, Onvia entered into a noncancellable operating lease for office
      equipment. The lease for office equipment expires in January 2010.




Future
      minimum lease payments required on noncancellable operating leases are as
      follows for the years ending December 31:


**Real
                    Estate**
                
                **Other**
                
                **Total****Operating
                    Leases**
                
                **Operating
                    Leases**
                
                **Operating
                    Leases**2007
                
                $
                1,592,992
                
                $
                20,367
                
                $
                1,613,3592008
                
                
                1,615,248
                
                
                20,367
                
                
                1,635,6152009
                
                
                1,654,587
                
                
                18,670
                
                
                1,673,2572010
                
                
                548,283
                
                
                -
                
                
                548,283$
                5,411,110
                
                $
                59,404
                
                $
                5,470,514




***Purchase
      obligations***


Onvia
      has
      noncancellable purchase obligations for software licenses, third party content
      agreements and telecom contracts. The agreements expire in 2007.  Future
      required payments under these non-cancellable agreements are $360,639 for the
      year ending December 31, 2007.




***Employment
      agreements***


The
      Company has employment agreements with several of its named executive officers
      (“the Officer”). Each of the agreements provide that if the Officer is
      terminated by the Company without cause, or by the Officer for good reason
      (as
      defined in the agreements), the Company shall pay to the Officer a lump sum
      payment (amount defined in each individual agreement) and shall pay benefits
      for
      an extended period of time (time defined in each individual agreement). In
      addition, the Officer shall receive accelerated vesting on a percentage of
      all
      unvested options (percent acceleration defined in each individual agreement)
      at
      the time of termination. The employment agreements also provide for accelerated
      vesting on a percentage of all unvested options (percent acceleration defined
      in
      each individual agreement) upon a change in control transaction.




***Legal
      proceedings***





**Class
      Action Securities Litigation**


During
      the year ended December 31, 2001, five securities class action suits were filed
      against Onvia, former executive officers Glenn S. Ballman and Mark T. Calvert,
      and Onvia’s lead underwriter, Credit Suisse First Boston (“CSFB”). The suits
      were filed in the United States District Court for the Southern District of
      New
      York on behalf of all persons who acquired securities of Onvia between March
      1,
      2000 and December 6, 2000. On or around April 19, 2002, these five suits were
      consolidated, a lead plaintiff was appointed, and the consolidated complaint
      was
      filed. The complaint charged defendants with violations of Sections 10(b) and
      20(a) of the Securities Exchange Act of 1934 (and Rule 10b-5 promulgated
      thereunder) and Sections 11 and 15 of the Securities Act of 1933, for issuing
      a
      Registration Statement and Prospectus that contained material misrepresentations
      and/or omissions. The complaint alleged that the Registration Statement and
      Prospectus were false and misleading because they failed to disclose (i) the
      agreements between CSFB and certain investors to provide them with significant
      amounts of restricted Onvia shares in the initial public offering (“IPO”) in
      exchange for excessive and undisclosed commissions; and (ii) the agreements
      between CSFB and certain customers under which the underwriters would allocate
      shares in the IPO to those customers in exchange for the customers’ agreement to
      purchase Onvia shares in the after-market at predetermined prices. The complaint
      sought an undisclosed amount of damages, as well as attorneys’ fees. On October
      9, 2002, an order of dismissal without prejudice was entered, dismissing former
      officers Glenn S. Ballman and Mark T. Calvert. This action is being coordinated
      with approximately 300 other nearly identical actions filed against other
      companies. On October 13, 2004, the Court certified a class in six of the
      approximately 300 other actions (the “focus cases”). In her Opinion, Judge
      Scheindlin noted that the decision is intended to provide strong guidance to
      all
      parties regarding class certification in the remaining cases. The Underwriter
      Defendants appealed the decision and the Second Circuit vacated the district
      court’s decision granting class certification in those six cases on December 5,
      2006. Plaintiffs have not yet moved to certify a class in the Onvia case.





40


In
      June
      2003, Onvia, along with most of the companies named as defendants in this
      litigation, approved a settlement agreement negotiated among plaintiffs,
      underwriters, and issuers. It is unclear what impact the Second Circuit’s
      decision vacating class certification in the six focus cases will have on the
      settlement, which has not yet been finally approved by the Court. On December
      14, 2006, Judge Scheindlin held a hearing. Plaintiffs informed the Court that
      they planned to file a petition for rehearing and rehearing en banc. The Court
      stayed all proceedings, including a decision on final approval of the settlement
      and any amendments of the complaints, pending the Second Circuit’s decision on
      Plaintiffs’ petition for rehearing. Plaintiffs filed a petition for rehearing
      and rehearing en banc on January 5, 2007.


Among
      other provisions, the settlement, if it receives final approval by the Court,
      provides for a release of Onvia and the individual defendants for the conduct
      alleged in the action to be wrongful. Onvia would agree to undertake certain
      responsibilities, including agreeing to assign away, not assert, or release
      certain potential claims Onvia may have against its underwriters. The settlement
      agreement also provides a guaranteed recovery of $1 billion to plaintiffs for
      the cases relating to all of the approximately 300 issuers. To the extent that
      the underwriter defendants settle all of the cases for at least $1 billion,
      no
      payment will be required under the issuers’ settlement agreement. To the extent
      that the underwriter defendants settle for less than $1 billion, the issuers
      are
      required to make up the difference. On April 20, 2006 JPMorgan Chase and the
      Plaintiffs reached a preliminary agreement to settle for $425 million. The
      JPMorgan Chase preliminary agreement has not yet been approved by the Court.
      In
      an amendment to the issuers’ settlement agreement, the issuers’ insurers agreed
      that the JPMorgan preliminary agreement, if approved, would offset the insurers’
obligation to cover the remainder of Plaintiffs’ guaranteed $1 billion recovery
      by 50% of the value of the JPMorgan settlement, or $212.5 million. Therefore,
      if
      the JPMorgan preliminary agreement to settle is preliminarily and then finally
      approved by the Court, then the maximum amount that the issuers’ insurers will
      be potentially liable for is $787.5 million. However, future settlements with
      other underwriters would further reduce that liability. It is unclear what
      impact the Second Circuit’s decision vacating class certification in the focus
      cases will have on the JPMorgan preliminary agreement.





It
      is
      anticipated that any potential financial obligation of Onvia to plaintiffs
      pursuant to the terms of the issuer’s settlement agreement and related
      agreements will be covered by existing insurance. The Company currently is
      not
      aware of any material limitations on the expected recovery of any potential
      financial obligation to plaintiffs from its insurance carriers. Its carriers
      are
      solvent, and the company is not aware of any uncertainties as to the legal
      sufficiency of any insurance claim with respect to any recovery by plaintiffs.
      Therefore, the Company does not expect that the settlement will involve any
      payment by Onvia. If material limitations on the expected recovery of the
      potential financial obligation to the plaintiffs from Onvia’s insurance carriers
      should arise, Onvia’s maximum financial obligation to plaintiffs pursuant to the
      settlement agreement would be less than $3.4 million. However, if the JPMorgan
      Chase preliminary agreement is preliminarily and then finally approved, Onvia’s
      maximum financial obligation to the plaintiffs pursuant to the settlement
      agreement would be approximately $2.7 million.





There
      is
      no assurance that the court will grant final approval to the issuers’
settlement. If the settlement agreement is not approved and Onvia is found
      liable, the Company is unable to estimate or predict the potential
      damages that might be awarded, whether such damages would be greater than
      Onvia’s insurance coverage, and whether such damages would have a material
      impact on its results of operations or financial condition in any future period.





**Class
      Action Faxing Litigation**


On
      February 3, 2005, a lawsuit was filed against Onvia in King County, Washington
      by Responsive Management Systems. The complaint alleged that Onvia had sent
      unsolicited facsimiles to recipients in violation of the federal Telephone
      Consumer Protection Act, Washington’s facsimile law, and the Washington Consumer
      Protection Act. The complaint sought injunctive relief as well as incidental
      statutory damages allowed under the federal and Washington facsimile laws on
      behalf of the plaintiff and each member of the proposed class who received
      a
      facsimile in 2001-2004. Onvia
      sends facsimiles to clients with whom it has an existing business relationship,
      or to vendors with whom its agency partners have an existing relationship.
      The
      parties reached a settlement on April 28, 2006, which was preliminarily approved
      by the court on July 13, 2006. Under the settlement agreement, Onvia has no
      liability, but Onvia has agreed to assign its rights and claims under its
      general commercial liability insurance to the plaintiff class. Onvia received
      final court approval on the settlement agreement on November 19, 2006. Onvia’s
      commercial insurance company St. Paul Fire and Marine Insurance Company appealed
      the final court approval of the settlement. The outcome of the appeal will
      not
      impact Onvia’s release under the settlement agreement.





On
      or
      around July 28, 2006, Onvia’s commercial insurance company St. Paul Fire and
      Marine Insurance Company filed a complaint for declaratory relief against Onvia
      and Responsive Management Systems in the United States District Court for the
      Western District of Washington. St. Paul is seeking determination that it owes
      no duty to defend Onvia in the lawsuit brought by Responsive Management Systems
      and that it has no coverage obligation under its commercial insurance policy.
      Onvia was dismissed from this declaratory action on March 7, 2007.





Onvia
      considers this matter closed.





**Potential
      Future Litigation**


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




**Note 13:**  **Employee
      Retirement Plan**




Effective
      March 1, 2000, Onvia adopted a Savings and Retirement Plan (the "Retirement
      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. Contributions by Onvia are at the discretion of the
      Board of Directors. No Onvia contributions were made to the Retirement Plan
      in
      the year ended December 31, 2004.




In
      January 2005, the Retirement Plan was amended to add a discretionary matching
      contribution, made in Onvia common stock, equivalent 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. Matching contributions will be made 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. In
      February 2006, Onvia transferred 12,631 shares from treasury stock and
      approximately $7,000 in cash into the Retirement Plan to match 2005 employee
      contributions, and in February 2007, Onvia transferred 15,451 shares from
      treasury stock into the Retirement Plan to match 2006 employee contributions.
      The Company recorded $94,051 and $69,895 in non-cash stock-based compensation
      in
      2006 and 2005, respectively, related to this match.




41


**Note 14:**  **Stockholders’
      Equity**




**Authorized
      shares**


At
      December 31, 2006, 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.




**Warrants
      to purchase Series A preferred stock**


As
      of
      December 31, 2006, 49,941 warrants to purchase shares of Series A preferred
      stock at $9.00 per share were outstanding. These
      warrants were issued during 1999 in conjunction with the Company’s subordinated
      debt financing and expire 10 years from the date of grant. These warrants would
      be eligible for the cash distribution of $3.90 per share approved by Onvia’s
      Board of Directors in March 2002 if they were exercised in the future. None
      of
      these warrants were exercised during the years ended December 31, 2006, 2005
      or
      2004. Onvia has not recorded a liability for the potential future distributions,
      because the exercise price of all eligible warrants exceeds $3.90 per share.
      The
      maximum future distribution upon exercise of these warrants is approximately
      $195,000.




**Note 15:**  **Supplemental
      Cash Flow Information**




There
      was
      no cash paid for interest or income taxes in the years ended December 31, 2006,
      2005 and 2004.




42


**Selected
      Quarterly Financial Information**




The
      following tables summarize the quarterly financial data for the two years ended
      December 31, 2006:


**Three
                  Months Ended****March
                  31,**
              
              **June
                  30,**
              
              **September
                  30,**
              
              **December
                  31,****2006**
              
              **2006**
              
              **2006**
              
              **2006****(unaudited)****(in
                  thousands, except per share amounts)****Historical
                  Consolidated Statements of Operations and Comprehensive Loss
                  Data:**Revenue
              
              $
              3,889
              
              $
              4,060
              
              $
              4,265
              
              $
              4,525Gross
                  margin
              
              
              2,958
              
              
              3,192
              
              
              3,453
              
              
              3,741Noncash
                  stock-based compensation
              
              
              336
              
              
              319
              
              
              300
              
              
              303Idle
                  lease charges(1)
              
              
              -
              
              
              -
              
              
              (230
              )
              
              163Total
                  operating expenses
              
              
              5,268
              
              
              4,975
              
              
              4,555
              
              
              5,042Loss
                  from operations
              
              
              (2,310
              )
              
              (1,783
              )
              
              (1,102
              )
              
              (1,301
              )Net
                  loss
              
              $
              (2,099
              )
              $
              (1,538
              )
              $
              (849
              )
              $
              (1,058
              )Unrealized
                  gain/(loss) on available-for-sale investments
              
              
              -
              
              
              2
              
              
              19
              
              
              (4
              )Comprehensive
                  loss
              
              
              (2,099
              )
              
              (1,536
              )
              
              (830
              )
              
              (1,061
              )Basic
                  and diluted net loss per common share
              
              $
              (0.27
              )
              $
              (0.20
              )
              $
              (0.11
              )
              $
              (0.13
              )Basic
                  and diluted weighted average shares outstanding
              
              
              7,852
              
              
              7,884
              
              
              7,898
              
              
              7,918




**Three
                  Months Ended****March
                  31,**
              
              **June
                  30,**
              
              **September
                  30,**
              
              **December
                  31,****2005**
              
              **2005**
              
              **2005**
              
              **2005****(unaudited)****(in
                  thousands, except per share amounts)****Historical
                  Consolidated Statements of Operations and Comprehensive Loss
                  Data:**Revenue
              
              $
              3,650
              
              $
              3,706
              
              $
              3,684
              
              $
              3,674Gross
                  margin
              
              
              2,982
              
              
              2,922
              
              
              2,775
              
              
              2,754Noncash
                  stock-based compensation
              
              
              19
              
              
              23
              
              
              23
              
              
              19Idle
                  lease charges(1)
              
              
              -
              
              
              519
              
              
              -
              
              
              709Total
                  operating expenses
              
              
              4,127
              
              
              4,538
              
              
              4,502
              
              
              5,927Loss
                  from operations
              
              
              (1,145
              )
              
              (1,616
              )
              
              (1,727
              )
              
              (3,174
              )Net
                  loss
              
              $
              (1,045
              )
              $
              (1,427
              )
              $
              (1,513
              )
              $
              (2,935
              )Unrealized
                  (loss)/gain on available-for-sale investments
              
              
              (18
              )
              
              25
              
              
              3
              
              
              (2
              )Comprehensive
                  loss
              
              
              (1,063
              )
              
              (1,402
              )
              
              (1,510
              )
              
              (2,937
              )Basic
                  and diluted net loss per common share
              
              $
              (0.13
              )
              $
              (0.18
              )
              $
              (0.19
              )
              $
              (0.39
              )Basic
                  and diluted weighted average shares outstanding
              
              
              7,827
              
              
              7,837
              
              
              7,847
              
              
              7,830




(1)
            Refer
                to the discussion in Note 10 for additional information on idle lease
                charges.




43


**ITEM 9.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**




None.




**ITEM 9A.**  **CONTROLS
      AND PROCEDURES**




(a)
Under
      the
      supervision and with the participation of Onvia’s management, including its
      principal executive officer and principal accounting officer, the Company
      evaluated the effectiveness of its disclosure controls and procedures, as such
      term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the
      Securities Exchange Act of 1934, as amended, as of the end of the period covered
      by this report. Based on this evaluation, the Company’s management, including
      its principal executive officer and principal accounting officer, concluded
      that
      its disclosure controls and procedures are effective in the timely recording,
      processing, summarizing and reporting of material financial and non-financial
      information.




(b)
There
      were no changes in the Company’s internal control over financial reporting (as
      defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during its most
      recently completed fiscal quarter that have materially affected, or are
      reasonably likely to materially affect, its internal control over financial
      reporting.




**ITEM 9B.**  **OTHER
      INFORMATION**




None.




44


**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.




**ITEM 10.**  **DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**




The
      information required by this item regarding the Company’s directors is
      incorporated herein by reference to the sections entitled “Proposal No. 1 -
      Election of Directors” and “Section 16(a) Beneficial Ownership Reporting
      Compliance” in the Proxy Statement for the Annual Meeting of Stockholders to be
      held on May 4, 2007. Information regarding the Company’s executive officers is
      set forth in Item 4 of Part 1 of this Annual Report under the caption “Executive
      Officers of the Registrant.”




The
      Company adopted a code of ethics applicable to its chief executive officer,
      chief accounting officer, controller and other finance leaders, which is a
“code
      of ethics” as defined by applicable rules of the Securities and Exchange
      Commission. This code is publicly available on the Company’s website at
      www.onvia.com. If the Company makes any amendments to this code other than
      technical, administrative or other non-substantive amendments, or grants any
      waivers, including implicit waivers, from a provision of this code to the
      Company’s chief executive officer, chief accounting officer or controller, the
      Company will disclose the nature of the amendment or waiver, its effective
      date
      and to whom it applies on its website or in a report on Form 8-K filed with
      the
      Securities and Exchange Commission.




**ITEM 11.**  **EXECUTIVE
      COMPENSATION**




The
      information required by this item is incorporated by reference to the sections
      entitled “Compensation of Executive Officers,” “Compensation Committee
      Interlocks and Insider Participation” and “Compensation Committee Report” in the
      Proxy Statement.




**ITEM 12.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS**




The
      information required by this item is incorporated by reference to the sections
      entitled “Equity Compensation Plan Information” and “Common Stock Ownership of
      Certain Beneficial Owners and Management” in the Proxy Statement.




**ITEM 13.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**




The
      information required by this item is incorporated by reference to the sections
      entitled “Certain Relationships and Related Transactions” and “Determination of
      Director Independence” in the Proxy Statement.




**ITEM 14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**




The
      information required by this item is incorporated by reference to the sections
      entitled “Independent Registered Public Accounting Firm and Fees” in the Proxy
      Statement.




45


**PART
      IV**




**ITEM 15.**  **EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES**




*Index
      to Consolidated Financial Statements and Financial Statement Schedule:*




**1.**  **INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Page**Report
                of Deloitte & Touche LLP, Independent Registered Public
                Accounting Firm
            27Consolidated
                Financial Statements:Balance
                Sheets
            28Statements
                of Operations and Comprehensive Loss
            29Statements
                of Cash Flows
            30Statements
                of Changes in Stockholders’ Equity
            31Notes
                to Consolidated Financial Statements
            32




**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 accountsYear
                    Ended December 31, 2004
                
                $
                45,896
                
                $
                44,108
                
                $
                (27,087
                )
                $
                62,917Year
                    Ended December 31, 2005
                
                
                62,917
                
                
                27,705
                
                
                (46,225
                )
                
                44,397Year
                    Ended December 31, 2006
                
                
                44,397
                
                
                42,505
                
                
                (38,745
                )
                
                48,157




(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.


46


**3.**  **EXHIBITS**


**Number**
            **Description**3.1
            Amended
                and Restated Certificate of Incorporation of the Registrant (incorporated
                herein by reference to Exhibit 3(i).1 to the Company’s Form 10-Q for the
                quarter ended June 30, 2004, filed with the Securities and Exchange
                Commission on August 12, 2004)3.2
            Bylaws
                of Onvia (incorporated herein by reference to Exhibit 3.2 to the
                Registrant’s Form 10-K for the year ended December 31, 2000, filed with
                the Securities and Exchange Commission on April 2,
                2001)4.1
            Form
                of Onvia’s Common Stock Certificate (incorporated herein by reference to
                the Registrant’s Registration Statement on Form S-1 dated December 21,
                1999, as amended (File No. 333-93273))4.2
            Form
                of Rights Agreement between the Company and U.S. Stock Transfer Corp.
                as a
                Rights Agent (including as Exhibit A the form of Certificate of
                Designation, Preferences and Rights of the Terms of the Series RP
                Preferred Stock, as Exhibit B the form of the Right Certificate,
                and as
                Exhibit C the Summary of Terms of Rights Agreement) (incorporated
                herein
                by reference to Exhibit 4.1 from the Registrant’s Form 8-K, filed with the
                Securities and Exchange Commission on November 25,
                2002)10.1
            Mercer
                Yale Building Amendment No. 2 to Amended and Restated Office Lease
                Agreement between Onvia and Blume Yale Limited Partnership dated
                as of
                September 7, 2006 (incorporated herein by reference to Exhibit 10.1
                to the
                Registrant’s Form 10-Q for the quarter ended September 30, 2006, filed
                with the Securities and Exchange Commission on November 13,
                2006)10.2*
            Amended
                and Restated 1999 Stock Option Plan (incorporated herein by reference
                to
                Exhibit 10.1 to the Registrant’s Form 10-K for the year ended December 31,
                2005, filed with the Securities and Exchange Commission on March
                31,
                2006)10.3
            Amended
                Onvia, Inc. Savings and Retirement Plan (incorporated herein by reference
                to Exhibit 10.1 to the Registrants Form 10-K for the year ended December
                31, 2004, filed with the Securities and Exchange Commission on March
                25,
                2005)10.4*
            Form
                of Indemnification Agreement between Onvia and each of its officers
                and
                directors (incorporated herein by reference to the Registrant’s
                Registration Statement on Form S-1 dated December 21, 1999, as amended
                (File No. 333-93273))10.5*
            2000
                Employee Stock Purchase Plan (incorporated herein by reference to
                the
                Registrant’s Registration Statement on Form S-1 dated December 21, 1999,
                as amended (File No. 333-93273))10.6*
            2000
                Directors’ Stock Option Plan (incorporated herein by reference to the
                Registrant’s Registration Statement on Form S-1 dated December 21, 1999,
                as amended (File No. 333-93273))10.7*
            Third
                amendment to Employment and Noncompetition Agreement with Michael
                D.
                Pickett dated September 27, 2002 (incorporated herein by reference
                to
                Exhibit 10.2 to the Registrant’s Report on Form 10-Q, filed with the
                Securities and Exchange Commission on November 6, 2002)10.8*
            Employment
                Agreement with Irvine N. Alpert dated February 22, 2002 and Commission
                and
                Bonus Plan with Irvine N. Alpert dated September 11, 2001
                (incorporated herein by reference to Exhibit 10.4 to the Registrant’s
                Report on Form 10-K for the year ended December 31, 2001, filed with
                the
                Securities and Exchange Commission on March 29, 2002)10.9*
            Employment
                Agreement with Matthew S. Rowley dated September 24, 2001 (incorporated
                herein by reference to Exhibit 10.5 to the Registrant’s Report on Form
                10-K for the year ended December 31, 2001, filed with the Securities
                and
                Exchange Commission on March 29, 2002)23.1
            Consent
                of Deloitte & Touche LLP31.1
            Certification
                of Michael D. Pickett, Chairman of the Board, Chief Executive Officer
                and
                President of Onvia, Inc., Pursuant to Rule 13a-14(a)/15d-14(a), as
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                200231.2
            Certification
                of Cameron S. Way, Chief 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 200232.1
            Certification
                of Michael D. Pickett, Chairman of the Board, Chief Executive Officer
                and
                President of Onvia, Inc., Pursuant to 18 U.S.C. Section 1350, as
                Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of
                200232.2
            Certification
                of Cameron S. Way, Chief Accounting Officer of Onvia, Inc., Pursuant
                to 18
                U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002*
                Executive Compensation Plan or
                Agreement









47


**SIGNATURES**




**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 30, 2007****.**




ONVIA,
                INC.By:
            /s/Michael
                D. PickettMichael
                D. PickettChairman
                of the Board, Chief Executive Officer and PresidentBy:
            /s/Cameron
                S. WayCameron
                S. WayChief
                Accounting Officer





**POWER
      OF ATTORNEY**





KNOW
      ALL
      MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer
      of Onvia, Inc., a Delaware corporation (the “Company”), hereby constitutes and
      appoints Michael D. Pickett and Cameron S. Way, and each of them, his true
      and
      lawful attorney-in-fact and agent, with full power of substitution and
      resubstitution, 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, 2006, 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 resubstitute, may lawfully do or cause to be done
      by
      virtue hereof.




**Pursuant
      to the requirements of the Securities Act of 1934, this report has been signed
      below by the following persons, on behalf of the Registrant and in the
      capacities and on the dates indicated.**




**Signature**
            **Title**
            **Date**/S/    MICHAELD.
                PICKETT
              **Michael
                D. Pickett**
            Chairman
                of the Board, Chief Executive Officer and President
            March
                30, 2007/S/    CAMERONS.
                WAY
              **Cameron
                S. Way**
            Chief
                Accounting Officer
            March
                30, 2007/S/    JEFFREYC.
                BALLOWE
              **Jeffrey
                C. Ballowe**
            Director
            March
                30, 2007/S/    JAMESL.
                BRILL
              **James
                L. Brill**
            Director
            March
                30, 2007/S/    ROBERTG.
                BROWN
              **Robert
                G. Brown**
            Director
            March
                30, 2007/S/    ROGERL.
                FELDMAN
              **Roger
                L. Feldman**
            Director
            March
                30, 2007/S/    D.
                VANSKILLING
              **D.
                Van Skilling**
            Director
            March
                30, 2007/S/    STEVEND.
                SMITH
              **Steven
                D. Smith**
            Director
            March
                30, 2007





48


**Exhibit
      23.1**




**CONSENT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




We
      consent to the incorporation by reference in Registration Statement Nos.
      333-59350, 333-31784, and 333-44822 on Form S-8 of our report dated March 27,
      2007 relating to the financial statements and financial statement schedule
      of
      Onvia, Inc. and subsidiary appearing in the Annual Report on Form 10-K of Onvia,
      Inc. for the year ended December 31, 2006, which report expresses an unqualified
      opinion and includes an explanatory paragraph related to the adoption of
      Statement of Financial Accounting Standards No. 123(R), *Share Based
      Payment*.






/s/
                DELOITTE & TOUCHE LLPSeattle,
                WashingtonMarch
                27, 2007





**Exhibit
      31.1**




**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. RULE 13a-14(a)/15d-14(a)**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      302 OF THE SARBANES-OXLEY ACT OF 2002**




I,
      Michael D. Pickett, Chairman of the Board, Chief Executive Officer and
      President, certify that:




1.  I
      have
      reviewed this annual report on Form 10-K for the period ending December 31,
      2006
      of Onvia, Inc.;




2.  Based
      on
      my knowledge, this report does not contain any untrue statement of a material
      fact or omit to state a material fact necessary to make the statements made,
      in
      light of the circumstances under which such statements were made, not misleading
      with respect to the period covered by this report;




3.  Based
      on
      my knowledge, the financial statements, and other financial information included
      in this report, fairly present in all material respects the financial condition,
      results of operations and cash flows of the registrant as of, and for, the
      periods presented in this report;




4.  The
      registrant’s other certifying officer and I are responsible for establishing and
      maintaining disclosure controls and procedures (as defined in Exchange Act
      Rules
      13a-15(e) and 15d-15(e)) for the registrant and have:




a.  designed
      such disclosure controls and procedures, or caused such disclosure controls
      and
      procedures to be designed under our supervision, to ensure that material
      information relating to the registrant, including its consolidated subsidiaries,
      is made known to us by others within those entities, particularly during the
      period in which this report is being prepared;




b.  evaluated
      the effectiveness of the registrant’s disclosure controls and procedures and
      presented in this report our conclusions about the effectiveness of the
      disclosure controls and procedures, as of the end of the period covered by
      this
      report based on such evaluation; and




c.  disclosed
      in this report any change in the registrant’s internal control over financial
      reporting that occurred during the registrant’s most recent fiscal quarter that
      has materially affected, or is reasonably likely to materially affect, the
      registrant’s internal control over financial reporting.




5.  The
      registrant’s other certifying officer and I have disclosed, based on our most
      recent evaluation of internal control over financial reporting, to the
      registrant’s auditors and the Audit Committee of the registrant’s Board of
      Directors (or persons performing the equivalent functions):




a.  all
      significant deficiencies and material weaknesses in the design or operation
      of
      internal control over financial reporting which are reasonably likely to
      adversely affect the registrant’s ability to record, process, summarize and
      report financial information; and




b.  any
      fraud, whether or not material, that involves management or other employees
      who
      have a significant role in the registrant’s internal control over financial
      reporting.




/s/
                Michael D. PickettMichael
                D. PickettChairman
                of the Board, Chief Executive Officer and PresidentMarch
                30, 2007








**Exhibit
      31.2**




**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. RULE 13a-14(a)/15d-14(a)**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      302 OF THE SARBANES-OXLEY ACT OF 2002**




I,
      Cameron S. Way, Chief Accounting Officer, certify that:




1.  I
      have
      reviewed this annual report on Form 10-K for the period ending December 31,
      2006
      of Onvia, Inc.;




2.  Based
      on
      my knowledge, this report does not contain any untrue statement of a material
      fact or omit to state a material fact necessary to make the statements made,
      in
      light of the circumstances under which such statements were made, not misleading
      with respect to the period covered by this report;




3.  Based
      on
      my knowledge, the financial statements, and other financial information included
      in this report, fairly present in all material respects the financial condition,
      results of operations and cash flows of the registrant as of, and for, the
      periods presented in this report;




4.  The
      registrant’s other certifying officer and I are responsible for establishing and
      maintaining disclosure controls and procedures (as defined in Exchange Act
      Rules
      13a-15(e) and 15d-15(e)) for the registrant and have:




a.  designed
      such disclosure controls and procedures, or caused such disclosure controls
      and
      procedures to be designed under our supervision, to ensure that material
      information relating to the registrant, including its consolidated subsidiaries,
      is made known to us by others within those entities, particularly during the
      period in which this report is being prepared;




b.  evaluated
      the effectiveness of the registrant’s disclosure controls and procedures and
      presented in this report our conclusions about the effectiveness of the
      disclosure controls and procedures, as of the end of the period covered by
      this
      report based on such evaluation; and




c.  disclosed
      in this report any change in the registrant’s internal control over financial
      reporting that occurred during the registrant’s most recent fiscal quarter that
      has materially affected, or is reasonably likely to materially affect, the
      registrant’s internal control over financial reporting.




5.  The
      registrant’s other certifying officer and I have disclosed, based on our most
      recent evaluation of internal control over financial reporting, to the
      registrant’s auditors and the Audit Committee of the registrant’s Board of
      Directors (or persons performing the equivalent functions):




a.  all
      significant deficiencies and material weaknesses in the design or operation
      of
      internal control over financial reporting which are reasonably likely to
      adversely affect the registrant’s ability to record, process, summarize and
      report financial information; and




b.  any
      fraud, whether or not material, that involves management or other employees
      who
      have a significant role in the registrant’s internal control over financial
      reporting.





/s/
                Cameron S. WayCameron
                S. WayChief
                Accounting OfficerMarch
                30, 2007







**Exhibit
      32.1**




**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. SECTION 1350**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      906 OF THE SARBANES-OXLEY ACT OF 2002**




In
      connection with the Annual Report of Onvia, Inc. (the “Company”) on Form 10-K
      for the period ending December 31, 2006 as filed with the Securities and
      Exchange Commission on the date hereof (the “Report”), I, Michael D. Pickett,
      Chairman of the Board, Chief Executive Officer, and President of the Company,
      certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section
      906
      of the Sarbanes-Oxley Act of 2002, that:




1.  The
      Report fully complies with the requirements of section 13(a) or 15(d) of the
      Securities Exchange Act of 1934; and




2.  The
      information contained in the Report fairly presents, in all material respects,
      the financial condition and results of operations of the Company.




/s/
                Michael D. PickettMichael
                D. PickettChairman
                of the Board, Chief Executive Officer and PresidentMarch
                30, 2007







A
      signed
      original of this written statement required by Section 906, or other document
      authenticating, acknowledging, or otherwise adopting the signature that appears
      in typed form within the electronic version of this written statement required
      by Section 906, has been provided to Onvia, Inc. and will be retained by Onvia,
      Inc. and furnished to the Securities and Exchange Commission or its staff upon
      request.





**Exhibit
      32.2**




**CERTIFICATION
      PURSUANT TO**


**18
      U.S.C. SECTION 1350**


**AS
      ADOPTED PURSUANT TO**


**SECTION
      906 OF THE SARBANES-OXLEY ACT OF 2002**




In
      connection with the Annual Report of Onvia, Inc. (the “Company”) on Form 10-K
      for the period ending December 31, 2006 as filed with the Securities and
      Exchange Commission on the date hereof (the “Report”), I, Cameron S. Way, Chief
      Accounting Officer of the Company, certify, pursuant to 18 U.S.C. section 1350,
      as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:




1.  The
      Report fully complies with the requirements of section 13(a) or 15(d) of the
      Securities Exchange Act of 1934; and




2.  The
      information contained in the Report fairly presents, in all material respects,
      the financial condition and results of operations of the Company.




/s/
                Cameron S. WayCameron
                S. WayChief
                Accounting OfficerMarch
                30, 2007







A
      signed
      original of this written statement required by Section 906, or other document
      authenticating, acknowledging, or otherwise adopting the signature that appears
      in typed form within the electronic version of this written statement required
      by Section 906, has been provided to Onvia, Inc. and will be retained by Onvia,
      Inc. and furnished to the Securities and Exchange Commission or its staff upon
      request.