Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENT
In addition to the historical information contained herein, the discussion and analysis
in this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding
expected increases in revenue, clients, contracts and contract value, cash flow, profitability and stockholder value. When used
in this discussion, the words “believes,” “anticipates,” “may,” “will,” “should,”
“expects,” “plans,” “estimates,” “predicts,” “potential,” “continue,”
“intends”, “indicates” or the negative of these and similar expressions are intended to identify forward-looking
statements, but the absence of these words does not necessarily mean that a statement is not a forward-looking statement. Forward-looking
statements include, but are not limited to, statements about our plans, objectives, expectations and intentions and are subject
to risks and uncertainties that could cause actual results to differ materially from those expected or implied by these forward-looking
statements.
Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this report. Our actual results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the factors described under “Risk Factors”, “Business”, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” as applicable, in this report and in our 2016 Annual
Report on Form 10-K for the year ended December 31, 2016. Except as required by law, Onvia undertakes no obligation to publicly
release any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof.
Readers are urged, however, to review the factors and risks described in reports Onvia files from time to time with the Securities
and Exchange Commission. The following discussion should also be read in conjunction with the Condensed unaudited Consolidated
Financial Statements and accompanying Notes thereto included in this report.
In this report, the words “we,” “our,” “us,” “Onvia,”
or the “Company” refer to Onvia, Inc.
Company Overview
At Onvia, we believe there is a better way for government agencies and businesses to
work together. The Business to Government, or B2G, marketplace is one of the largest, most unstructured and fragmented markets
in the world. We believe that equipping this market with data and technology will build trusted connections between businesses
and governments. These connections should make the B2G market more productive and efficient. By resolving the friction in this
vital, complex, multi-trillion dollar marketplace, we can create mutual value for private and public sectors, taxpayers and society
at large.
Onvia is a leading sales intelligence and acceleration company at the core of B2G marketplace.
Over the last 17 years Onvia has developed domain expertise and advanced technologies to curate data on millions of exchanged contracts,
agencies and decision makers, vendors and channels, projects and investment plans, awards records and market trends. The Onvia
core platform, Onvia 8, applies advanced data science and search technologies to transform unstructured government contracting
data into meaningful commerce intelligence for buyers and sellers. Businesses leverage our platform to increase their sales pipeline,
pursue opportunities and make strategic decisions. Government agencies employ the DemandStar and Exchange portions of the platform
to improve process transparency and efficiency, identify potential suppliers, and to meet their fiduciary responsibilities to their
constituents.
Onvia was incorporated in January 2000 in the state of Delaware. Our principal corporate
office is located in Seattle, Washington. Our securities trade on The NASDAQ Capital Market under the symbol “ONVI”.
The Onvia platform provides the most comprehensive coverage of agencies and their procurement
activity, with a goal of covering 95% of published dollar spending. The platform leverages Onvia’s robust database of proprietary
public sector procurement information which includes comprehensive historical and real-time information on procurement activities
unavailable elsewhere in the marketplace. We provide access to over 5 million procurement-related records connected to over 400,000
companies from across approximately 82,000 procurement entities nationwide. These records are standardized, formatted and classified
within our database each day. We harvest data on a daily basis from thousands of agencies and sources, processing millions of records
every year. This enables us to typically publish 90% of all collected government solicitations within 24 hours of issuance. Opportunities
are curated using state-of-the-art algorithms and machine tagging, which makes our contracting data extremely actionable and industry-relevant.
Onvia helps businesses discover more relevant opportunities to fill their sales pipelines and receive earlier notice of potential
contracts. Agencies can use this data to make their procurement processes more efficient.
Onvia’s curation process makes analyzing millions of records easy. Today, other
data providers typically use existing agency codes and keyword searches to identify relevant content. Agency contracts usually
include many different deliverables, and using a single code or keyword may be inaccurate, return irrelevant results or miss critical
projects. Onvia has developed a proprietary vocabulary, or “ontology” to simplify the search process and improve the
identification of projects. This ontology summarizes tens of thousands of synonyms and terms used by governments into a few thousand
key industry terms. Onvia’s curation process uses natural language processing to determine the essence of a project and consistently
categorizes the opportunity using this taxonomy. Searching Onvia’s database using our ontology returns targeted results.
Our ontology continues to improve every day. We review thousands of projects a day and use machine learning to identify and add
new terms and language to our ontology, which further improves the accuracy and relevance of search results. Users of the Onvia
platform can focus on value added activities such as pipeline creation and pursuit strategies, instead of sifting through hundreds
of irrelevant records every day.
We have a diverse client base from large Fortune 500 companies to small businesses that
have been Onvia clients for many years. Onvia’s strategic target client has a long-term strategic interest in the public
sector with a primary focus on the B2G market. As companies expand geographically, their market becomes less transparent and they
have a greater need for B2G information. Our target prospects do business on a regional or national level.
Most of Onvia’s revenues are generated from sales to companies that leverage our
information for their own internal use, and to businesses that license our content for redistribution.
Recent Events
Subsequent Events
|
·
|
On October 4, 2017, the Company entered into the Merger Agreement providing for the acquisition of the Company by Parent in
an all cash transaction, consisting of a tender offer, followed by a back-end merger of Purchaser with and into the Company, with
the Company surviving the Merger as a wholly owned subsidiary of Parent. See Note 12: Subsequent Events in our Notes to Consolidated
Financial Statements for additional information.
|
|
·
|
On October 19, 2017, and pursuant to the terms of the Merger Agreement, Parent caused Purchaser to commence the Offer for all
of the Company’s outstanding shares of common stock at the Offer Price.
|
We measure our clients, excluding the self-serve ecommerce leads solution transactions,
using the following key metrics:
Annual Contract Value (“ACV”)
ACV represents the annualized aggregate revenue value of all subscription
contracts as of the end of the quarter. ACV is driven by annual contract value per client and the number of clients. Most of Onvia’s
revenues are generated from subscription contracts, which are typically prepaid and have a minimum term of one year, with revenues
recognized ratably over the term of the subscription. Onvia also receives revenue from multi-year content distribution partnerships,
stand-alone management reports, document download services, and list rental services, which are not included in the calculation
of ACV. Content license contracts are excluded from ACV. ACV excludes subscribers to the self-serve leads solution.
Total ACV increased 1% to $23.1 million in the third quarter of 2017 from
$22.9 million for the same period one year ago. Growth rate in ACV can fluctuate from year to year based on timing in the amount
of ACV available for renewal in addition to the mix of tenured and first year clients expiring in each period as tenured clients
tend to renew at a higher rate than first year clients.
Number of Clients
Number of clients represents the number of individual businesses subscribing
to our solutions.
At of the end of the third quarter of 2017, our total client base decreased
4% to 2,795 clients compared to 2,920 clients as of the end of the same period one year ago.
Annual Contract Value per Client (“ACVC”)
ACVC is the ACV divided by the number of clients and indicates the average
annual value of each of our subscriptions.
Total ACVC increased 6% to $8,274 in
the third quarter of 2017 compared to $7,824 in the same period one year ago. Growth in our overall ACVC demonstrates that an increasing
portion of our total client base consists of clients who are purchasing our forward-looking intelligence and acceleration solution,
not just lead solutions.
Dollar Retention
Dollar retention measures the dollars
renewed on the available base of expiring contracts over the preceding twelve months. Dollar retention is calculated on a percentage
basis by dividing the contract value of subscription contracts renewed, including the value of contract upgrades, during the most
recent twelve-month period by the total value of subscription contracts expiring over the same period.
Dollar retention
measures the percentage of dollars retained from the population of expiring contracts over a twelve month period.
In the twelve months, ended September 30, 2017, dollar retention was 90% compared
to 88% in the twelve months ended September 30, 2016. Dollar retention can fluctuate from period to period due to the client mix
(first year and tenured clients) expiring in each period, list price achievement and contract expansions in the corresponding periods.
Dollar retention, in conjunction with ACV, provides insight in to our subscription retention rate and ability to generate future
subscription revenue.
Adjusted EBITDA
Adjusted EBITDA is not a financial measure calculated and presented in accordance
with GAAP and should not be considered as an alternative to net income, operating income or any other financial measures so calculated
and presented, nor as an alternative to cash flow from operating activities as a measure of the company’s liquidity. Onvia
defines Adjusted EBITDA as net income/(loss) before interest expense and other non-cash financing costs; other income; taxes; depreciation;
amortization; and non-cash stock-based compensation. Other companies (including Onvia’s competitors) may define Adjusted
EBITDA differently. Onvia presents Adjusted EBITDA because it believes Adjusted EBITDA to be an important supplemental measure
of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies
in similar industries and size. Management also uses this information internally for forecasting and budgeting. It may not be indicative
of the historical operating results of Onvia nor is it intended to be predictive of potential future results. Investors should
not consider Adjusted EBITDA in isolation or as a substitute for analysis of results as reported under GAAP.
The following table provides a reconciliation of GAAP Net Loss to Adjusted
EBITDA for the periods indicated (in thousands of dollars):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
2017
|
|
|
|
September 30,
2016
|
|
|
|
September 30,
2017
|
|
|
|
September 30,
2016
|
|
GAAP Net loss
|
|
$
|
(484
|
)
|
|
$
|
(492
|
)
|
|
$
|
(2,058
|
)
|
|
$
|
(598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items from GAAP to adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income, net
|
|
|
(26
|
)
|
|
|
(13
|
)
|
|
|
(47
|
)
|
|
|
(28
|
)
|
Depreciation and amortization
|
|
|
809
|
|
|
|
737
|
|
|
|
2,341
|
|
|
|
1,754
|
|
Amortization of stock-based compensation
|
|
|
152
|
|
|
|
49
|
|
|
|
480
|
|
|
|
153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
451
|
|
|
$
|
281
|
|
|
$
|
716
|
|
|
$
|
1,281
|
|
Seasonality
Our client acquisition business is subject to some seasonal fluctuations. The second
and third quarters are generally slower than the first and fourth quarters for client acquisition and overall cash flow. Infrastructure
is our single largest market and these prospects are typically engaged on projects during the spring and summer months, rather
than prospecting for new work, which causes new client acquisition to decline compared to the first and fourth quarters in the
year. For this reason, comparisons of the performance of our business quarter to consecutive quarter may not provide the most relevant
information, and so in addition to sequential quarter comparisons, our quarterly results and metrics should be considered on the
basis of results for the whole year or by comparing results in a quarter with the results in the same quarter of the previous year.
Results of Operations for the Three and Nine Months Ended September 30, 2017 Compared
to the Three and Nine Months Ended September 30, 2016
Revenue and Cost of Revenue
The following table provides a breakdown of revenue for the periods presented as a percentage
of total revenue (in thousands):
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Revenue
|
|
$
|
6,156
|
|
|
$
|
6,173
|
|
|
$
|
18,389
|
|
|
$
|
18,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
|
96
|
%
|
|
|
93
|
%
|
|
|
96
|
%
|
|
|
93
|
%
|
Content license
|
|
|
2
|
%
|
|
|
5
|
%
|
|
|
2
|
%
|
|
|
6
|
%
|
Management information reports
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
0
|
%
|
Other
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
Total revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Subscription revenue for the three and nine months ended September 30, 2017 grew 3% to
$5.9 million and 5% to $17.8 million, respectively, over the same periods in 2016. The growth in subscription revenue is primarily
a result of improved sales to new clients and retention of existing clients compared to the same period last year.
Total revenue for the three months ended September 30, 2017 was $6.2 million, consistent
with the same period last year. Total revenue for the nine months ended September 30, 2017 was $18.4 million, up 1% compared to
the same period last year. In addition to subscription revenue, total revenue includes content license and report revenue. In 2016,
we were notified that our largest content license customer, representing $810,000 in annual revenue, elected not to continue with
our partnership. The combination of increased subscription revenue and a decrease in content license revenue resulted in the slight
revenue growth for the nine months ended September 30, 2017 when compared to the same period last year.
Cost of revenue for the three and nine months ended September 30, 2017 and 2016 was as
follows (in thousands of dollars):
|
|
Three Months Ended September 30,
|
|
Increase / (Decrease)
|
|
Nine Months Ended September 30,
|
|
Increase / (Decrease)
|
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
Total
|
|
$
|
631
|
|
|
$
|
689
|
|
|
$
|
(58
|
)
|
|
|
(8
|
%)
|
|
$
|
2,026
|
|
|
$
|
2,195
|
|
|
$
|
(169
|
)
|
|
|
(8
|
%)
|
Percentage of revenue
|
|
|
10
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
11
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
Our cost of revenue primarily represents payroll-related expenses associated with the
research, capture and enhancement of data in our proprietary database and third-party content fees, and also includes credit card
processing fees. The decrease compared to the same prior year periods is due to process efficiencies and other individually immaterial
changes.
Sales and Marketing
Sales and marketing expenses for the three and nine months ended September 30, 2017 and
2016 were as follows (in thousands of dollars):
|
|
Three Months Ended September 30,
|
|
Increase / (Decrease)
|
|
Nine Months Ended September 30,
|
|
Increase / (Decrease)
|
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
Current period expenses
|
|
$
|
2,566
|
|
|
$
|
2,835
|
|
|
$
|
(269
|
)
|
|
|
(9
|
%)
|
|
$
|
7,623
|
|
|
$
|
8,170
|
|
|
$
|
(547
|
)
|
|
|
(7
|
%)
|
Depreciation and amortization
|
|
|
353
|
|
|
|
352
|
|
|
|
1
|
|
|
|
0
|
%
|
|
|
1,070
|
|
|
|
836
|
|
|
|
234
|
|
|
|
28
|
%
|
Stock based compensation
|
|
|
17
|
|
|
|
20
|
|
|
|
(3
|
)
|
|
|
(15
|
%)
|
|
|
16
|
|
|
|
52
|
|
|
|
(36
|
)
|
|
|
(69
|
%)
|
Total
|
|
$
|
2,936
|
|
|
$
|
3,207
|
|
|
$
|
(271
|
)
|
|
|
(8
|
%)
|
|
$
|
8,709
|
|
|
$
|
9,058
|
|
|
$
|
(349
|
)
|
|
|
(4
|
%)
|
Percentage of Revenue
|
|
|
48
|
%
|
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
47
|
%
|
|
|
50
|
%
|
|
|
|
|
|
|
|
|
The decrease in expenses for the comparable three and nine month periods is primarily
attributable to salary savings as a result of our sales force reorganization. This decrease in expenses was partially offset by
an increase in marketing expenses related to the “Onvia On Tour” roadshow and an increase in amortization expense primarily
related to the portion of accelerated capitalized software amortization allocated to sales and marketing.
Technology and Development
Technology and development expenses for the three and nine months ended September 30,
2017 and 2016 were as follows (in thousands of dollars):
|
|
Three Months Ended September 30,
|
|
Increase / (Decrease)
|
|
Nine Months Ended September 30,
|
|
Increase / (Decrease)
|
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
Current period expenses
|
|
$
|
1,340
|
|
|
$
|
1,407
|
|
|
$
|
(67
|
)
|
|
|
(5
|
%)
|
|
$
|
4,402
|
|
|
$
|
3,855
|
|
|
$
|
547
|
|
|
|
14
|
%
|
Depreciation and amortization
|
|
|
372
|
|
|
|
316
|
|
|
|
56
|
|
|
|
18
|
%
|
|
|
1,042
|
|
|
|
746
|
|
|
|
296
|
|
|
|
40
|
%
|
Stock based compensation
|
|
|
19
|
|
|
|
9
|
|
|
|
10
|
|
|
|
111
|
%
|
|
|
40
|
|
|
|
35
|
|
|
|
5
|
|
|
|
14
|
%
|
Total
|
|
$
|
1,731
|
|
|
$
|
1,732
|
|
|
$
|
(1
|
)
|
|
|
(0
|
%)
|
|
$
|
5,484
|
|
|
$
|
4,636
|
|
|
$
|
848
|
|
|
|
18
|
%
|
Percentage of Revenue
|
|
|
28
|
%
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
30
|
%
|
|
|
25
|
%
|
|
|
|
|
|
|
|
|
The consistent expenses for the comparable three month periods is mainly attributable
to an increase in amortization expense primarily related to the accelerated capitalized software amortization allocated to technology
and development, offset by various immaterial decreases.
The increase in expenses for the comparable nine month periods is primarily attributable
to an increase in product and development headcount to bring our development organization onshore to support the development of
Onvia 8. In addition, there was an increase in amortization expense primarily related to the accelerated capitalized software amortization
allocated to technology and development.
General and Administrative
General and administrative expenses for the three and nine months ended September 30,
2017 and 2016 were as follows (in thousands of dollars):
|
|
Three Months Ended September 30,
|
|
Increase / (Decrease)
|
|
Nine Months Ended September 30,
|
|
Increase / (Decrease)
|
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
|
2017
|
|
2016
|
|
Amount
|
|
Percent
|
Current period expenses
|
|
$
|
1,168
|
|
|
$
|
960
|
|
|
$
|
208
|
|
|
|
22
|
%
|
|
$
|
3,622
|
|
|
$
|
2,754
|
|
|
$
|
868
|
|
|
|
32
|
%
|
Depreciation and amortization
|
|
|
84
|
|
|
|
69
|
|
|
|
15
|
|
|
|
21
|
%
|
|
|
229
|
|
|
|
172
|
|
|
|
57
|
|
|
|
33
|
%
|
Stock based compensation
|
|
|
116
|
|
|
|
21
|
|
|
|
95
|
|
|
|
452
|
%
|
|
|
424
|
|
|
|
66
|
|
|
|
358
|
|
|
|
542
|
%
|
Total
|
|
$
|
1,368
|
|
|
$
|
1,050
|
|
|
$
|
318
|
|
|
|
30
|
%
|
|
$
|
4,275
|
|
|
$
|
2,992
|
|
|
$
|
1,283
|
|
|
|
43
|
%
|
Percentage of Revenue
|
|
|
22
|
%
|
|
|
17
|
%
|
|
|
|
|
|
|
|
|
|
|
23
|
%
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
The increase in expenses for the comparable three month periods is primarily attributable
to an increase in professional service expenses related to the pending acquisition of Onvia along with an increase in stock based
compensation expense related to Onvia’s CEO. See Note 12: Subsequent Events in our Notes to Consolidated Financial Statements
for additional information on the pending acquisition of Onvia.
In addition to increased professional service expenses and stock based compensation expense,
the comparable nine month periods also included an increase in CEO transition related expenses, performance based management incentives
which were estimated and accrued, and costs related to the implementation of a new enterprise resource planning (“ERP”)
system . No expenses related to management based incentives or ERP implementation were incurred in 2016.
Interest and Other Income, Net
Net interest and other income was $26,000 and $47,000 for the three and nine month periods
ended September 30, 2017, compared to $13,000 and $28,000 for the same periods one year ago.
Net Income/(Loss) and Net Income/(Loss) per Share
We reported net losses of $484,000 and $2.1 million for the three and nine month periods
ended September 30, 2017, compared to net losses of $492,000 and $598,000 for the same periods one year ago. On a diluted per share
basis, net losses were $0.07 and $0.28 for the three and nine month periods ended September 30, 2017, compared to net losses of
$0.07 and $0.08 for the comparable periods ended September 30, 2016, respectively.
Critical Accounting Policies and Management Estimates
Our discussion and analysis of our financial condition and results of operations is based
upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates including, but not
limited to, those affecting the fair value of stock-based compensation, allowance for doubtful accounts, capitalization of costs
for internally developed software, recoverability of long-lived assets, including internally developed software, and the valuation
allowance for net deferred tax assets. The brief discussion below is intended to highlight some of the judgments and uncertainties
that can impact the application of these policies and the specific dollar amounts reported on our financial statements.
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 our basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions, or if management made different judgments or utilized different estimates. Many of our
estimates or judgments are based on anticipated future events or performance, and as such are forward-looking in nature, and are
subject to many risks and uncertainties, including those discussed in our Annual Report on Form 10-K for the year ended December
31, 2016 and elsewhere in this Quarterly Report on Form 10-Q. Except as otherwise required by law, we do not undertake any obligation
to update or revise this discussion to reflect any future events or circumstances.
For a detailed discussion of our critical accounting policies and estimates, please refer
to our Annual Report on Form 10-K for the year ended December 31, 2016.
There have been no material changes in the application of our critical accounting policies
and estimates subsequent to that report.
See Note 1 to the accompanying unaudited Consolidated Financial Statements for the issuance
of recent accounting pronouncements.
Liquidity and Capital Resources
Our principal sources of liquidity are cash, cash equivalents and available for sale
investments. Our combined cash and cash equivalents and available for sale investments were $5 million at September 30, 2017. At
September 30, 2017, we held $4.3 million in available for sale investments, primarily in FDIC insured or U.S. government backed
securities. In 2016 we were notified that our largest content license customer representing $810,000 in annual revenue elected
not to continue with our partnership. This will have a negative impact on bookings, revenue, and cash flow in 2017.
If the pending acquisition of Onvia is not consummated, we may require additional equity
or debt financing to meet future working capital needs, particularly if we engage in other merger or acquisition transactions or
our overall operating plans change. This 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.
From December 31, 2016 to September 30, 2017, cash, cash equivalents, and available for
sale investments decreased by $2.1 million primarily as a result of costs associated with our CEO transition, company reorganization,
and variability in results due to the changes in our sales force.
Operating Activities
Net cash provided by operating activities was $120,000 for the nine months ended September
30, 2017 compared to $2.5 million for the same period in 2016. The decrease is primarily due to increased cash outflows resulting
from the costs associated with our CEO transition, company reorganization, and recruiting costs to bring our development organization
onshore to support the development of Onvia 8.
Investing Activities
Net cash used in investing activities was $1.9 million for the nine months ended September
30, 2017, consistent with the same period in 2016. Increased additions to internal use software and sale of investments were offset
by decreased purchases of investments and maturities of investments.
Financing Activities
Net cash provided by financing activities was $267,000 for the nine months ended September
30, 2017, compared to $20,000 for the same period in the prior year. The increase is due to the CEO purchase of 25,000 shares of
common stock as part of the CEO compensation package in the amount of $111,000 along with an increase of $136,000 in proceeds from
stock options exercises and purchases under employee stock purchase plan.