On2 Technologies, Inc was founded in 1992. The company develops audio and video compression/decompression (codec), encoding, and server software used with video delivery platforms. Its products include TrueMotion line of codec with VP6 and VP7 series that deliver real-time encoding possibility and TrueCast Server software used for the delivery of multi-media presentations. On2's Flix is a product line of VP6 based video encoding and publishing software solutions for Adobe Flash Player. Flix software is used by many of the leading web video portals and user-generated content and social networking sites. The company also offers software engineering and consulting services as well as technical support to the digital communication and media companies as well as third party resellers.

As of September 14, 2007 the company has began its expansion to the Asian market as it has signed contracts with firms in Japan and India.

On September 21, 2007, the company announced expansion of management staff. It has appointed Erik Leonard as a new Senior Vice President of Business Development. Mr. Leonard has more than 15 years of sales management experience of selling large IP software and hardware solutions to market leading companies. He will focus on expanding On2's strategic global customer base, and developing new technology and OEM partnerships for On2's solutions with carriers and large video services operators.

The company has recently released new Flix group software updates for the support of Adobe Flash Player 9 VP6-S video profile. This technology offers greater simplicity in the encoding and playback of high-resolution, full-screen video. It allows the streaming and playback of high definition video for ordinary PC‘s.

While all this sounds very good the company is still not generating enough revenue to be profitable. For the last quarter ended June 30, 2007, the sales actually dropped by nearly 10% to $2.5 million. This has caused the net loss to increase by 266% as it was $-2.8 million for the period. Strangely the stockholder equity has increased by 554% to over $12 million and the tangible assets had a 927% increase to nearly $12 million. This is due to increased cash and decreased long term debt.

As stated on August 23, 2007, the company has entered into a share exchange agreement with Nexit Ventures Oy. The agreement should have been closed in September however there is no statement concerning the closure.

In our opinion if the current trends continue the stock price should mildly increase over time despite the company's losses which should also gradually turn into profits. Also in spite of rather large stockholder equity increase over the last quarter it will most probably go down over the next period and remain dropping until the company can reach profitability.

All numbers in thousands except EPS data.