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Matt Frost, Chief Operating Officer and interim Chief Executive Officer of On2 Technologies said, "We are very pleased to have delivered our strongest revenue performance in six quarters. While we have felt some impact of the global economic recession, the continual growth of video on the Internet coupled with the growing need for content providers to reduce bandwidth and improve quality continues to drive our business forward. We were encouraged to see a strong performance from our On2 Finland operation, particularly after it underwent significant cost-reducing measures earlier in the year. Excluding non-recurring expenses, we produced our first quarter of non-GAAP net income and non-GAAP break-even net income per share in over three years. As our top-line patterns are likely to remain somewhat variable, there is no guarantee that positive earnings trends will continue into the next quarter. We believe, however, that encouraging longer term trends are being established through a combination of revenue growth and effective cost management."
Frost added, "Non-recurring items in the second quarter included $523,000 in costs to settle a complaint filed by Islandia LP in August 2008. We also incurred non-recurring legal and other costs of $420,000 associated with our proposed merger with a subsidiary of Google. On the positive side, we recognized a gain from forgiveness of debt this quarter of $669,000 from a loan owed to the Finnish government."
Second Quarter Business Highlights
-- Royalties of $1.2 million in the second quarter increased 74%
year-over-year and 5% sequentially. Royalties represented 24% of revenue
in the quarter, compared with 21% of revenue in the second quarter of
2008 and 28% of revenue in the first quarter of 2009.
-- In the second quarter of 2009, On2 added 40 new customers, excluding
online sales, with 13 transactions in the quarter that contributed over
$50,000 each to revenue. While the number of new customers decreased
year-over-year and sequentially, the number of transactions over $50,000
is up over the same periods.
-- In April, On2 announced that Westec Interactive, a provider of
innovative, intelligent video surveillance systems, will integrate the
On2 VP7(TM) format into its digital video recorder to increase the
quality of stored video while delivering a substantial savings in
bandwidth.
-- In April, On2 and Boo-Ree Multimedia, a fabless semiconductor company
that designs, develops and markets multimedia systems-on-chips,
announced On2 Video playback on the Boo-Ree Tachyon-I multimedia
processor with high-performance hardware playback of On2 VP6 and VP7,
and other formats.
-- Also in April, On2 announced its fastest hardware codec design ever, the
Hantro(TM) 9170. The design supports video playback up to full HD
(1080p) resolution at 60 frames per second in multiple formats including
MPEG-1, MPEG-2, MPEG-4, Sorenson Spark(R), H.263, H.264, VC-1 and
REALVIDEO(R) 8, 9 & 10. On2 also completed a successful Beta test of
and announced the availability of its Flix Cloud on-demand video
transcoding service.
-- In April, On2 announced that ASUS, a leading provider of digital home
solutions and Internet devices, has licensed the On2 VP7 format and
encoder/decoder software SDK to develop Skype-enabled videophones.
-- In May, On2 announced that it had licensed VP6 encoding technology to
Verismo Networks for use in its VuNow Internet TV platform, and that
Chinese web portal NetEase would be deploying On2's VP6 technology.
-- In June, On2 announced that Mobixell Networks, a provider of multimedia
and advertising solutions to mobile operators and content providers, had
licensed the VP6 Codec SDK for use in Mobixell's mobile multimedia
processing and optimization platform.
Google Acquisition
As announced yesterday, On2 entered into a definitive agreement to be acquired by Google. Under the terms of the agreement, each outstanding share of On2 common stock will be converted into $0.60 worth of Google class A common stock in a stock-for-stock transaction. The transaction is valued at approximately $106.5 million. The transaction, which is subject to On2 stockholder approval, regulatory clearances and other closing conditions, is expected to close in the fourth quarter of 2009.
Conference Call
Management will hold a conference call to discuss its results for the second quarter of 2009 and the Google acquisition announcement at 5:00pm ET on August 6, 2009.
To access the live webcast, visit: http://www.investorcalendar.com/IC/CEPage.asp?ID=148129.
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 #: 329419
The telephonic replay will be available until August 13, 2009.
About On2
On2 (NYSE Amex: ONT | Quote | Chart | News | PowerRating) creates advanced video compression technologies that power the video in today's leading desktop and mobile applications and devices. On2 customers include Adobe, Skype, Nokia, Infineon, Sun Microsystems, Mediatek, Sony, Brightcove, and Move Networks. On2 is also an industry leader in server-based video transcoding software. The On2 VP6 video format provides web and HD-quality video for leading sites such as Hulu, Vimeo, Yahoo! Video, Dailymotion, CCTV.com, 56.com, Tudou.com and Eurosport.com. On2 Technologies is headquartered in Clifton Park, NY USA. For more information visit 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 "expect," "will," "anticipate," "should," "plans" and other words of similar meaning. Such statements include, but are not limited to, statements regarding the proposed acquisition of On2 by Google and our belief relating to encouraging longer term trends being established through a combination of revenue growth and effective cost management. 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.
Non-GAAP Financial Measures
On2 has provided in this release financial information that has not been prepared in accordance with GAAP. This information includes non-GAAP net income (loss) and non-GAAP net income (loss) per share and GAAP operating expenses excluding costs associated with proposed merger and litigation settlement costs. This non-GAAP information is provided to enhance the reader's overall understanding of the Company's current financial performance and prospects for the future. Specifically, On2 believes that the exclusion of non-recurring expenses provides useful comparative data by reflecting On2's business operations in a manner that is consistent with expected future operations. Management has historically used non-GAAP net loss and non-GAAP net loss per share when evaluating operating performance because we believe the exclusion of the items described above provides an additional measure of our core operating results and facilitates comparisons of our core operating performance against prior periods and our business model objectives. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States. In the financial tables of our earnings press release, On2 has included for the relevant periods reconciliations of GAAP net loss and GAAP net loss per share to non-GAAP net income (loss) and non-GAAP net income (loss) per share and GAAP operating expenses excluding costs associated with proposed merger costs and litigation settlement costs.
On2 Technologies, Inc.
Condensed Consolidated Balance Sheets
December 31,
ASSETS June 30, 2009 2008
(unaudited)
Current assets:
Cash and cash equivalents $2,666,000 $4,157,000
Short-term investments 131,000 132,000
Accounts receivable 2,199,000 2,730,000
Prepaid expenses and other current assets 290,000 439,000
Total current assets 5,286,000 7,458,000
Intangible assets, net 15,872,000 16,587,000
Property and equipment, net 1,072,000 1,401,000
Other assets 402,000 430,000
Total assets $22,632,000 $25,876,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable & accrued expenses $5,526,000 $5,720,000
Accrued restructuring expenses 785,000 -
Deferred revenue 1,484,000 2,133,000
Short-term borrowings 190,000 63,000
Current portion of long-term debt 171,000 1,148,000
Capital lease obligation 254,000 260,000
Total current liabilities 8,410,000 9,324,000
Capital lease obligation, excluding current
portion 311,000 432,000
Long-term debt 1,979,000 1,802,000
Warrant derivative liability 139,000 -
Total liabilities 10,839,000 11,558,000
Commitments and contingencies - -
Total stockholders' equity 11,793,000 14,318,000
Total liabilities and stockholders' equity $22,632,000 $25,876,000
On2 Technologies, Inc.
Unaudited Condensed Consolidated Statements of Operations
Three months ended June 30,
2009 2008
Revenue $4,996,000 $3,265,000
Operating expenses:
Cost of revenue (1) 445,000 1,194,000
Research and development (2) 1,721,000 3,009,000
Sales and marketing (2) 926,000 1,875,000
General and administrative (2) 1,548,000 3,926,000
Costs associated with proposed merger 420,000 -
Litigation settlement costs 523,000 -
Equity-based compensation:
Research and development 173,000 105,000
Sales and marketing 70,000 74,000
General and administrative 194,000 258,000
Total operating expenses 6,020,000 10,441,000
Income (loss) from operations (1,024,000) (7,176,000)
Interest and other (expense) income, net 131,000 1,000
Gain from forgiveness of debt 669,000 -
Loss before provision for income taxes (224,000) (7,175,000)
Provision for income taxes - -
Net loss $(224,000) $(7,175,000)
Convertible preferred stock 8% dividend - -
Net loss attributable to common stockholders $(224,000) $(7,175,000)
Basic and diluted net loss per common share $(0.00) $(0.04)
Weighted average basic and diluted
common shares outstanding 175,507,000 170,971,000
(1) Includes equity-based compensation of $59,000 and $79,000 for
the three months ended June 30, 2009 and 2008, respectively
(2) Excludes equity-based compensation, which is presented separately
On2 Technologies, Inc.
Unaudited Reconciliation of Non-GAAP Adjustments
Three months ended June 30,
2009 2008
Operating Expenses:
GAAP Operating expenses: $6,020,000 $10,441,000
Costs associated with proposed
merger 420,000 -
Litigation settlement costs 523,000
Operating expenses, excluding costs
associated with proposed merger
and litigation settlement costs $5,077,000 $10,441,000
Net Income (Loss):
GAAP net loss $(224,000) $(7,175,000)
Costs associated with proposed
merger 420,000 -
Litigation settlement costs 523,000
Net income(loss), excluding costs
associated with proposed merger
and litigation settlement costs $719,000 $(7,175,000)
GAAP Net loss per share $(0.00) $(0.04)
Net income(loss) per share, excluding
costs associated with proposed merger
and litigation settlement costs $0.00 $(0.04)
Three months ended March 31,
2009 2008
Net Loss:
GAAP net loss $(2,988,000) $(4,739,000)
Restructuring and impairment
charge 1,032,000 -
Net loss, excluding restructuring
and impairment charge $(1,956,000) $(4,739,000)
SOURCE On2 Technologies, Inc.
http://www.on2.com
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