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On2 Technologies, Inc. Announces Improved Third Quarter Results NEW YORK, Oct. 28 /PRNewswire-FirstCall/ -- On2 Technologies, Inc. today announced that its revenue for the third quarter of 2003 was $866,000 compared to third quarter 2002 revenue of $824,000. Operating expenses for the third quarter were $1,467,000, a reduction of 30% from operating expenses for the third quarter of 2002. The net loss for the third quarter of 2003 was $625,000 compared to the net loss of $1,281,000 for the third quarter of 2002. The net loss attributable to common stockholders for the third quarter of 2003 was $853,000 ($.01 per share), compared to $1,949,000($.03 per share) for the third quarter of 2002. For the nine months ended September 30, 2003, revenue rose 17% over the first nine months of 2002 to $2,976,000, while operating expenses were reduced by 42% to $4,300,000. The net loss for the first nine months of 2003 was $1,312,000 compared to the net loss of $4,952,000 for the first nine months of 2002. The net loss attributable to common stockholders for the first nine months of 2003 was $1,540,000 ($.02 per share) compared to $5,620,000 ($.11 per share) for the first nine months of 2002. A reconciliation of Net Loss (GAAP) to EBITDA for Q3 and the nine months of 2003 compared to the comparable periods last year is as follows: Three Months Ended Nine Months Ended September 30 September 30 2003 2002 2003 2002 Net loss (GAAP) $(625,000) $(1,281,000) $ (1,312,000) $(4,952,000) Interest and other (income) expense, net 21,000 4,000 (21,000) 14,000 Taxes 3,000 9,000 9,000 27,000 Depreciation & Amortization 196,000 400,000 672,000 1,214,000 EBITDA loss $(405,000) $(868,000) $(652,000) $(3,697,000) At September 30, 2003, the Company's cash and cash equivalents was $2,915,000 compared to cash and cash equivalents of $1,012,000 at June 30, 2003 and $553,000 at December 31, 2002. The company also said that Chinese officials have invited On2 representatives to the launch announcement of China's EVD standard. The event is expected to occur on November 18th in Beijing. Representatives of Beijing E-World and On2's CEO Douglas McIntyre and other management members are planning to attend the event. The company will host a conference call and a live webcast regarding its third quarter results at 5:00 p.m. EST on October 28: To access the live webcast, please use the following: http://www.vcall.com/CEPage.asp?ID=84893 The dial-in information for the conference call is as follows: Live Participant Dial In (Toll Free): 877-407-9205 Replay Number (Toll Free): 877-660-6853 Replay Passcodes (both required for playback): Account #: 1628 Confirmation #: 79870 Teleconference Replay Available Until: October 29, 2003 at 11:59PM Eastern The earnings release and related financial information to be discussed during the conference call will be available on the company's website at: http://www.on2.com/releases. About On2 Technologies, The Duck Corporation On2 Technologies (AMEX:ONT) is a leading technology firm at the forefront of video compression. The Company revolutionized video encoding with the creation of its advanced full-motion, full-screen, video compression and streaming technology (TrueMotion(R) VP4/VP5/VP6). On2 licenses its high quality video codecs for use in set-top boxes, consumer electronics devices and wireless applications. In addition, On2 offers a suite of products and services, including high-level video encoding, customized technical support, and consulting/integration services. Located in New York City, the Company has an office in Clifton Park, NY, and operations in Cambridge, UK. On2 may be reached at 21 Corporate Drive, Suite 103, Clifton Park, NY 12065 or or . This release contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements relating to an event relating to the EVD standard. These forward-looking statements are subject to the safe harbor provisions of the aforementioned Sections and the Private Securities Litigation Reform Act of 1995. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve potential risks and uncertainties including those described in our filings with the SEC, and that the actual results or developments may differ materially from those in the forward-looking statements as a result of various factors. Potential risks and uncertainties include, but are not limited to, general economic conditions, competition in the compression technology industry and the company's history of operating losses. We have based these forward-looking statements on information currently available and disclaim any intention or obligation to update or revise any forward-looking statement. On2 Technologies, Inc. Consolidated Statements of Operations Three months ended Nine months ended September 30, September 30, 2003 2002 2003 2002 (unaudited) (unaudited) (unaudited) (unaudited) Revenues $866,000 $824,000 $2,976,000 $2,540,000 Operating expenses (a): Cost of revenues 410,000 422,000 1,252,000 1,630,000 Research and development 249,000 455,000 865,000 1,847,000 Sales and marketing 158,000 108,000 350,000 848,000 General and administrative 650,000 605,000 1,833,000 2,515,000 Impairment charges -- -- -- 30,000 Cost curtailment and restructuring charges (b) -- 502,000 -- 581,000 Total operating expenses 1,467,000 2,092,000 4,300,000 7,451,000 Loss from operations (601,000) (1,268,000) (1,324,000) (4,911,000) Interest and other income (expense), net (21,000) (4,000) 21,000 (14,000) Loss before provision for income taxes (622,000) (1,272,000) (1,303,000) (4,925,000) Provision for income taxes 3,000 9,000 9,000 27,000 Net loss (625,000) (1,281,000) (1,312,000) (4,952,000) Non-cash convertible preferred stock dividend 228,000 668,000 228,000 668,000 Net loss attributable to common stockholders $(853,000) $(1,949,000) $(1,540,000) $(5,620,000) Basic and diluted net loss per common share $(0.01) $(0.03) $(0.02) $(0.11) Weighted average basic and diluted common shares outstanding 65,339,000 56,094,000 62,678,000 51,321,000 (a) Operating expenses include depreciation of fixed assets and amortization of intangible assets that amount to the following in the aggregate: -- $400,000 for the three months ended September 30, 2002 -- $196,000 for the three months ended September 30, 2003 -- $1,214,000 for the nine months ended September 30, 2002 -- $672,000 for the nine months ended September 30, 2003 (b) Restructuring and cost curtailment charges consist of property-lease termination, relocation costs, severance and the loss on disposal of fixed assets associated with the relocation, that amount to the following in the aggregate. -- $502,000 for the three months ended September 30, 2002 -- $581,000 for the nine months ended September 30, 2002 On2 Technologies, Inc. Condensed Consolidated Balance Sheets September 30, 2003 December 31, ASSETS (unaudited) 2002 Current assets: Cash and cash equivalents $2,915,000 $553,000 Accounts receivable, net 961,000 601,000 Prepaid expenses and other current assets 222,000 101,000 Total current assets 4,098,000 1,255,000 Property and equipment, net 174,000 353,000 Intangible assets, net -- 463,000 Other assets 26,000 9,000 Total assets $4,298,000 $2,080,000 LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities: Accounts payable and accrued expenses $348,000 $520,000 Deferred revenue 53,000 -- Term-loan payable 108,000 -- Current portion of capital lease obligations -- 4,000 Total current liabilities 509,000 524,000 Capital lease obligations, net of current portion -- 5,000 Convertible debentures, net of discount 541,000 569,000 Commitments and contingencies Stockholders' equity 3,248,000 982,000 Total liabilities and stockholders' equity $4,298,000 $2,080,000 DATASOURCE: On2 Technologies, Inc. CONTACT: Tim Reusing of On2 Technologies, +1-518-348-0099, or +1-646- 292-3533 Web site: http://www.on2.com/

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