The information set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" below includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Exchange Act, and is subject to the safe harbor created by those Sections. Factors that could cause results to differ materially from those projected in the forward-looking statements are set forth in this section and earlier in this report under Item 1A. "Risk Factors," beginning on page XX. The following discussion should also be read in conjunction with the Consolidated Financial Statements and accompanying Notes thereto.

Introduction

We are a leading provider of information products and planning tools that help companies plan, market and sell to targeted markets throughout the United States, or U.S. Our information products and planning tools focus on federal, state, local and educational purchasing entities, and on early stage commercial and residential infrastructure projects. Our information products and planning tools help clients proactively track their competitors, analyze market trends, and identify new market opportunities. Marketers can research government agencies and private sector businesses to effectively establish and maintain lucrative business relationships. Our clients can leverage sales leads from our database in the form of new business prospects, alerts for upcoming contracting opportunities, and from historical public and private infrastructure projects to find and win new revenue opportunities. Historically, comprehensive market intelligence was only available to large companies with the resources to perform the research and store the data themselves, or companies that could afford to hire outside firms to perform the research for them. Our unique process to collect and organize transactional information into actionable market intelligence has enabled us to make the same high-value sales intelligence affordable to businesses of all sizes. We believe our business solutions provide our clients with a distinct competitive advantage.

Our information products and planning tools leverage its proprietary database, Onvia Dominion®, which has been compiled over the last ten years, and includes comprehensive, historical and real-time information on public and private infrastructure activities unavailable elsewhere in the marketplace. Public sector information within the Onvia Dominion® database is classified and linked within four key hubs of data: project history, agency research, buyer research and competitive intelligence. Our database provides information on approximately 5 million procurement related records connected to over 275,000 companies from across approximately 78,000 government agencies and purchasing offices nationwide. Thousands of records are added to our database each day. Private sector data includes over 160,000 current and historical opportunities covering activity within the top 85 U.S. markets, and comprehensive information on tens of thousands of companies, including architects, developers, owners and land use attorneys. The data collected covers high demand land use planning details, including zoning changes, development type, proposed use and key contacts for each project. We also provide contact information for over 24,000 planning and zoning officials. Information in our database has been collected, formatted and classified by an in-house team of researchers and third-party providers so that our clients are able to quickly find and analyze information relevant to their businesses.

Most of our revenues are currently generated from three sources: subscriptions, content licenses, and management reports. 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 the number of users.

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

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

Management Overview

Revenues for 2008 were $21.1 million up 1% over 2007. Fourth quarter revenue was flat with 2007 but was up 7% over the third quarter of 2008. Revenue growth accelerated in the latter half of 2008 due to growth in Annual Contract Value, or ACV. ACV represents the aggregate annual contract value of our client base and is a leading indicator of future revenues. At December 31, 2008, ACV grew 13% to $19.8 million compared to the prior year, and grew 4% over September 30, 2008.

Annual net loss was $3.4 million for 2008, compared to net income of $494,000 for 2007. In 2008, we eliminated two senior executive positions to reduce our cost structure in response to the weak economy. Severance in the amount of $162,000 was recorded in 2008 related to these two positions. We also invested in expanding our acquisition sales force and new private sector content to support the Onvia Planning and Construction, or OPC. These investments, while contributing to higher operating expenses, have fueled ACV growth in 2008 and ultimately, are expected to result in revenue growth in 2009. In 2007, net income included a $2.7 million one-time gain from the termination of a lease for excess office space.

At December 31, 2008 we had 8,400 clients, a decrease of 100 clients compared to December 31, 2007, but an increase of 300 clients compared to September 30, 2008. Client acquisition activities in the fourth quarter of 2008 benefited from the economic stimulus activity, the recently passed Economic Stimulus Act of 2008, and the stalled commercial sector. Acquisition sales also benefited from our larger, more experienced sales force. In 2008 we invested in sales and marketing in an effort to drive revenue and productivity per sales person despite the economic headwinds. Increased demand and our larger, more experienced sales force accelerated new client acquisition in the fourth quarter of 2008, which contributed to our accelerating ACV growth rate.The other significant driver of ACV is annual contract value per client, or ACVC, which grew to $2,360, up 14% compared to the fourth quarter of 2007, but has remained flat for the last two quarters. In 2009, we plan to stimulate ACVC growth by introducing new information products to the marketplace, and by targeting high value prospects that resemble our best customers.

The weak economy has changed our clients' purchasing behavior across the board, which has led to a downward trend in overall retention rates. This negative trend is led by small businesses in industries impacted by the soft real estate market, such as construction companies, building product manufacturers, and maintenance companies. Budgets are tight and account expansions and upgrades to value added products have slowed. In addition, more clients are taking advantage of quarterly payment terms, which has impacted our cash flow and unearned revenue.

In the third quarter of 2008, we started a small business sales team which leverages a new high-volume, lower touch sales process intended to reduce the costs to acquire small customers, which typically have lower contract values. As a result we have improved the profitability of our small customers in the last three months, but we have not yet achieved our profitability objectives for this team. We will continue to evaluate the profitability and progress of this team over the near term.

In 2008 we invested $5.0 million of internal resources and capital expenditures to develop new products and technologies. During the year we launched OPC, which helps architects, engineers and construction companies focused on the commercial and residential construction markets to identify opportunities for their goods and services at the very earliest stages of development. In addition, we are in the process of developing a new content management system, or CMS, and a new database platform, both of which are intended to improve the relevance of our data, create more productive operating processes, and enhance user experience. Our new CMS was developed to effectively capture new types of valuable content, to improve the productivity of our research organization, to improve data accuracy, and ultimately improve client retention.

Our new application and database platform is in beta, and we plan to launch it in the first half of 2009. The new platform will create a flexible and scalable product development environment, improve our database search and indexing capabilities, and enhance the user experience and usability of our information services. The new search and indexing capabilities will dramatically improve the relevance of our information to the specific needs of our clients. The new user interface will have an entirely different look and feel, and will integrate the commercial and government products into one robust database, which will provide the opportunity to analyze a full set of data. The new platform is expected to serve as the basis for product development and growth in the coming years.

Capital investments are expected to slow once the new platform is launched in the first half of 2009. The investments made in 2008 are expected to result in leading edge database architecture, which is intended to create a significant competitive advantage for Onvia well into the future.

Application of Critical Accounting Policies and Management Estimates

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ significantly from our estimates. In addition, any significant unanticipated changes in any of our assumptions could have a material adverse effect on our business, financial condition, and results of operations. We believe the following are our most significant accounting policies and estimates:

Revenue Recognition

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

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

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

Internal Use Software

We account for the costs to develop or obtain software for internal use in accordance with the American Institute of Certified Public Accountants, or AICPA, Statement of Position No. 98-1, or 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.

During 2008 and 2007, we abandoned $97,000 and $45,000, respectively, related to internal use software. The abandoned assets relate to internal use code that was initially developed to enhance the functionality of existing products and internal workflow. We no longer believe that the code will be compatible with the new technology platform currently being developed and we believe these costs have no future value. The $97,000 and $45,000 in abandonments represents the full unamortized value of these assets and is included in operating expenses under the general and administrative category in the years ended December 31, 2008 and 2007, respectively.

Non-cash Stock-Based Compensation

We account for stock-based compensation according to the provisions of Statement of Financial Accounting Standards, or SFAS, No. 123R, Share-Based Payment, or FAS 123R, which requires measurement of compensation cost for all stock-based awards at fair value on the date of grant and recognition of stock-based compensation cost over the requisite service period for awards expected to vest. The fair value of our stock options is determined using the Black-Scholes valuation model. Such value is recognized as expense over the service period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including employee class and historical experience. There is also significant judgment required in the estimation of the valuation assumptions used to determine the fair value of options granted. Please refer to the discussion of valuation assumptions in Note 2 of the "Notes to Consolidated Financial Statements" of this Report for additional information on the estimation of these variables. Actual results, and future changes in estimates, may differ substantially from our current estimates.

We record accounts receivable for the invoiced or earned but not invoiced portion of our enterprise contracts and content licenses once we have a signed agreement and amounts are billable pursuant to the contract terms. We do not record a receivable for the unbilled and unearned portion of our enterprise contracts or content licenses. As of December 31, 2008 and 2007, the unbilled portion of enterprise contracts and content licenses was approximately $2.6 million and $1.6 million, respectively; unbilled enterprise contracts and content licenses increased as a result of increased acquisition sales and clients adopting quarterly billing terms. 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, 2008 are as follows for the periods
specified:

                                                               Payments due by period
                                                  Less than 1                                        More than 5
                                     Total            year         1 - 3 years      3 - 5 years         years
Real estate operating lease
obligations                       $ 6,709,676     $    899,063     $  2,862,279     $  2,054,163     $   894,171
Purchase obligations (1)            1,782,805        1,353,953          428,852                -               -
Capital lease obligations (2)          94,730           88,359            6,371                -               -
Other operating lease
obligations (3)                        18,670           18,670                -                -               -
Total                             $ 8,605,881     $  2,360,045     $  3,297,502     $  2,054,163     $   894,171

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

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

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

Consolidated Results of Operations

The following table provides our selected consolidated results of operations for the indicated periods (in thousands of dollars and as a percentage of total revenue):

                                                    Years Ended December 31,
                                   2008                       2007                       2006
Revenue:
 Subscription            $ 18,090         85.6 %    $ 17,802         85.1 %    $ 14,412         86.1 %
 Content license            2,239         10.6 %       2,442         11.7 %       2,111         12.6 %
 Management
information reports           568          2.7 %         454          2.2 %           -          0.0 %
 Other                        245          1.1 %         230          1.0 %         216          1.3 %
Total revenue              21,142        100.0 %      20,928        100.0 %      16,739        100.0 %

Cost of revenue             4,326         20.5 %       3,731         17.8 %       3,395         20.3 %
Gross margin               16,816         79.5 %      17,197         82.2 %      13,344         79.7 %

 Sales and marketing
expenses                   12,300         58.2 %      11,729         56.0 %      11,712         70.0 %
 Technology and
development expenses        3,818         18.1 %       4,411         21.1 %       4,215         25.2 %
 General and
administrative
expenses                    4,505         21.3 %       4,198         20.1 %       3,980         23.7 %
 Idle lease accrual             -            -        (2,653 )      (12.7 %)        (67 )       (0.4 %)

 Total operating
expenses                   20,623         97.6 %      17,685         84.5 %      19,840        118.5 %

Loss from operations       (3,807 )      (18.0 %)       (488 )       (2.3 %)     (6,496 )      (38.8 %)
Interest and other
income, net                   433          2.0 %         982          4.7 %         952          5.7 %

Net income / (loss)      $ (3,374 )      (16.0 %)   $    494          2.4 %    $ (5,544 )      (33.1 %)

Comparison of Years Ended December 31, 2008, 2007 and 2006

Revenue
Revenue increased 1% to $21.1 million for the year ended December 31, 2008, compared to $20.9 million for the year ended December 31, 2007. Our growth rates began to slow in the fourth quarter of 2007 due to our smaller acquisition sales force and lack of significant new products since 2005. In the first half of 2008, our growth rate was further impacted by changes we made in our sales teams' focus. With the launch of OPC, we directed our sales force to prioritize building a pipeline for OPC, to concentrate on cross-sell and up-sell activities and to deemphasize advance renewals. We also accelerated the transfer of our first year clients to new account managers. The combination of these decisions had a short-term negative impact on new client acquisition and client retention during first half of 2008. To mitigate this short-term slowing of revenue, we invested in expanding our acquisition sales force and in marketing programs to drive revenue and revenue per salesperson. In the second half of 2008, the economic stimulus activity, the recently passed recovery legislation, and the stalled commercial sector increased interest in public sector opportunities and revenue growth accelerated in the latter half of 2008.

Revenue increased 25% to $20.9 million for the year ended December 31, 2007, compared to $16.7 million for the year ended December 31, 2006. The increase was primarily driven by an increase in ACVC and revenue generated from our management information report products which were introduced in 2007. The increase in ACVC was attributable to increased adoption of our Onvia Business Builder product, upgrading clients into higher valued products and scheduled price increases.

Cost of Revenue
Cost of revenue increased 16% to $4.3 million for the year ended December 31, 2008, compared to $3.7 million for the year ended December 31, 2007. Our cost of revenue consists primarily of employee costs associated with collecting, categorizing and publishing our content, and also includes third-party content fees and credit card processing fees. The increase in cost of revenue was primarily due to an increase of $593,000 in third-party content costs related to increased content requirements for our OPC product launched in February 2008. Total third-party content and credit card processing fees were approximately $1.7 million and $1.1 million for the years ended December 31, 2008 and 2007, respectively. Weighted average headcount on our content team was 56 during 2008, compared to 58 during 2007.

For the year ended December 31, 2007, cost of revenue increased 10% to $3.7 million compared to $3.4 million for the year ended December 31, 2006. Cost of revenue increased due primarily to increases in payroll and contract labor related expenses, third party content costs, and recruiting fees.

Sales and Marketing
Sales and marketing expenses were $12.3 million and $11.7 million for the years ended December 31, 2008 and 2007, respectively, representing an aggregate increase of $572,000, or 5%. Employee costs increased by $1.2 million due to an increase in weighted average headcount to 89 during 2008, compared to 79 during 2007. This was offset by the decrease of $112,000 of stock-based compensation expense as the estimated forfeiture rate used to calculate non-cash stock-based compensation expense in 2008 was increased to reflect forfeitures related to terminated employees. Additionally, recruiting expenses decreased $136,000 primarily because we placed our Vice President of Sales and other sales leadership positions in 2007. Allocated expenses, which consist of depreciation and amortization and other facilities related expenses were $422,000 higher in 2007 because allocated expenses included accelerated depreciation of leasehold improvements due to our lease termination. Allocated expenses are allocated based on headcount in the respective departments.

Sales and marketing expenses were $11.7 million for both the years ended December 31, 2007 and 2006. While sales and marketing expenses were relatively flat over the comparable periods, we did see changes in the following categories: Employee costs decreased by $353,000 due to lower weighted average headcount of 79 in 2007, compared to 91 in 2006. Non-cash stock-based compensation decreased $166,000, primarily because of an increase in our estimated forfeiture rate used to calculate non-cash stock-based compensation expense in 2007. Marketing and telecom expenses decreased $135,000 and $68,000, respectively. These decreases were offset by increases of $685,000 in allocated expenses and $90,000 in recruiting fees. 2007 allocated expenses were higher primarily due to the acceleration of depreciation on previous leasehold improvements as mentioned above.

Technology and Development
Technology and development expenses were $3.8 million and $4.4 million for the years ended December 31, 2008 and 2007, respectively, representing a decrease of $593,000, or 13%. The decrease is primarily attributable to decreases of $491,000 in allocated costs and $196,000 in recruiting fees. Allocated expenses decreased due to lower facilities related expenses and depreciation. Recruiting fees decreased because most of the open technology positions were filled without using outside recruiters. These decreases were offset by increases of $285,000 in employee costs, $244,000 in amortization of maintenance and license agreements and $181,000 in co-location expenses. Weighted average headcount in this group decreased to 26 in 2008 compared to 29 in 2007, but employee costs increased mostly due to a combined $234,000 increase in bonus incentive related to new product development milestones and accrued vacation expenses. Amortization of license and maintenance agreements increased due to increases in prepaid software agreements associated with maintaining our systems and developing the new technology platform. Co-location expenses increased because we now host our web, database and transaction-processing servers to a co-location facility in 2008. In addition, $595,000 more of internal use software development costs were capitalized in 2008 because of the development of a new technology platform initiative scheduled for release in the middle of 2009.

Technology and development expenses were $4.4 million and $4.2 million for the years ended December 31, 2007 and 2006, respectively, representing an increase of $196,000, or 5%. The increase in total was primarily attributable to increases of $450,000 in allocated expenses because of an overall increase in depreciation and amortization, $160,000 in recruiting fees due to using outside recruiters to fill open technology positions and $80,000 in payroll related expenses due to severance payments to our former Chief Information Officer, and $28,000 in travel expenses. These costs were partially offset by an increase of $551,000 in capitalization of internal use software development costs.

General and Administrative
General and administrative expenses were $4.5 million and $4.2 million for the years ended December 31, 2008 and 2007, respectively, representing an increase of $307,000, or 7%. During 2008, due to an assessment for past due sales taxes in the state of Texas, business taxes increased by $191,000. Please refer to the discussion on Texas sales tax in Note 6 of the "Notes to the Consolidated Financial Statements" of this Report for additional information. Recruiting fees increased $101,000 primarily due to the hire of our new Vice President of . . .