NEULION, INC. - FORM 10-Q - August 7, 2014

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - NEULION, INC.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - NEULION, INC.	ex31_2.htm
EX-31.1 - EXHIBIT 31.1 - NEULION, INC.	ex31_1.htm
EX-32 - EXHIBIT 32 - NEULION, INC.	ex32.htm

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 June 30, 2014

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)

(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. 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 the 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 August 1, 2014, there were 175,223,727 shares of the registrant’s Common Stock, $0.01 par value, outstanding.

NEULION, INC.

TABLE OF CONTENTS

	Part I. Financial Information	Page No.

Item 1.	Condensed Consolidated Financial Statements	1

	Condensed Consolidated Balance Sheets as of
	June 30, 2014 (unaudited) and December 31, 2013	1

	Condensed Consolidated Statements of Operations and Comprehensive Income
	(Loss) for the Three and Six Months Ended June 30, 2014 and 2013 (unaudited)	2

	Condensed Consolidated Statement of Stockholders’ Equity for the
	Six Months Ended June 30, 2014 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the
	Three and Six Months Ended June 30, 2014 and 2013 (unaudited)	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

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

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

	Part II. Other Information


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 6.	Exhibits	23

SIGNATURES		24

Table of Contetns

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

NEULION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)

	June 30,			December 31,
	2014			2013
	(unaudited)
	$			$

ASSETS
Current
Cash and cash equivalents		14,577,764			19,644,270
Accounts receivable, net of allowance for doubtful accounts of $83,022 and $85,882		5,000,463			5,289,136
Other receivables		400,911			364,797
Inventory		494,900			481,012
Prepaid expenses and deposits		1,051,849			1,135,949
Due from related parties		418,571			243,842
Total current assets		21,944,458			27,159,006
Property, plant and equipment, net		3,113,987			3,357,626
Intangible assets, net		941,745			1,649,959
Goodwill		11,327,626			11,327,626
Other assets		84,325			81,778
Total assets		37,412,141			43,575,995

LIABILITIES AND EQUITY
Current
Accounts payable		6,952,169			13,002,104
Accrued liabilities		4,759,201			5,338,418
Due to related parties		11,285			16,743
Deferred revenue		5,606,416			8,856,629
Total current liabilities		17,329,071			27,213,894
Long-term deferred revenue		1,150,642			725,853
Other long-term liabilities		237,612			270,892
Deferred tax liability		1,373,596			1,180,978
Total liabilities		20,090,921			29,391,617

Redeemable preferred stock, net (par value: $0.01; authorized: 50,000,000; issued
and outstanding: 28,089,083)
Class 3 Preference Shares (par value: $0.01; authorized, issued and outstanding:
17,176,818)		10,000,000			10,000,000
Class 4 Preference Shares (par value: $0.01; authorized, issued and outstanding:
10,912,265)		4,939,821			4,924,775
Total redeemable preferred stock		14,939,821			14,924,775

Stockholders' equity (deficit)
Common stock (par value: $0.01; shares authorized: 300,000,000; shares issued and outstanding:
175,078,227 and 170,326,338, respectively)		1,750,782			1,703,263
Additional paid-in capital		86,814,647			85,437,337
Promissory notes receivable		(209,250	)		(209,250	)
Accumulated deficit		(85,974,780	)		(87,671,747	)
Total stockholders’ equity (deficit)		2,381,399			(740,397	)
Total liabilities and stockholders’ equity (deficit)		37,412,141			43,575,995

See accompanying notes

Table of Contetns

NEULION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(unaudited)

(Expressed in U.S. dollars)

	Three months					Six months
	ended					ended
	June 30,					June 30,
	2014		2013			2014			2013
	$		$			$			$


Revenue		13,408,876		11,036,230			26,878,458			22,936,179

Costs and expenses
Cost of revenue, exclusive of depreciation and
amortization shown separately below		3,535,906		3,220,015			7,046,580			6,635,802
Selling, general and administrative, including
stock-based compensation		6,424,026		6,009,154			12,778,076			11,938,192
Research and development		2,187,287		1,873,380			4,160,090			3,572,747
Depreciation and amortization		709,636		972,047			1,395,440			1,997,189
		12,856,855		12,074,596			25,380,186			24,143,930
Operating income (loss)		552,021		(1,038,366	)		1,498,272			(1,207,751	)

Other income (expense)
Gain (loss) on foreign exchange		11,965		(33,395	)		(33,397	)		(47,206	)
Investment income (expense), net		1,866		(2,141	)		424,710			(6,445	)
Discount on convertible note		—		(155,847	)		—			(233,769	)
		13,831		(191,383	)		391,313			(287,420	)
Net and comprehensive income (loss) before income taxes		565,852		(1,229,749	)		1,889,585			(1,495,171	)
Income taxes		62,228		(87,845	)		(192,618	)		(105,290	)
Net and comprehensive income (loss)		628,080		(1,317,594	)		1,696,967			(1,600,461	)


Net income (loss) per weighted average number of shares
of common stock outstanding - basic	$	0.00	$	(0.01	)	$	0.01		$	(0.01	)

Weighted average number of shares
of common stock outstanding - basic		173,781,312		165,005,548			172,326,735			164,608,553

Net income (loss) per weighted average number of shares
of common stock outstanding - diluted	$	0.00	$	(0.01	)	$	0.01		$	(0.01	)

Weighted average number of shares
of common stock outstanding - diluted		216,810,911		165,005,548			213,293,074			164,608,553

See accompanying notes

Table of Contetns

NEULION, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited)

(Expressed in U.S. dollars)

					Additional			Promissory			Accumulated			Total
	Common stock				paid-in capital			Notes			deficit			equity
		#	$		$			$			$			$

Balance, December 31, 2013		170,326,338		1,703,263		85,437,337			(209,250	)		(87,671,747	)		(740,397	)

Accretion of issuance costs
on Class 4 Preference Shares		—		—		(15,046	)		—			—			(15,046	)
Exercise of broker warrants		620,063		6,201		124,012			—			—			130,213
Exercise of subscriber warrants		2,552,140		25,521		(25,521	)		—			—			—
Exercise of stock options		1,507,712		15,077		585,281			—			—			600,358
Stock-based compensation:
Stock options		—		—		628,304			—			—			628,304
Directors compensation		71,974		720		80,280			—			—			81,000
Net income		—		—		—			—			1,696,967			1,696,967
Balance, June 30, 2014		175,078,227		1,750,782		86,814,647			(209,250	)		(85,974,780	)		2,381,399

See accompanying notes

Table of Contetns

NEULION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(Expressed in U.S. dollars)

	Three months						Six months
	ended						ended
	June 30,						June 30,
	2014			2013			2014			2013
	$			$			$			$
OPERATING ACTIVITIES

Consolidated net income (loss)		628,080			(1,317,594	)		1,696,967			(1,600,461	)
Adjustments to reconcile consolidated net income (loss) to net cash
used in operating activities:
Depreciation and amortization		709,636			972,047			1,395,440			1,997,189
Discount on convertible note		—			155,847			—			233,769
Stock-based compensation		374,486			233,210			709,304			354,836
Income taxes		(62,228	)		80,000			192,618			97,444

Changes in operating assets and liabilities
Accounts receivable		349,946			1,640,985			288,673			1,392,287
Inventory		(111,612	)		242,725			(13,888	)		108,926
Prepaid expenses, deposits and other assets		(72,281	)		(61,372	)		81,553			260,188
Other receivables		15,030			(3,841	)		(36,114	)		(1,513	)
Due from related parties		(35,071	)		28,230			(174,729	)		154,525
Accounts payable		(4,313,000	)		(6,528,600	)		(6,049,935	)		(3,286,056	)
Accrued liabilities		243,533			283,902			(579,217	)		380,764
Deferred revenue		(1,362,117	)		(1,434,406	)		(2,825,424	)		(1,351,467	)
Long-term liabilities		(14,538	)		(21,919	)		(33,280	)		(43,960	)
Due to related parties		(1,532	)		638			(5,458	)		1,185
Cash used in operating activities		(3,651,668	)		(5,730,148	)		(5,353,490	)		(1,302,344	)

INVESTING ACTIVITIES
Purchase of property, plant and equipment		(338,651	)		(72,679	)		(443,587	)		(398,931	)
Cash used in investing activities		(338,651	)		(72,679	)		(443,587	)		(398,931	)

FINANCING ACTIVITIES
Proceeds from exercise of stock options		242,211			—			600,358			—
Proceeds from exercise of broker units		4,200			840			130,213			840
Cash provided by financing activities		246,411			840			730,571			840

Net decrease in cash and cash equivalents, during the period		(3,743,908	)		(5,801,987	)		(5,066,506	)		(1,700,435	)
Cash and cash equivalents, beginning of period		18,321,672			15,209,659			19,644,270			11,108,107
Cash and cash equivalents, end of period		14,577,764			9,407,672			14,577,764			9,407,672

Supplemental disclosure of non-cash activities:
Par value of shares of common stock issued upon exercise of
cashless warrants	$	18,822			—		$	25,521			—

See accompanying notes

Table of Contetns

NEULION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

Information as at June 30, 2014 and for the three and six months ended

June 30, 2014 and 2013 (unaudited)

1. Nature of Operations

NeuLion, Inc. (“NeuLion” or the “Company”) is a technology service provider that specializes in the digital video broadcasting, distribution and monetization of live and on-demand content to Internet-enabled devices. Through the Company’s cloud-based end-to-end solution, the Company builds and manages interactive digital networks that enable the Company’s customers to provide a destination for their viewers to view and interact with their content. The Company was incorporated on January 14, 2000 under the Canada Business Corporations Act and was domesticated under Delaware law on November 30, 2010. The Company’s common stock is listed on the Toronto Stock Exchange (“TSX”) under the symbol NLN and traded on the over-the-counter Bulletin Board (“OTCBB”) in the United States under the symbol NEUL.

The Company’s core business and business model have evolved from being a provider of professional information technology services and international programming to a provider of customized, end-to-end, interactive content services for a wide range of professional and collegiate sports properties, cable networks and operators, content owners and distributors, and telecommunication companies. With a fundamental shift in the way media is now being consumed, technological advancements are affecting how, when and where consumers connect to content. NeuLion’s technology enables our customers to capitalize on the growing consumer demand for viewing interactive content on multiple types of Internet-enabled devices by enabling the delivery of content to a range of these devices, such as PCs, smartphones and tablets, and by also providing NeuLion customers with a technology platform to manage their content. Our cloud-based technology platform offers a variety of digital technology and services, including content ingestion, live encoding, live video editing, advertising insertion and management, pay flow and premium content payment support, video player software development kits, multi-platform device delivery, content management, subscriber management, digital rights management, billing services, app development, website design, analytics and reporting.

2. Basis of Presentation and Significant Accounting Policies

The Company’s accounting policies are consistent with those presented in its annual consolidated financial statements as at December 31, 2013. These interim unaudited condensed 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, 2013, as they appear in the Company’s Annual Report on Form 10-K.

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 condensed 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 condensed 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 June 30, 2014 and December 31, 2013 and the results of operations and cash flows for the three and six months ended June 30, 2014 and 2013. The results of operations for the three and six months ended June 30, 2014 are not necessarily indicative of the results to be expected for the entire year.

Table of Contetns

NEULION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

Information as at June 30, 2014 and for the three and six months ended

June 30, 2014 and 2013 (unaudited)

Recent Accounting Pronouncement

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new revenue recognition guidance that will apply to various contracts with customers to provide goods or services. This new guidance introduces a model that requires companies to estimate and allocate the expected contract revenue among distinct goods or services in the contract based on relative standalone selling prices. Revenue is recognized as goods or services are delivered. This new method replaces the current GAAP approach of recognizing revenue that is fixed and determinable primarily based on contract terms. In addition, extensive new disclosures will be required including the presentation of additional categories of revenues and information about related contract assets and liabilities. This new guidance must be implemented on January 1, 2017; early adoption is not permitted. The Company may choose to adopt these changes through retrospective restatement with or without using certain practical expedients or with a cumulative effect adjustment on adoption. The Company is currently evaluating these new requirements to determine the method of implementation and any resulting estimated effects on the financial statements.

3. Inventory

Inventory consists of the following:

	June 30,		December 31,
	2014		2013
	$		$

Raw materials		34,659		18,421
Finished goods		460,241		462,591
		494,900		481,012

4. Economic Dependence and Concentration of Credit Risk

For the three months ended June 30, 2014, two customers accounted for 29% of revenue: 18% and 11%. For the six months ended June 30, 2014, one customer accounted for 19% of revenue. For the three and six months ended June 30, 2013, one customer accounted for 22% and 23% of revenue, respectively.

As at June 30, 2014, two customers accounted for 43% of accounts receivable: 23% and 20%. As at December 31, 2013, two customers accounted for 26% of accounts receivable: 14% and 12%.

As of June 30, 2014, three customers accounted for 59% of accounts payable: 37%, 12% and 10%. As at December 31, 2013, two customers accounted for 60% of accounts payable: 47% and 13%.

At June 30, 2014, 86% of the Company’s cash and cash equivalents were held in accounts with U.S. banks that received a BBB+ rating from Standard and Poor’s and an A3 rating from Moody’s.

5. 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:

KyLin TV

KyLin TV is an Internet Protocol television (“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 KyLin TV to build and deliver the setup and back office operations for KyLin TV’s IPTV service. Effective April 1, 2012, the Company amended its agreement with KyLin TV, such that, in addition to the services previously provided, KyLin TV was appointed the exclusive distributor of the Company’s business to consumer (“B2C”) IPTV interests. As exclusive distributor, KyLin TV obtains, advertises and markets all of the Company’s B2C content, in accordance with the terms of the amendment. Accordingly, KyLin TV records the gross revenues from the Company’s B2C content as well as the associated license fees, whereas the Company records revenues in accordance with the revised fee schedule in the amendment. The Company also provides and charges KyLin TV for administrative and general corporate support. The amounts charged for these services provided by the Company for the three and six months ended June 30, 2014 were $30,160 and $60,847, respectively (three and six months ended June 30, 2013 were $88,535 and $173,623), and are recorded as a recovery in selling, general and administrative expense.

Table of Contetns

NEULION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

Information as at June 30, 2014 and for the three and six months ended

June 30, 2014 and 2013 (unaudited)

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 hockey club that is owned by the Chairman of the Board of Directors of the Company.

Renaissance Property Associates, LLC (“Renaissance”)

The Company provides IT-related professional services to Renaissance, 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. The sublease agreement expired in December 2013, and the Company is now leasing this office on a month-to-month basis. Rent expense paid by the Company to Renaissance of $107,586 and $215,172, inclusive of taxes and utilities, is included in selling, general and administrative expense for the three and six months ended June 30, 2014, respectively (three and six months ended June 30, 2013 were $107,586 and $215,172).

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 as follows:

	Three months				Six months
	ended				ended
	June 30,				June 30,
	2014		2013		2014		2013
	$		$		$		$

New York Islanders		74,979		79,758		150,156		155,224
Renaissance		30,000		30,000		60,000		60,000
Smile Train		24,000		24,000		48,000		48,000
KyLinTV		213,884		588,380		434,471		1,085,417
		342,863		722,138		692,627		1,348,641

As at June 30, 2014 and December 31, 2013, the amounts due from (to) related parties are as follows:

	June 30,			December 31,
	2014			2013
	$			$

New York Islanders		(11,285	)		(16,743	)
Renaissance		930			931
KyLin TV		417,641			242,911
		407,286			227,099

Table of Contetns

NEULION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

Information as at June 30, 2014 and for the three and six months ended

June 30, 2014 and 2013 (unaudited)

6. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding adjusted for the dilutive effect of preferred stock, stock options and warrants.

The following table presents the calculation of basic and diluted EPS for the three and six months ended:

	Three months					Six months
	ended					ended
	June 30,					June 30,
	2014		2013			2014		2013
	$		$			$		$

Consolidated net income (loss)		628,080		(1,317,594	)		1,696,967		(1,600,461	)

Weighted average shares of common stock outstanding
used in calculating basic EPS		173,781,312		165,005,548			172,326,735		164,608,553
Effect of dilutive preferred stock, stock options
and warrants		43,029,599		-			40,966,339		-
Weighted average shares of common stock outstanding
used in calculating basic EPS		216,810,911		165,005,548			213,293,074		164,608,553


Basic EPS	$	0.00	$	(0.01	)	$	0.01	$	(0.01	)

Diluted EPS	$	0.00	$	(0.01	)	$	0.01	$	(0.01	)

The following table summarizes the securities convertible into common stock that were outstanding as at June 30, 2014 and 2013 and (i) were included in the computation of diluted income per share for the three and six months ended June 30, 2014 and (ii) were not included in the computation of diluted loss per share for the three and six months ended June 30, 2013 because their effect would have been anti-dilutive.

	2014		2013
		#		#

Class 3 Preference Shares		17,176,818		17,176,818
Class 4 Preference Shares		10,912,265		10,912,265
Stock options – 2012 Omnibus Securities and Incentive Plan		17,596,995		885,000
Stock options – Second Amended and Restated Stock Option Plan		8,222,217		16,271,563
Stock appreciation rights		—		675,000
Warrants		8,795,506		20,461,569
Retention warrants		—		20,500

Table of Contetns

NEULION, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars)

Information as at June 30, 2014 and for the three and six months ended

June 30, 2014 and 2013 (unaudited)

7. 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.

8. Segmented Information

The Company operates, as one reportable segment, to deliver live and on-demand content to Internet-enabled devices. Substantially all of Company’s revenues are generated and long-lived assets are located in the United States.

9. Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes Recognition.” The Company does not believe there are any uncertain tax provisions under ASC 740. The Company’s federal and state tax returns remain open for the years 2011 and 2012.

The Company’s current period income has been offset by net operating losses carried forward from prior years. All previously recognized deferred tax assets and net operating losses have been reduced by a valuation allowance.

The Company’s effective tax rate is less than the 35% US effective tax rate primarily because forecasted net income is offset by the utilization of net operating losses for which benefit was not previously recognized.

10. Investment Income

Investment income for the six months ended June 30, 2014 includes proceeds of $420,935, which were received during the three months ended March 31, 2014, on the sale of an over-the-counter stock that previously had a nominal recorded value.

Table of Contetns

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 condensed consolidated financial statements and accompanying notes for the three and six months ended June 30, 2014 and 2013, which have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). All dollar amounts are in U.S. dollars (“US$” or “$”) unless stated otherwise. As at August 1, 2014 the Bank of Canada noon rate for conversion of United States dollars to Canadian dollars (“CDN$”) was US$1 to CDN$1.0919.

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 report 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, 2013, as amended (the “Form 10-K”) 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, 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 at the date of this Quarterly Report on Form 10-Q.

Forward-looking statements involve significant risk, uncertainties and assumptions. 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 Quarterly Report on Form 10-Q 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 realize some or all of the anticipated benefits of our partnerships; our ability to increase revenue; general economic and market segment conditions; our customers’ subscriber levels and financial health; 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; regulatory changes; foreign exchange risk; interest rate risk; and credit risk. These factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. 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 the Form 10-K.

Overview

NeuLion is a technology service provider that specializes in the digital video broadcasting, distribution and monetization of live and on-demand content to Internet-enabled devices. Through our cloud-based end-to-end solution, we build and manage interactive digital networks that enable our customers to provide a destination for their viewers to view and interact with their content. We were incorporated on January 14, 2000 under the Canada Business Corporations Act and were domesticated under Delaware law on November 30, 2010. Our common stock is listed on the Toronto Stock Exchange (“TSX”) under the symbol NLN and traded on the OTC Bulletin Board in the United States under the symbol NEUL.

Our core business and business model have evolved from being a provider of professional information technology services and international programming to a provider of customized, end-to-end, interactive content services for a wide range of professional and collegiate sports properties, cable networks and operators, content owners and distributors, and telecommunication companies. With a fundamental shift in the way media is now being consumed, technological advancements are affecting how, when and where consumers connect to content. Our technology enables our customers to capitalize on the growing consumer demand for viewing interactive content on multiple types of Internet-enabled devices by enabling the delivery of content to a range of these devices, such as PCs, smartphones and tablets, and by also providing our customers with a technology platform to manage their content. Our cloud-based technology platform offers a variety of digital technology and services, including content ingestion, live encoding, live video editing, advertising insertion and management, pay flow and premium content payment support, video player software development kits, multi-platform device delivery, content management, subscriber management, digital rights management, billing services, app development, website design, analytics and reporting.

Table of Contetns

Key Performance Indicators

	3 mos.	3 mos.		6 mos.	6 mos.		12 mos.	12 mos.
	Q2 2014 (millions)	Q2 2013 (millions)	% change	Q2 2014 (millions)	Q2 2013 (millions)	% change	LTM 2014 (1) (millions)	LTM 2013 (2) (millions)	% change

Total Revenue	$13.4	$11.0	22%	$26.9	$22.9	17%	$51.0	$42.8	19%

Revenue by Category of Customer: (3)
Pro Sports	$5.7	$4.8	19%	$12.0	$10.4	15%	$22.6	$17.6	28%
College Sports	$3.4	$2.8	21%	$7.2	$ 5.8	24%	$13.9	$11.5	21%
TV Everywhere	$3.9	$2.8	39%	$6.8	$ 5.5	24%	$12.6	$11.1	14%

Revenue by Type: (4)
Recurring	$12.3	$10.1	22%	$24.9	$21.1	18%	$47.5	$39.2	21%
Non-recurring	$1.1	$0.9	22%	$2.0	$1.8	11%	$3.5	$ 3.6	(3)%

Non-GAAP Adjusted Gross Margin % (5) (7)	74%	71%	3pp	74%	71%	3pp	73%	70%	3pp

Non-GAAP Adjusted EBITDA (6)	$1.6	$0.2	700%	$3.6	$1.1	227%	$6.0	$1.3	362%

Consolidated Net Income (Loss)	$0.6	$(1.3)	-%	$1.7	$(1.6)	-%	$1.0	$(4.6)	-%

(1)	Figures for the last twelve months ending June 30, 2014.

(2)	Figures for the last twelve months ending June 30, 2013.

(3)	Excludes equipment revenue and other revenue (business to consumer (“B2C”) and consulting).

(4)

Recurring revenues include variable fees earned from subscriptions, usage, advertising, eCommerce and support fees in addition to fixed fees charged to our customers on a monthly, quarterly or annual basis for ongoing hosting, support and maintenance. Non-recurring revenues include setup fees for design, setup and implementation services and equipment revenue.

(5)

We report non-GAAP Adjusted Gross Margin Percentage 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 Gross Margin Percentage represents consolidated operating income (loss) plus depreciation and amortization, research and development expenses and selling, general and administrative expenses divided by total revenue. 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. Reconciliations are provided below.

(6)

We report non-GAAP Adjusted EBITDA 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 represents net income (loss) before interest, income taxes, depreciation and amortization, stock-based compensation, unrealized gain/loss on derivatives, investment income, non-controlling interests, discounts on convertible notes 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. Reconciliations are provided below.

(7)	A percentage point (“pp”) is the unit for the arithmetic difference between two percentages.

Table of Contetns

Overall Performance – Three months ended June 30, 2014 vs three months ended June 30, 2013

Total revenue for the three months ended June 30, 2014 was $13.4 million, an increase of $2.4 million, or 22%, compared to $11.0 million for the three months ended June 30, 2013. The increase in total revenue was attributable to an increase in revenue in our TV Everywhere category of customer of $1.1 million, or 39%, College Sports category of customer of $0.6 million, or 21%, and Pro Sports category of customer of $0.9 million, or 19%, offset by a decrease of equipment revenue and Other revenue of $0.2 million.

Our non-GAAP Adjusted Gross Margin % (as defined above and reconciled below) was 74% for the three months ended June 30, 2014, compared with 71% for the three months ended June 30, 2013. The 3 percentage point improvement in non-GAAP Adjusted Gross Margin % was primarily due to improved broadcast operating costs.

Our non-GAAP Adjusted EBITDA (as defined above and reconciled below) was $1.6 million for the three months ended June 30, 2014, compared with $0.2 million for the three months ended June 30, 2013. The $1.4 million improvement in non-GAAP Adjusted EBITDA was primarily due to an increase in revenue of $2.4 million offset by increases in cost of revenues of $0.3 million and selling, general and administrative expenses, excluding stock-based compensation, and research and development expenses of $0.6 million.

Our consolidated net income for the three months ended June 30, 2014 was $0.6 million, or income of $0.00 per basic and diluted share of common stock, compared with a net loss of $1.3 million, or a loss of $0.01 per basic and diluted share of common stock, for the three months ended June 30, 2013. The improvement of $1.9 million was primarily attributable to the items discussed in the three paragraphs above.

Overall Performance – Six months ended June 30, 2014 vs six months ended June 30, 2013

Total revenue for the six months ended June 30, 2014 was $26.9 million, an increase of $4.0 million, or 17%, compared to $22.9 million for the six months ended June 30, 2013. The increase in total revenue was attributable to an increase in revenue in our TV Everywhere category of customer of $1.3 million, or 24%, College Sports category of customer of $1.4 million, or 24%, and Pro Sports category of customer of $1.6 million, or 15%, offset by a decrease of equipment revenue and Other revenue of $0.3 million.

Our non-GAAP Adjusted Gross Margin % (as defined above and reconciled below) was 74% for the six months ended June 30, 2014, compared with 71% for the six months ended June 30, 2013. The 3 percentage point improvement in non-GAAP Adjusted Gross Margin % was primarily due to improved broadcast operating costs.

Our non-GAAP Adjusted EBITDA (as defined above and reconciled below) was $3.6 million for the six months ended June 30, 2014, compared with $1.1 million for the six months ended June 30, 2013. The $2.5 million improvement in non-GAAP Adjusted EBITDA was due to an increase in revenue of $4.0 million offset by increases in cost of revenues of $0.4 million and selling, general and administrative expenses, excluding stock-based compensation, and research and development expenses of $1.1 million.

Our consolidated net income for the six months ended June 30, 2014 was $1.7 million, or income of $0.01 per basic and diluted share of common stock, compared with a net loss of $1.6 million, or a loss of $0.01 per basic and diluted share of common stock, for the six months ended June 30, 2013. The improvement of $3.3 million was primarily attributable to the items discussed in the three paragraphs above.

Consolidated Statement of Operations Reconciliations:

The reconciliations from consolidated operating income (loss) to non-GAAP Adjusted Gross Margin % are as follows:

	Three months ended
	June 30,
	2014		2013
	$		$

Consolidated operating income (loss) on a GAAP basis		552,021		(1,038,366	)

Amortization and depreciation		709,636		972,047
Research and development		2,187,287		1,873,380
Selling, general and administrative, including stock-based compensation		6,424,026		6,009,154
Non-GAAP Adjusted Gross Margin		9,872,970		7,816,215

Total Revenue	13,408,876	11,036,230

Non-GAAP Adjusted Gross Margin % (as a % of total revenue)	74%	71%

Table of Contetns

	Six months ended
	June 30,
	2014		2013
	$		$

Consolidated operating income (loss) on a GAAP basis		1,498,272		(1,207,751	)

Amortization and depreciation		1,395,440		1,997,189
Research and development		4,160,090		3,572,747
Selling, general and administrative, including stock-based compensation		12,778,076		11,938,192
Non-GAAP Adjusted Gross Margin		19,831,878		16,300,377


Total Revenue	26,878,458	22,936,179

Non-GAAP Adjusted Gross Margin % (as a % of total revenue)	74%	71%

	Twelve months ended
	June 30,
	2014		2013
	$		$

Consolidated operating income (loss) on a GAAP basis		1,066,438		(3,754,135	)

Amortization and depreciation		3,153,305		3,983,845
Research and development		8,010,096		6,845,949
Selling, general and administrative, including stock-based compensation		25,129,778		23,009,223
Non-GAAP Adjusted Gross Margin		37,359,617		30,084,882


Total Revenue	51,049,058	42,833,682

Non-GAAP Adjusted Gross Margin % (as a % of total revenue)	73%	70%

The reconciliations from net income (loss) to non-GAAP Adjusted EBITDA are as follows:

	Three months ended
	June 30,
	2014		2013
	$		$

Consolidated net income (loss) on a GAAP basis		628,080		(1,317,594	)

Depreciation and amortization		709,636		972,047
Stock-based compensation		374,486		233,210
Discount on convertible note		-		155,847
Income taxes		(62,228)		87,845
Investment (income) expense, net and foreign exchange (gain) loss		(13,831)		35,536

Non-GAAP Adjusted EBITDA		1,636,143		166,891

Table of Contetns

	Six months ended
	June 30,
	2014			2013
	$			$

Consolidated net income (loss) on a GAAP basis		1,696,967			(1,600,461	)

Depreciation and amortization		1,395,440			1,997,189
Stock-based compensation		709,304			354,836
Discount on convertible note		-			233,769
Income taxes		192,618			105,290
Investment (income) expense, net and foreign exchange loss		(391,313	)		53,651

Non-GAAP Adjusted EBITDA		3,603,016			1,144,274

	Twelve months ended
	June 30,
	2014		2013
	$		$

Consolidated net income (loss) on a GAAP basis		1,019,081		(4,649,205	)

Depreciation and amortization		3,153,305		3,983,845
Stock-based compensation		1,771,360		1,067,198
Discount on convertible note		-		311,691
Income taxes		364,174		501,174
Investment (income) expense, net and foreign exchange loss		(316,818)		82,205

Non-GAAP Adjusted EBITDA		5,991,102		1,296,908

OPERATIONS

Revenue

We earn revenue from four broad categories of customers:

• Professional Sports

This category contains all of our professional sports programming customers. These customers include the National Football League (NFL), the National Hockey League (NHL), the National Basketball Association (NBA), Ultimate Fighting Championship (UFC), Major League Soccer (MLS), the American Hockey League (AHL), the Canadian Football League (CFL), the Western Hockey League (WHL), the Ontario Hockey League (OHL), and the Professional Bowlers Association (PBA).

• College Sports

This category contains all of our college and collegiate conference customers. We partner with many National Collegiate Athletic Association (NCAA) schools and conferences and have agreements in place with over 160 colleges, universities or related sites. These customers include the University of North Carolina, Duke University, the University of Oregon, Louisiana State University, Mississippi State University, University of Arkansas, the University of Nebraska, Texas A&M University, the Big 12 Conference and the Southern Conference, Pac 12 member schools, the University of Oklahoma, the Ivy League Digital Network and the University of Maryland.

• TV Everywhere

This category contains all of our cable networks and operators, entertainment companies, content aggregators and multichannel video programming distributors (“MVPDs”). These customers include ESPN, Univision, China Network Television (a new media agency of China Central Television), Sport TV, Rogers Media, Sportsnet, Outdoor Channel, TVG Network, CBC, Zon Multimedia, Independent Film Channel, MSG Varsity, Shaw Communications, the Big Ten Network, Participant Media and the Gospel Music Channel.

• Other Customers

This category includes our B2C business, in which we market our own content directly to customers, and various consulting services.

Table of Contetns

Within each of these four categories of customers, revenue is categorized as follows:

•

Setup fees - non-recurring and charged to customers for design, setup and implementation services.

•

Fixed fees - recurring and charged to customers for ongoing hosting, support and maintenance.

•

Variable fees - recurring and earned through subscriptions, usage, advertising, support and e-commerce.

Subscription revenue consists of recurring revenue based on the number of subscribers. Subscription revenue is typically generated on a monthly, quarterly or annual basis and can be either a fixed fee per user or a variable fee based on a percentage of the subscription price.

Usage fees are charged to customers for bandwidth and storage.

Advertising revenues are earned through the insertion of advertising impressions on websites and in streaming video at a cost per thousand impressions.

Support revenue consists of fees charged to our customers for providing customer support to their end users.

e-commerce revenues are earned through providing our customers with ticketing and retail merchandising web solutions.

•

Equipment revenue- non-recurring, 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 our customer. Shipping revenue, STB rentals and computer hardware sales are also included in equipment revenue.

Cost and Expenses

Cost of revenue

Cost of revenue primarily consists of:

•

revenue share payments;

•

broadcast operating costs (teleport fees, bandwidth usage fees, colocation fees);

•

cost of advertising revenue, which is subject to revenue sharing with the content provider; and

•

cost of equipment revenue primarily, which consists of purchases of STB products and parts for resale to customers. Shipping costs are included in cost of equipment revenue.

Selling, general and administrative expenses, including stock-based compensation

Selling, general and administrative (“SG&A”) expenses, including stock-based compensation, include:

•

Wages and benefits represents compensation for our full-time and part-time employees, excluding R&D employees shown below, as well as fees for consultants we use from time to time;

•

Stock-based compensation represents the estimated fair value of our options and warrants (“Convertible Securities”) for financial accounting purposes, prepared using the Black-Scholes-Merton model, which requires a number of subjective assumptions, including assumptions about the expected life of the Convertible Securities, risk-free interest rates, dividend rates, forfeiture rates and the future volatility of the price of our shares of common stock. The estimated fair value of the Convertible Securities is expensed over the vesting period, which is normally four years, with the Convertible Securities vesting in equal amounts each year. However, our Board of Directors has the discretion to grant options with different vesting periods;

•

Professional fees represents legal, accounting, and public and investor relations expenses; and

•

Other SG&A expenses represents travel expenses, marketing, rent, office supplies, corporate IT services, credit card processing fees and other general operating expenses.

Research and development

Research and development costs (“R&D”) primarily consist of wages and benefits for R&D department personnel.

Table of Contetns

RESULTS OF OPERATIONS

Comparison of Three Months Ended June 30, 2014 to Three Months Ended June 30, 2013

Our condensed consolidated financial statements for the three months ended June 30, 2014 and 2013 have been prepared in accordance with U.S. GAAP. A comparison of our results of operations for those periods is as follows:

	June 30,
	2014		2013			Change
	$		$					%
Revenue		13,408,876	11,036,230				21	%

Costs and expenses
Cost of revenue, exclusive of depreciation and amortization shown below		3,535,906		3,220,015			10	%
Selling, general and administrative, including
stock-based compensation		6,424,026		6,009,154			7	%
Research and development		2,187,287		1,873,380			17	%
Depreciation and amortization		709,636		972,047			(27)	%
		12,856,855		12,074,596			6	%
Operating income (loss)		552,021		(1,038,366	)		-	%

Other income (expense)
Gain (loss) on foreign exchange		11,965		(33,395)			-	%
Investment income (expense), net		1,866		(2,141)			-	%
Discount on convertible note		-		(155,847)			-	%
		13,831		(191,383	)		-	%
Net and comprehensive income (loss) before income taxes		565,852		(1,229,749	)		-	%
Income taxes		62,228		(87,845	)		-	%
Net and comprehensive income (loss)		628,080		(1,317,594	)		-	%

Revenue

Revenue increased to $13.4 million for the three months ended June 30, 2014 from $11.0 million for the three months ended June 30, 2013. Revenue includes revenue from Pro Sports, College Sports, TV Everywhere and Other Customers and is comprised of set-up fees, annual/monthly fees, variable fees and equipment revenue. Period-over-period variances in each sector are detailed below:

Pro Sports

Revenue from Pro Sports customers increased to $5.7 million for the three months ended June 30, 2014, from $4.8 million for the three months ended June 30, 2013. The $0.9 million improvement was primarily the result of an increase in fixed fees.

College Sports

Revenue from College Sports customers increased to $3.4 million for the three months ended June 30, 2014 from $2.8 million for the three months ended June 30, 2013. The $0.6 million increase was primarily the result of an increase in variable advertising revenues of $0.3 million, variable usage fees of $0.1 million and variable subscriptions fees of $0.1 million.

TV Everywhere

Revenue from TV Everywhere customers increased to $3.9 million for the three months ended June 30, 2014 from $2.8 million for the three months ended June 30, 2013. The $1.1 million improvement was primarily the result of an increase in variable usage fees.

Other – B2C

Revenue from B2C customers was $0.1 million for each of the three months ended June 30, 2014 and 2013.

Table of Contetns

Other – Consulting

Revenue from consulting customers was $0.2 million for the three months ended June 30, 2014 and 2013.

Equipment revenue

Equipment revenue decreased to $0.1 million for the three months ended June 30, 2014 from $0.3 million for the three months ended June 30, 2013.

Costs and Expenses

Cost of revenue increased to $3.5 million for the three months ended June 30, 2014 from $3.2 million for the three months ended June 30, 2013. Cost of revenue as a percentage of revenue decreased from 29% for the three months ended June 30, 2013 to 26% for the three months ended June 30, 2014. The 3 percentage point improvement (as a percentage of revenue) primarily resulted from improved broadcast operating costs.

Selling, general and administrative expenses, including stock-based compensation

Selling, general and administrative expenses, including stock-based compensation, increased by $0.4 million, or 7%, to $6.4 million for the three months ended June 30, 2014 from $6.0 million for the three months ended June 30, 2013. The individual variances are as follows:

• Wages and benefits increased to $4.7 million for the three months ended June 30, 2014 from $4.2 million for the three months ended June 30, 2013. The $0.5 million increase was primarily the result of salary increases, insurance costs and commissions.

• Stock-based compensation expense increased to $0.4 million for the three months ended June 30, 2014 from $0.2 million for the three months ended June 30, 2013. The $0.2 million increase was primarily the result of the grant of 13.8 million options in August 2013.

• Professional fees decreased to $0.3 million for the three months ended June 30, 2014 from $0.4 million for the three months ended June 30, 2013.

• Other SG&A expenses decreased to $1.0 million for the three months ended June 30, 2014 from $1.2 million for the three months ended June 30, 2013. The $0.2 million decrease was due to decreases in several expense categories.

Research and development

Research and development costs increased to $2.2 million for the three months ended June 30, 2014 from $1.9 million for the three months ended June 30, 2013. The increase of $0.3 million was primarily due to salary increases and the hire of new research and development employees.

Depreciation and amortization

Depreciation and amortization decreased to $0.7 million for the three months ended June 30, 2014 from $1.0 million for the three months ended June 30, 2013. The decrease of $0.3 million was primarily attributable to certain intangible assets being fully amortized subsequent to June 30, 2013.

Table of Contetns

Comparison of Six Months Ended June 30, 2014 to Six Months Ended June 30, 2013

Our condensed consolidated financial statements for the six months ended June 30, 2014 and 2013 have been prepared in accordance with U.S. GAAP. A comparison of our results of operations for those periods is as follows:

	June 30,
	2014		2013			Change
	$		$					%

Revenue		26,878,458	22,936,179				17	%

Costs and expenses
Cost of revenue, exclusive of depreciation and amortization shown below		7,046,580		6,635,802			6	%
Selling, general and administrative, including
stock-based compensation		12,778,076		11,938,192			7	%
Research and development		4,160,090		3,572,747			16	%
Depreciation and amortization		1,395,440		1,997,189			(30)	%
		25,380,186		24,143,930			5	%
Operating income (loss)		1,498,272		(1,207,751	)		-	%

Other income (expense)
Loss on foreign exchange		(33,397)		(47,206)			-	%
Investment income (expense), net		424,710		(6,445)			-	%
Discount on convertible note		-		(233,769)			-	%
		391,313		(287,420	)		-	%
Net and comprehensive income (loss) before income taxes		1,889,585		(1,495,171	)		-	%
Income taxes		(192,618)		(105,290	)		-	%
Net and comprehensive income (loss)		1,696,967		(1,600,461	)		-	%

Revenue

Revenue increased to $26.9 million for the six months ended June 30, 2014 from $22.9 million for the six months ended June 30, 2013. Revenue includes revenue from Pro Sports, College Sports, TV Everywhere and Other Customers and is comprised of set-up fees, annual/monthly fees, variable fees and equipment revenue. Period-over-period variances in each sector are detailed below:

Pro Sports

Revenue from Pro Sports customers increased to $12.0 million for the six months ended June 30, 2014, from $10.4 million for the six months ended June 30, 2013. The $1.6 million improvement was primarily the result of an increase in fixed fees.

College Sports

Revenue from College Sports customers increased to $7.2 million for the six months ended June 30, 2014 from $5.8 million for the six months ended June 30, 2013. The $1.4 million increase was the result of an increase in fixed fees of $0.4 million, variable advertising fees of $0.4 million, variable usage fees of $0.3 million and variable subscriptions fees of $0.3 million.

TV Everywhere

Revenue from TV Everywhere customers increased to $6.8 million for the six months ended June 30, 2014 from $5.5 million for the six months ended June 30, 2013. The $1.3 million improvement was the result of increases in variable usage fees.

Other – B2C

Revenue from B2C customers was $0.2 million for each of the six months ended June 30, 2014 and 2013.

Other – Consulting

Revenue from consulting customers was $0.5 million for the six months ended June 30, 2014 and 2013.

Table of Contetns

Equipment revenue

Equipment revenue decreased to $0.2 million for the six months ended June 30, 2014 from $0.5 million for the six months ended June 30, 2013.

Costs and Expenses

Cost of revenue increased to $7.0 million for the six months ended June 30, 2014 from $6.6 million for the six months ended June 30, 2013. Cost of revenue as a percentage of revenue decreased from 29% for the six months ended June 30, 2013 to 26% for the six months ended June 30, 2014. The 3 percentage point improvement (as a percentage of revenue) primarily resulted from improved broadcast operating costs.

Selling, general and administrative expenses, including stock-based compensation

Selling, general and administrative expenses, including stock-based compensation, increased by $0.9 million, or 8%, to $12.8 million for the six months ended June 30, 2014 from $11.9 million for the six months ended June 30, 2013. The individual variances are as follows:

• Wages and benefits increased to $9.4 million for the six months ended June 30, 2014 from $8.6 million for the six months ended June 30, 2013. The $0.8 million increase was primarily the result of salary increases, insurance and commissions.

• Stock-based compensation expense increased to $0.7 million for the six months ended June 30, 2014 from $0.4 million for the six months ended June 30, 2013. The $0.3 million increase was primarily the result of the grant of 13.8 million options in August 2013.

• Professional fees increased to $0.7 million for the six months ended June 30, 2014 from $0.6 million for the six months ended June 30, 2013.

• Other SG&A expenses decreased to $2.0 million for the six months ended June 30, 2014 from $2.3 million for the six months ended June 30, 2013. The $0.3 million decrease was due to decreases in several expense categories.

Research and development

Research and development costs increased to $4.2 million for the six months ended June 30, 2014 from $3.6 million for the six months ended June 30, 2013. The increase of $0.6 million was primarily due to salary increases and the hire of new research and development employees.

Depreciation and amortization

Depreciation and amortization decreased to $1.4 million for the six months ended June 30, 2014 from $2.0 million for the six months ended June 30, 2013. The decrease of $0.6 million was primarily attributable to certain intangible assets being fully amortized subsequent to June 30, 2013.

Investment income (expense), net

Investment income (expense) increased to $0.4 million for the six months ended June 30, 2014 from a nominal amount for the six months ended June 30, 2013. The increase of $0.4 million was the result of proceeds received on the sale of an over-the-counter stock that previously had a nominal value.

Table of Contetns

LIQUIDITY AND CAPITAL RESOURCES

Our cash position was $14.6 million at June 30, 2014. For the three months ended June 30, 2014, we used $3.7 million to fund operations, which included a decrease of $5.3 million in operating assets and liabilities. Additionally, cash provided by financing activities included $0.2 million from the exercise of stock options and broker units and cash used in investing activities included $0.3 million to purchase fixed assets.

As of June 30, 2014, our principal sources of liquidity included cash and cash equivalents of $14.6 million and trade accounts receivable of $5.0 million offset by $7.0 million in accounts payable. 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 working capital and capital expenditure requirements for at least the next twelve months.

At June 30, 2014, approximately 86% of our cash and cash equivalents were held in accounts with U.S. banks that received a BBB+ rating from Standard and Poor’s and an A3 rating from Moody’s. The Company believes that these U.S. financial institutions are secure. 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 maturity of these investments.

We are still building out our current business. In 2006, our core business and business model evolved from providing professional information technology services and international programming to providing customized, end-to-end, interactive video services for a wide range of professional and collegiate sports properties, cable networks and operators, content owners and distributors, and telecommunication companies. From our inception, we have incurred substantial net losses and have an accumulated deficit of $86.0 million; however, our non-GAAP Adjusted EBITDA (as previously defined) has continuously improved period-over-period and management expects this trend to continue. We continue to review our operating structure in an attempt to maximize revenue opportunities, further reduce costs and achieve profitability. Based on our current business plan and internal forecasts, we believe that our cash on hand will be sufficient to meet our working capital and operating cash requirements for the next twelve months. However, we will require expenditures of significant funds for research and development, maintaining adequate video streaming and database software, 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 in this Quarterly Report on Form 10-Q. If our actual cash needs are greater than forecasted and if cash on hand is insufficient to meet our working capital and cash 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 and our historical losses 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 assure you 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 June 30, 2014 was $4.6 million, an improvement of $4.7 million from our net working capital of $(0.1) million at December 31, 2013. Our working capital ratios at June 30, 2014 and December 31, 2013 were 1.27 and 1.00, respectively. Included in current liabilities at June 30, 2014 and December 31, 2013 is approximately $5.6 million and $8.9 million, respectively, of deferred revenue that we do not anticipate settling in cash.

The change in working capital was primarily due to a decrease in current assets of $5.2 million and a decrease in current liabilities of $9.9 million.

Current assets at June 30, 2014 were $21.9 million, a decrease of $5.2 million from the December 31, 2013 balance of $27.1 million. The change was primarily due to a decrease of $5.1 million in cash and cash equivalents.

Current liabilities at June 30, 2014 were $17.3 million, a decrease of $9.9 million from the December 31, 2013 balance of $27.2 million. The decrease was primarily due to decreases in accounts payable of $6.0 million, accrued liabilities of $0.6 million and deferred revenue of $3.3 million.

Off Balance Sheet Arrangements

The Company did not have any off balance sheet arrangements as of June 30, 2014.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to the company’s management as appropriate to allow timely decisions regarding required disclosure.

Our Chief Executive Officer and Chief Financial Officer, with the assistance of other members of our management, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter ended June 30, 2014 (the “Evaluation”). Based upon the Evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) were effective as of the quarter ended June 30, 2014.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2014, 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) has been identified that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contetns

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

1. On September 25, 2012, the Company completed a private placement of “Units,” each of which was comprised of one share of the Company’s common stock and one-half of one warrant (the “Offering”). A portion of the commission paid in connection with the Offering was comprised of “Broker Warrants,” each of which may be exercised at any time prior to the 30-month anniversary of the closing date of the Offering, at a price of $0.21, to purchase one “Broker Unit.” Each Broker Unit consists of one share of the Company’s common stock and one-half of one warrant; each full warrant (a “Warrant”) entitles the holder thereof to purchase one share of the Company’s common stock at $0.30 for 30 months following the closing date of the Offering. Between April 1, 2014 and June 30, 2014, persons residing outside the United States exercised an aggregate of 20,000 Broker Warrants, for gross proceeds of $4,200, to purchase 20,000 shares of the Company’s common stock and 10,000 Warrants. The Company offered and sold the common stock and the Warrants in reliance on the exemption from registration afforded by Regulation S under the Securities Act.

2. Between April 1, 2014 and June 30, 2014, certain subscribers residing outside the United States who purchased Units in the Offering exercised an aggregate of 2,562,500 Warrants and received 1,698,759 shares of the Company’s common stock, and certain subscribers residing within the United States who purchased Units in the Offering exercised an aggregate of 250,000 Warrants and received 183,448 shares of the Company’s common stock. Per the terms of the Warrant certificates, the Warrant exercise took place on a cashless basis, which resulted in each certificate holder receiving the number of shares of common stock determined by dividing the “intrinsic value” of the Warrants being exercised by the “fair market value.” The “intrinsic value” per share was determined by subtracting the exercise price of $0.30 per share from the fair market value (conversion from Canadian dollars to US dollars took place). The “fair market value” means the average of the closing prices of the common stock of the Company from the five days immediately prior to the date on which the Company received an exercise notice from a holder. As a result of the cashless exercise, the certificate holders did not make any payment to the Company in connection with the exercise of the Warrants. The Company offered and sold the common stock to persons residing outside the United States in reliance on the exemption from registration afforded by Regulation S under the Securities Act, and to persons residing within the United States in reliance on the exemption from registration afforded by Section 4(2) under the Securities Act.

3. Between April 1, 2014 and June 30, 2014, three employees residing outside the United States exercised an aggregate of 100,450 stock options for total proceeds of $48,593 and received 100,450 shares of the Company’s common stock, and seven employees residing within the United States exercised an aggregate of 452,500 stock options for total proceeds of $193,613 and received 452,500 shares of the Company’s common stock. The Company offered and sold the common stock and stock options in reliance on the exemption from registration afforded by Section 4(2) under the Securities Act.

4. Between April 1, 2014 and June 30, 2014, six employees residing outside the United States exercised an aggregate of 409,250 stock options on a “net basis” and received 220,218 shares of the Company’s common stock, and four employees residing within the United States exercised an aggregate of 148,505 stock options on a “net basis” and received 148,005 shares of the Company’s common stock. The Company offered and sold the common stock and stock options in reliance on the exemption from registration afforded by Section 4(2) under the Securities Act.

5. On June 20, 2014, we issued shares of common stock without registration under the Securities Act to non-management directors, in payment pursuant to our Directors’ Compensation Plan of their semi-annual directors’ fees for the six-month period ended June 30, 2014, in the following aggregate amounts:

John R. Anderson			11,551
Gabriel A. Battista			7,997
Shirley Strum Kenny			18,660
David Kronfeld			16,883
Charles B. Wang			16,883
Total			71,974

The aggregate value of the 71,974 shares of common stock issued to Dr. Kenny and Messrs. Anderson, Battista, Kronfeld and Wang was $81,000 on the date of issuance. We issued these shares of common stock in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act.

6. On May 7, 2014, the Board authorized the grant to various Company employees of 3,569,500 stock options to purchase an aggregate of 3,569,500 shares of the Company’s common stock, at an exercise price of $0.94 per share, under the NeuLion, Inc. 2012 Omnibus Securities and Incentive Plan (the “2012 Plan”). The options vest annually in equal increments of 25% on each anniversary of the effective date of grant, which was May 12, 2014; the first increment vests on May 12, 2015. The options expire on May 12, 2024. In addition, also on May 7, 2014, the Board authorized the grant to the Company’s Chief Executive Officer of 400,000 stock options to purchase an aggregate of 400,000 shares of the Company’s common stock, at an exercise price of $1.03 per share, under the 2012 Plan. The options vest annually in equal increments of 25% on each anniversary of the effective date of grant, which was May 12, 2014; the first increment vests on May 12, 2015. The options expire on May 12, 2019. The Company offered and sold the options in reliance on the exemption from registration afforded by Section 4(2) under the Securities Act.

Table of Contetns

Item 6. Exhibits

(b) Exhibits

The exhibits listed below are filed as part of this report.

Exhibit No.		Description

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

99.1		Annual Meeting of Stockholders Presentation (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 5, 2014)

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 Item 601(b)(32) of Regulation S-K, this certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference in such filing.

***

Furnished herewith. As provided in Rule 406T(b) 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.

Table of Contetns

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NEULION, INC.



Date: August 7, 2014	/s/ Nancy Li
	Name: Nancy Li
	Title: Chief Executive Officer



Date: August 7, 2014	/s/ Arthur J. McCarthy
	Name: Arthur J. McCarthy
	Title: Chief Financial Officer

NEULION, INC. - FORM 10-Q - August 7, 2014

Attached files

NEULION, INC. Reports