<PAGE>

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(Mark One)

/X/      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
                                 For the quarterly period ended March 31, 2000.

/ /      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
                                   For the transition period from ____ to ____.

Commission file number 1-15117.

                                  ON2.COM INC.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Colorado                               84-1280679
-------------------------------------------------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)

375 Greenwich Street, New York, NY                                       10013
------------------------------------------------------------------------------
(Address of principal executive offices)                            (Zip Code)

                                 (212) 941-2400
-------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

-------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. /X/ Yes / / No

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. / / Yes / / No


<PAGE>

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

         State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:

24,643,823 as of March 31, 2000.

Transitional Small Business Disclosure Format (Check one):  / / Yes    /X/ No









                                       2

<PAGE>

                         PART I -- FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS.

The unaudited financial statements follow:

                                                   CONTENTS
<TABLE>
<CAPTION>
                                                                                      Page
<S>                                                                                   <C>
Consolidated Balance Sheets at March 31, 2000 and December 31, 1999...................   4
Consolidated Statements of Operations, Three Months Ended March 31, 2000 and 1999.....   5
Consolidated Statements of Cash Flows, Three Months ended March 31, 2000 and 1999.....   6
Notes to Consolidated Financial Statements............................................   8

</TABLE>










                                       3

<PAGE>

                                   ON2.COM INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                  March 31, 2000   December 31, 1999
                                                                                     Unaudited         Unaudited
                                                                                  --------------   -----------------
<S>                                                                               <C>              <C>
            ASSETS
------------------------------------
ASSETS:
   Current assets-
   Cash and cash equivalents                                                         $ 8,953,148       $ 15,083,419
   Accounts receivable                                                                    81,021            136,766
   Loans receivable from stockholders                                                      -                294,624
   Prepaid expenses and other current assets                                             462,866            459,295
                                                                                     -----------       ------------
   Total current assets                                                                9,497,035         15,974,104
   Fixed assets, net                                                                   2,360,128          1,322,690
   Intangible assets, net of amortization of $633,987 at March 31, 2000 and
     $289,143 at December 31, 1999                                                     4,131,461          4,476,305
   Patent costs, net of accumulated amortization of $176,259 and $165,608 at
     March 31, 2000 and December 31 1999, respectively                                   125,102            140,753
   Due from Affiliated Company                                                           110,000
   Other assets                                                                          513,142            518,020
                                                                                     -----------       ------------
   Total assets                                                                      $16,736,868       $ 22,431,872
                                                                                     -----------       ------------
                                                                                     -----------       ------------

      LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------
LIABILITIES:
   Current liabilities-
   Notes payable to stockholders                                                      $  350,000      $     649,624
   Obligation under capital leases - current portion                                     38,084             -
   Accounts payable and accrued expenses                                               3,343,496          1,419,048
   Deferred revenue                                                                       25,000            -
                                                                                     -----------       ------------
   Total current liabilities                                                           3,756,580          2,068,672
                                                                                     -----------       ------------
   Obligation under capital leases - long-term portion                                    22,796            -
                                                                                     -----------       ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:

   Series A convertible preferred stock; no par value; (liquidation preference
     of $7.50 per share); authorized 5,000,000 shares; issued and outstanding
     2,000,000 shares at March 31, 2000 and December 31, 1999.                        14,614,113         14,614,113
   Common stock, no par value; 50,000,000 shares authorized; 24,643,823 shares
     outstanding at March 31, 2000; 24,286,596 shares outstanding at December
     31, 1999                                                                         21,106,667         21,106,003
   Additional paid in capital                                                          9,430,201            -
   Accumulated deficit                                                               (32,193,489)       (15,356,916)
                                                                                     -----------       ------------
                 Total stockholders' equity                                           12,957,492         20,363,200
                                                                                     -----------       ------------
                 Total liabilities and stockholders' equity                       $  16,736,868        $ 22,431,872
                                                                                     -----------       ------------
                                                                                     -----------       ------------
</TABLE>

SEE ACCOMPANYING NOTES.

                                       4

<PAGE>

                                  ON2.COM INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                       Three Months Ended March 31,
                                                                         2000                1999
                                                                      Unaudited           Unaudited
                                                                     ------------        ------------
<S>                                                                  <C>                 <C>
REVENUES                                                             $    104,187        $      7,618
                                                                     ------------        ------------
                                                                     ------------        ------------
OPERATING EXPENSES

     Research and development                                           1,668,116             303,280
     Content development and distribution                               1,708,377                -
     Sales and marketing                                                2,487,451             242,520
     General and administrative                                         1,728,910             461,002
     Non-cash stock based charges                                       9,430,201                -
                                                                     ------------        ------------
          Total operating expenses                                     17,023,055           1,006,802
                                                                     ------------        ------------
             Loss from operations                                     (16,918,868)           (999,184)

OTHER INCOME AND (EXPENSE)

    Interest expense                                                      (15,560)               (754)
    Interest income and other                                             156,487              11,352
                                                                     ------------        ------------
             Loss before provision for taxes                          (16,777,941)           (988,586)

PROVISION FOR TAXES                                                        58,632                 114
                                                                     ------------        ------------
             Net loss                                                $(16,836,573)       $   (988,700)
                                                                     ------------        ------------
                                                                     ------------        ------------

   Loss per share - basic and diluted                                     $ (0.69)             $(0.06)

   Weighted average common shares outstanding -
      basic and diluted                                                24,380,933           15,302,374
</TABLE>

SEE ACCOMPANYING NOTES.

                                       5

<PAGE>

                                  ON2.COM INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                       Three Months Ended March 31,
                                                                     --------------------------------
                                                                         2000                1999
                                                                      Unaudited           Unaudited
                                                                     ------------        ------------
<S>                                                                  <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                           $(16,836,573)       $   (988,700)
  Adjustments to reconcile net loss to net cash used in operating
    activities:
   Non-cash stock based charges                                         9,430,201                 -
   Depreciation and amortization                                          527,579              54,654
   Changes in operating assets and liabilities:
     Accounts receivable                                                   55,745               4,841
     Prepaid expenses and other current assets                             (3,571)                247
     Other assets                                                           4,878                 -
     Accounts payable and accrued expenses                              1,924,448             (23,936)
     Deferred revenue                                                      25,000                 -
                                                                     ------------        ------------
       Net cash used in operating activities                           (4,872,293)           (952,894)
                                                                     ------------        ------------
CASH FLOWS FROM INVESTING ACTIVITIES

  Purchase of fixed assets                                             (1,131,771)             (4,190)
  Payments on notes payable to stockholders                                (5,000)             (6,604)
  Advance to affiliated company                                          (110,000)                -
                                                                     ------------        ------------
       Net cash used in investing activities                           (1,246,771)            (10,794)
                                                                     ------------        ------------
CASH FLOWS FROM FINANCING ACIVITIES
  Principal payments on capital lease obligations                         (11,871)                -
  Proceeds from warrant to purchase Common Stock                              -                 1,000
  Proceeds from exercise of employee stock options                            664                 -
                                                                     ------------        ------------
       Net cash provided by financing activities                          (11,207)              1,000
                                                                     ------------        ------------
       Net decrease in cash and cash equivalents                       (6,130,271)           (962,688)
Cash and cash equivalents, beginning of period                         15,083,419           1,227,706
                                                                     ------------        ------------
Cash and cash equivalents, end of period                             $  8,953,148        $    265,018
                                                                     ------------        ------------
                                                                     ------------        ------------
</TABLE>

                                       6

<PAGE>

                                  ON2.COM INC.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND
FINANCING ACTIVITIES

<TABLE>
<CAPTION>
                                                         Three Months ended March 31,
                                                          2000                  1999
                                                       Unaudited              Unaudited
                                                  -------------------    -------------------
<S>                                               <C>                    <C>
Cash paid during the period for:

   Interest                                             $     1,224             $  754
                                                  ==============================================
   Taxes                                                $    52,475             $  114
                                                  ==============================================
 Acquisition of fixed assets under capital leases       $   72,750                   -
                                                  ==============================================
</TABLE>

Effective June 9, 1999, On2.com Inc. (the "Company") entered into a Separation
and Release Agreement with an officer and shareholder. In connection with the
agreement, the Company repurchased 302,374 shares of the Company's Common Stock
from the officer and shareholder at a price of $1.12 per share through issuance
of a note payable to the shareholder. Under the terms of the Separation and
Release Agreement, on January 15, 2000 the Company offset the remaining balance
of the note payable to the shareholder against certain notes and advances
receivable from the shareholder in the amount of $294,624.

The Company leases certain equipment for use in its business. During the three
months ended March 31, 2000, the Company leased equipment with a fair market
value of $72,750 under a capital lease with a term of 18 months and an implicit
interest rate of 11 percent. During the three months ended March 31, 2000 the
Company paid $11,871 in principal and $1,224 in interest related to the capital
lease.

SEE ACCOMPANYING NOTES.

                                       7

<PAGE>

                                  ON2.COM INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1  Unaudited Financial Information

The interim consolidated statements are unaudited. However, in the opinion of
management, the interim data include all adjustments, consisting only of
normal, recurring adjustments, necessary for a fair statement of the results
for the interim periods. The financial statements included herein have been
prepared by On2.com Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures included herein are adequate to make
the information presented not misleading. These financial statements should
be read in conjunction with the annual financial statements and notes thereto
included in the Company's Form 10-KSB Report filed with the Securities and
Exchange Commission on March 30, 2000.

Certain prior period balances have been reclassified to conform to the current
period presentation.

Note 2 Organization and Operations

The Company has developed proprietary video compression and Internet streaming
technology that combines the classic elements of television with the
interactivity of the Internet for delivery to broadband Internet users. The
Company launched a demonstration Web site, www.on2.com, on February 18, 2000.
The Company's business model is to provide broadband Internet video hosting
services and consulting services and/or licensing its technology to video
content owners who want to use the Company's technology to distribute
television quality video images to broadband Internet users.

Note 3  Net Loss Per Share

The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share". Under the provisions of SFAS No. 128, basic and diluted
net loss per share are computed by dividing the net loss available to common
stockholders by the weighted average number of common and common equivalent
shares outstanding during the period. Common equivalent shares, comprised of
incremental common shares issuable upon the exercise of stock options and
warrants, have not been included in the computation of diluted net loss per
share as their effect is anti-dilutive.

                                       8

<PAGE>

Note 4 Contingency

The Company was a defendant in a lawsuit regarding an alleged breach of contract
that sought damages in the millions of dollars. The Company denied the
substantive allegations and contested the case vigorously. During fiscal year
1998, the court ruled that the plaintiff is entitled to $60,000 based on the
contract, plus interest. Accordingly, the Company accrued and paid $89,000
relating to this matter. The Plaintiff filed a notice of appeal with respect to
the summary judgement and trial decision. The Company opposed the appeal and
cross-appealed with respect to denomination of prevailing party. The court held
that the Company was the prevailing party and was thus entitled to recover
reasonable counsel fees. In April 2000 the Company was granted a judgement for
$215,000 in legal fees, which payment was received received in May 2000.

Note 5  Non-Cash Stock-Based Charges

Pursuant to the company's 1999 stock option plan ("the Plan"), employees of the
Company were granted options to purchase shares of common stock. The terms of
the options granted to employees under the plan, including exercise price and
number of shares granted, were fixed on the date of grant and remain the same
throughout the duration of the plan. To administer the plan, the Company
contracted with a third party to settle all exercises under the plan.

The Company accounts for stock-based compensation agreements in accordance
with the provisions of APB No. 25. Under APB Opinion 25, fixed option plans for
employees--that is those plans whose terms, including price and number of shares
granted, remain the same throughout the duration of the plan--have no
compensation expense associated with the options when the exercise price is
equal to the fair value of the stock at the grant date. All options granted
under the company's plan were at fair market value on the date of grant.
Accordingly, compensation expense was not recorded for options awarded to
employees.

During the three months ended March 31, 2000, the Company chose to
self-administer the plan. Also during the period, various vested employees began
to exercise a portion of their options. Pursuant to the "cashless exercise"
provisions of the plan, the employees were permitted to pay the exercise price
with cash, or "by surrendering, in addition to the options representing the
shares being purchased, unexercised, vested options with a net fair market value
equal to the price of the shares being purchased." The employees chose to
surrender unexercised options, from their fixed grant total, with a fair market
value equivalent to the cash exercise price.

Under an interpretation of generally accepted accounting principles related to
stock-based compensation, the employees' surrendering of unexercised, vested
options in satisfaction of the exercise price, instead of cash, in a
self-administered plan, resulted in the requirement to recognize the entire
exercise value of the shares as non-cash stock based compensation expense.

                                       9

<PAGE>

The number of shares, the range of exercise prices and the range of market
values on the dates of exercise are as follows:

<TABLE>
<CAPTION>
     Number of                Range of                     Range of
      shares               Exercise Prices               Market Values
      <S>                  <C>                         <C>
      381,930              $0.88 - $2.25               $22.125 - $23.275
</TABLE>

The total non-cash compensation charge for the period was $8,130,201.

On January 31, 2000, the Company issued a warrant to purchase 100,000 shares of
its Common Stock to a business partner, in exchange for the partner's commitment
to be a sponsor of the company's Web site. The warrant has a five-year life and
is exercisable at any time at an exercise price of $19.8875. The fair market
value of the Company's Common Stock at the date of issue was $19.75.

The sponsorship agreement is renewable annually and may be terminated at such
time by either the Company or the business partner upon notice. Pursuant to FAS
123, the fair value of the warrant was calculated under the Black-Scholes
pricing model to measure the consideration received in the transaction. A value
of $1,300,000 resulted from use of the following assumptions 1) volatility of
75%; 2) risk-free interest rate of 6%; 3) 5 year term; 4) exercise price of
$19.8875; 5) Market price of $19.75.

The warrant is exercisable immediately. Accordingly, the value of the warrants
was expensed during the three-month period ended March 31, 2000.

Note 6  DVD Mags Inc. Asset Acquisition

On March 26, 2000 the company signed an agreement and plan of acquisition with
DVD Mags, Inc., a California corporation doing business as Quickband Networks
("Quickband"), a Los Angeles based aggregator and retail distributor of
broadband entertainment content. Pursuant to the agreement, the Company
committed to issue 136,339 shares of its Common Stock, no par value, and 34,100
shares of its Series B Preferred Stock, no par value, in exchange for
substantially all of the assets and the assumption of certain liabilities of
Quickband. The acquisition was consummated on April 4, 2000. No historical or
pro forma financial statement information has been presented, as the
acquisition did not meet the significance test.

The Registrant currently intends to operate the business formerly conducted by
Quickband as a subsidiary of On2.com Inc. At March 31, 2000, the company had
advanced $110,000 to Quickband.

                                       10

<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

This document contains 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. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms, or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. In this regard, the business and operations of the Company are
subject to substantial risks which increase the uncertainty inherent in the
forward-looking statements contained in this Form 10-QSB. In evaluating the
Company's business, you should give careful consideration to the information set
forth below under the caption "Risk Factors That May Affect Future Operating
Results," in addition to the other information set forth herein.

The inclusion of the forward-looking statements should not be regarded as a
representation by the Company, or any other person, that such forward-looking
statements will be achieved. Although we believe the that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance, or achievements. We undertake
no duty to update any of the forward-looking statements, whether as a result of
new information, future events or otherwise. In light of the foregoing, readers
are cautioned not to place undue reliance on the forward-looking statements
contained in this report.

OVERVIEW

The Company has developed proprietary video compression and Internet streaming
technology that combines the classic elements of television with the
interactivity of the Internet for delivery to broadband Internet users. The
Company launched a demonstration Web site, www.on2.com, on February 18, 2000.
The Company expects future revenue to be derived from providing broadband
Internet video hosting, encoding and consulting services and/or licensing its
technology to video content owners who want to use the Company's technology to
distribute television quality video images to broadband Internet users.

Founded in 1992, the Company developed and marketed video
compression/decompression software technology ("codecs") that enabled developers
of computer video games, video games for dedicated video game consoles and
multi-media presentations on computers to convert an analog video signal to a
digital video signal, and to compress the signal for storage and playback on the
required device. The Company also developed its own proprietary video streaming
technology, enabling delivery of high quality video signals over high bandwidth
networks. Additionally, the Company developed technology allowing for real-time
capture, compression and storage of digital video signals.

                                       11

<PAGE>

Historically, substantially all of the Company's revenue was derived from a few
large technology licensing agreements whereby the Company received
non-refundable advances against future royalties based on sales by the licensee,
or outright license of certain elements of the Company's technology. Future
revenue is expected to be derived from providing broadband Internet video
hosting services and consulting services and/or licensing its technology to
video content owners who want to use the Company's technology to distribute
television quality video images to broadband Internet users.

In view of the rapidly evolving nature of its business and its limited operating
history, the Company has little experience forecasting its revenues. Therefore,
the Company believes that period-to-period comparisons of financial results are
not necessarily meaningful and should not be relied upon as an indication of
future performance. To date, the Company has incurred substantial costs to
create technology and services. The Company will continue to incur costs to
develop, introduce and enhance services, build brand awareness and grow the
business. The Company may also incur significant additional costs and expenses
related to technology, marketing or acquisitions of businesses and technologies
to respond to changes in this rapidly changing industry. These costs may not
correspond with any meaningful increases in revenues in the near term.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2000 Compared To Three Months Ended March 31, 1999

Revenue

Net revenues of $104,187 and $7,618 for the three months ended March 31, 2000
and 1999 respectively, were derived primarily from the sale and/or licensing of
the Company's TrueMotion(R) technology. For the three months ended March 31,
2000, approximately 49% of the Company's revenue was royalties received from one
customer pursuant to a license agreement. Approximately 32% of revenue was
received from a radio syndication customer of the Company's celebrity
interview content subsidiary. The balance of revenue was sales of individual
licenses to content developers.

During the three months ended March 31, 2000, the Company devoted substantially
all its efforts to building the On2.com network and developing the technology to
operate the site and to provide services for others.

The Company expects that future revenue will be derived by providing hosting and
other technical services and /or licensing the Company's technology to companies
who want to use the Company's technology to provide television quality video to
broadband Internet users. The Company introduced its demonstration Web site on
February 18, 2000.

                                       12

<PAGE>

Operating expenses

The Company's operating expenses consist of research and development, content
and distribution, sales and marketing, general and administrative expenses, and
non-cash stock based charges. Operating expenses of $17,023,055 for the three
months ended March 31, 2000 increased $16,016,253 from the same period in
1999. Comparability between periods is significantly affected by the rapid
growth and development of the company since the prior, comparable period in
1999 and by the inclusion of the non-cash stock-based charges, which was
related to the exercise of incentive stock options by employees and the
granting of a warrant to a business partner (see note 5 to financial
statements).

Research and development expenses consist primarily of salaries and related
expenses for personnel and fees to outside contractors and consultants. Research
and development expenses for the three months ended March 31, 2000 of $1,668,116
increased approximately $1,364,836 or 450% from $303,280 for the same period in
1999, reflecting the additional costs incurred in developing new technology.

Research and development expenses to date have been focused on continuing
development of technology to deliver television quality video signals to
broadband Internet users. For the three months ended March 31, 2000,
substantially all of the Company's research and development effort was directed
to these activities. For the three months ended March 31, 1999, the Company's
efforts were directed to completing development of technology licensed to a
customer as well as development of technology to deliver television quality
video signals to broadband Internet users. The Company expects research and
development costs to continue at high levels in coming periods as it continues
to develop technology to operate the business.

Content development and distribution are the costs associated with producing,
acquiring, processing and distributing content on its Web site. For the three
months ended March 31, 2000, these costs amounted to $1,708,377. Expenses
associated with these activities were not incurred in the three months ended
March 31, 1999. These expenses consist primarily of the costs of salaries of
employees and costs of outside independent contractors engaged in developing our
Web site and producing content for it.

The sales and marketing expenses consist primarily of salaries related to
developing business arrangements with prospective partners, creating awareness
of new services and costs of communicating to the industry and potential users.
Sales and marketing expenses for the three months ended March 31, 2000 of
$2,487,451 increased $2,244,931 from $242,520 in the year earlier period.
Approximately $1.4 million of the expense was advertising to introduce our
technology and demonstration Web site.

General and administrative expenses consist primarily of salaries and related
personnel expenses, rent, accounting and legal services and general operating
expenses. For the three months ended March 31, 2000, general and administrative
expenses of $1,728,910 increased $1,267,908 or 275% from the year earlier
period, reflecting additional staff, space, legal and general expenses related
to the business.

                                       13

<PAGE>

As the Company builds and expands its business in 2000 and beyond, its research
and development, sales and marketing, and general and administrative expenses
will continue to increase. Research and development expenses will increase as
the company adds engineers and outside consultants to its technology and Web
development teams. Sales and marketing expenses will increase as the Company
adds additional business development, sales and marketing personnel to build
business relationships, sell advertising and build brand awareness. In addition,
advertising and public relations expenses will increase as the Company invests
to grow its business. General and administrative expenses will increase as the
Company continues to build its management infrastructure, including additional
personnel, office space and internal information systems.

At March 31, 2000 the Company had 95 full-time employees. The Company expects
the number of employees to continue to increase in future periods.

Other income (expense)

Interest expense for the three months ended March 31, 2000 of $15,560 increased
$14,806 from the three months ended March 31, 1999, primarily due to interest
on notes to stockholders and interest on capital leases. Other income (primarily
interest income) of $156,487 for the three months ended March 31, 2000 increased
$145,135 from $11,352 for the same period last year primarily due to increased
investments.

Provision for taxes

For the three months ended March 31, 2000, the provision for taxes of $58,632
consists primarily of state and local taxes.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2000, the Company had cash and cash equivalents of $8,953,148
compared to $15,083,419 at December 31, 1999.

The Company's capital requirements have been, and will continue to be,
significant. Since inception, the Company has financed its operations primarily
through issuance of stock. Through March 31, 2000 the Company had raised
approximately $32,000,000 from the sale of Preferred Stock and Common Stock. At
March 31, 2000 the principal source of liquidity for the Company was $8,953,148
of cash and cash equivalents.

For the three months ended March 31, 2000 and 1999, cash used in operating
activities was $4,872,293 and $952,894 respectively. The increase was due
primarily to the increased cost of building the Company's business.

Cash used in investing activities for the three months ended March 31, 2000 of
$1,246,771 was used for the acquisition of fixed assets, payments on
note payable to stockholders and a loan to an affiliated company (see Note 6
to financial statements). The Company expects to expend significant amounts
for equipment, software and fixtures over the next 12 months.

                                       14

<PAGE>

Cash used by financing activities was $11,207 for the three months ended March
31, 2000 and represents principal payments on capital leases less proceeds
from the sale of common stock to an employee pursuant to the exercise of an
incentive stock option.

The market for distribution of interactive broadband video content is highly
competitive and requires significant expenditures to procure the personnel,
technology and business partners necessary to establish a leadership position in
the industry. The Company will continue to develop its technology and hire
additional employees. Operating costs are expected to continue to increase
during this period of development.

The Company believes it has cash and commitments for additional financing to
adequately finance operations for the next 12 months. There can be no
assurance that the Company will not require additional financing within this
time frame to fund acquisitions, develop new technologies or acquire other
strategic assets. Such additional funding, if needed, may not be available on
terms acceptable to the Company, or at all.

IMPACT OF YEAR 2000

Many computer systems and software products were originally coded to accept only
two-digit entries in date code fields. Beginning in the year 2000, these date
code fields needed to distinguish 21st century dates from 20th century dates. As
a result, computer systems and/or software used by many companies needed to be
upgraded to comply with "Year 2000" requirements. We believe our network is Year
2000 compliant.

Upon the "rollover" to January 1, 2000 and subsequent to that date, the Company
has not experienced any Year 2000 related outages or interruptions of services
received or provided. At this point, we are not aware of any Year 2000 problems
relating to systems that we operate or systems operated by third parties, that
have had any material effect on our business, results of operations or financial
condition.

We have not incurred any significant costs related to the assessment of, or
efforts to comply with, our Year 2000 review and remediation plan. We do not
anticipate any further costs associated with remediating any non-compliant
computer systems or products. There can be no assurance to that effect. Any such
cost will be funded through working capital. We do not expect that any remaining
collateral effects of the Year 2000 issue will have a material adverse effect on
our financial condition or results of operations.

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RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

POTENTIAL FLUCTUATIONS OF QUARTERLY OPERATING RESULTS; UNPREDICTABILITY OF
FUTURE REVENUE; EXPECTED FUTURE LOSSES

Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. These
factors include:
         - the early stage of our development o the level of Web usage;
         - the level of broadband usage;
         - traffic levels on our Web channels;
         - the demand for advertising on our Web channels as well as on the Web
           in general;
         - our ability to enter into or renew key agreements;
         - fees we may pay for distribution or content agreements or other costs
           we incur as we expand our operations;
         - competitive factors;
         - technical difficulties or system downtime affecting the Web generally
           or the operation of our Web channels; or
         - economic conditions specific to the Web as well as general economic
           conditions.

AS A RESULT OF THESE FACTORS, OUR OPERATING RESULTS FOR ANY PARTICULAR QUARTER
MAY NOT BE INDICATIVE OF FUTURE OPERATING RESULTS.

We expect that over time our revenues will come from a mix of advertising,
e-commerce relationships, licensing of our technology, consulting services and
hosting of video on our network of servers. Initially, our quarterly revenues
and operating results are likely to be particularly affected by the level of our
advertising revenue in each quarter. Our cost structure could also change
dramatically as we increase the number of Web channels in operation. Any
shortfall in our revenues would have a direct impact on our operating results
for a particular quarter and these fluctuations could affect the market price of
our Common Stock in a manner unrelated to our long-term operating performance.

We have incurred operating losses in each fiscal quarter in the last twelve
months. We expect operating losses and negative cash flows to continue for the
foreseeable future as we intend to increase significantly our operating expenses
to grow our business.

DEPENDENCE ON GROWTH IN BROADBAND INTERNET USAGE

Our market is new and rapidly evolving. Our business would be adversely affected
if broadband Web usage does not continue to grow. Broadband Web usage may be
inhibited for a number of reasons, such as 1) inadequate network infrastructure;
2) security concerns; 3) inconsistent quality of service; and 4) availability of
cost-effective, high-speed service.

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NEED TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS WITH CONTENT PROVIDERS

To build our broadband network, we must:

-        present sufficiently attractive content to draw broadband users to our
         network on a regular basis,
-        keep broadband users at our site long enough on each visit to expose
         them to targeted advertising and e-commerce opportunities, and
-        develop relationships with content owners to obtain sufficient and
         current content.

There is no assurance that we will be successful in obtaining the content needed
to build and maintain an attractive destination Web site.

BROADBAND NETWORK COSTS AND MANAGEMENT

The services we are building require high-bandwidth access to the Internet and
delivery of data volumes that may be higher than most service providers are
commonly delivering. While we are confident we can overcome the technical and
business hurdles inherent in establishing a network of this nature, there can be
no assurance we will be successful in obtaining the bandwidth required to
provide our services, or obtain it at economical cost.

TECHNOLOGY DEVELOPMENT

Launch of the On2.com network requires completion of our proprietary technology.
While management is confident the technology development can be completed on
schedule, there can be no assurance we will be able to complete our development
in time or acquire alternate technology adequate to launch our services without
delays.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company's quarterly report on Form 10-KSB filed on March 30, 2000 contains a
description of a legal proceeding involving the Company. In April 2000 the
Company was awarded $215,000 in legal costs, which payment was received in May
2000.

ITEM 2. CHANGES IN SECURITIES

None

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<PAGE>



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(b) REPORTS ON FORM 8-K. State whether any reports on Form 8-K were filed during
the quarter for which this report is filed, listing the items reported, any
financial statements filed and the dates of such reports.

The following Current Reports on Form 8-K were filed during the three months
ended March 31, 2000:

         Item 5: Lock-up agreement with certain shareholders, filed on March 2,
2000.










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                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                                      On2.com Inc.
                                           -----------------------------------
                                                      (Registrant)

May 15, 2000
                                            /s/ Mark Meagher
------------------------------------        -----------------------------------
(Date)                                                     (Signature)
                                            Mark Meagher
                                            Chief Financial Officer










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