<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, 2003.

| | 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)

21 Corporate Drive, Suite 103, Clifton Park, New York                      12065
(Address of principal executive offices)                              (Zip Code)

                                 (518) 348-0099
              (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 6, 2003 was 63,317,000.

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, 2003 (unaudited) and December 31, 2002 ......         4
Unaudited Condensed Consolidated Statements of Operations,
  Three Months Ended March 31, 2003 and 2002 ...................................................         5
Unaudited Condensed Consolidated Statements of Cash Flows
  Three Months Ended March 31, 2003 and 2002 ...................................................         6
Notes to Unaudited Condensed Consolidated Financial Statements .................................         8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..        10

Item 3. Controls and Procedures ................................................................        16

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings ......................................................................        17

Item 2. Changes in Securities ..................................................................        17

Item 4. Submission of Matters to a Vote of Security Holders ....................................        17

Item 6. Exhibits and Reports on Form 8-K .......................................................        17

Signatures .....................................................................................        18

Certifications .................................................................................        19
</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,
                                                                      2003                  2002
                                                                  -------------         -------------
                                                                   (unaudited)
<S>                                                               <C>                   <C>
                             ASSETS

Current assets:
  Cash and cash equivalents ..............................        $     483,000         $     553,000
  Accounts receivable ....................................            1,262,000               601,000
  Prepaid and other current assets .......................              123,000               101,000
                                                                  -------------         -------------
     Total current assets ................................            1,868,000             1,255,000

Property and equipment, net ..............................              264,000               353,000
Purchased technology, net ................................              307,000               463,000
Other assets .............................................                9,000                 9,000
                                                                  -------------         -------------
     Total assets ........................................        $   2,448,000         $   2,080,000
                                                                  =============         =============

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable .......................................        $     174,000         $     266,000
  Accrued expenses .......................................              298,000               254,000
  Deferred revenue .......................................                3,000
  Current portion of capital lease obligations ...........                4,000                 4,000
                                                                  -------------         -------------
     Total current liabilities ...........................              479,000               524,000

Long term portion of capital lease obligations ...........                4,000                 5,000
Convertible debentures ...................................              575,000               569,000

Commitments and contingencies ............................

Stockholders' equity:
  Preferred stock ........................................               99,000                99,000
  Common stock ...........................................              616,000               596,000
  Additional paid-in capital .............................          105,981,000           105,422,000
  Accumulated other comprehensive loss ...................              (18,000)              (16,000)
  Accumulated deficit ....................................         (105,288,000)         (105,119,000)
                                                                  -------------         -------------
    Total stockholders' equity ...........................            1,390,000               982,000
                                                                  -------------         -------------
    Total liabilities and stockholders' equity ...........        $   2,448,000         $   2,080,000
                                                                  =============         =============
</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,
                                                     2003              2002
                                                 ------------      ------------
<S>                                              <C>               <C>
Revenue ....................................     $  1,283,000      $  1,202,000

Operating expenses:
     Cost of revenue .......................          404,000           472,000
     Research and development ..............          325,000           691,000
     Sales and marketing ...................           85,000           371,000
     General and administrative ............          621,000         1,038,000
                                                 ------------      ------------

Total operating expenses ...................        1,435,000         2,572,000
                                                 ------------      ------------

Loss from operations .......................         (152,000)       (1,370,000)

Interest and other expense, net ............          (15,000)          (11,000)
                                                 ------------      ------------

Loss before provision for income taxes .....         (167,000)       (1,381,000)

Provision for income taxes .................            2,000            13,000
                                                 ------------      ------------

Net loss ...................................     $   (169,000)     $ (1,394,000)
                                                 ============      ============
Basic and diluted net loss per common share      $      (0.00)     $      (0.03)
                                                 ============      ============
Weighted average basic and diluted common
  shares outstanding .......................       59,608,000        42,835,000
                                                 ============      ============
</TABLE>

      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,
                                                                            2003            2002
                                                                         ---------      -----------
<S>                                                                      <C>            <C>
Cash flows from operating activities:

  Net loss .........................................................     $(169,000)     $(1,394,000)
    Adjustments to reconcile net loss to net cash used in
     operating activities:
     Non-cash stock dividend .......................................         7,000               --
     Depreciation and amortization .................................       250,000          402,000
     Amortization of debt discount .................................         6,000               --
     Charge related to conversion of debentures ....................            --           24,000
   Changes in operating assets and liabilities, net of effect of
     acquisitions:
     Accounts receivable, net ......................................      (662,000)        (254,000)
     Prepaid and other current assets ..............................       (22,000)         (65,000)
     Other assets ..................................................            --            7,000
     Accounts payable and accrued expenses .........................       (49,000)        (188,000)
     Deferred revenue ..............................................         3,000           (5,000)
                                                                         ---------      -----------

Net cash used in operating activities ..............................      (636,000)      (1,473,000)
                                                                         ---------      -----------

Cash flows from investing activities:

  Purchases of property and equipment ..............................        (3,000)         (26,000)
                                                                         ---------      -----------

Net cash used in investing activities ..............................        (3,000)         (26,000)
                                                                         ---------      -----------

Cash flows from financing activities:

  Principal payments on capital lease obligations ..................        (1,000)              --
  Proceeds from the sale of common stock ...........................       600,000        1,458,000
  Purchase of common stock warrants ................................       (42,000)              --
  Proceeds from exercise of common stock options and warrants ......        13,000               --
                                                                         ---------      -----------

Net cash provided by financing activities ..........................       570,000        1,458,000
                                                                         ---------      -----------
Net change in cash and cash equivalents ............................       (69,000)         (40,000)

Effect of exchange rate changes on cash and cash equivalents .......        (1,000)          (1,000)

Cash and cash equivalents, beginning of period .....................       553,000          216,000
                                                                         ---------      -----------

Cash and cash equivalents, end of period ...........................     $ 483,000      $   174,000
                                                                         =========      ===========
</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,
                                                               ----------------------------
                                                                   2003         2002
                                                                  ------     ----------
<S>                                                               <C>        <C>
Cash paid during the period for:
   Interest .................................................     $2,000
                                                                  ======     ==========
   Taxes ....................................................     $2,000     $   13,000
                                                                  ======     ==========
Acquisition of fixed assets under capital leases ............                $   12,000
                                                                             ==========
Conversion of debentures into shares of common stock ........                $2,000,000
                                                                             ==========
Conversion of preferred stock into shares of common stock ...                $   15,000
                                                                             ==========
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                     - 7 -
<PAGE>
                             ON2 TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) 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.

(2) Basis of Presentation

      The unaudited condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary from its respective date
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 31, 2003.

(3) Stock-Based Compensation

      Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" encourages the use of the fair value based method
of accounting for stock-based employee compensation. Alternatively, SFAS No.123
allows entities to continue to apply the intrinsic value method prescribed by
Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations and provide pro forma disclosures of net
income (loss) and earnings (loss) per share, as if the fair value based method
of accounting had been applied to employee awards. The Company has elected to
continue to apply the provisions of APB Opinion 25 and provide the disclosures
required by SFAS No. 123 and SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which was released in December 2002
as an amendment of


                                     - 8 -
<PAGE>
SFAS No. 123. The following table illustrates the effect on net income and
earnings per share if the fair value based method had been applied to all
awards.

<TABLE>
<CAPTION>
                                                               Three months ended, March 31,
                                                               -----------------------------
                                                                   2003            2002
                                                                ---------      -----------
<S>                                                             <C>            <C>
      Reported net loss attributable to common stockholders     $(169,000)     $(1,394,000)
      Stock-based employee compensation determined under
      the fair value-based method                                (153,000)      (1,443,000)
                                                                ---------      -----------

      Pro forma net loss                                        $(322,000)     $(2,837,000)
                                                                =========      ===========

      Loss per common share (basic and diluted):
          As reported                                           $   (0.00)     $     (0.03)
                                                                =========      ===========
          Pro forma                                             $   (0.01)     $     (0.07)
                                                                =========      ===========
</TABLE>

(4) Equity-Line of Credit

      During the three months ended March 31, 2003 the Company received proceeds
of $600,000 from the sale of 1,814,000 shares of common stock under its equity
line of credit.

      In April 2003 the Company issued a draw-down notice under a second stock
purchase agreement in connection with the equity line of credit and sold
1,573,000 shares of Common Stock for net proceeds of approximately $714,000.

(5) Purchase of Warrants

      On March 27, 2003 the Company purchased 698,000 Warrants originally issued
with the Series C-IV Preferred Stock and 1,397,000 Warrants originally issued
with the Series C-V Preferred Stock from a Company's stockholder for $42,000 in
cash. Both the Series C-IV Warrants and the Series C-V Warrants were due to
expire on June 6, 2003. The Company recorded the transaction by increasing
additional paid-in-capital.


                                     - 9 -
<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,
2003, we had an accumulated deficit of $105,981,000. 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.


                                     - 10 -
<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 31, 2003.
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 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


                                     - 11 -
<PAGE>
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. In such circumstances, the
net carrying value of the asset is compared to the undiscounted future cash
flows which that asset is expected to generate..

      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 with indefinite lives 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, 2003, 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

Revenue. Revenue for the three months ended March 31, 2003 was $1,283,000 as
compared to $1,202,000 for the three months ended March 31, 2002. Revenue for
the three months ended March 31, 2003 and 2002 was derived primarily from
engineering and consulting services and the sale of software licenses. For the
three months ended March 31, 2003 92% of the Company's revenue was generated
from 3 customers. For the three months ended March 31, 2002 72% was generated
from 2 customers.

      Operating expenses

      The Company's operating expenses consist of cost of revenue, research and
development, sales and marketing and general and administrative expenses.
Operating expenses for the three months ended March 31, 2003 were $1,435,000 as
compared to $2,572,000 for the three months ended March 31, 2002.

      Cost of Revenue. Cost of revenue 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 $404,000 for the three months ended March 31,
2003 as compared to $472,000 for the three months ended March 31, 2002. The
decrease is attributed to approximately $70,000 reduction of bandwidth expenses.

      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, 2003 were $325,000 as compared to $691,000 for the three months
ended March 31, 2002. The decrease is primarily attributed to a reduction in
compensation and benefits costs due to a


                                     - 12 -
<PAGE>
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, 2003 were $85,000 as compared to $371,000 for
the three months ended March 31, 2002. The decrease 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, facilities, professional fees, insurance and depreciation. General
and administrative costs for the three months ended March 31, 2003 were $621,000
as compared to $1,038,000 for the three months ended March 31, 2002. The
decrease is attributable to decreased personnel and facilities costs. We do not
anticipate significant fluctuations in general and administrative expenses in
the foreseeable future.

      Interest and other expense, net. Interest and other expense, net was
$15,000 for the three months ended March 31, 2003 as compared to $11,000 for the
three months ended March 31, 2002. Interest and other expense, net primarily
consists of interest paid for capital lease obligations, long-term debt and the
amortization of debt discount. For the three months ended March 31, 2002,
interest and other expense, net includes a charge of $24,000 related to the
conversion of our Series A Convertible Debentures into common stock. Interest
expense for the three months ended March 31, 2003 relates to interest and
amortization of debt discount related to the Secured Series A Convertible
Debentures.

      At March 31, 2003, we had approximately 22 full-time employees. We expect
to hire employees as necessary in order to attain our strategic objectives.

LIQUIDITY AND CAPITAL RESOURCES

      At March 31, 2003, we had cash reserves of $483,000 ($1,100,000 at April
30, 2003) as compared to $553,000 at December 31, 2002. At March 31, 2003 the
Company had working capital of $1,389,000 as compared with $731,000 at December
31, 2002.

      Net cash used in operating activities was $636,000 and $1,473,000 for the
three months ended March 31, 2003 and 2002, respectively. The decrease in net
cash used in operating activities is primarily attributable to a substantial
decrease in our net operating losses, excluding depreciation and amortization,
partially offset by changes in accounts receivable and accounts payable and
accrued expenses.

      Net cash used in investing activities was $3,000 and $26,000 for the three
months ended March 31, 2003 and 2002, respectively, which reflects purchases of
property and equipment.

      Net cash provided by financing activities was $570,000 and $1,458,000 for
the three months ended March 31, 2003 and 2002, respectively. The decrease is
primarily attributable to a decrease of net proceeds received from the issuance
of common stock under the Company's Equity Line of Credit.

      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 Clifton Park, New York.
The aggregate required payments for the next 12 months under these arrangements
are $72,000. 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


                                     - 13 -
<PAGE>
costs such as telephone and utilities. During the next 12 months, we anticipate
incurring approximately $400,000 per month in cash operating costs.

      We may require additional financing during the next 12 months to finance
our current level of operations. Our management is actively pursuing increases
to our net cash flows through increases in revenues. Management believes that a
combination of increases to operating cash flow, primarily through revenue
growth, and funds received from our equity lines of credit 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, the
Company entered into a common stock purchase agreement ("Initial Stock Purchase
Agreement") with an accredited investor ("Investor"), for the sale, from time to
time, of the Company's Common Stock. Pursuant to the Initial Stock Purchase
Agreement, the Investor has committed to purchase up to $23,000,000 of Common
Stock over a 36-month period. The Investor 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 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 draw-down 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.

      In May 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. The Company sold
15,500,000 shares of Common Stock for net proceeds of approximately $6,670,000
under the Initial Stock Purchase Agreement, as of December 31, 2002.

      In November 2001, the Company entered into a second common stock purchase
agreement ("Second Stock Purchase Agreement") with the Investor, for sale, from
time to time, of the Company's Common Stock. Under the Second Stock Purchase
Agreement, the Investor has committed to purchase an additional $23,000,000
million over a 36-month period, with an additional commitment for $17,000,000
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.

      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 draw down 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.


                                     - 14 -
<PAGE>
      Since April 2002, when the Company's shareholders approved the sale, at
the sole discretion of the Company, of up to 9,000,000 shares of Common Stock in
connection with the Second Stock Purchase Agreement, the Company has sold
7,427,000 shares of Common Stock for net proceeds of approximately $1,359,000
through March 31, 2003

      In April 2003 the Company issued a draw-down notice under the Second Stock
Purchase Agreement and sold 1,573,000 shares of Common Stock for net proceeds of
approximately $714,000.

      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 net
operating cash flows, 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 2002, the FASB issued SFAS No. 146, "Accounting for Cost
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF Issue No.
94-3, a liability for exit costs was recognized at the date of an entity's
commitment to an exit plan. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002. The Company believes that
the adoption of SFAS No. 146 will not have a significant impact on its results
of operations or financial position.

      In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" as an amendment to SFAS
No. 123 to provide alternative methods of transition for an entity that
voluntarily changes to the fair value based method of accounting for stock-based
employee compensation. It also amends the disclosure provisions of SFAS No. 123
to require prominent disclosure about the effects on reported net income (loss)
of an entity's accounting policy decisions with respect to stock-based employee
compensation and amends APB Opinion No. 28 to require disclosure about those
effects in interim financial information. The disclosure provisions are
effective for fiscal years ending after December 15, 2002 and for interim
periods beginning after December 15, 2002. The Company follows the intrinsic
value method of accounting for stock-based employee compensation, but will
continue to evaluate the benefits of a voluntary change to the fair value based
method.

ITEM 3. CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures:


                                     - 15 -
<PAGE>
      Disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in the reports filed under the Exchange Act
is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. Within the 90 days prior to the filing of this
report, the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures. Based
upon and as of the date of that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.

(b) Changes in Internal Controls:

      There were no changes in the Company's internal controls or in other
factors that could have significantly affected those controls subsequent to the
date of the Company's most recent evaluation.


                                     - 16 -
<PAGE>
                          PART II -- OTHER INFORMATION

      ITEM 1. LEGAL PROCEEDINGS

      From time to time the Company is party to various legal proceedings
      arising in the ordinary course of business. In the opinion of management,
      the ultimate disposition of these matters will not have a material adverse
      effect on the Company's consolidated financial position, results of
      operations or liquidity.

      ITEM 2. CHANGES IN SECURITIES

      Notes 4 and 5 to the interim consolidated financial statements in Part I
      of this Form are hereby incorporated by reference.

      ITEM 3. DEFAULTS UPON SENIOR SECURITIES

            None.

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

            None.

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

      (a) Exhibits

99.1  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
      1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.

99.2  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
      1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.

      (b) Reports on Form 8-K

            None


                                     - 17 -
<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 13, 2003                            /s/ Mark J. Meagher
----------------------------            ----------------------------------------
(Date)                                                 (Signature)
                                        Mark J. Meagher
                                        Executive Vice President and Chief
                                        Financial Officer
                                              (Principal Financial Officer)


May 13, 2003                            /s/ Anthony Principe
----------------------------            ----------------------------------------
(Date)                                                 (Signature)
                                        Anthony Principe
                                        Vice President and Controller
                                              (Principal Accounting Officer)


                                     - 18 -
<PAGE>
                                 CERTIFICATIONS

      I, Douglas A. McIntyre, certify that:

1) I have reviewed this quarterly report on Form 10-QSB of On2 Technologies,
Inc.:

2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined) in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

      c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5) The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

      a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: May 13, 2003                      By: /s/ Douglas A. McIntyre
                                            ------------------------------------
                                            Douglas A. McIntyre
                                            Chairman, President and Chief
                                            Executive Officer


                                     - 19 -
<PAGE>
                                 CERTIFICATIONS

      I, Mark J. Meagher, certify that:

1) I have reviewed this quarterly report on Form 10-QSB of On2 Technologies,
Inc.:

2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined) in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

      a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

      b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and

      c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5) The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):

      a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

      b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date: May 13, 2003                      By: /s/ Mark J. Meagher
                                            ------------------------------------
                                            Mark J. Meagher
                                            Executive Vice President and Chief
                                            Financial Officer


                                     - 20 -