Attached files
file | filename |
---|---|
EX-32 - EXHIBIT 32 - NEULION, INC. | ex32.htm |
EX-31.1 - EXHIBIT 31.1 - NEULION, INC. | ex31_1.htm |
EX-31.2 - EXHIBIT 31.2 - NEULION, INC. | ex31_2.htm |
EXCEL - IDEA: XBRL DOCUMENT - NEULION, INC. | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2011
|
|
or
|
|
o
|
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: 000-53620
NEULION, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
|
98-0469479
|
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
1600 Old Country Road, Plainview, New York
|
11803
|
(Address of principal executive offices)
|
(Zip Code)
|
(516) 622-8300
|
(Registrant’s Telephone Number, Including Area Code)
|
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. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
Non-accelerated filer
(Do not check if a smaller reporting company)
|
o
|
Smaller reporting company
|
x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 9, 2011, there were 140,012,310 shares of the registrant’s Common Stock, $0.01 par value, outstanding.
NEULION, INC. | ||
TABLE OF CONTENTS | ||
Part I. Financial Information
|
Page No.
|
|
1
|
||
1
|
||
2
|
||
3
|
||
4
|
||
5-13
|
||
14-28
|
||
29
|
||
29
|
||
Part II. Other Information
|
||
30
|
||
30
|
||
31
|
PART I. FINANCIAL INFORMATION
NEULION, INC.
(Expressed in U.S. dollars, unless otherwise noted)
September 30,
|
December 31,
|
|||||||
2011 | 2010 | |||||||
(unaudited)
|
||||||||
$ | $ | |||||||
ASSETS
|
||||||||
Current
|
||||||||
Cash and cash equivalents
|
12,292,632 | 12,929,325 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $86,964 and $60,555,
|
||||||||
respectively
|
3,775,260 | 2,356,843 | ||||||
Other receivables
|
294,343 | 296,154 | ||||||
Inventory (note 4)
|
811,244 | 946,780 | ||||||
Prepaid expenses and deposits
|
1,428,481 | 1,014,703 | ||||||
Due from related parties (note 6)
|
490,348 | 1,261,776 | ||||||
Total current assets
|
19,092,308 | 18,805,581 | ||||||
Property, plant and equipment, net
|
4,481,018 | 5,119,422 | ||||||
Intangible assets, net
|
7,260,833 | 9,283,151 | ||||||
Goodwill
|
11,240,432 | 11,240,432 | ||||||
Other assets
|
323,657 | 259,497 | ||||||
Total assets
|
42,398,248 | 44,708,083 | ||||||
LIABILITIES AND EQUITY
|
||||||||
Current
|
||||||||
Accounts payable
|
9,937,989 | 5,504,489 | ||||||
Accrued liabilities
|
5,699,928 | 5,431,217 | ||||||
Due to related parties (note 6)
|
15,939 | 26 | ||||||
Deferred revenue
|
5,126,797 | 6,432,445 | ||||||
Total current liabilities
|
20,780,653 | 17,368,177 | ||||||
Long-term deferred revenue
|
665,046 | 548,309 | ||||||
Other long-term liabilities
|
449,908 | 495,275 | ||||||
Total liabilities
|
21,895,607 | 18,411,761 | ||||||
Redeemable preferred stock, net (note 12)
|
||||||||
Class 3 Preference Shares (par value: $0.01; authorized: 17,176,818; issued and
|
||||||||
outstanding: 17,176,818)
|
10,000,000 | 10,128,667 | ||||||
Class 4 Preference Shares (par value: $0.01; authorized; 10,912,265; issued and
|
||||||||
outstanding: 10,912,265)
|
4,849,546 | — | ||||||
Total redeemable preferred stock
|
14,849,546 | 10,128,667 | ||||||
NeuLion, Inc. stockholders' equity
|
||||||||
Common stock (par value: $0.01; authorized: 300,000,000; issued and outstanding:
|
||||||||
139,868,063 and 139,180,279, respectively)
|
1,398,680 | 1,391,802 | ||||||
Additional paid-in capital
|
76,844,110 | 75,480,756 | ||||||
(209,250 | ) | (209,250 | ) | |||||
Accumulated deficit
|
(72,380,445 | ) | (60,963,093 | ) | ||||
Total NeuLion, Inc. stockholders’ equity
|
5,653,095 | 15,700,215 | ||||||
Non-controlling interest (note 2)
|
— | 467,440 | ||||||
Total equity
|
5,653,095 | 16,167,655 | ||||||
Total liabilities and equity
|
42,398,248 | 44,708,083 |
See accompanying notes
NEULION, INC.
COMPREHENSIVE LOSS
(unaudited)
(Expressed in U.S. dollars, unless otherwise noted)
Three months
|
Nine months
|
||||||||||||||||||
ended
|
ended
|
||||||||||||||||||
September 30,
|
September 30,
|
||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||||
$ | $ | $ | $ | ||||||||||||||||
Revenue
|
|||||||||||||||||||
Services revenue
|
8,225,017 | 6,718,427 | 26,602,541 | 20,874,118 | |||||||||||||||
Equipment revenue
|
877,169 | 230,236 | 2,403,767 | 1,177,775 | |||||||||||||||
9,102,186 | 6,948,663 | 29,006,308 | 22,051,893 | ||||||||||||||||
Costs and expenses
|
|||||||||||||||||||
Cost of services revenue, exclusive of depreciation and
|
|||||||||||||||||||
amortization shown separately below
|
3,257,089 | 2,698,350 | 10,076,277 | 8,713,024 | |||||||||||||||
Cost of equipment revenue
|
681,427 | 229,377 | 1,819,315 | 1,124,258 | |||||||||||||||
Selling, general and administrative, including
|
|||||||||||||||||||
stock-based compensation (note 9)
|
7,953,577 | 7,799,741 | 24,281,788 | 23,994,988 | |||||||||||||||
Depreciation and amortization
|
1,348,590 | 1,221,814 | 4,172,602 | 3,784,104 | |||||||||||||||
13,240,683 | 11,949,282 | 40,349,982 | 37,616,374 | ||||||||||||||||
Operating loss
|
(4,138,497 | ) | (5,000,619 | ) | (11,343,674 | ) | (15,564,481 | ) | |||||||||||
Other income (expense)
|
|||||||||||||||||||
Unrealized gain on derivative (note 13)
|
— | 70,400 | — | 1,389,300 | |||||||||||||||
Gain (loss) on foreign exchange
|
15,919 | (40,297 | ) | (25,973 | ) | (69,250 | ) | ||||||||||||
Investment income
|
7,196 | 3,268 | 28,015 | 34,280 | |||||||||||||||
Loss on dissolution of majority-owned subsidiary
|
(97,205 | ) | — | (97,205 | ) | — | |||||||||||||
(74,090 | ) | 33,371 | (95,163 | ) | 1,354,330 | ||||||||||||||
Net and comprehensive loss
|
(4,212,587 | ) | (4,967,248 | ) | (11,438,837 | ) | (14,210,151 | ) | |||||||||||
Net loss attributable to non-controlling interest
|
— | — | 21,485 | — | |||||||||||||||
Net and comprehensive loss attributable to controlling interest
|
(4,212,587 | ) | (4,967,248 | ) | (11,417,352 | ) | (14,210,151 | ) | |||||||||||
Adjustment to the carrying amount of redeemable preferred stock
|
— | — | 153,233 | — | |||||||||||||||
Net and comprehensive loss attributable to NeuLion, Inc.
|
|||||||||||||||||||
common stockholders
|
(4,212,587 | ) | (4,967,248 | ) | (11,264,119 | ) | (14,210,151 | ) | |||||||||||
Net loss per weighted average number of shares
|
|||||||||||||||||||
outstanding - basic and diluted (note 7)
|
$(0.03 | ) | $(0.04 | ) | $(0.08 | ) | $(0.12 | ) | |||||||||||
Weighted average number of shares
|
|||||||||||||||||||
outstanding - basic and diluted (note 7)
|
139,868,063 | 116,980,017 | 139,487,253 | 116,837,174 |
See accompanying notes
NEULION, INC.
(unaudited)
(Expressed in U.S. dollars, unless otherwise noted)
See accompanying notes
NEULION, INC.
(unaudited)
(Expressed in U.S. dollars, unless otherwise noted)
Three months
|
Nine months
|
||||||||||||||||||
ended
|
ended
|
||||||||||||||||||
September 30,
|
September 30,
|
||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||||
$ | $ | $ | $ | ||||||||||||||||
OPERATING ACTIVITIES
|
|||||||||||||||||||
Net loss
|
(4,212,587 | ) | (4,967,248 | ) | (11,438,837 | ) | (14,210,151 | ) | |||||||||||
Adjustments to reconcile net loss to net cash used in
|
|||||||||||||||||||
operating activities
|
|||||||||||||||||||
Depreciation and amortization
|
1,348,590 | 1,221,814 | 4,172,602 | 3,784,104 | |||||||||||||||
Stock-based compensation
|
445,729 | 326,221 | 1,175,125 | 1,878,839 | |||||||||||||||
Unrealized gain on derivative
|
— | (70,400 | ) | — | (1,389,300 | ) | |||||||||||||
Loss on dissolution of majority-owned subsidiary
|
97,205 | — | 97,205 | — | |||||||||||||||
Changes in operating assets and liabilities
|
|||||||||||||||||||
Accounts receivable
|
(208,988 | ) | 36,824 | (1,418,417 | ) | (207,814 | ) | ||||||||||||
Inventory
|
242,358 | 27,207 | 129,276 | 515,370 | |||||||||||||||
Prepaid expenses, deposits and other assets
|
(363,378 | ) | (263,295 | ) | (479,407 | ) | (78,981 | ) | |||||||||||
Other receivables
|
(110,223 | ) | 483,932 | 1,811 | 638,674 | ||||||||||||||
Due from related parties
|
(194,729 | ) | (360,561 | ) | 771,428 | (212,313 | ) | ||||||||||||
Accounts payable
|
5,710,217 | 2,876,290 | 3,897,537 | 727,106 | |||||||||||||||
Accrued liabilities
|
512,490 | (315,462 | ) | 339,179 | (307,947 | ) | |||||||||||||
Deferred revenue
|
722,858 | 1,268,787 | (1,188,911 | ) | 755,233 | ||||||||||||||
Long-term liabilities
|
(23,647 | ) | (57,734 | ) | (45,007 | ) | (206,460 | ) | |||||||||||
Due to related parties
|
15,939 | 88,066 | 15,913 | 13,582 | |||||||||||||||
Cash provided by (used in) operating activities
|
3,981,834 | 294,441 | (3,970,503 | ) | (8,300,058 | ) | |||||||||||||
INVESTING ACTIVITIES
|
|||||||||||||||||||
Purchase of property, plant and equipment
|
(1,027,984 | ) | (695,242 | ) | (1,515,736 | ) | (1,519,374 | ) | |||||||||||
Cash used in investing activities
|
(1,027,984 | ) | (695,242 | ) | (1,515,736 | ) | (1,519,374 | ) | |||||||||||
FINANCING ACTIVITIES
|
|||||||||||||||||||
Private placement, net
|
— | 10,000,000 | 4,849,546 | 10,000,000 | |||||||||||||||
Proceeds from exercise of stock options
|
— | — | — | 32,155 | |||||||||||||||
Cash provided by financing activities
|
— | 10,000,000 | 4,849,546 | 10,032,155 | |||||||||||||||
Net increase (decrease) in cash and cash equivalents
|
|||||||||||||||||||
during the period
|
2,953,850 | 9,599,199 | (636,693 | ) | 212,723 | ||||||||||||||
Cash and cash equivalents, beginning of period
|
9,338,782 | 3,571,203 | 12,929,325 | 12,957,679 | |||||||||||||||
Cash and cash equivalents, end of period
|
12,292,632 | 13,170,402 | 12,292,632 | 13,170,402 |
See accompanying notes
NEULION, INC.
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
1. Nature of Operations
NeuLion, Inc. (“NeuLion” or the “Company”) is a leading IPTV company that provides a comprehensive suite of technology and digital services. “IPTV” refers to the distribution of streamed audio, video and other multimedia content over a broadband network. Through IPTV, the Company builds and manages private networks for its customers that are used to deliver live and on-demand sports, international, entertainment and variety programming to subscribers and pay-per-view customers. The Company also offers its customers a complete web platform that includes e-commerce tools, ticketing solutions and hosting services. In addition, the Company streams international programming via proprietary websites targeted to specific communities. The Company’s core business objective is to enter into agreements with companies seeking to reach target audiences through their own private networks and to provide them with complete IPTV services. These companies in turn are able to use the Company’s services to reach more consumers and to grow their brands and revenues. The Company also acquires the rights to certain international content from television broadcasters, which is then streamed to end users through the Company’s proprietary networks.
2. Basis of Presentation and Significant Accounting Policies
The Company’s accounting policies are consistent with those presented in our annual consolidated financial statements as at December 31, 2010. These interim unaudited consolidated financial statements do not include all footnote disclosures required by U.S. generally accepted accounting principles (“GAAP”) for annual financial statements and therefore should be read in conjunction with the audited consolidated financial statements, including the notes thereto, for the year ended December 31, 2010 as they appear in the Company’s Annual Report on Form 10-K.
Effective July 1, 2011, the Company agreed to liquidate and dissolve its majority-owned subsidiary, China iMedia Enterprise Ltd (“China iMedia”). As a result of this agreement, China iMedia is no longer included in the Company’s consolidated financial statements except for its results of operations through the date of the effective dissolution.
These financial statements were prepared in conformity with U.S. GAAP, which requires management to make certain estimates that affect the reported amounts in the interim unaudited consolidated financial statements, and the disclosures made in the accompanying notes. Despite the Company’s intention to establish accurate estimates and use reasonable assumptions, actual results may differ from these estimates. All significant intercompany transactions and accounts have been eliminated on consolidation.
In the opinion of management, these interim unaudited consolidated financial statements contain all of the adjustments of a normal and recurring nature necessary to present fairly the Company’s financial position as at September 30, 2011 and December 31, 2010 and the results of operations and cash flows for the three and nine months ended September 30, 2011 and 2010.
Revenue recognition
The Company, at the request of certain customers, enters into “bill and hold” arrangements. The Company accounts for its bill and hold revenue arrangements consistent with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,” and recognizes revenue when the risk of ownership has passed to the customer and a fixed commitment to purchase the goods is received. The Company does not retain any specific performance obligations such that the earning process is not complete, and ordered goods are segregated from the Company’s inventory and not available to fulfill other orders. Inventory consists of finished goods. For the three and nine months ended September 30, 2011, the Company recognized $0 and $586,500, respectively, in revenue associated with these arrangements (three and nine months ended September 30, 2010 - $0 and $586,500, respectively).
NEULION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
Recently issued accounting standard
In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 amends guidance included within ASC Topic 605-25 to require an entity to use an estimated selling price when vendor-specific objective evidence or acceptable third-party evidence does not exist for any products or services included in a multiple-element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. ASU 2009-13 also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying this guidance. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption and retrospective application are also permitted. The Company adopted ASU 2009-13 on January 1, 2011, and its application did not have a material impact on the Company’s interim consolidated financial statements.
Advertising
Advertising costs are expensed as incurred and totaled $167,525 and $612,116 for the three and nine months ended September 30, 2011, respectively (three and nine months ended September 30, 2010 - $168,258 and $756,443, respectively).
Comparative information
Certain prior period information was reclassified to conform with the current period’s presentation.
3. Business Combinations
TransVideo International Ltd. (“TransVideo”)
On October 1, 2010, the Company completed the acquisition of 100% of the outstanding securities of TransVideo in exchange for 22,000,802 shares of common stock of the Company valued at $8,515,641. TransVideo’s passive investment in KyLinTV, Inc. (“KyLinTV”), an IPTV company, was not included as part of the transaction. TransVideo is a public Internet-based IPTV technology and solution provider headquartered in Beijing, China. It develops proprietary hardware designs and software for encoders and transcoders, IPTV set top boxes (“STBs”), digital media storage boxes, public IPTV media servers, signal transfer and monitoring equipment and software that acts as a public IPTV player. TransVideo was, and KyLinTV is, controlled by Charles B. Wang, the Chairman of the Board of Directors of the Company.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition:
As at October 1, 2010
|
||||
Cash
|
$ | 243,226 | ||
Other current assets
|
2,936,608 | |||
Property, plant and equipment
|
209,018 | |||
Intangible assets
|
2,123,000 | |||
Goodwill
|
4,701,076 | |||
Total assets
|
10,212,928 | |||
Current liabilities
|
(1,221,076 | ) | ||
Non-controlling interest
|
(476,211 | ) | ||
Net assets acquired
|
8,515,641 |
NEULION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
Of the $2,123,000 of acquired intangible assets, $100,000 was assigned to the TransVideo brand, $423,000 was assigned to customer relationships and $1,600,000 was assigned to completed technology. None of the intangible assets are expected to be deductible for tax purposes.
All of the $4,701,076 of goodwill was assigned to the Company as a whole as it operates in one segment. The goodwill is not expected to be deductible for tax purposes.
As noted above, the purchase price allocation of the tangible and intangible assets is preliminary and may be adjusted as a result of obtaining additional information regarding preliminary estimates of fair values made at the date of purchase.
Pro forma
The results of operations for NeuLion and TransVideo have been included in the Company’s consolidated statements of operations since the completion of the acquisition on October 1, 2010. The following unaudited pro forma financial information presents the combined results of NeuLion and TransVideo for the three and nine month periods as if the acquisition had occurred at the beginning of 2010:
Three months
|
Nine months
|
||||||||||||||||||
ended
|
ended
|
||||||||||||||||||
September 30,
|
September 30,
|
||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||||
$ | $ | $ | $ | ||||||||||||||||
(unaudited
|
(unaudited
|
(unaudited
|
(unaudited
|
||||||||||||||||
actual) |
pro forma)
|
actual)
|
pro forma)
|
||||||||||||||||
Total revenue
|
9,102,186 | 7,943,074 | 29,006,308 | 23,761,823 | |||||||||||||||
Cost of services revenue, exclusive of depreciation
|
|||||||||||||||||||
and amortization shown separately below
|
(3,257,089 | ) | (2,698,350 | ) | (10,076,277 | ) | (8,713,024 | ) | |||||||||||
Cost of equipment revenue
|
(681,427 | ) | (900,158 | ) | (1,819,315 | ) | (2,158,715 | ) | |||||||||||
Selling, general and administrative expenses
|
(7,507,848 | ) | (8,445,523 | ) | (23,106,663 | ) | (24,088,926 | ) | |||||||||||
Stock-based compensation
|
(445,729 | ) | (326,221 | ) | (1,175,125 | ) | (1,878,839 | ) | |||||||||||
Depreciation and amortization
|
(1,348,590 | ) | (1,350,528 | ) | (4,172,602 | ) | (4,171,373 | ) | |||||||||||
Operating loss
|
(4,138,497 | ) | (5,777,706 | ) | (11,343,674 | ) | (17,249,054 | ) | |||||||||||
Net loss attributable to common stockholders
|
(4,212,587 | ) | (5,744,335 | ) | (11,264,119 | ) | (15,894,724 | ) | |||||||||||
Net loss per weighted average number of shares
|
|||||||||||||||||||
outstanding – basic and diluted
|
(0.03 | ) | (0.04 | ) | (0.08 | ) | (0.11 | ) |
In determining the pro forma amounts above, the Company made adjustments to depreciation and amortization as a result of the revised fair values of tangible and intangible assets recorded as a result of the acquisition.
NEULION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
4. Inventory
Inventory consists of the following:
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
$ | $ | |||||||
Raw materials
|
186,859 | 277,092 | ||||||
Finished goods
|
624,385 | 669,688 | ||||||
811,244 | 946,780 |
5. Economic Dependence and Concentration of Credit Risk
As at September 30, 2011, one customer accounted for 34% of accounts receivable.
For the three and nine months ended September 30, 2011, one customer accounted for 18% and 15% of revenue, respectively.
There were no significant concentrations of accounts receivable or revenue in 2010.
6. Related Party Transactions
The Company has entered into certain transactions and agreements in the normal course of operations with related parties. Significant related party transactions are as follows:
KyLinTV
KyLinTV is an IPTV company that is controlled by the Chairman of the Board of Directors of the Company. On June 1, 2008, the Company entered into an agreement with KyLinTV to build and deliver the setup and back office operations for KyLinTV’s IPTV service. The Company also provides and charges KyLinTV for administrative and general corporate support. For each of the periods presented, the amounts earned for these administrative and general corporate services provided by the Company for the three and nine months ended September 30, 2011 were $85,294 and $249,487, respectively (three and nine months ended September 30, 2010 - $104,251 and $354,360, respectively).
New York Islanders Hockey Club, L.P. (“New York Islanders”)
The Company provides IT-related professional services and administrative services to the New York Islanders, a professional ice hockey club that is owned by the Chairman of the Board of Directors of the Company.
Renaissance Property Associates, LLC (“Renaissance”)
Renaissance is a real estate management company owned by the Chairman of the Board of Directors of the Company. In June 2009, the Company signed a sublease agreement with Renaissance for office space in Plainview, New York. Rent expense paid by the Company to Renaissance of $102,733 and $308,199, inclusive of taxes and utilities, is included in selling, general and administrative expense for the three and nine months ended September 30, 2011, respectively (three and nine months ended September 30, 2010 - $103,390 and $309,350, respectively).
NEULION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
Smile Train, Inc. (“Smile Train”)
The Company provides IT-related professional services to Smile Train, a public charity whose founder and significant benefactor is the Chairman of the Board of Directors of the Company.
The Company recognized revenue from related parties for the three and nine months ended September 30, 2011 and 2010 as follows:
Three months
|
Nine months
|
||||||||||||||||||
ended
|
ended
|
||||||||||||||||||
September 30,
|
September 30,
|
||||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||||
$ | $ | $ | $ | ||||||||||||||||
New York Islanders
|
86,047 | 96,171 | 254,732 | 356,740 | |||||||||||||||
Renaissance
|
30,000 | 30,000 | 90,000 | 90,000 | |||||||||||||||
Smile Train
|
27,000 | 27,000 | 81,000 | 81,000 | |||||||||||||||
KyLinTV
|
742,079 | 506,395 | 2,226,379 | 1,473,898 | |||||||||||||||
885,126 | 659,566 | 2,652,111 | 2,001,638 |
As at September 30, 2011 and December 31, 2010, the amounts due from (to) related parties are as follows:
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
$
|
$
|
|||||||
New York Islanders
|
(15,939 | ) | (26 | ) | ||||
Renaissance
|
— | 70 | ||||||
KyLinTV
|
490,348 | 1,261,706 | ||||||
474,409 | 1,261,750 |
7. Loss Per Share
Basic loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding. For the three and nine months ended September 30, 2011 and 2010, diluted earnings per share excludes the effect of potential shares of common stock, as their inclusion would be anti-dilutive due to the losses recorded by the Company.
NEULION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
The following table summarizes the potential shares of common stock that were outstanding as at September 30, 2011 and 2010 but were not included in the computation of diluted loss per share as their effect would have been anti-dilutive:
September 30,
|
September 30,
|
|||||||
2011
|
2010
|
|||||||
# | # | |||||||
Stock options
|
16,223,083 | 11,794,103 | ||||||
Restricted share units
|
— | 640 | ||||||
Stock appreciation rights
|
675,000 | 1,675,000 | ||||||
Warrants
|
8,625,000 | 19,697,500 | ||||||
Retention warrants
|
708,834 | 749,250 | ||||||
Restricted stock
|
2,500,000 | — | ||||||
Class 3 Preference Shares
|
17,176,818 | 17,176,818 | ||||||
Class 4 Preference Shares
|
10,912,265 | — |
8. Contingencies
During the ordinary course of business activities, the Company may be contingently liable for litigation and a party to claims. Management believes that adequate provisions have been made in the accounts where required. Although the extent of potential costs and losses, if any, is uncertain, management believes that the ultimate resolution of such contingencies will not have an adverse effect on the consolidated financial position or results of operations of the Company.
9. Stock Option and Stock-Based Compensation Plans
The following table shows the breakdown of total stock-based compensation expense included in the Company’s interim consolidated statement of operations:
Three months
|
Nine months
|
||||||||||||||||
ended
|
ended
|
||||||||||||||||
September 30,
|
September 30,
|
||||||||||||||||
2011
|
2010
|
2011
|
2010
|
||||||||||||||
$
|
$
|
$
|
$
|
||||||||||||||
Stock options and warrants
|
318,413 | 281,218 | 866,202 | 1,791,866 | |||||||||||||
Restricted share units
|
— | 260 | — | 3,505 | |||||||||||||
Stock appreciation rights
|
(13,676 | ) | (21,226 | ) | (66,440 | ) | (99,394 | ) | |||||||||
Directors’ compensation
|
41,375 | 56,875 | 95,867 | 150,125 | |||||||||||||
Escrowed shares
|
— | 9,094 | — | 32,737 | |||||||||||||
Consultant compensation
|
36,296 | — | 89,532 | — | |||||||||||||
Restricted stock
|
63,321 | — | 189,964 | — | |||||||||||||
445,729 | 326,221 | 1,175,125 | 1,878,839 |
10. Segmented Information
The Company operates as one reportable segment to provide end-to-end enterprise-level IPTV and other professional services. Substantially all of Company’s revenues originate from, and long-lived assets are located in, the United States.
NEULION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
11. Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes Recognition”. There were no accrued interest or penalties associated with uncertain tax positions as of September 30, 2011 or December 31, 2010.
The Company has not recorded an income tax benefit due to current year losses and the associated valuation allowance on the Company’s net operating losses.
12. Redeemable Preferred Stock
The Company has 50,000,000 authorized shares of preferred stock, $0.01 par value per share, of which 17,176,818 shares have been designated as Class 3 Preference Shares and 10,912,265 have been designated as Class 4 Preference Shares.
Class 3 Preference Shares
On September 29, 2010, the Company issued 17,176,818 Class 3 Preference Shares, at a price of CDN$0.60 per share in a private offering, for aggregate gross proceeds of $10,000,000. Expenses related to the share issuance were $245,662. The principal terms of the Class 3 Preference Shares are as follows:
Voting rights – The Class 3 Preference Shares have voting rights (one vote per share) equal to those of the Company’s common stock.
Dividend rights – The Class 3 Preference Shares carry a fixed cumulative dividend, as and when declared by our Board of Directors, of 8% per annum, accrued daily, compounded annually and payable in cash upon a liquidation event for up to five years, as well as the right to receive any dividends paid to holders of common stock.
Conversion rights – The holders of the Class 3 Preference Shares have the right to convert any or all of their Class 3 Preference Shares, at the option of the holder, at any time, into common stock on a one for one basis. In addition, the Class 3 Preference Shares will automatically be converted into common stock in the event that the holders of a majority of the outstanding Class 3 Preference Shares consent to such conversion. In the event of conversion to common stock, accrued but unpaid dividends shall be paid in cash and shall not increase the number of shares of common stock issuable upon such conversion.
Redemption rights – At any time after five years from the date of issuance, the holders of a majority of the Class 3 Preference Shares may elect to have the Company redeem the Class 3 Preference Shares for an amount equal to CDN$0.60 per Class 3 Preference Share plus all accrued and unpaid dividends (the “Class 3 Redemption Amount”). At any time after five years from the date of issuance, the Company may, at its option, redeem the Class 3 Preference Shares for an amount equal to CDN$0.60 per Class 3 Preference Share plus all accrued and unpaid dividends.
On June 7, 2011, shareholders of the Company approved a resolution to amend the Company’s Certificate of Incorporation to change the Redemption Amount (as defined in the Certificate of Incorporation) of the Class 3 Preference Shares from CDN$0.60 to US$0.58218 per share, plus all accrued and unpaid dividends thereon.
Liquidation entitlement – In the event of any liquidation, dissolution or winding up of the Company, the holders of the Class 3 Preference Shares shall be entitled to receive, in preference to the holders of common stock, an amount equal to the aggregate Class 3 Redemption Amount.
NEULION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
Other provisions – There will be proportional adjustments for stock splits, stock dividends, recapitalizations and the like.
Accounting for Class 3 Preference Shares
If certain criteria are met, companies must bifurcate conversion options from their host instruments and account for them as free-standing derivative instruments. The Company has evaluated the conversion option on the Class 3 Preference Shares and determined that the embedded conversion option should not be bifurcated. Additionally, the Company analyzed the conversion feature and determined that the effective conversion price was higher than the market price at the date of issuance; therefore, no beneficial conversion feature was recorded. The Company has classified the Class 3 Preference Shares as temporary equity because they are redeemable upon the occurrence of an event that is not solely within the control of the issuer. As noted above, the holders of the Class 3 Preference Shares may demand redemption at any time after five years from the date of issuance. As the redemption amount was originally denominated in Canadian dollars, the Company re-measured the redeemable preferred stock amount recorded in the consolidated balance sheet each period, based on prevailing exchange rates. The resulting adjustment, along with the accretion of the issuance costs, was recorded in stockholders’ equity.
As a result of the aforementioned change in the Class 3 Redemption Amount, from CDN$0.60 to US$0.58218 per share, the Company adjusted the carrying amount of the Class 3 Preference Shares on June 7, 2011 to US$10 million.
On June 29, 2011, the Company issued 10,912,265 Class 4 Preference Shares, at a price of $0.4582 per share in a private offering, for aggregate gross proceeds of $5,000,000. Expenses related to the share issuance were $150,454. The principal terms of the Class 4 Preference Shares are as follows:
Voting rights – The Class 4 Preference Shares have voting rights (one vote per share) equal to those of the Company’s common stock.
Dividend rights – The Class 4 Preference Shares carry a fixed cumulative dividend at a rate of 8% per annum to be paid as and when declared by the Company’s Board of Directors. Notwithstanding the foregoing, such dividends are automatically payable in cash upon a liquidation event or redemption by the Company for up to five years.
Conversion rights – The holders of the Class 4 Preference Shares have the right to convert any or all of their Class 4 Preference Shares, at the option of the holder, at any time, into common stock on a one for one basis. In addition, the Class 4 Preference Shares will automatically be converted into common stock in the event that the holders of a majority of the outstanding Class 4 Preference Shares consent to such conversion. In the event of conversion to common stock, declared and accrued, but unpaid dividends shall be paid in shares of common stock based on a conversion price equal to the trading price of the common stock at the close of business on the last trading day prior to the date of conversion.
Redemption rights – At any time after five years from the date of issuance, the holders of a majority of the Class 4 Preference Shares may elect to have the Company redeem the Class 4 Preference Shares for an amount equal to $0.4582 per Class 4 Preference Share plus all declared and accrued, but unpaid, dividends (the “Class 4 Redemption Amount”). At any time after five years from the date of issuance, the Company may, at its option, redeem the Class 4 Preference Shares for an amount equal to $0.4582 per Class 4 Preference Share plus all accrued and unpaid dividends.
NEULION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. dollars, unless otherwise noted)
Information as at September 30, 2011 and for the three and nine months ended
September 30, 2011 and 2010 is unaudited
Liquidation entitlement – In the event of any liquidation, dissolution or winding up of the Company, the holders of the Class 4 Preference Shares shall be entitled to automatically receive, in preference to the holders of common stock and Class 3 Preference Shares, an amount equal to $0.4582 per Class 4 Preference Share plus all accrued and unpaid dividends .
Other provisions – There will be proportional adjustments for stock splits, stock dividends, recapitalizations and the like.
Accounting for Class 4 Preference Shares
If certain criteria are met, companies must bifurcate conversion options from their host instruments and account for them as free-standing derivative instruments. The Company has evaluated the conversion option on the Class 4 Preference Shares and determined that the embedded conversion option should not be bifurcated. Additionally, the Company analyzed the conversion feature and determined that the effective conversion price was higher than the market price at the date of issuance; therefore, no beneficial conversion feature was recorded. The Company has classified the Class 4 Preference Shares as temporary equity because they are redeemable upon the occurrence of an event that is not solely within the control of the issuer.
13. Derivative Instruments
Effective January 1, 2009, the Company adopted ASC Topic 815-40, “Derivatives and Hedging” (“ASC 815-40”). ASC 815-40 states that an equity-linked financial instrument will not be considered indexed to the entity’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency. ASC 815-40 specifies that a contract will not be treated as a derivative if it meets the following conditions: (a) indexed to the Company’s own stock; and (b) classified in shareholders’ equity in the Company’s statement of financial position. The Company’s outstanding warrants denominated in Canadian dollars were not considered to be indexed to its own stock because the exercise price was denominated in Canadian dollars and the Company’s functional currency is United States dollars. Therefore, these warrants were treated as derivative financial instruments and recorded at their fair value as liabilities. All of the Company’s other outstanding convertible instruments are considered to be indexed to the Company’s stock, because their exercise prices are denominated in the same currency as the Company’s functional currency, and are included in stockholders’ equity.
The Company’s only derivative instruments were 11,000,000 warrants, the exercise price for which was denominated in a currency other than the Company’s functional currency, as follows:
|
·
|
5,500,000 Series A warrants exercisable at Cdn$1.25 that expired on October 20, 2010.
|
|
·
|
5,500,000 Series B warrants exercisable at Cdn$1.50 that expired on October 20, 2010.
|
These warrants were recorded at their relative fair values at issuance and continued to be recorded at fair value at each subsequent balance sheet date. Any change in value between reporting periods was recorded as other income (expense). The fair value of these warrants was estimated using the Black-Scholes-Merton option-pricing model.
On October 20, 2010, these warrants expired. The Company recorded an unrealized gain of $70,400 and $1,389,300 in other income (expense) on the consolidated statements of operations for the three and nine months ended September 30, 2010, respectively, related to the change in the fair value of these warrants.
This management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of the Company should be read in conjunction with our unaudited consolidated financial statements and accompanying notes for the three and nine months ended September 30, 2011 and 2010, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). All dollar amounts are in U.S. dollars (“US$” or “$”) unless stated otherwise. As at November 8, 2011, the Bank of Canada noon rate for conversion of United States dollars to Canadian dollars (CDN$) was US$1 to CDN$1.0140.
Our MD&A is intended to enable readers to gain an understanding of our current results and financial position. To do so, we provide information and analysis comparing the results of operations and financial position for the current period to those of the preceding comparable period. We also provide analysis and commentary that we believe is required to assess our future prospects. Accordingly, certain sections of this MD&A contain forward-looking statements that are based on current plans and expectations. These forward-looking statements are affected by risks and uncertainties that are discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 and below in the section titled “Cautions Regarding Forward-Looking Statements” and that could have a material impact on future prospects. Readers are cautioned that actual results could vary from those forecasted in this MD&A.
Cautions Regarding Forward-Looking Statements
This MD&A contains certain forward-looking statements that reflect management’s expectations regarding our growth, results of operations, performance and business prospects and opportunities.
Statements about our future plans and intentions, results, levels of activity, performance, goals or achievements or other future events constitute forward-looking statements. Wherever possible, words such as “may,” “will,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” or “potential” or the negative or other variations of these words, or similar words or phrases, have been used to identify these forward-looking statements. These statements reflect management’s current beliefs and are based on information available to management as of the date of this MD&A.
Forward-looking statements involve significant risk, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this MD&A are based upon what management believes to be reasonable assumptions, we cannot assure readers that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this MD&A and we assume no obligation to update or revise them to reflect new events or circumstances, except as required by law. Many factors could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including: our ability to increase revenue; general economic and market segment conditions; our customers’ subscriber levels; the financial health of our customers; our ability to pursue and consummate acquisitions in a timely manner; our continued relationships with our customers; our ability to negotiate favorable terms for contract renewals; competitor activity; product capability and acceptance rates; technology changes; foreign exchange risk; interest rate risk; and credit risk. A more detailed assessment of the risks that could cause actual results to materially differ from current expectations is contained in Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2010 available on www.sec.gov and www.sedar.com.
Overview
We are a leading IPTV company that provides a comprehensive suite of technology and digital services. “IPTV” refers to the distribution of streamed audio, video and other multimedia content over a broadband network. Through IPTV, we build and manage private networks for our customers that are used to deliver live and on-demand sports, international, entertainment and variety programming to subscribers and pay-per-view customers. We also offer our customers a complete web platform that includes e-Commerce tools, ticketing solutions and hosting services. In addition, we stream international programming via proprietary websites targeted to specific communities. Our core business objective is to enter into agreements with companies seeking to reach target audiences through their own private networks and to provide them with complete IPTV services. These companies in turn are able to use our services to reach more consumers and to grow their brands and revenues. We also acquire the rights to certain international content from television broadcasters, which is then streamed to end users through our proprietary networks.
We believe the increasing popularity of Internet-connected devices, coupled with the accelerating worldwide adoption of broadband Internet connections, will fuel long-term growth in the number of consumers viewing IP-based content. Our short-term financial objectives are to increase revenues and to achieve positive net cash flows. Our long-term financial objective is to increase shareholder value. To achieve these objectives, we intend to grow our business with our existing customer base as well as enter into agreements with new customers.
We use the term “organic” to refer to the period-over-period changes in our revenues and expenses, excluding the revenues and expenses of the TransVideo acquisition (completed October 1, 2010). This permits readers to better compare current period and prior period revenues and expenses, and to understand changes that have occurred, without regard to the effect of the acquisition of TransVideo.
Overall Performance – Three months ended September 30, 2011 vs three months ended September 30, 2010
Highlights
|
Ø
|
Services Revenue, which is our recurring revenue stream, increased by $1.5 million, or 22%, as compared to the prior period.
|
|
Ø
|
Cost of Services Revenue, exclusive of depreciation and amortization, as a percentage of Services Revenue, remained constant at 40%, as compared to the prior period.
|
|
Ø
|
Non-GAAP Adjusted EBITDA Loss (as defined below) improved by $1.1 million, or 32%, as compared to the prior period.
|
Overview
Revenue for the three months ended September 30, 2011 was $9.1 million, an increase of $2.2 million, or 32%, from $6.9 million for the three months ended September 30, 2010. The revenue growth was due to the following:
|
·
|
organic growth of $1.9 million; and
|
|
·
|
revenue from TransVideo of $0.3 million.
|
The organic revenue growth of $1.9 million was due to an increase in our services revenue of $1.5 million and increase in our equipment revenue of $0.4 million.
Our net loss attributable to common stockholders for the three months ended September 30, 2011 was $4.2 million, or a loss of $0.03 per basic and diluted share of common stock, compared with a net loss of $5.0 million, or a loss of $0.04 per basic and diluted share of common stock, for the three months ended September 30, 2010. The improvement in net loss attributable to common stockholders of $0.8 million, or 16%, was due to the following:
|
·
|
an increase in total revenue of $2.2 million.
|
offset by the following:
|
·
|
an increase in cost of revenue, exclusive of depreciation and amortization of $1.0 million;
|
|
·
|
an increase in stock-based compensation of $0.1 million (non-cash item);
|
|
·
|
an increase in depreciation and amortization of $0.1 million (non-cash item);
|
|
·
|
a loss on dissolution of majority-owned subsidiary of $0.1 million for the three months ended September 30, 2011 (non-cash item); and
|
|
·
|
an unrealized gain on derivative of $0.1 million for the three months ended September 30, 2010 (non-cash item).
|
Our non-GAAP Adjusted EBITDA loss (as defined below) was $2.3 million for the three months ended September 30, 2011, compared with $3.5 million for the three months ended September 30, 2010. The improvement in non-GAAP Adjusted EBITDA loss was due to the impact of the items noted in the net loss discussion above.
We report non-GAAP Adjusted EBITDA loss because it is a key measure used by management to evaluate our results and make strategic decisions about the Company, including potential acquisitions. Non-GAAP Adjusted EBITDA loss represents net loss before interest, income taxes, depreciation and amortization, stock-based compensation, unrealized gain/loss on derivatives, investment income, non-controlling interests, loss on dissolution of majority-owned subsidiary and foreign exchange gain/loss. This measure does not have any standardized meaning prescribed by U.S. GAAP and therefore is unlikely to be comparable to the calculation of similar measures used by other companies, and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with U.S. GAAP.
The reconciliation from consolidated net loss to non-GAAP Adjusted EBITDA loss is as follows:
Three months ended,
|
||||||||
September 30,
|
||||||||
2011
|
2010
|
|||||||
$ | $ | |||||||
Net loss
|
(4,212,587 | ) | (4,967,248 | ) | ||||
Depreciation and amortization
|
1,348,590 | 1,221,814 | ||||||
Stock-based compensation
|
445,729 | 326,221 | ||||||
Unrealized gain on derivative
|
0 | (70,400 | ) | |||||
Loss on dissolution of majority-owned subsidiary
|
97,205 | 0 | ||||||
Investment income and foreign exchange gain/loss
|
(23,115 | ) | 37,029 | |||||
Non-GAAP Adjusted EBITDA loss
|
(2,344,178 | ) | (3,452,584 | ) |
Overall Performance – Nine months ended September 30, 2011 vs nine months ended September 30, 2010
Highlights
|
Ø
|
Services Revenue, which is our recurring revenue stream, increased by $5.7 million, or 27%, as compared to the prior period.
|
|
Ø
|
Cost of Services Revenue, exclusive of depreciation and amortization, as a percentage of Services Revenue, decreased by 4%, as compared to the prior period.
|
|
Ø
|
Non-GAAP Adjusted EBITDA Loss (as defined above) improved by $3.9 million, or 39%, as compared to the prior period.
|
|
|
Overview
Revenue for nine months ended September 30, 2011 was $29.0 million, an increase of $6.9 million, or 31%, from $22.1 million for the nine months ended September 30, 2010. The revenue growth was due to the following:
|
·
|
organic growth of $5.9 million; and
|
|
·
|
revenue from TransVideo of $1.0 million.
|
The organic revenue growth of $5.9 million was due to an increase in our services revenue of $5.5 million and an increase in our equipment revenue of $0.4 million.
Our net loss attributable to common stockholders for the nine months ended September 30, 2011 was $11.3 million, or a loss of $0.08 per basic and diluted share of common stock, compared with a net loss of $14.2 million, or a loss of $0.12 per basic and diluted share of common stock, for the nine months ended September 30, 2010. The improvement in net loss attributable to common stockholders of $2.9 million, or 20%, was due to the following:
|
·
|
an increase in total revenue of $6.9 million;
|
|
·
|
a decrease in stock-based compensation of $0.7 million (non-cash item); and
|
|
·
|
an adjustment to the carrying amount of Class 3 Preference Shares of $0.2 million for the nine months ended September 30, 2011 (non-cash item).
|
offset by the following:
|
·
|
an increase in cost of revenue, exclusive of depreciation and amortization of $2.0 million;
|
|
·
|
an increase in selling, general and administrative expenses, excluding stock-based compensation of $1.0 million;
|
|
·
|
an increase in depreciation and amortization of $0.4 million (non-cash item);
|
|
·
|
a loss on dissolution of majority-owned subsidiary of $0.1 million for the nine months ended September 30, 2011 (non-cash item); and
|
|
·
|
an unrealized gain on derivative of $1.4 million for the nine months ended September 30, 2010 (non-cash item).
|
Our non-GAAP Adjusted EBITDA loss was $6.0 million for the nine months ended September 30, 2011, compared with $9.9 million for the nine months ended September 30, 2010. The improvement in non-GAAP Adjusted EBITDA loss was due to the impact of the items noted in the net loss discussion above.
The reconciliation from consolidated net loss to non-GAAP Adjusted EBITDA loss is as follows:
Nine months ended,
|
||||||||
September 30,
|
||||||||
2011
|
2010
|
|||||||
$ | $ | |||||||
Net loss
|
(11,438,837 | ) | (14,210,151 | ) | ||||
Depreciation and amortization
|
4,172,602 | 3,784,104 | ||||||
Stock-based compensation
|
1,175,125 | 1,878,837 | ||||||
Unrealized gain on derivative
|
0 | (1,389,300 | ) | |||||
Loss on dissolution of majority-owned subsidiary
|
97,205 | 0 | ||||||
Investment income and foreign exchange loss
|
(2,042 | ) | 34,970 | |||||
Non-GAAP Adjusted EBITDA loss
|
(5,995,947 | ) | (9,901,540 | ) |
OPERATIONS
Revenue
We earn revenue in two broad categories:
(i) Services revenue, which includes:
|
●
|
Subscriber revenue, which consists primarily of subscription, pay-per view and operations and usage fees revenues and is recognized over the period of service or usage;
|
|
●
|
eCommerce revenue, which consists of advertising, merchandise, donor and ticketing revenues and is recognized as the service is performed; and
|
|
●
|
Technology revenue, which consists of set-up, transcoder and licensing fee revenue and is recognized over the life of the contract.
|
(ii)
|
Equipment revenue, which primarily consists of the sale of set top boxes (“STBs”) to content partners and/or end users and is recognized when title to an STB passes to the customer. Shipping revenue, STB rentals and computer hardware sales are also included in equipment revenue.
|
|
|
Cost and Expenses
|
Cost of services revenue
Cost of services revenue primarily consists of:
|
●
|
Cost of subscriber revenue, which consists of:
|
|
·
|
royalty payments;
|
|
·
|
network operating costs;
|
|
·
|
bandwidth usage fees; and
|
|
·
|
colocation fees.
|
|
●
|
Cost of eCommerce revenue, which consists of:
|
|
·
|
merchandising, donor and ticketing revenues, which have minimal associated costs as revenue is booked on a net basis; and
|
|
·
|
cost of advertising revenue, which is subject to revenue shares with the content provider.
|
|
●
|
Cost of technology revenue, which consists of:
|
|
·
|
transcoder licenses purchased from third parties; and
|
|
·
|
maintenance costs for transcoders.
|
Cost of equipment revenue
Cost of equipment revenue primarily consists of purchases of STB products and parts for resale to customers. Shipping costs and computer hardware costs are also included in cost of equipment revenue.
Selling, general and administrative expenses, including stock-based compensation
Selling, general and administrative (“SG&A”) costs, including stock-based compensation, include:
·
|
Wages and benefits – represents compensation for our full-time and part-time employees as well as fees for consultants who we use from time to time;
|
●
|
Stock-based compensation – represents the estimated fair value of our options, warrants and stock appreciation rights (“Convertible Securities”) for financial accounting purposes, prepared using the Black-Scholes-Merton model;
|
●
|
Marketing – represents expenses for both global and local marketing initiatives that focus on various target sports properties and ethnic communities and include online and traditional marketing expenditures, search engine marketing and search engine optimization;
|
●
|
Professional fees – represents legal, accounting, public relations and recruiting fees;
|
●
|
Corporate Systems – represents corporate IT services;
|
●
|
Office facilities – represents rent and utilities; and
|
●
|
Other SG&A expenses – represents travel expenses, office supplies, credit card processing fees and other general operating expenses.
|
RESULTS OF OPERATIONS
Comparison of Three Months Ended September 30, 2011 to Three Months Ended September 30, 2010
Our consolidated financial statements for the three months ended September 30, 2011 and 2010 have been prepared in accordance with U.S. GAAP.
(Unaudited)
September 30,
|
September 30,
|
|||||||||||
2011
|
2010
|
Change
|
||||||||||
$ | $ | % | ||||||||||
Revenue
|
||||||||||||
Services revenue
|
8,225,017 | 6,718,427 | 22 | % | ||||||||
Equipment revenue
|
877,169 | 230,236 | 281 | % | ||||||||
Total Revenue
|
9,102,186 | 6,948,663 | 31 | % | ||||||||
Costs and expenses
|
||||||||||||
Cost of services revenue, exclusive of depreciation
|
||||||||||||
and amortization shown separately below
|
3,257,089 | 2,698,350 | 21 | % | ||||||||
Cost of equipment revenue
|
681,427 | 229,377 | 197 | % | ||||||||
Selling, general and administrative, including
|
||||||||||||
stock-based compensation
|
7,953,577 | 7,799,741 | 2 | % | ||||||||
Depreciation and amortization
|
1,348,590 | 1,221,814 | 10 | % | ||||||||
13,240,683 | 11,949,282 | 11 | % | |||||||||
Operating loss
|
(4,138,497 | ) | (5,000,619 | ) | -17 | % | ||||||
Other income (expense)
|
||||||||||||
Unrealized gain on derivative
|
- | 70,400 | - | |||||||||
Gain (loss) on foreign exchange
|
15,919 | (40,297 | ) | - | ||||||||
Investment income
|
7,196 | 3,268 | 120 | % | ||||||||
Loss on dissolution of majority-owned subsidiary
|
(97,205 | ) | 0 | - | ||||||||
(74,090 | ) | 33,371 | -322 | % | ||||||||
Net and comprehensive loss
|
(4,212,587 | ) | (4,967,248 | ) | -15 | % |
Revenue
Services revenue
Services revenue includes revenue from subscribers, eCommerce and technology services. Services revenue increased from $6.7 million for the three months ended September 30, 2010 to $8.2 million for the three months ended September 30, 2011. The $1.5 million increase was due to organic growth. The organic growth was a result of $0.3 million of revenue from new customers coupled with $1.2 million from existing customers.
Subscriber revenue increased from $4.5 million for the three months ended September 30, 2010 to $5.0 million for the three months ended September 30, 2011. The $0.5 million increase was due to organic growth. The organic growth was a result of $0.2 million of revenue from new customers coupled with $0.3 million from existing customers.
eCommerce revenue increased from $0.9 million for the three months ended September 30, 2010 to $1.0 million for the three months ended September 30, 2011. The $0.1 million increase was directly attributable to advertising revenue.
Technology revenue increased from $1.3 million for the three months ended September 30, 2010 to $2.2 million for the three months ended September 30, 2011. The $0.9 million increase was due to organic growth. The organic growth was a result of $0.1 million of revenue from new customers coupled with $0.8 million from existing customers.
Equipment revenue
Equipment revenue increased from $0.2 million for the three months ended September 30, 2010 to $0.9 million for the three months ended September 30, 2011. The $0.7 million increase was a result of $0.3 million in revenue from TransVideo and $0.4 million from organic growth. The organic growth of $0.4 million was due to an increase in purchases from an existing customer.
Costs and Expenses
Cost of services revenue
Cost of services revenue increased from $2.7 million for the three months ended September 30, 2010 to $3.3 million for the three months ended September 30, 2011. Cost of services revenue as a percentage of services revenue remained constant at 40% for the three months ended September 30, 2010 and 2011.
Cost of equipment revenue
Cost of equipment revenue increased from $0.2 million for the three months ended September 30, 2010 to $0.7 million for the three months ended September 30, 2011. Cost of equipment revenue as a percentage of equipment revenue decreased from 100% for the three months ended September 30, 2010 to 77% for the three months ended September 30, 2011. The 23% improvement (as a percentage of equipment revenue) was primarily a result of purchasing STBs at lower prices through the acquisition of TransVideo.
Selling, general and administrative expenses, including stock-based compensation
Selling, general and administrative expenses, including stock-based compensation, increased from $7.8 million for the three months ended September 30, 2010 to $8.0 million for the three months ended September 30, 2011. The total increase of $0.2 million was due to an organic decrease of $0.1 million and an increase of $0.3 million from TransVideo. The individual variances are as follows:
|
·
|
Wages and benefits increased from $4.9 million for the three months ended September 30, 2010 to $5.6 million for the three months ended September 30, 2011. Wages and benefits were $0.2 million for TransVideo. The organic increase of $0.5 million was due to an increase in employees.
|
|
·
|
Stock-based compensation expense increased from $0.3 million for the three months ended September 30, 2010 to $0.4 million for the three months ended September 30, 2011. The $0.1 million increase was a result of additional compensation relating to a consultant’s fees and restricted stock.
|
|
·
|
Marketing expenses were $0.2 million for the three months ended September 30, 2010 and 2011.
|
|
·
|
Professional fees increased from $0.4 million for the three months ended September 30, 2010 to $0.5 million for the three months ended September 30, 2011.
|
|
·
|
Corporate systems costs decreased from $0.4 million for the three months ended September 30, 2010 to $0.2 million for the three months ended September 30, 2011. The $0.2 million decrease was a result of software maintenance costs incurred during the three months ended September 30, 2010.
|
|
·
|
Office facilities expenses were $0.3 million for the three months ended September 30, 2010 and 2011.
|
|
·
|
Other SG&A expenses decreased from $1.3 million for the three months ended September 30, 2010 to $0.8 million for the three months ended September 30, 2011. The $0.5 million decrease was primarily due to a decrease in bad debt expense. During the three months ended September 30, 2010, we set up a $0.6 million reserve for an other receivable.
|
Depreciation and amortization
Depreciation and amortization increased from $1.2 million for the three months ended September 30, 2010 to $1.3 million for the three months ended September 30, 2011. The $0.1 million increase was due to the amortization of TransVideo’s acquired fixed and intangible assets.
Unrealized gain on derivative
Unrealized gain on derivative decreased from a gain of $0.1 million for the three months ended September 30, 2010 to $0 for the three months ended September 30, 2011. Our only derivative instruments were 11,000,000 warrants, which were issued in connection with our merger in October 2008, the exercise price for which was denominated in a currency other than our functional currency. These warrants were recorded at their relative fair values at issuance, determined using the Black-Scholes-Merton model. Any change in value between reporting periods was recorded as other income (expense). These warrants expired on October 20, 2010.
Comparison of Nine Months Ended September 30, 2011 to Nine Months Ended September 30, 2010
Our consolidated financial statements for the nine months ended September 30, 2011 and 2010 have been prepared in accordance with U.S. GAAP.
(Unaudited)
September 30,
|
September 30,
|
|||||||||||
2011
|
2010
|
Change
|
||||||||||
$ | $ | % | ||||||||||
Revenue
|
||||||||||||
Services revenue
|
26,602,541 | 20,874,118 | 27 | % | ||||||||
Equipment revenue
|
2,403,767 | 1,177,775 | 104 | % | ||||||||
Total Revenue
|
29,006,308 | 22,051,893 | 32 | % | ||||||||
Costs and expenses
|
||||||||||||
Cost of services revenue, exclusive of depreciation
|
||||||||||||
and amortization shown separately below
|
10,076,277 | 8,713,024 | 16 | % | ||||||||
Cost of equipment revenue
|
1,819,315 | 1,124,258 | 62 | % | ||||||||
Selling, general and administrative, including
|
||||||||||||
stock-based compensation
|
24,281,788 | 23,994,988 | 1 | % | ||||||||
Depreciation and amortization
|
4,172,602 | 3,784,104 | 10 | % | ||||||||
40,349,982 | 37,616,374 | 7 | % | |||||||||
Operating loss
|
(11,343,674 | ) | (15,564,481 | ) | -27 | % | ||||||
Other income (expense)
|
||||||||||||
Unrealized gain on derivative
|
- | 1,389,300 | - | |||||||||
Loss on foreign exchange
|
(25,973 | ) | (69,250 | ) | -62 | % | ||||||
Investment income
|
28,015 | 34,280 | -18 | % | ||||||||
Loss on dissolution of majority-owned subsidiary
|
(97,205 | ) | - | - | ||||||||
(95,163 | ) | 1,354,330 | -107 | % | ||||||||
Net and comprehensive loss
|
(11,438,837 | ) | (14,210,151 | ) | -20 | % | ||||||
Net loss attributable to non-controlling interest
|
21,485 | - | - | |||||||||
Net loss attributable to controlling interest
|
(11,417,352 | ) | (14,210,151 | ) | -20 | % | ||||||
Adjustment to the carrying amount of redeemable preferred stock
|
153,233 | - | - | |||||||||
Net and comprehensive loss attributable to NeuLion, Inc. common stockholders
|
(11,264,119 | ) | (14,210,151 | ) | -21 | % |
Revenue
Services revenue
Services revenue includes revenue from subscribers, eCommerce and technology services. Services revenue increased from $20.9 million for the nine months ended September 30, 2010 to $26.6 million for the nine months ended September 30, 2011. The $5.7 million increase was due to organic growth of $5.6 million and revenue from TransVideo of $0.1 million. The organic growth was a result of $0.8 million of revenue from new customers coupled with $4.8 million from existing customers.
Subscriber revenue increased from $14.1 million for the nine months ended September 30, 2010 to $16.8 million for the nine months ended September 30, 2011. The $2.7 million increase was due to organic growth. The organic growth was a result of $0.5 million of revenue from new customers coupled with $2.2 million from existing customers.
eCommerce revenue decreased from $2.7 million for the nine months ended September 30, 2010 to $2.6 million for the nine months ended September 30, 2011. The $0.1 million decrease was a result of a decrease in merchandising revenue.
Technology revenue increased from $4.1 million for the nine months ended September 30, 2010 to $7.2 million for the nine months ended September 30, 2011. The $3.1 million increase was due to organic growth of $3.0 million and $0.1 million from TransVideo. The organic growth was a result of $0.3 million of revenue from new customers coupled with $2.7 million from existing customers.
Equipment revenue
Equipment revenue increased from $1.2 million for the nine months ended September 30, 2010 to $2.4 million for the nine months ended September 30, 2011. The $1.2 million increase was due to organic growth of $0.3 million and $0.9 million from TransVideo.
Costs and Expenses
Cost of services revenue
Cost of services revenue increased from $8.7 million for the nine months ended September 30, 2010 to $10.1 million for the nine months ended September 30, 2011. Cost of services revenue as a percentage of services revenue decreased from 42% for the nine months ended September 30, 2010 to 38% for the nine months ended September 30, 2011. The 4% improvement (as a percentage of services revenue) primarily relates to negotiated lower rates on bandwidth costs.
Cost of equipment revenue
Cost of equipment revenue increased from $1.1 million for the nine months ended September 30, 2010 to $1.8 million for the nine months ended September 30, 2011. Cost of equipment revenue as a percentage of equipment revenue decreased from 95% for the nine months ended September 30, 2010 to 76% for the nine months ended September 30, 2011. The 19% improvement (as a percentage of equipment revenue) was primarily a result of purchasing STBs at lower prices through the acquisition of TransVideo.
Selling, general and administrative expenses, including stock-based compensation
Selling, general and administrative expenses, including stock-based compensation, increased from $24.0 million for the nine months ended September 30, 2010 to $24.3 million for the nine months ended September 30, 2011. The total increase of $0.3 million was due to an organic decrease of $0.9 million and an increase of $1.2 million from TransVideo. The individual variances are as follows:
|
·
|
Wages and benefits increased from $15.2 million for the nine months ended September 30, 2010 to $17.3 million for the nine months ended September 30, 2011. Wages and benefits were $0.9 million for TransVideo. The organic increase of $1.2 million was due to an increase in employees.
|
|
·
|
Stock-based compensation expense decreased from $1.9 million for the nine months ended September 30, 2010 to $1.2 million for the nine months ended September 30, 2011. The decrease of $0.7 million was a result of a modification of 5,000,000 incentive warrants which resulted in an expense of $1.1 million in the prior period offset by additional compensation relating to a consultant’s fees and restricted stock.
|
|
·
|
Marketing expenses decreased from $0.8 million for the nine months ended September 30, 2010 to $0.6 million for the nine months ended September 30, 2011. The $0.2 million decrease was the result of marketing expenses incurred for our subsidiary Talfazat in the prior period.
|
|
·
|
Professional fees decreased from $1.8 million for the nine months ended September 30, 2010 to $1.4 million for the nine months ended September 30, 2011. The $0.4 million decrease was a result of legal and valuation services incurred on the acquisition of TransVideo in the prior period.
|
|
·
|
Corporate systems costs decreased from $0.7 million for the nine months ended September 30, 2010 to $0.5 million for the nine months ended September 30, 2011. The $0.2 million decrease was a result of software maintenance costs incurred during the nine months ended September 30, 2010.
|
|
·
|
Office facilities expenses were $0.8 million for the nine months ended September 30, 2010 and 2011.
|
|
·
|
Other SG&A expenses decreased from $2.8 million for the nine months ended September 30, 2010 to $2.5 million for the nine months ended September 30, 2011. TransVideo comprised $0.3 million of the total other SG&A expenses increase for the period.
|
Depreciation and amortization
Depreciation and amortization increased from $3.8 million for the nine months ended September 30, 2010 to $4.2 million for the nine months ended September 30, 2011. The $0.4 million increase was due to the amortization of TransVideo’s acquired fixed and intangible assets.
Unrealized gain on derivative
Unrealized gain on derivative decreased from a gain of $1.4 million for the nine months ended September 30, 2010 to $0 for the nine months ended September 30, 2011. Our only derivative instruments were 11,000,000 warrants, which were issued in connection with our merger in October 2008, the exercise price for which was denominated in a currency other than our functional currency. These warrants were recorded at their relative fair values at issuance, determined using the Black-Scholes-Merton model. Any change in value between reporting periods was recorded as other income (expense). These warrants expired on October 20, 2010.
LIQUIDITY AND CAPITAL RESOURCES
Our cash position was $12.3 million at September 30, 2011. During the nine month period ended September 30, 2011, we generated $4.0 million from operations, which included changes in operating assets and liabilities of $6.3 million. Additionally, we spent $1.5 million to purchase fixed assets and received net proceeds of $4.8 million from a private placement of Class 4 Preference Shares.
As of September 30, 2011, our principal sources of liquidity included cash and cash equivalents of $12.3 million and trade accounts receivable of $3.8 million. We closed a $5.0 million private placement of our Class 4 Preference Shares on June 29, 2011; we intend to use these funds for general working capital purposes. We continue to closely monitor our cash balances to ensure that we have sufficient cash on hand to meet our operating needs. Management believes that we have sufficient liquidity to meet our operating cash, working capital and capital expenditure requirements for the next twelve months.
At September 30, 2011, approximately 79% of our cash and cash equivalents were held in accounts with a U.S. bank that received a BBB+ rating from Standard and Poor’s and an A3 rating from Moody’s, and 3% of our cash and cash equivalents were held in bank accounts with two of the top five Canadian commercial banks. We believe that these U.S. and Canadian financial institutions are secure notwithstanding the current global economy and that we will be able to access the remaining balance of bank deposits. Our investment policy is to invest in low-risk short-term investments, which are primarily term deposits. We have not had a history of any defaults on these term deposits, nor do we expect any in the future given the short term to maturity of these investments.
Our business as currently operated is still in its early stages, with only a few years of operating history. In 2006, our business model evolved from providing professional information technology services and international programming to providing end-to-end IPTV services for a wide range of professional and collegiate sports properties, entertainment networks and international clients. From our inception, we have incurred substantial net losses and have an accumulated deficit of $72.4 million; management expects these losses to continue in the short term. We continue to review our operating structure to maximize revenue opportunities, further reduce costs and achieve profitability. Based on our current business plan and internal forecasts, and considering the risks that are present in the current global economy, we believe that our cash on hand will be sufficient to meet our operating cash, working capital and capital expenditure requirements for the next twelve months. However, we will require expenditures of significant funds for marketing, building our subscriber management systems, programming and website development, maintaining adequate video streaming and database software, pursuing and maintaining channel distribution agreements with our channel partners, fees relating to acquiring and maintaining Internet streaming rights to our content and the construction and maintenance of our delivery infrastructure and office facilities. Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the risks detailed herein or incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 in Item 1A, “Risk Factors.” If our actual cash needs are greater than forecasted and if cash on hand is insufficient to meet our operating cash, working capital and capital expenditure requirements for the next twelve months, we will require outside capital in addition to cash flow from operations in order to fund our business. Our short operating history, our current lack of profitability and the prolonged upheaval in the capital markets could each or all be factors that might negatively impact our ability to obtain outside capital on reasonable terms, or at all. If we were ever unable to obtain needed capital, we would reevaluate and reprioritize our planned capital expenditures and operating activities. We cannot provide any assurance that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to become profitable and have sustainable net positive cash flows.
Working Capital Requirements
Our net working capital at September 30, 2011 was $(1.7) million, a decrease of $3.1 million from the December 31, 2010 net working capital of $1.4 million. Included in current liabilities at September 30, 2011 and December 31, 2010 are approximately $5.1 million and $6.4 million, respectively, of liabilities (deferred revenue) that we do not anticipate settling in cash. Excluding these liabilities, our working capital ratios at September 30, 2011 and December 31, 2010 were 1.22 and 1.72, respectively.
The change in working capital was primarily due to an increase in current assets of $0.3 million offset by an increase in current liabilities of $3.4 million.
Current assets at September 30, 2011 were $19.1 million, an increase of $0.3 million from the December 31, 2010 balance of $18.8 million. The $0.3 million increase was primarily due to a $1.4 million increase in accounts receivable and a $0.4 million increase in prepaid expenses and deposits offset by a $0.6 million decrease in cash and cash equivalents and a $0.8 million decrease in amounts due from related parties.
Current liabilities at September 30, 2011 were $20.8 million, an increase of $3.4 million from the December 31, 2010 balance of $17.4 million. The change was primarily due to an increase in accounts payable of $4.4 million and an increase in accrued liabilities of $0.3 million offset by decrease in deferred revenue of $1.3 million.
Cash Flows
Summary Balance Sheet Data:
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
$ | $ | |||||||
Current Assets
|
||||||||
Cash and cash equivalents
|
12,292,632 | 12,929,325 | ||||||
Accounts receivable, net
|
3,775,260 | 2,356,843 | ||||||
Other receivables
|
294,343 | 296,154 | ||||||
Inventory
|
811,244 | 946,780 | ||||||
Prepaid expenses and deposits
|
1,428,481 | 1,014,703 | ||||||
Due from related parties
|
490,348 | 1,261,776 | ||||||
Total Current Assets
|
19,092,308 | 18,805,581 | ||||||
Current Liabilities
|
||||||||
Accounts payable
|
9,937,989 | 5,504,489 | ||||||
Accrued liabilities
|
5,699,928 | 5,431,217 | ||||||
Due to related parties
|
15,939 | 26 | ||||||
Deferred revenue
|
5,126,797 | 6,432,445 | ||||||
Total Current Liabilities
|
20,780,653 | 17,368,177 | ||||||
Working Capital Ratio
|
0.92 | 1.08 |
Comparative Summarized Cash Flows
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
$ | $ | $ | $ | |||||||||||||
Cash provided by (used in) operating activities
|
3,981,834 | 294,441 | (3,970,503 | ) | (8,300,058 | ) | ||||||||||
Cash used in investing activities
|
(1,027,984 | ) | (695,242 | ) | (1,515,736 | ) | (1,519,374 | ) | ||||||||
Cash provided by financing activities
|
- | 10,000,000 | 4,849,546 | 10,032,155 |
Operating activities
Cash provided by operating activities for the nine months ended September 30, 2011 was $4.0 million. Changes in net cash provided by operating activities reflect the consolidated net loss of $4.2 million for the period, less:
|
·
|
non-cash items in the amount of $1.9 million, related to stock-based compensation, depreciation and amortization and loss on dissolution of majority-owned subsidiary; and
|
|
·
|
changes in operating assets and liabilities of $6.3 million.
|
Investing activities
Cash used in investing activities for the nine months ended September 30, 2011 was $1.5 million. These funds were used to purchase fixed assets.
Financing activities
Cash provided by financing activities was $4.8 million for the nine months ended September 30, 2011. These funds were received from a private placement of Class 4 Preference Shares.
Recently Issued Accounting Standard
In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 amends guidance included within ASC Topic 605-25 to require an entity to use an estimated selling price when vendor-specific objective evidence or acceptable third-party evidence does not exist for any products or services included in a multiple-element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. ASU 2009-13 also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying this guidance. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption and retrospective application are also permitted. The Company adopted ASU 2009-13 on January 1, 2011, and its application did not have a material impact on the Company’s interim consolidated financial statements.
Off Balance Sheet Arrangements
The Company did not have any off balance sheet arrangements as of September 30, 2011.
Not applicable to smaller reporting companies.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, our management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2011.
Changes in Internal Control over Financial Reporting
During our most recent fiscal quarter, no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
On October 24, 2011, the Company issued 144,247 shares of common stock, without registration under the Securities Act of 1933, as amended (the “Securities Act”), to a consultant of the Company pursuant to a consulting agreement. The aggregate value attributable of the 144,247 shares of common stock was $40,264 on the date of issuance. The Company issued the shares of common stock in reliance on the exemption from the registration of the Securities Act afforded by Section 4(2) of the Securities Act.
(b) Exhibits
The exhibits listed below are filed as part of this report.
Exhibit No.
|
Description
|
|
10.1
|
Digital Media and Technology Agreement, effective as of October 1, 2010, between NHL Interactive CyberEnterprises, LLC and NeuLion, Inc. (portions of this exhibit have been omitted pursuant to a request for confidential treatment made to the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 21, 2011)
|
|
31.1
|
*
|
Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2
|
*
|
Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32
|
*
|
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
101.INS**
|
XBRL Instance Document
|
|
101.SCH**
|
XBRL Taxonomy Extension Schema Document
|
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*
|
Filed herewith
|
**
|
Furnished herewith. As provided in Rule 406T of Regulation S-T, this information shall not be deemed “filed” for purposes of Section 11 and 12 of the Securities Act and Section 18 of the Exchange Act or otherwise subject to liability under those sections, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act except as expressly set forth by specific reference in such filing.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized.
NEULION, INC.
|
||
Date: November 10, 2011
|
/s/ Nancy Li
|
|
Name: Nancy Li
|
||
Title: Chief Executive Officer
|
||
Date: November 10, 2011
|
/s/ Arthur J. McCarthy
|
|
Name: Arthur J. McCarthy
|
||
Title: Chief Financial Officer
|
31