On2 Technologies
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On2 Technologies AMEX: [ONT]
In late 2001, On2 released their VP3 compression technology into the open-source community including their patents on the technology. The technology lives on in the form of Ogg Theora.
In 2004, On2's VP6 was selected for use as the Macromedia Flash 8 video codec. This apparently stems from a deal made in the second quarter of 2004 with revenue in that quarter of $US 1.4 million for the licensing agreement. In related news, On2 announced on April 5, 2005 that it had acquired the Flix Flash video encoder technology from Wildform, Inc. On2 added support for Flash 8 video output to the Flix 8 product line that they released on September 13, 2005.
On March 9, 2005, On2 announced another generation of codec design that it calls "VP7". On2 claims that VP7 is superior to the recent H.264/AVC standard, based on claims of comparative technical capabilities and licensing costs.
In late 2003, On2 announced that its VP5 and VP6 codecs were selected by Beijing E-World as a video coding method to be used in a Chinese-developed competitor to the DVD format called the EVD (Enhanced Versatile Disc) format. Then in April of 2004, On2 announced that its business relationship with E-World had soured, and that On2 would file multiple breach of contract claims against E-World in arbitration proceedings. The arbitrator reached a conclusion on March 10, 2005, according to SEC filings by On2 on March 14, 2005. The arbitrator dismissed each of On2's claims and ruled that E-World owed nothing to On2 and had not breached the contract. It seems unlikely that On2 will ultimately get any significant payback from the EVD initiative, although some contract relationship remains in effect.
A number of less highly visible deals with other customers and partners seem to have worked out more amicably. Recent announcements have related to deals with Apex Datacom, IWAPI Inc., Vividas, Digital Witness, XM Satellite Radio, PowerLinx, and Leapfrog. In particular, the company indicated that it expected to recognize some revenue from the Leapfrog deal in the third quarter of 2005 and also made optimistic statements about the future with XM Satellite Radio.
More recently, On2 licensed its technology to AOL for use in an IP-based video telephony product, to Tencent Holdings of China for use in its instant messaging products, and to Saver Corporation of Japan to enable new Flash 8 mobile video applications.
On December 1, 2005, On2 announced that Skype (now owned by eBay) had licensed current and future versions of its video compression software and had integrated it into the Beta version of Skype 2.0. No financial terms were disclosed relating to the deal.
Financial Performance
On March 15, 2005, On2 announced its annual financial results for the year ending December 31, 2004. For the year, the company reported a net loss of about $US 3.4 million. Compared to the previous year's financial results, revenues were down, expenses were up, and losses had increased. However, the amount of cash on hand had increased to $US 5.4 million, and by February 28, 2005, this amount had further increased to more than $US 8.4 million. By June 30, 2005, this figure had dropped back down to $US 5.7 million, apparently primarily due to the Flix acquisition (which include the payment of $1,215,000 to Wildform in the 2nd quarter). This then dropped to $US 4.6 million as of September 30, 2005.On April 21, 2005, On2 announced its financial results for the first quarter of 2005. Revenue for the three months ended March 31, 2005 was $353,000, a 41% decrease from first quarter 2004 revenue and a 246% increase from fourth quarter 2004 revenue. The company's net loss for the first quarter of 2005 was $1,302,000, an increase of 80% over the $723,000 net loss recorded in the first quarter of 2004. Operating expenses for the first quarter of 2005 were $1,455,000, an increase of 17% over 2004 first quarter operating expenses of $1,243,000. Total expenses for the first quarter of 2005 were $1,678,000, which included $212,000 in net loss on the Powerlinx (PWLX.OB) stock the company held.
On July 28, 2005, On2 announced its financial results for the second quarter of 2005. Revenue for the three months ended June 30, 2005 was $346,000, a 78% decrease from second quarter 2004 revenue and a 2% decrease from first quarter 2005 revenue. Approximately half of the Company's second quarter revenue came from the licensing of the Flix line of Flash related products. Operating expenses for the second quarter of 2005 were $1,416,000. The Company's net loss for the second quarter of 2005 was $1,141,000, as compared to $62,000 of net income for the second quarter of 2004.
On October 27, 2005, On2 announced its financial results for the third quarter of 2005. Revenue for the three months ended September 30, 2005 was $507,000, a 33% decrease from third quarter 2004 revenue and a 47% increase from second quarter 2005 revenue. Operating expenses for the third quarter of 2005 were $1,524,000, a decrease of 26% from 2004 third quarter operating expenses and an increase of 7.6% from second quarter 2005 operating expenses. The Company's "net loss attributable to common stockholders" for the third quarter of 2005 was $3,631,000 as compared to $917,000 for the third quarter of 2004.
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