<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, 2002.

/ / 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 TECHNOLOGIES, INC.
    -------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

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

                                 (917) 237-0500
    -------------------------------------------------------------------------
              (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 Sections 12, 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

                                       -1-
<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:

The number of shares of the Registrant's Common Stock, par value $0.01 ("Common
Stock"), outstanding as of May 10, 2002 was 50,798,896.

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

                                       -2-
<Page>

                                TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION

<Table>
<Caption>
                                                                                                              Page
                                                                                                              ----
<S>                                                                                                             <C>
Item 1.  Consolidated Financial Statements.

Condensed Consolidated Balance Sheets at March 31, 2002 (unaudited) and December 31, 2001......................  4
Unaudited Condensed Consolidated Statements of Operations,
  Three Months Ended March 31, 2002 and 2001...................................................................  5
Unaudited Condensed Consolidated Statements of Cash Flows
  Three Months Ended March 31, 2002 and 2001...................................................................  6
Notes to Unaudited Condensed Consolidated Financial Statements.................................................  8

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations................. 15

PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings..................................................................................... 22

Item 2.  Changes in Securities................................................................................. 22

Item 4.  Submission of Matters to a Vote of Security Holders................................................... 22

Item 6.  Exhibits and Reports on Form 8-K...................................................................... 22

Signatures..................................................................................................... 23
</Table>

                                       -3-
<Page>

                         PART I -- FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

                             ON2 TECHNOLOGIES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                                      March 31,         December 31,
                                                                                        2002               2001
                                                                                   ---------------    ---------------
                                                                                     (unaudited)
<S>                                                                                <C>                <C>
                                    ASSETS

Current assets:
  Cash and cash equivalents ....................................................   $       174,117    $       215,726
  Accounts receivable ..........................................................           933,050            678,920
  Prepaid and other current assets .............................................           287,952            222,950
                                                                                   ---------------    ---------------
     Total current assets ......................................................         1,395,119          1,117,596

Property and equipment, net ....................................................         1,203,050          1,406,143
Purchased technology and other intangible assets, net ..........................           964,012          1,120,843
Other assets ...................................................................           273,411            282,080
                                                                                   ---------------    ---------------
     Total assets ..............................................................   $     3,835,592    $     3,926,662
                                                                                   ===============    ===============

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses ........................................   $       799,664    $       987,977
  Deferred revenue .............................................................            30,107             35,047
  Current portion of capital lease obligations .................................             3,303                 --
                                                                                   ---------------    ---------------
     Total current liabilities .................................................           833,074          1,023,024

Long term portion of capital lease obligations .................................             8,227                 --
Convertible debentures .........................................................                --          2,000,000

Commitments and contingencies

Stockholders' equity:
  Preferred stock ..............................................................           114,590            129,286
  Common stock .................................................................           490,610            385,650
  Additional paid-in capital ...................................................       102,944,166         99,548,997
  Accumulated other comprehensive loss .........................................           (11,260)           (10,068)
  Accumulated deficit ..........................................................      (100,543,815)       (99,150,227)
                                                                                   ---------------    ---------------
   Total stockholders' equity ..................................................         2,994,291            903,638
                                                                                   ---------------    ---------------
   Total liabilities and stockholders' equity ..................................   $     3,835,592    $     3,926,662
                                                                                   ===============    ===============
</Table>

      SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       -4-
<Page>

                             ON2 TECHNOLOGIES, INC.
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>
                                                                                      Three Months Ended March 31,
                                                                                   ----------------------------------
                                                                                         2002                2001
                                                                                   ---------------    ---------------
<S>                                                                                <C>                <C>
Revenues........................................................................   $     1,202,000    $       705,643

Operating expenses:
     Cost of revenues   ........................................................           471,730            759,292
     Research and development...................................................           691,068          1,199,946
     Sales and marketing........................................................           370,607            767,824
     General and administrative (1).............................................         1,038,265          1,821,690
     Restructuring charges......................................................                --            293,200
     Non-cash stock-based compensation..........................................                --             50,000
                                                                                   ---------------    ---------------

Total operating expenses........................................................         2,571,670          4,891,952
                                                                                   ---------------    ---------------

Loss from operations............................................................        (1,369,670)        (4,186,309)

Interest and other expense, net.................................................           (10,767)          (269,845)
                                                                                   ---------------    ---------------

Loss before provision for income taxes..........................................        (1,380,437)        (4,456,154)

Provision for income taxes......................................................            13,151             11,326
                                                                                   ---------------    ---------------

Net loss........................................................................        (1,393,588)        (4,467,480)

Non-cash convertible preferred stock dividend...................................                --            958,497
                                                                                   ---------------    ---------------

Net loss attributable to common stockholders....................................   $    (1,393,588)   $    (5,425,977)
                                                                                   ===============    ===============

Basic and diluted net loss per common share.....................................   $         (0.03)   $         (0.19)
                                                                                   ===============    ===============

Weighted average basic and diluted common
   shares outstanding............................................................       42,834,868         29,016,304
                                                                                   ===============    ===============
</Table>

----------
(1)  Excluding $50,000 of non-cash stock-based compensation for the three months
     ended March 31, 2001.

      SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       -5-
<Page>

                             ON2 TECHNOLOGIES, INC.
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                                      Three Months Ended March 31,
                                                                                   ----------------------------------
                                                                                         2002                2001
                                                                                   ---------------    ---------------
<S>                                                                                <C>                <C>
Cash flows from operating activities:

  Net loss......................................................................   $    (1,393,588)   $    (4,467,480)
    Adjustments to reconcile net loss to net cash used in operating activities:
     Non-cash stock based compensation..........................................                --             50,000
     Depreciation and amortization..............................................           402,433            848,005
     Amortization of debt discount..............................................                --            293,577
     Deferred compensation......................................................                --             26,742
     Restructuring charges......................................................                --            293,200
     Charge related to conversion of debentures.................................            23,996                 --
    Changes in operating assets and liabilities, net of effect of acquisitions:
     Accounts receivable, net...................................................          (254,130)          (478,159)
     Prepaid and other current assets...........................................           (65,002)           273,180
     Other assets...............................................................             7,375             33,660
     Accounts payable and accrued expenses......................................          (188,313)          (884,044)
     Deferred revenue...........................................................            (4,940)            53,127
                                                                                   ---------------    ---------------

Net cash used in operating activities...........................................        (1,472,169)        (3,958,192)
                                                                                   ---------------    ---------------
Cash flows from investing activities:

  Purchases of property and equipment...........................................           (26,272)           (46,467)
  Proceeds from the sale of fixed assets........................................                --             25,000
  Cash paid for acquisitions, net of cash acquired..............................                --            (42,131)
                                                                                   ---------------    ---------------

Net cash used in investing activities...........................................           (26,272)           (63,598)
                                                                                   ---------------    ---------------
Cash flows from financing activities:

  Principal payments on capital lease obligations...............................              (250)           (13,263)
  Principal payments on notes payable...........................................                --            189,056)
  Proceeds from the sale of common stock........................................         1,458,274          1,533,500
  Proceeds from the issuance of convertible debentures..........................                --          1,375,000
  Proceeds from exercise of common stock options and warrants...................                --              6,000
                                                                                   ---------------    ---------------

Net cash provided by financing activities.......................................         1,458,024          2,712,181
                                                                                   ---------------    ---------------
Net change in cash and cash equivalents.........................................           (40,417)        (1,309,609)

Effect of exchange rate changes on cash and cash equivalents....................            (1,192)            (6,547)

Cash and cash equivalents, beginning of period..................................           215,726          1,561,495
                                                                                   ---------------    ---------------

Cash and cash equivalents, end of period........................................   $       174,117    $       245,339
                                                                                   ===============    ===============
</Table>

                                       -6-
<Page>

                             ON2 TECHNOLOGIES, INC.
            UNAUDITED CONDENSED 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,
                                                                                   ----------------------------------
                                                                                        2002                2001
                                                                                   ---------------    ---------------
<S>                                                                                <C>                <C>
Cash paid during the period for:
   Interest ....................................................................   $           175    $           585
                                                                                   ===============    ===============
   Taxes .......................................................................   $        13,151    $         4,000
                                                                                   ===============    ===============
Acquisition of fixed assets under capital leases ...............................   $        11,780    $            --
                                                                                   ===============    ===============
Conversion of debentures into shares of common stock ...........................   $     2,000,000    $            --
                                                                                   ===============    ===============
Conversion of preferred stock into shares of common stock ......................   $        14,696    $            --
                                                                                   ===============    ===============
</Table>

      SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                       -7-
<Page>

                             ON2 TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Description of On2 Technologies, Inc.

     On2 Technologies, Inc. ("On2" or the "Company") is a leading video
compression technology firm. The Company has developed its proprietary
technology platform and video compression/decompression software ("codec") to
deliver high quality video at the lowest possible data rates to closed area
networks, such as set-top boxes, the Internet and wireless devices. The Company
offers a suite of products and professional services that encompass its
proprietary compression technology. The Company's professional service offerings
include customized engineering and consulting services and high-level video
encoding. In addition, the Company licenses its software products for use with
video delivery platforms.

     The Company's business is characterized by rapid technological change, new
product development and evolving industry standards. Inherent in the Company's
business model are various risks and uncertainties, including its limited
operating history, unproven business model and the limited history of the
industry in which it operates. The Company's success may depend, in part, upon
the wide adoption of video delivery mediums, prospective product and service
development efforts, and the acceptance of the Company's technology solutions by
the marketplace.

(b) Basis of Presentation

     The unaudited condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries from their respective
dates of acquisition. All significant intercompany balances and transactions
have been eliminated in consolidation.

     The interim condensed consolidated financial 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
presentation of the consolidated results for the interim periods. The condensed
consolidated financial statements included herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures included herein are
adequate to make the information presented not misleading. These condensed
consolidated 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 SEC on March 15, 2002.

(c) Revenue Recognition

     The Company primarily generates revenue from the sale of its software
licenses and its professional service offerings.

     The Company's revenue recognition policies are in accordance with SOP 97-2,
"SOFTWARE REVENUE RECOGNITION" ("SOP 97-2"), as amended by SOP 98-4, "DEFERRAL
OF THE EFFECTIVE DATE OF SOP 97-2, SOFTWARE REVENUE RECOGNITION" and SOP 98-9,
"MODIFICATION OF SOP 97-2 WITH RESPECT TO CERTAIN TRANSACTIONS" ("SOP 98-9").
Under each arrangement, revenues are recognized when a non-cancelable

                                       -8-
<Page>

agreement has been signed and the customer acknowledges an unconditional
obligation to pay, the products or applications have been delivered, there are
no uncertainties surrounding customer acceptance, the fees are fixed and
determinable, and collection is considered probable. Revenues recognized from
multiple-element software arrangements are allocated to each element of the
arrangement based on the fair values of the elements, such as product licenses,
post-contract customer support, or training. The determination of the fair value
is based on the vendor specific objective evidence available to the Company. If
such evidence of the fair value of each element of the arrangement does not
exist, all revenue from the arrangement is deferred until such time that
evidence of the fair value does exist or until all elements of the arrangement
are delivered.

Software Licenses

     The Company's software licensing arrangements typically consist of two
elements: a software license and post-contract customer support ("PCS"). The
Company recognizes license revenues based on the residual method after all
elements other than PCS have been delivered as prescribed by SOP 98-9. The
Company recognizes PCS revenues over the term of the maintenance contract or on
a "per usage" basis, whichever is stated in the contract. In accordance with SOP
97-2, vendor specific objective evidence of the fair value of PCS is determined
by reference to the price the customer will have to pay for PCS when it is sold
separately (i.e. the renewal rate). Each license agreement offers additional PCS
at a stated price. Revenue is recognized on a per copy basis for licensed
software when each copy of the licensed software purchased by the customer or
reseller is delivered. The Company does not allow returns, exchanges or price
protection for sales to its customers or its resellers nor does it allow its
resellers to purchase software licenses under consignment arrangements.

Professional Services

     Professional services consist of customized engineering and consulting
services and encoding services.

     When customized engineering and consulting services are sold together with
a software license, the arrangement typically requires customization and
integration of the software into a third party hardware platform. In these
arrangements, the Company requires the customer to pay a fixed fee for the
engineering and consulting services and a licensing fee in the form of a
per-unit royalty. The Company accounts for its engineering and consulting
arrangements in accordance with SOP 81-1, "ACCOUNTING FOR PERFORMANCE OF
CONSTRUCTION TYPE AND CERTAIN PRODUCTION TYPE CONTRACTS," ("SOP 81-1"). When
reliable estimates are available for the costs and efforts necessary to complete
the engineering or consulting services and those services do not include
contractual milestones or other acceptance criteria, the Company accounts for
the arrangements under the percentage of completion contract method pursuant to
SOP 81-1 based upon input measures such as hours. When such estimates are not
available, the completed contract method is utilized.

     Encoding Services consist of services that convert video and audio content
into formats for delivery to end-users. Encoding services are generally provided
under per unit or time and materials contracts. Under these contracts, the
Company recognizes revenue when services have been rendered and the Company has
no further interest or obligation in the goods and services, which is generally
the date on which the goods or services have been delivered to the customer.

                                       -9-
<Page>

(d) Impairment of Long-Lived Assets

     The Company evaluates its long-lived assets in accordance with SFAS No.
121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF" ("SFAS No. 121"). Long-lived assets that are not
identified with an impaired asset are reviewed for impairment whenever events or
changes in circumstances indicate that the net carrying value of the asset may
not be recoverable. In such circumstances, the net carrying value of the asset
is compared to the undiscounted future cash flows of the business segment to
which that asset is attributable. As the Company operates under one business
segment, the net carrying value of all long-lived assets are compared to the
Company's consolidated undiscounted future cash flows. Impairment losses are
measured by the amount in which the net carrying value of the assets exceed the
fair value. In October 2001, the FASB issued SFAS No. 144, "ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS," ("SFAS No. 144") which supersedes
SFAS No. 121. SFAS No. 144 addresses the financial accounting and reporting of
all long-lived assets, except goodwill, that are either held and used or
disposed of through sale or other means. The adoption of SFAS 144 did not have a
significant impact on the Company's operating results or its financial position.

(e) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In July 2001, the FASB issued SFAS No. 141, "BUSINESS COMBINATIONS" ("SFAS
No. 141"). SFAS No. 141 changes the accounting for business combinations
initiated after June 30, 2001, requiring that all business combinations be
accounted for using the purchase method and that intangible assets be recognized
as assets apart from goodwill if they arise from contractual or other legal
rights, or if they are separable or capable of being separated from the acquired
entity and sold, transferred, licensed, rented or exchanged. SFAS No. 141 is
effective for all business combinations initiated after June 30, 2001. The
adoption of SFAS No. 141 did not have a material impact on the Company's
financial statements.

     In July 2001, the FASB issued SFAS 142, "GOODWILL AND OTHER INTANGIBLES"
("SFAS No. 142"). SFAS No. 142 specifies the financial accounting and reporting
for acquired goodwill and other intangible assets. Goodwill and intangible
assets with indefinite useful lives will not be amortized but rather will be
tested at least annually for impairment. SFAS No. 142 is effective for fiscal
years beginning after December 15, 2001. SFAS No. 142 requires that the useful
lives of intangible assets acquired on or before June 30, 2001 be reassessed and
the remaining amortization periods adjusted accordingly. Previously recognized
intangible assets deemed to have indefinite lives shall be tested for
impairment. Goodwill recognized on or before June 30, 2001, shall be assigned to
one or more reporting units and shall be tested for impairment as of the
beginning of the fiscal year in which SFAS No. 142 is initially applied in its
entirety. As of March 31, 2002, the Company had no recorded goodwill or
indefinite lived intangibles. As of March 31, 2002, the Company's intangible
assets consisted primarily of purchased technology, which the Company will
continue to amortize over its remaining useful life through September 2003.
However, the Company will continually evaluate its purchased technology upon
significant changes in certain circumstances that may result in an impairment of
the net carrying value. Therefore, the Company believes that the adoption of
SFAS 142 will not have a significant impact on its results of operations or
financial position.

     In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), which is effective October 1, 2003.
SFAS No. 143 requires, among other things, the accounting and reporting of legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development, or normal operation of a long-lived
asset. The Company is currently assessing, but has not yet determined, the
effect of SFAS No. 143 on its financial position or results of operations.

                                      -10-
<Page>

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS 144 is
effective October 1, 2002, but may be early adopted. SFAS No. 144 addresses
accounting and reporting of all long-lived assets, except goodwill, that are
either held and used or disposed of through sale or other means. The adoption of
SFAS 144 did not have a material impact on the Company's operating results or
financial position.

(f) Reclassifications

     Certain reclassifications have been made to the prior year's condensed
consolidated financial statements to conform to the current year's presentation.

(2) SEGMENT REPORTING AND CONCENTRATION OF CREDIT RISK

     The Company operates in one business segment, the sale of video compression
software and related services, for which it receives revenues from its
customers. The Company's Chief Operating Decision Maker is the Company's Chief
Executive Officer ("CEO"), who receives consolidated financial information for
purposes of evaluating the Company's operational and financial performance. The
CEO does not receive discrete financial information regarding the operating
results of the Company's individual products and services, nor does he receive
discrete financial information based upon geographical area.

     Our customers typically represent large digital communication and media
companies, entertainment companies, telecommunication companies and other global
corporations that operate within the digital media industry. For the three
months ended March 31, 2002, two customers accounted for 43% and 30%, of the
Company's total revenues. For the three months ended March 31, 2001, four
customers accounted for 26%, 24%, 15% and 10% of the Company's total revenues.
As of March 31, 2002, four customers accounted for 55%, 13%, 13% and 11% of
total accounts receivable. As of December 31, 2001, three customers accounted
for 42%, 31% and 21% of total accounts receivable.

     For the three months ended March 31, 2002, foreign customers accounted for
approximately 67% of total revenue. For the three months ended March 31, 2001,
foreign customers accounted for approximately 24% of total revenue. As of March
31, 2002, foreign customers accounted for approximately 83% of accounts
receivable. As of December 31, 2001, foreign customers accounted for
approximately 95% of accounts receivable. These customers are primarily located
in Asia.

     Additionally, all of the Company's assets and operations have been and are
currently based within in the United States, except for two research and
development employees located in the United Kingdom. There was no revenue
generated from the United Kingdom operations for the three months ended March
31, 2002 and 2001.

                                      -11-
<Page>

(3) PROPERTY AND EQUIPMENT

<Table>
<Caption>
                                                                                   March 31, 2002    December 31, 2001
                                                                                   ---------------   ----------------
<S>                                                                                <C>                <C>
Furniture and fixtures............................................... ..........   $       277,997    $       277,997
Computer equipment .............................................................         2,933,417          2,895,367
Leasehold improvements .........................................................           487,348            487,348
Licensed software ..............................................................           857,388            857,388
                                                                                   ---------------    ---------------
                                                                                         4,556,150          4,518,100

Less accumulated depreciation and amortization .................................         3,353,100          3,111,957
                                                                                   ---------------    ---------------
   Total............................................................ ...........   $     1,203,050    $     1,406,143
                                                                                   ===============    ===============
</Table>

     As of March 31, 2002, property and equipment included assets under capital
leases of $102,501 with related accumulated depreciation of $68,429. As of
December 31, 2001, property and equipment included assets under capital leases
of $90,721 with related accumulated depreciation of $61,139. Depreciation
expense for the three months ended March 31, 2002 and 2001 was $241,143 and
$370,961, respectively.

(4) PURCHASED TECHNOLOGY AND OTHER INTANGIBLE ASSETS

<Table>
<Caption>
                                                                                      March 31,         December 31,
                                                                                        2002               2001
                                                                                   ---------------    ---------------
<S>                                                                                <C>                <C>
Purchased technology ...........................................................   $     2,509,287    $     2,509,287
Other intangible assets ........................................................            30,000             30,000
                                                                                   ---------------    ---------------
                                                                                         2,539,287          2,539,287

Less accumulated amortization ..................................................         1,575,275          1,418,444
                                                                                   ---------------    ---------------

   Total .......................................................................   $       964,012    $     1,120,843
                                                                                   ===============    ===============
</Table>

     As of March 31, 2002 and December 31, 2001, other intangibles consisted of
a content library. Amortization expense for the three months ended March 31,
2002 was $156,831 and related to purchased technology. Amortization expense for
the three months ended March 31, 2001 was $477,044 and consisted of $156,831
related to purchased technology, $310,397 related to goodwill and $9,816 related
to other intangible assets. As of December 31, 2001, the Company had written off
all remaining goodwill. The amortization of purchased technology is included in
cost of revenues for the three months ended March 31, 2002 and 2001. The
remaining amortization expense for the three months ended March 31, 2001 is
included in general and administrative expenses.

(5) CONVERTIBLE DEBENTURES

     On March 27, 2002, the holder of the $2,000,000 aggregate principal amount
of the Company's Series A Convertible Debentures (the "Debentures") elected to
convert its principal into the underlying 4,444,444 shares of the Company's
common stock. The conversion ratio and the number of underlying shares of common
stock were determined upon execution of the original agreement in January 2001.
In

                                      -12-
<Page>

connection with the conversion, the Company issued to the holder of the
Debentures a warrant to purchase 200,000 shares of common stock at an exercise
price of $0.43 per share. The warrant was immediately exercisable and expires on
March 26, 2007. The estimated fair value of the warrant was $68,440 based upon
the Black Scholes pricing model. The fair value of the underlying shares of
common stock was $1,955,556 on the date of conversion. The Company recorded a
charge of $23,996 for the three months ended March 31, 2002, which represented
the difference between the value of the underlying shares of common stock and
the warrant issued and the original net proceeds of $2,000,000.

(6) STOCKHOLDERS' EQUITY

(a) Preferred Stock

     On January 4, 2002, the holder of 377,358 shares of Series C-II Preferred
Stock elected to convert the shares into 526,316 shares of underlying common
stock. The original conversion ratio was $2.65 per share, but was adjusted to
$1.90 per share as a result of certain anti-dilution provisions in the original
investment agreement.

     On January 16, 2002, the holder of 169,811 shares of Series C-II Preferred
Stock and 922,428 shares of Series C-III Preferred Stock elected to convert the
shares into 236,842 and 1,176,199 shares of underlying common stock,
respectively. The original conversion ratio for the Series C-II Preferred Stock
was $2.65 per share, but was adjusted to $1.90 per share. The original
conversion ratio for the Series C-III Preferred Stock was $1.244 per share, but
was adjusted to $0.9756 per share. The adjustments were the result of certain
anti-dilution provisions in the original investment agreement.

(b) Common Stock

Equity-Line of Credit

     In December 2000, the Company entered into a common stock purchase
agreement ("Initial Stock Purchase Agreement") with Crossover Ventures, Inc.
("Crossover") for the sale, from time to time, of the Company's Common Stock.
Pursuant to the Initial Stock Purchase Agreement, Crossover has committed to
purchase up to $23,000,000 of Common Stock over a 36-month period. Crossover may
be required to invest an additional $17,000,000 upon the attainment of certain
trading volumes and weighted average market prices in the Company's Common
Stock. However, the Company's ability to procure funds through the Initial Stock
Purchase Agreement may be limited or prohibited based on certain trading volumes
and weighted average market prices in the Company's Common Stock.

     Under the Initial Stock Purchase Agreement, shares of Common Stock are
periodically sold to Crossover at a discount from market value ranging from
6%-10%, depending on the closing price of the Company's Common Stock. The amount
of Common Stock sold is at the sole discretion of the Company and at no time
throughout the term of the Stock Purchase Agreement is the Company obligated to
sell its Common Stock, unless the Company issues a drawdown notice. The Company
issued warrants to purchase 50,000 shares of the Company's Common Stock and
incurred $25,000 of transaction costs in connection with the Stock Purchase
Agreement.

     On May 22, 2001, the Company's shareholders approved the sale, at the sole
discretion of the Company, of up to 15,500,000 shares of Common Stock in
connection with the Initial Stock Purchase Agreement. As of March 31, 2002, the
Company had sold 12,558,238 shares of Common Stock for net proceeds of
approximately $5,648,914 under the Initial Stock Purchase Agreement.

                                      -13-
<Page>

     In November 2001, the Company entered into a second common stock purchase
agreement ("Second Stock Purchase Agreement") with Crossover, for sale, from
time to time, of the Company's Common Stock. Under the Second Stock Purchase
Agreement, Crossover has committed to purchase an additional $23,000,000 million
over a 36-month period, with an additional commitment for $17,000,000 million
upon the attainment of certain price and volume thresholds. Under the Second
Stock Purchase Agreement, providing that the volume weighted average stock price
for the 30-day period preceding a draw-down notice is at least $0.30, the
Company may request (a) a minimum amount of $300,000 or (b) a maximum amount
equal to the greater of $500,000 or $300,000 plus 4.5% of the volume weighted
average stock price for the preceding 30-day period multiplied by the total
trading volume for the preceding 3-month period. If the volume weighted average
stock price is below $0.30 and greater than $0.10, the minimum draw down amount
is pro-ratably reduced from $300,000 to $100,000. The Company has registered the
shares to be issued under the Second Stock Purchase Agreement.

     Under the Second Stock Purchase Agreement, shares of Common Stock are
periodically sold to the Investor at a discount from market value ranging from
6%-10%, depending on the closing price of the Company's Common Stock. The amount
of Common Stock sold is at the sole discretion of the Company and at no time
throughout the term of the Stock Purchase Agreement is the Company obligated to
sell its Common Stock, unless the Company issues a drawdown notice. The Company
issued 100,000 shares of unrestricted Common Stock and incurred approximately
$10,000 of transaction costs in connection with the Second Stock Purchase
Agreement.

     On April 30, 2002, the Company's stockholder's approved the sale of up to
an additional 9,000,000 shares of common stock to Crossover. The Company can
sell up to an aggregate of 24,500,000 shares of Common Stock under both common
stock purchase agreements.

(7) SUBSEQUENT EVENTS

     On April 26, 2002, the Company entered into a settlement agreement with
Ecoin Co. Ltd. in connection with the litigation previously disclosed in our
Annual Report on Form 10-KSB for the fiscal year ending December 31, 2001.
Pursuant to this settlement agreement, Ecoin agreed to pay a total of $225,000
to the Company in exchange for a mutual release of all past claims between the
parties. The settlement is payable to the Company as follows: $100,000 received
on May 10, 2002; $50,000 on or before November 1, 2002 and $75,000 on or before
May 1, 2003.

                                      -14-
<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 and are not statements of historical fact. In some cases,
you can identify forward-looking statements by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential," "objective," "forecast," "goal" or "continue," the
negative of such terms, or other comparable terminology. These statements are
only predictions, and 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, and in all cases, such statements are subject to the Company's
ability to secure additional financing or to increase revenues to support its
operations. If the Company cannot secure additional financing or increase its
revenues to support its operations, the Company's status as a going concern will
remain in doubt. In this regard, the business and operations of the Company are
subject to substantial risks that increase the uncertainty inherent in the
forward-looking statements contained in this Form 10-QSB.

     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. 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

     We are a leading video compression technology firm. We have developed a
proprietary technology platform and video compression/decompression software
("codec") to deliver high quality video at the lowest possible data rates to
closed area networks, such as set-top boxes, the Internet and wireless devices.
We offer a suite of products and services that encompass our proprietary
compression technology. Our service offerings include customized engineering and
consulting services and technical support and high-level video encoding. In
addition, we license our software products, which include video and audio codecs
and encoding and server software, for use with video delivery platforms.

     In view of the rapidly evolving nature of our business and our limited
operating history, we have limited experience forecasting our revenues and
operating costs. Therefore, we believe that period-to-period comparisons of
financial results are not necessarily meaningful and should not be relied upon
as an indication of our future performance. To date, we have incurred
substantial costs to create technology products and services. As of March 31,
2002, we had an accumulated deficit of $100.5 million. We will continue to incur
costs to develop, introduce and enhance products and services, build brand
awareness and grow our business. We may also incur significant additional costs
related to technology, marketing or acquisitions of businesses and technologies
to respond to changes in this rapidly developing industry. These costs may not
correspond with any meaningful increases in revenues in the near term, if at
all. As such, these costs may result in negative operating cash flows until such
time as we generate sufficient revenues to offset such costs.

                                      -15-
<Page>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     This discussion and analysis of our financial condition and results of
operations are based on our condensed consolidated financial statements that
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). The preparation of our condensed consolidated
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could materially differ from those estimates.
The condensed consolidated financial statements and the related notes thereto
should be read in conjunction with the following discussion of our critical
accounting policies and our Form 10-KSB filed with the SEC on March 15, 2002.
Our critical accounting policies and estimates are:

          -    Revenue recognition
          -    Valuation of goodwill, intangible assets and other long-lived
               assets

     REVENUE RECOGNITION. We currently recognize revenue from professional
services and the sale of software licenses. As described below, significant
management judgments and estimates must be made and used in determining the
amount of revenue recognized in any given accounting period. Material
differences may result in the amount and timing of our revenue for any given
accounting period depending upon judgments made by or estimates utilized by
management.

     We recognize revenue in accordance with SOP 97-2, "SOFTWARE REVENUE
RECOGNITION" ("SOP 97-2"), as amended by SOP 98-4, "DEFERRAL OF THE EFFECTIVE
DATE OF SOP 97-2, SOFTWARE REVENUE RECOGNITION" and SOP 98-9, "MODIFICATION OF
SOP 97-2 WITH RESPECT TO CERTAIN TRANSACTIONS" ("SOP 98-9"). Under each
arrangement, revenues are recognized when a non-cancelable agreement has been
signed and the customer acknowledges an unconditional obligation to pay, the
products or applications have been delivered, there are no uncertainties
surrounding customer acceptance, the fees are fixed and determinable, and
collection is considered probable. Revenues recognized from multiple-element
software arrangements are allocated to each element of the arrangement based on
the fair values of the elements, such as product licenses, post-contract
customer support, or training. The determination of the fair value is based on
the vendor specific objective evidence available to us. If such evidence of the
fair value of each element of the arrangement does not exist, we defer all
revenue from the arrangement until such time that evidence of the fair value
does exist or until all elements of the arrangement are delivered.

     Our software licensing arrangements typically consist of two elements: a
software license and post-contract customer support ("PCS"). We recognize
license revenues based on the residual method after all elements other than PCS
have been delivered as prescribed by SOP 98-9. We recognize PCS revenues over
the term of the maintenance contract or on a "per usage" basis, whichever is
stated in the contract. Vendor specific objective evidence of the fair value of
PCS is determined by reference to the price the customer will have to pay for
PCS when it is sold separately (i.e. the renewal rate). Each license agreement
offers additional PCS at a stated price. Revenue is recognized on a per copy
basis for licensed software when each copy of the licensed software purchased by
the customer or reseller is delivered. We do not allow returns, exchanges or
price protection for sales of software licenses to our customers or resellers,
and we do not allow our resellers to purchase software licenses under
consignment arrangements.

     When engineering and consulting services are sold together with a software
license, the arrangement typically requires customization and integration of the
software into a third party hardware platform. In these arrangements, we require
the customer to pay a fixed fee for the engineering and consulting services and
a licensing fee in the form of a per-unit royalty. We account for engineering
and consulting arrangements in accordance with SOP 81-1, "ACCOUNTING FOR
PERFORMANCE OF CONSTRUCTION TYPE AND

                                      -16-
<Page>

CERTAIN PRODUCTION TYPE CONTRACTS," ("SOP 81-1"). When reliable estimates are
available for the costs and efforts necessary to complete the engineering or
consulting services and those services do not include contractual milestones or
other acceptance criteria, we recognize revenue under the percentage of
completion contract method based upon input measures, such as hours. When such
estimates are not available, we defer all revenue recognition until we have
completed the contract and have no further obligations to the customer.

     Encoding Services consist of services that convert video and audio content
into formats for delivery to end-users. Encoding services are generally provided
under per unit or time and materials contracts. Under these contracts, we
recognize revenue when services have been rendered and we have no further
interest or obligation in the goods and services, which is generally the date on
which the goods or services have been delivered to the customer.

     VALUATION OF GOODWILL AND INTANGIBLE ASSETS. We evaluate our long-lived
assets in accordance with SFAS No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" ("SFAS No. 121").
Long-lived assets that are not identified with an impaired asset are reviewed
for impairment whenever events or changes in circumstances indicate that the net
carrying value of the asset may not be recoverable. Certain circumstances
include a deterioration of our financial resources, poor economic trends within
the industry, significant changes in our business model or a significant decline
in the demand for video delivery solutions. In such circumstances, the net
carrying value of the asset is compared to the undiscounted future cash flows of
the business segment to which that asset is attributable. As we operate under
one business segment, the net carrying value of all long-lived assets are
compared to our consolidated undiscounted future cash flows. Impairment losses
are measured by the amount in which the net carrying value of the assets exceed
the fair value.

     In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "GOODWILL AND
OTHER INTANGIBLE ASSETS" ("SFAS No. 142"). SFAS 142 requires goodwill and other
intangible assets to be tested for impairment at least annually, and written off
when impaired, rather than being amortized as previously required. As of March
31, 2002, we had no recorded goodwill. As of March 31, 2002, our intangible
assets consisted primarily of purchased technology, which we will continue to
amortize over its remaining useful life. The purchased technology will be fully
amortized as of September 2003. Therefore, we believe that the adoption of SFAS
142 will not have a significant impact on our results of operations or financial
position.

RESULTS OF OPERATIONS

     REVENUES. Revenues for the three months ended March 31, 2002 were
$1,202,000 as compared to $705,643 for the three months ended March 31, 2001.
Revenues for the three months ended March 31, 2002 were derived primarily from
engineering and consulting services and the sale of software licenses. Revenues
for the three months ended March 31, 2001 were primarily derived from encoding
services and consulting and engineering services. The period-to-period increase
in revenue is attributed to an improvement in our product and service offerings
and the deployment of certain video-on-demand initiatives in Asia.

     OPERATING EXPENSES

     The Company's operating expenses consist of cost of revenues, research and
development, sales and marketing, general and administrative expenses,
restructuring charges and non-cash stock based compensation. Operating expenses
for the three months ended March 31, 2002 were $2,571,670 as compared to
$4,891,952 for the three months ended March 31, 2001.

                                      -17-
<Page>

     COST OF REVENUES. Cost of revenues includes personnel and consulting
compensation costs, related overhead expenses, bandwidth costs, fees paid for
licensed technology, depreciation costs and the amortization of purchased
technology. Cost of revenues was $471,730 for the three months ended March 31,
2002 as compared to $759,292 for the three months ended March 31, 2001. The
period-to-period decrease in absolute dollars is attributed to approximately
$167,000 of costs incurred in the first quarter of 2001 in connection with the
fulfillment of certain content distribution obligations and a reduction of
bandwidth expenses of approximately $100,000.

     RESEARCH AND DEVELOPMENT. Research and development expenses primarily
consist of salaries and related expenses and consulting fees associated with the
development and production of our products and services, operating lease costs
and depreciation costs. Research and development expenses for the three months
ended March 31, 2002 were $691,068 as compared to $1,199,946 for the three
months ended March 31, 2001. The period-to-period decrease in absolute dollars
is primarily attributed to a reduction in compensation and benefits costs due to
a reduction in headcount. We believe that continued investments in research and
development are necessary to maintain our competitive advantage and we will
continue to invest in such costs as considered necessary.

     SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries and related costs of sales, business development and marketing
personnel, tradeshow costs, marketing and promotional costs incurred to create
brand awareness and public relations expenses. Sales and marketing expenses for
the three months ended March 31, 2002 were $370,607 as compared to $767,824 for
the three months ended March 31, 2001. The period-to-period decrease in absolute
dollars is primarily attributed to a reduction in compensation and benefits
costs due to a reduction in headcount and a decrease in advertising and
marketing costs. We intend to continue to recruit and hire experienced
personnel, as necessary, to sell and market our products and services.

     GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and related personnel costs for general corporate
functions including finance, human resources, legal and facilities, outside
legal and professional fees and insurance. General and administrative costs for
the three months ended March 31, 2002 were $1,038,265 as compared to $1,821,690
for the three months ended March 31, 2001. The period-to-period decrease in
absolute dollars is attributable to decreased personnel, a decrease amortization
of goodwill and certain intangible assets due to impairment and a general
decrease in unallocated operating overhead attributable to an entity-wide
decrease in personnel. We do not anticipate significant fluctuations in general
and administrative expenses in the foreseeable future.

     RESTRUCTURING CHARGES. We did not incur restructuring charges for the three
months ended March 31, 2002. In 2001, we completed additional restructuring
initiatives that were related to the plan established by the Board of Directors
in December 2000. Although identified as of December 31, 2000, our obligations
could not be measured at that time. As a result, we recorded a non-cash
restructuring charge of $293,200 for the three months ended March 31, 2001. The
non-cash restructuring charge was comprised of the following: (1) $210,000
related to the termination of an employment contract which was satisfied through
the issuance of 150,000 shares of Common Stock in February 2001 and (2) $83,200
related to the termination of a commercial lease obligation in San Francisco
which was satisfied through the issuance of 80,000 shares of Common Stock in
March 2001.

     NON-CASH STOCK BASED COMPENSATION. We did not have non-cash stock based
compensation for the three months ended March 31, 2002. Non-cash stock based
compensation was $50,000 for three months ended March 31, 2001 and represented
shares of common stock issued to our Non-Executive Chairman in lieu of cash
compensation

                                      -18-
<Page>

     INTEREST AND OTHER EXPENSE, NET. Interest and other expense, net was
$10,767 for the three months ended March 31, 2002 as compared to $269,845 for
the three months ended March 31, 2001. Interest and other expense, net primarily
consists interest earned on our rental security deposits and money market
accounts, interest paid for capital lease obligations and the amortization of
debt discounts. For the three months ended March 31, 2002, interest and other
expense, net includes a charge of $23,996 related to the conversion of our
Series A Convertible Debentures into common stock. The period-to-period decrease
is attributable to $293,578 of amortization of a debt discount for the three
months ended March 31, 2001 related to our convertible debenture financing.

     At March 31, 2002, we had approximately 50 full-time employees. We expect
to hire employees as necessary in order to attain our strategic objectives.

LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 2002, we had cash reserves of $174,117 as compared to $215,726
at December 31, 2001. At April 30, 2002, we had cash reserves of approximately
$250,000.

     Net cash used in operating activities was $1,472,169 and $3,958,192 for the
three months ended March 31, 2002 and 2001, respectively. The decrease in net
cash used in operating activities is primarily attributable to a decrease in our
net operating losses, excluding depreciation and amortization, non-cash stock
based charges, restructuring charges and the amortization of debt discounts, and
a smaller decrease in accounts payable and accrued expenses.

     Net cash used in investing activities was $26,272 and $63,598 for the three
months ended March 31, 2002 and 2001, respectively. The period-to-period
decrease is primarily attributable to decreases in the purchases of property and
equipment and cash paid for acquisitions, net of cash acquired.

     Net cash provided by financing activities was $1,458,024 and $2,712,181 for
the three months ended March 31, 2002 and 2001, respectively. The
period-to-period difference is primarily attributable $1,375,000 of net proceeds
received from the issuance of convertible debentures in the first quarter of
2001 offset by principal payments on notes payable.

     We currently have no material commitments for the next 12 months other than
those under our operating lease arrangements. These arrangements consist
primarily of lease arrangements for our office space in New York City, New York
and Albany, New York. The aggregate required payments for the next 12 months
under these arrangements are $392,000. Notwithstanding the above, our most
significant non-contractual operating costs for the next 12 months are
compensation and benefit costs, insurance costs and general overhead costs such
as telephone and utilities. During the next 12 months, we anticipate incurring
approximately $650,000 to $700,000 per month in cash operating costs.

     Based on our current working capital requirements, we will require
additional funding during the next 12 months to finance our current level of
operations. Additionally, we may require additional financing to fund revenue
growth, develop new technologies or acquire strategic assets. Our management is
actively pursuing increases to our net cash flows through increases in revenues
and additional sources of financing beyond our equity lines of credit.
Management believes that a combination of increases to operating cash flow,
primarily through revenue growth, and funds received from our equity lines of
credit or additional financing will generate sufficient cash flow to fund our
operations for the next 12 months. However, there are no assurances that such
matters will be successfully consummated.

     We currently have two equity lines of credit. In December 2000, we entered
into a common stock purchase agreement with Crossover Ventures, Inc., for the
sale, from time to time, of our Common Stock.

                                      -19-
<Page>

Pursuant to the common stock purchase agreement, Crossover Ventures has
committed to purchase up to $23,000,000 of our Common Stock over a 36-month
period. Crossover Ventures is also required to invest an additional $17,000,000
upon the attainment of certain trading volumes and weighted average market
prices in our Common Stock. However, our ability to procure funds through the
common stock purchase agreement is limited depending on the trading volumes and
the weighted average market prices of our Common Stock. Our stockholders have
approved the sale of up to 15,500,000 shares of our common stock under the this
stock purchase agreement. As of May 10, 2002, we had sold 14,364,712 shares of
common stock under the December 2000 common stock purchase agreement and we may
sell an additional 1,135,288 shares under that agreement.

     As a result of the price and volume limitations contained in the December
2000 stock purchase agreement, in November 2001 we entered into a second common
stock purchase agreement with Crossover Ventures, for sale, from time to time,
of our Common Stock. Under the November 2001 stock purchase agreement, Crossover
Ventures has committed to purchase an additional $23,000,000 over a 36-month
period, with an additional commitment for $17,000,000 upon the attainment of
certain price and volume thresholds. Under the November 2001 stock purchase
agreement, as long as the volume weighted average price of our stock for the
30-day period preceding a draw-down notice is at least $0.30, we may request,
and Crossover Ventures is obligated to fund, an amount between (a) a minimum of
$300,000 or (b) a maximum equal to the greater of $500,000 or $300,000 plus 4.5%
of the volume weighted average stock price for the preceding 30-day period
multiplied by the total trading volume for the preceding three-month period. If
the volume weighted average price of our stock is below $0.30 and greater than
$0.10, the minimum amount that we may request and, if requested, that the
Investor must provide is ratably reduced from $300,000 to $100,000. We have
registered the shares issued under this common stock purchase agreement with the
Securities and Exchange Commission. Additionally, on April 30, 2002, our
stockholders approved the sale of up to 9,000,000 shares to Crossover Ventures
under this common stock purchase agreement.

     As we cannot predict the price of our common stock, there can be no
assurances that we will be able to request the maximum amount of funds through
our equity lines, if at all.

     We have experienced significant operating losses and negative operating
cash flows to date. Our management's plan to increase our cash flows from
operations relies significantly on increases in revenue generated from our
broadband technology services, products and licenses and decreases in operating
expenses. However, there are no assurances that we will be successful in
effecting such increases. The market for distribution of broadband technology
services is highly competitive. Additionally, our capital requirements depend on
numerous factors, including market acceptance of our technology and services,
research and development costs and the resources we spend on marketing and
selling our products and services. Additionally, we continue to evaluate
investments in complementary businesses, products and services, some of which
may be significant.

     In the event we cannot procure appropriate capital resources, through our
equity lines, net operating cash flows or some combination of both, we may be
required to reduce the development of our products and services or scale back
current operations until funds become available on terms acceptable to us.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 2001, the FASB issued SFAS No. 141, "BUSINESS COMBINATIONs" ("SFAS
No. 141"). SFAS No. 141 changes the accounting for business combinations,
requiring that all business combinations be accounted for using the purchase
method and that intangible assets be recognized as assets apart from goodwill if
they arise from contractual or other legal rights, or if they are separable or
capable of being separated from the acquired entity and sold, transferred,
licensed, rented or exchanged. SFAS No. 141 is

                                      -20-
<Page>

effective for all business combinations initiated after June 30, 2001. The
adoption of SFAS No. 141 did not have a material impact on our financial
statements.

     In July 2001, the FASB issued SFAS 142, "GOODWILL AND OTHER INTANGIBLES"
("SFAS No. 142"). SFAS No. 142 specifies financial accounting and reporting for
acquired goodwill and other intangible assets. Goodwill and intangible assets
with indefinite useful lives will not be amortized but rather will be tested at
least annually for impairment. SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. SFAS No. 142 requires that the useful lives
of intangible assets acquired on or before June 30, 2001 be reassessed and that
the remaining amortization periods be adjusted accordingly. SFAS No. 142 also
requires that previously recognized intangible assets deemed to have indefinite
lives are to be tested for impairment. Goodwill recognized on or before June 30,
2001, is to be assigned to one or more reporting units and is to be tested for
impairment as of the beginning of the fiscal year in which SFAS No. 142 is
initially applied in its entirety. As of March 31, 2002, we had no recorded
goodwill or indefinite lived intangibles. As of March 31, 2002, our intangible
assets consisted primarily of purchased technology, which we will continue to
amortize over its remaining useful life through September 2003. However, we will
continually evaluate our purchased technology upon significant changes in
certain circumstances that may result in an impairment of the net carrying
value. Therefore, we believe that the adoption of SFAS 142 will not have a
significant impact on our results of operations or financial position.

     In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), which is effective October 1, 2003.
SFAS No. 143 requires, among other things, the accounting and reporting of legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development, or normal operation of a long-lived
asset. We are currently assessing, and have not yet determined, the effect of
SFAS No. 143 on our financial position and results of operations.

     In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144"). SFAS 144 is
effective October 1, 2002, but may be early adopted. SFAS No. 144 addresses
accounting and reporting of all long-lived assets, except goodwill, that are
either held and used or disposed of through sale or other means. We are
currently assessing the impact of SFAS 144 on our financial position and results
of operations, but believe its adoption will not have a material impact on our
results of operation or financial position.

                                      -21-
<Page>

                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On April 26, 2002, the Company entered into a settlement agreement with Ecoin
Co. Ltd. in connection with the litigation previously disclosed in our Annual
Report on Form 10-KSB for the fiscal year ending December 31, 2001. Pursuant to
this settlement agreement, Ecoin agreed to pay a total of $225,000 to the
Company in exchange for a mutual release of all past claims between the parties.
The settlement is payable to the Company as follows: $100,000 received on May
10, 2002; $50,000 on or before November 1, 2002 and $75,000 on or before May 1,
2003.

ITEM 2. CHANGES IN SECURITIES

     Notes 5 and 6 to the interim consolidated financial statements in Part I of
this Form are hereby incorporated by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

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

(a)  Exhibits

         Exhibit Number             Description
         --------------             -----------

(b)  Reports on Form 8-K

     Form 8-K, Item 4:     Termination of Arthur Andersen LLP as our independent
                           public accountants and appointment of Richard A.
                           Eisner & Company as our new independent public
                           accountants.

                                      -22-
<Page>

                                   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 Technologies, Inc.
                           -----------------------------------------------------
                                                (Registrant)

May 14, 2002               /s/ Mark J. Meagher
---------------------      -----------------------------------------------------
(Date)                                           (Signature)
                           Mark J. Meagher
                           Executive Vice President and Chief Financial Officer
                                         (Principal Financial Officer)

May 14, 2002               /s/ Christopher J. Acquaviva
---------------------      -----------------------------------------------------
(Date)                                            (Signature)
                           Christopher J. Acquaviva
                           Vice President and Controller
                                         (Principal Accounting Officer)

                                      -23-