Revenue of $5.0 million in the third quarter of 2008, up 52% over
the prior quarter CLIFTON PARK, N.Y., Nov. 6 /PRNewswire-FirstCall/
-- On2 Technologies, Inc. (AMEX:ONT), a leader in video compression
solutions, today announced financial results for the third quarter
of 2008. Revenue in the third quarter of 2008 was $5.0 million, up
from $1.9 million in the third quarter of 2007, due both to the
addition of On2 Finland in the fourth quarter of last year and an
increase in license fees and royalties received by On2 U.S. Revenue
was also up 52% over the second quarter of 2008. The strong
sequential growth was primarily the result of new license
agreements signed in the quarter. Net loss was ($29.2) million, or
($0.17) per share, compared to a net loss of ($1.4) million, or
($0.01) per share, in the third quarter of 2007, and ($7.2)
million, or ($0.04), in the second quarter. The loss was driven by
a ($26.2) million non-cash write-down of goodwill and intangible
assets related to On2's Finland business. Matt Frost, Chief
Operating Officer and interim Chief Executive Officer of On2
Technologies said, "On2 made good progress in the third quarter, as
reflected by our strong revenue results. We signed a number of new
license agreements in the quarter, and royalties were up both
year-over-year and sequentially. While quarter-to-quarter revenue
may be lumpy, we continue to drive positive long-term revenue
trends. Although the write-down of goodwill and intangible assets
associated with On2 Finland resulted in significant non- cash costs
in the quarter, we executed well toward our expense reduction goals
and believe we have yet to see the full impact of the cost cutting
and containment measures we implemented during the third quarter.
These cost containment measures will help us to right-size the
business and offset some effects we are experiencing from global
weakness in the economy." Frost continued, "Our recent release of
On2(R) VP8(R) video has received a very encouraging reception and
we continue to have success with licensing of our VP6 and VP7
technology. We are also excited about a new cloud computing video
transcoding service we announced with Zencoder today, and believe
that this could lead to additional services offerings over time."
Recent Business Highlights - Royalties of $961,000 in the third
quarter increased 110% year-over-year and 42% over the prior
quarter. Royalties represented 19% of revenue in the quarter,
compared with 24% in the third quarter of 2007 and 21% of revenue
in the second quarter of 2008. The decrease in royalties as a
percentage of revenue compared to the same quarter last year as
well as the second quarter was due to strong licensing activity in
the third quarter. - In the third quarter of 2008, On2 had over 50
new customers, excluding online sales, and we recognized revenue
from 9 significant transactions sized at over $50,000. - In
September, On2 announced the launch of On2 VP8 video, the latest
and most technologically advanced version of TrueMotion(R) video
codecs that delivers up to 50% bandwidth savings over competing
solutions. - Also in September, On2 announced the availability of
the Hantro(R) 7280 encoder Register Transfer Level (RTL) design.
Supporting MPEG-4, H.263 and H.264 video, along with 16MP JPEG, the
encoder is targeted for chipsets intended for devices with very low
power requirements. - On2 announced a partnership with Zencoder,
LLC, to build a high-capacity video encoding service within the
Amazon Elastic Compute Cloud (EC2). On2 will integrate its On2
Flix(R) Engine video encoding with the Zencoder video transcoding
system to create a web-based service that lowers costs for content
publishers while providing nearly unlimited encoding capacity.
Conference Call Management will hold a conference call to discuss
its results for the third quarter of 2008 at 5:00pm ET on November
6, 2008. To access the live webcast or replay, visit
http://www.investorcalendar.com/IC/CEPage.asp?ID=136464. The
webcast replay will be available until November 6, 2009. If you
prefer to dial-in to the call, the information is as follows: Live
Call: (877) 407-9210, domestic (201) 689-8049, international
Replay: (877) 660-6853 (201) 612-7415 Replay Passcodes: Account #:
286 Conference ID #: 301264 About On2 On2 creates advanced video
compression technologies for desktop and wireless environments.
Powering the video in many of today's leading web and mobile
applications and devices, On2's technology is used by customers
including: Nokia, Infineon, MediaTek, Sony, Facebook, Brightcove,
Move Networks, Adobe and Skype. On2 Technologies is headquartered
in Clifton Park, NY USA. For more information please visit
http://www.on2.com/. All trademarks mentioned in this document are
the property of their respective owners. Forward-Looking and
Cautionary Statements Except for historical information and
discussions contained herein, certain statements included in this
press release may constitute "forward- looking statements" within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements included in this document, other than
statements of historical fact, that address activities, events or
developments that management expects, believes or anticipates will
or may occur in the future are forward-looking statements. These
statements represent our reasonable judgment on the future based on
various factors and using numerous assumptions and are subject to
known and unknown risks, uncertainties and other factors that could
cause our actual results and financial position to differ
materially from those contemplated by the statements. You can
identify these statements by the fact that they do not relate
strictly to historical or current facts. They use words such as
"believe," "may," "will," "could" and other words of similar
meaning. Such statements include, but are not limited to,
statements regarding the potential impact of cost cutting and
containment measures, the potential for such cost cutting and
containment measures to right-size the business and offset some of
the global weakness in the economy, the Company's plans to build an
encoding service and the potential for additional services
offerings over time in addition to the encoding service. Investors
should not rely on forward-looking statements because they are
subject to a variety of risks and uncertainties and other factors
that could cause actual results to differ materially from the
Company's expectation. Additional information concerning risk
factors is contained from time to time in the Company's SEC
filings. The Company expressly disclaims any obligation to update
the information contained in this release." On2 Technologies, Inc.
Consolidated Statements of Operations Three months ended Nine
months ended September 30, September 30, 2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (unaudited) Revenue $4,971,000
$1,935,000 $12,688,000 $7,119,000 Operating expenses Cost of
revenues (1) 940,000 603,000 3,564,000 1,415,000 Research and
development (2) 2,848,000 445,000 8,665,000 1,500,000 Sales and
marketing (2) 2,018,000 676,000 5,782,000 1,886,000 General and
administrative (2) 1,946,000 1,532,000 8,640,000 3,478,000 Asset
impairments 26,245,000 26,245,000 Equity based compensation:
Research and development 101,000 46,000 325,000 66,000 Sales and
marketing 35,000 34,000 147,000 88,000 General and administrative
257,000 102,000 728,000 330,000 Total operating expenses 34,390,000
3,438,000 54,096,000 8,763,000 Loss from operations (29,419,000)
(1,503,000) (41,408,000) (1,644,000) Interest and other income
(expense), net 304,000 121,000 379,000 (3,464,000) Net loss
(29,115,000) (1,382,000) (41,029,000) (5,108,000) Convertible
preferred stock 8% dividend 7,000 78,000 Net loss attributable to
common stockholders $(29,115,000) $(1,389,000) $(41,029,000)
$(5,186,000) Basic and diluted net loss per common share $(0.17)
$(0.01) $(0.24) $(0.05) Weighted average basic and diluted common
shares outstanding 171,613,000 116,353,000 171,028,000 110,615,000
(1) Includes equity-based compensation of $53,000 and $215,000 for
the three and nine months ended September 30, 2008, respectively
and $48,000 and $63,000 for the three and nine months ended
September 30, 2007, respectively. (2) Excludes equity-based
compensation, which is presented separately On2 Technologies, Inc.
Condensed Consolidated Balance Sheets September 30, December 31,
2008 2007 ASSETS (unaudited) Current assets: Cash and cash
equivalents $4,491,000 $9,573,000 Short-term investments 132,000
5,521,000 Accounts receivable, net 3,997,000 7,513,000 Prepaid
expenses and other current assets 1,757,000 1,492,000 Total current
assets 10,377,000 24,099,000 Acquired software, net 2,459,000
10,333,000 Other acquired intangibles, net 6,445,000 7,144,000
Goodwill 15,987,000 37,023,000 Property and equipment, net
1,509,000 751,000 Other assets 430,000 175,000 Total assets
$37,207,000 $79,525,000 LIABILITIES AND STOCKHOLDERS EQUITY Current
liabilities: Accounts payable and accrued expenses $5,122,000
$6,253,000 Deferred revenue 3,324,000 1,887,000 Short-term
borrowings 109,000 2,198,000 Current portion of long-term debt
481,000 491,000 Current portion of capital lease obligations
262,000 24,000 Total current liabilities 9,298,000 10,853,000
Long-term debt 2,542,000 3,082,000 Capital lease obligations, net
of current portion 485,000 18,000 Total liabilities 12,325,000
13,953,000 Commitments and contingencies Stockholders' equity
24,882,000 65,572,000 Total liabilities and stockholders' equity
$37,207,000 $79,525,000 DATASOURCE: On2 Technologies, Inc. CONTACT:
Investors, Garo Toomajanian, ICR, Inc. +1-518-881-4299, Web site:
http://www.on2.com/
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