Neulion (NEUL) 10-Q 2012 Q1 Quarterly report

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 March 31, 2012
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 May 4, 2012, there were 140,827,310 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.	Financial Statements	1
	Consolidated Balance Sheets as of
	March 31, 2012 (unaudited) and December 31, 2011	1
	Consolidated Statements of Operations and Comprehensive Loss for the
	Three Months Ended March 31, 2012 and 2011 (unaudited)	2
	Consolidated Statement of Equity for the
	Three Months Ended March 31, 2012 (unaudited)	3
	Consolidated Statements of Cash Flows for the
	Three Months Ended March 31, 2012 and 2011 (unaudited)	4
	Notes to Consolidated Financial Statements	5-11
Item 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations	12-20
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

PART I.  FINANCIAL INFORMATION

Item 1.     Financial Statements

NEULION, INC.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars, unless otherwise noted)

	March 31,			December 31,
	2012			2011
	(unaudited)
		$			$
ASSETS Current
Cash and cash equivalents		9,333,193			12,346,882
Accounts receivable, net of allowance for doubtful accounts of $55,434 and $64,132,
respectively		2,861,605			3,494,077
Other receivables		275,455			309,764
Inventory		891,928			797,436
Prepaid expenses and deposits		1,015,836			1,189,311
Due from related parties		937,961			734,452
Total current assets		15,315,978			18,871,922
Property, plant and equipment, net		4,024,768			4,294,476
Intangible assets, net		5,962,620			6,609,465
Goodwill		11,327,626			11,327,626
Other assets		223,706			226,266
Total assets		36,854,698			41,329,755
LIABILITIES AND EQUITY
Current
Accounts payable		9,522,300			9,597,359
Accrued liabilities		5,823,442			5,314,308
Due to related parties		16,256			13,298
Deferred revenue		4,958,670			6,624,693
Total current liabilities		20,320,668			21,549,658
Long-term deferred revenue		1,008,207			1,050,495
Other long-term liabilities		412,125			432,159
Deferred tax liability		426,094			299,094
Total liabilities		22,167,094			23,331,406
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: 17,176,818; issued and
outstanding: 17,176,818)		10,000,000			10,000,000
Class 4 Preference Shares (par value: $0.01; authorized; 10,912,265; issued and
outstanding: 10,912,265)		4,872,114			4,864,591
Total redeemable preferred stock		14,872,114			14,864,591
Stockholders' equity
Common stock (par value: $0.01; authorized: 300,000,000; issued and outstanding:
140,827,310and 140,012,310, respectively)		1,408,272			1,400,122
Additional paid-in capital		77,475,469			77,257,524
Promissory notes receivable		(209,250	)		(209,250	)
Accumulated deficit		(78,859,001	)		(75,314,638	)
Total (deficit) equity		(184,510	)		3,133,758
Total liabilities and equity		36,854,698			41,329,755

See accompanying notes

1

NEULION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

(unaudited)

(Expressed in U.S. dollars, unless otherwise noted)

	Three months ended March 31,
	2012			2011
		$			$
Revenue
Services revenue		9,831,354			9,563,930
Equipment revenue		537,162			382,068
		10,368,516			9,945,998
Costs and Expenses
Cost of services revenue, exclusive of depreciation and		4,047,543			3,668,811
amortization shown separately below
Cost of equipment revenue		466,693			311,562
Selling, general and administrative, including stock-based compensation		6,464,858			6,911,413
Research and development		1,556,550			1,487,661
Depreciation and amortization		1,238,600			1,445,419
		13,774,244			13,824,866
Operating loss		(3,405,728	)		(3,878,868	)
Other income (expense)
Loss on foreign exchange		(13,881	)		(38,096	)
Interest income		2,246			13,910
		(11,635	)		(24,186	)
Consolidated net and comprehensive loss before income taxes		(3,417,363	)		(3,903,054	)
Income tax provision		(127,000	)		—
Consolidated net and comprehensive loss		(3,544,363	)		(3,903,054	)
Net loss attributable to non-controlling interest		—			9,754
Net and comprehensive loss attributable to controlling interest		(3,544,363	)		(3,893,300	)
Adjustment to the carrying amount of redeemable preferred stock		—			(267,656	)
Net and comprehensive loss attributable to NeuLion, Inc. common stockholders		(3,544,363	)		(4,160,956	)
Net loss per weighted average number of shares of common stock
outstanding - basic and diluted	$	(0.03	)	$	(0.03	)
Weighted average number of shares of common stock
outstanding - basic and diluted		140,173,684			139,196,946

See accompanying notes

2

NEULION, INC.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited)

(Expressed in U.S. dollars, unless otherwise noted)

				Additional			Promissory			Accumulated			Total
	Common stock			paid-in capital			notes			deficit			equity
		#	$		$			$			$			$
Balance, December 31, 2011		140,012,310	1,400,122		77,257,524			(209,250	)		(75,314,638	)		3,133,758
Accretion of issuance costs
on Class 4 Preference Shares		—	—		(7,523	)		—			—			(7,523	)
Stock-based compensation:
Issuance of common stock
under Directors’
Compensation Plan		190,000	1,900		(15,677	)		—			—			(13,777	)
Issuance of restricted stock		625,000	6,250		(39,318	)		—			—			(33,068	)
Stock options, warrants
and other compensation		—	—		280,463			—			—			280,463
Net loss		—	—		—			—			(3,544,363	)		(3,544,363	)
Balance, March 31, 2012		140,827,310	1,408,272		77,475,469			(209,250	)		(78,859,001	)		(184,510	)

See accompanying notes

3

NEULION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(Expressed in U.S. dollars, unless otherwise noted)

	Three months ended March 31,
	2012			2011
		$			$
OPERATING ACTIVITIES
Consolidated net loss		(3,544,363	)		(3,903,054	)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization		1,238,600			1,445,419
Stock-based compensation		233,424			395,214
Deferred income taxes		127,000			—
Changes in operating assets and liabilities
Accounts receivable		632,472			(97,568	)
Inventory		(94,492	)		(147,302	)
Prepaid expenses, deposits and other assets		176,035			(326,337	)
Other receivables		34,309			94,365
Due from related parties		(203,509	)		(87,315	)
Accounts payable		(75,059	)		(614,182	)
Accrued liabilities		509,328			283,266
Deferred revenue		(1,708,311	)		(1,596,708	)
Long-term liabilities		(20,034	)		(2,679	)
Due to related parties		2,958			9,349
Cash used in operating activities		(2,691,642	)		(4,547,532	)
INVESTING ACTIVITIES
Purchase of property, plant and equipment, net		(322,047	)		(299,286	)
Cash used in investing activities		(322,047	)		(299,286	)
Net decrease in cash and cash equivalents during the period		(3,013,689	)		(4,846,818	)
Cash and cash equivalents, beginning of period		12,346,882			12,929,325
Cash and cash equivalents, end of period		9,333,193			8,802,507

See accompanying notes

4

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars, unless otherwise noted)

Information as at March 31, 2012 and for the three months ended

March 31, 2012 and 2011 (unaudited)

1. Nature of Operations

NeuLion, Inc. (“NeuLion” or the “Company”) is a technology service provider that delivers live and on-demand content to Internet-enabled devices.  Through the Company’s cloud-based end-to-end solution, the Company builds and manages private, interactive digital networks that enable the Company’s customers to provide a destination for their subscribers 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”).

The Company’s core business and business model has evolved from being a provider of professional information technology services and international programming to a provider of 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.  Shifts in consumer behavior drive technology requirements, and our technology empowers our customers to capitalize on the growing consumer demand for viewing video content on multiple types of Internet-enabled devices.  The Company’s technology enables delivery to a range of Internet-enabled devices, including personal computers, laptops, mobile devices, gaming consoles, tablets, Internet-enabled TVs, third-party set top boxes (“STBs”), standard TV sets that have Internet-connected STBs and other Internet-enabled consumer accessories.  The Company’s platform offers an end-to-end service, which includes content management, subscriber management, digital rights management, billing services, app creation, content delivery and advertising substitution.

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, 2011.  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, 2011 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 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 March 31, 2012 and December 31, 2011 and the results of operations and cash flows for the three months ended March 31, 2012 and 2011.

5

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars, unless otherwise noted)

Information as at March 31, 2012 and for the three months ended

March 31, 2012 and 2011 (unaudited)

Recently issued accounting standards

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (“ASU No. 2011-05”), which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in Other Comprehensive Income (“OCI”) by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments in this standard require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (“ASU No. 2011-12”), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. The Company adopted ASU No. 2011-05 and ASU No. 2011-12 on January 1, 2012, and its application did not have a material impact on the Company's consolidated financial position or results of operations.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Testing Goodwill for Impairment” (“ASU No. 2011-08”), which allows entities to use a qualitative approach to test goodwill for impairment. ASU No. 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU No. 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of the provisions of ASU No. 2011-08 will not have a material impact on the Company's consolidated financial position or results of operations.

Advertising

Advertising costs are expensed as incurred and totaled $123,520and $170,329for the three months ended March 31, 2012 and 2011, respectively.

3. Inventory

Inventory consists of the following:

	March 31,		December 31,
	2012		2011
		$		$
Raw materials		151,958		148,253
Finished goods		739,970		649,183
		891,928		797,436

4. Economic Dependence and Concentration of Credit Risk

As at March 31, 2012, two customers accounted for 34% of accounts receivable:  22% and 12%.

For the three months ended March 31, 2012, one customer accounted for 14% of revenue.

As at December 31, 2011, two customers accounted for 25% of accounts receivable: 11% and 14%.  For the three months ended March 31, 2011, one customer accounted for 15% of revenue.

6

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars, unless otherwise noted)

Information as at March 31, 2012 and for the three months ended

March 31, 2012 and 2011 (unaudited)

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, Inc. (“KyLin TV”)

KyLin TV 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 KyLin TV to build and deliver the setup and back office operations for KyLin TV’s IPTV service.  The Company also provides and charges KyLin TV for administrative and general corporate support.  The amounts received for these services provided by the Company for the three months ended March 31, 2012 and 2011 were $73,921and $94,316, respectively.

New York Islanders Hockey Club, L.P. (“New York Islanders”)

The Company provides IT-related professional 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”)

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 $105,124 and $102,733, inclusive of taxes and utilities, is included in selling, general and administrative expense for the three months ended March 31, 2012 and 2011, respectively.

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 months ended as follows:

	March 31,		March 31,
	2012		2011
		$		$
New York Islanders		78,830		87,378
Renaissance		30,000		30,000
Smile Train		27,000		27,000
KyLin TV		487,918		530,190
		623,748		674,568

7

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars, unless otherwise noted)

Information as at March 31, 2012 and for the three months ended

March 31, 2012 and 2011 (unaudited)

As at March 31, 2012 and December 31, 2011, the amounts due from (to) related parties are as follows:

	March 31,			December 31,
	2012			2011
		$			$
New York Islanders		(16,256	)		(13,298	)
Renaissance		149			—
KyLin TV		937,812			734,452
		921,705			721,154

6. 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 outstanding for the period, and excludes the effect of potential shares of common stock, as their inclusion would be anti-dilutive due to the losses recorded by the Company.

The following table summarizes the potential shares of common stock that was outstanding as at March 31, 2012 and December 31, 2011 that was not included in the computation of diluted loss per share as their effect would have been anti-dilutive.

	March 31,		December 31,
	2012		2011
		#		#
Class 3 Preference Shares		17,176,818		17,176,818
Class 4 Preference Shares		10,912,265		10,912,265
Stock options		14,738,874		15,980,375
Stock appreciation rights		675,000		675,000
Warrants		6,975,000		6,975,000
Retention warrants		626,365		626,750
Restricted stock		—		2,500,000

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 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. 

8

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars, unless otherwise noted)

Information as at March 31, 2012 and for the three months ended

March 31, 2012 and 2011 (unaudited)

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 positions under ASC 740.

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.

10.  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 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, stockholders 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.

9

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars, unless otherwise noted)

Information as at March 31, 2012 and for the three months ended

March 31, 2012 and 2011 (unaudited)

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 $0.58218 per Class 3 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 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$10,000,000.

Class 4 Preference Shares

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, as well as the right to receive any dividends paid to holders of common stock.  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.

10

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. dollars, unless otherwise noted)

Information as at March 31, 2012 and for the three months ended

March 31, 2012 and 2011 (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.  

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Item 2. 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 consolidated financial statements and accompanying notes for the three months ended March 31, 2012 and 2011, 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 May 4, 2012, the Bank of Canada noon rate for conversion of United States dollars to Canadian dollars (“CDN$”) was US$1 to CDN$0.9956.

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, 2011 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 MD&A.

Forward-looking statements involve significant risks, 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 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 develop and execute on our business plan, including further diversifying our customer base; continuing to invest in and expand our sports-related business; 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; regulatory 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, 2011, which is available on www.sec.gov and www.sedar.com.

Overview

NeuLion is a technology service provider delivering live and on-demand content to Internet-enabled devices.  Through our cloud-based end-to-end solution, we build and manage private, interactive digital networks that enable our customers to provide a destination for their subscribers 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”).

Our core business and business model has evolved from being a provider of professional information technology services and international programming to a provider of 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.  Shifts in consumer behavior drive technology requirements, and our technology empowers our customers to capitalize on the growing consumer demand for viewing video content on multiple types of Internet-enabled devices.  Our technology enables delivery to a range of Internet-enabled devices, including personal computers, laptops, mobile devices, gaming consoles, tablets, Internet-enabled TVs, third-party set top boxes (“STBs”), standard TV sets that have Internet-connected STBs and other Internet-enabled consumer accessories.  Our platform offers an end-to-end service, which includes content management, subscriber management, digital rights management, billing services, app creation, content delivery and advertising substitution.

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Overall Performance

Highlights

Ø	Total revenue increased by $0.5 million, or 5%, as compared to the same period a year ago.
Ø	Services revenue increased by $0.3 million, or 3%, as compared to the same period a year ago.
Ø	Cost of services revenue, exclusive of depreciation and amortization, increased by 3%, as a percentage of services revenue, as compared to the same period a year ago.
Ø	Non-GAAP Adjusted EBITDA Loss (as defined below) improved by $0.1 million, or 5%, as compared to the same period a year ago.

Overview
 

Total revenue for the three months ended March 31, 2012 was $10.4million, an increase of $0.5million, or 5%, from $9.9 million for the three months ended March 31, 2011.  The improvement was a result of an increase in services revenue of $0.3 million and an increase in equipment revenue of $0.2 million.

The $0.3million increase in services revenue was comprised of $0.2million of revenue from new customers coupled with $0.1million from existing customers.

Our net loss attributable to common stockholders for the three months ended March 31, 2012 was $3.5million, or a loss of $0.03per basic and diluted share of common stock, compared with a net loss of $4.2 million, or a loss of $0.03per basic and diluted share of common stock, for the three months ended March 31, 2011.  The decrease in net loss attributable to common stockholders of $0.7million, or 17%, was due to the following:

· an increase in total revenue of $0.5million;

· a decrease  in selling, general and administrative expenses, excluding stock-based compensation of $0.1million;

· a decrease in stock-based compensation of $0.2million (non-cash item);

· a decrease in depreciation and amortization of $0.2million (non-cash item); and

· an adjustment to the carrying amount of redeemable preferred stock of $0.3 million for the three months ended March 31, 2011 (non-cash item).

 offset by the following:

· an increase in cost of revenue of $0.4 million;

· an increase in research and development expenses of $0.1 million; and

· an increase in deferred income taxes of $0.1 million (non-cash item).

Our non-GAAP Adjusted EBITDA Loss (as defined below) was $1.9million for the three months ended March 31, 2012, compared with $2.0millionfor the three months ended March 31, 2011.  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 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.

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The reconciliation from net loss to non-GAAP Adjusted EBITDA Loss is as follows:

Consolidated Statement of Operations Reconciliation:
	Three months ended,
	March 31,
	2012			2011
		$			$
Consolidated net loss on a GAAP basis		(3,544,363	)		(3,903,054	)
Depreciation and amortization		1,238,600			1,445,419
Stock-based compensation		233,424			395,214
Income tax provision		127,000			0
Interest income and foreign exchange loss		11,635			24,186
Non-GAAP Adjusted EBITDA Loss		(1,933,704	)		(2,038,235	)

Revenue

We earn revenue from four broad categories of customers:

· TV Everywhere This category represents all of our non-sports customers that own content rights, including content aggregators and distributors.  These customers include Dish Network, KyLin TV, Sky Angel, BTN2GO and the Independent Film Channel.

· Pro Sports This category represents all of our major, minor and junior sports league 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) and the American Hockey League (AHL).

· College Sports This category represents all of our college and collegiate conference customers.  We partner with many National Collegiate Athletic Association (NCAA) schools and have agreements in place with over 150 colleges, universities and related websites.

· Other This category includes our business-to-consumer (“B2C”) business, in which we market our own content directly to customers, and various consulting services.

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

· Services revenue, which consists of:

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

§ Monthly/annual fees - recurring and charged to customers for ongoing hosting, support and maintenance.

§ Variable fees - recurring and earned through subscriptions, usage, advertising, support and eCommerce.

v Subscription revenue consists of recurring revenue based on the number of subscribers.  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.

v Usage fees are charged to our customers for bandwidth and storage.

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

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

v eCommerce revenues are earned through providing customers with ticketing and retail merchandising web solutions.

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· Equipment revenue, which is non-recurring, consists of the sale of STBs to content partners and/or end users and is recognized when title to a STB passes to our 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:

· royalty payments;

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

· cost of advertising revenue, which is subject to revenue shares with the content provider.

Cost of equipment revenue

Cost of equipment revenue primarily 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”) 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, 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 month.  However, our Board of Directors has the discretion to grant options with different vesting periods; 

· Marketing – represents expenses for both global and local marketing programs that focus on corporate marketing activities (B2B) and marketing campaigns for various sports and international properties (B2C).  These initiatives entail both online and traditional expenditures and include search engine marketing, digital media purchases, e-mail and social media marketing, grassroots and event marketing, print and radio advertising, and reseller/affiliate sales channels;

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

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

Research and development

Research and development costs primarily consist of wages and benefits for research and development department personnel.

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RESULTS OF OPERATIONS

Comparison of Three Months Ended March 31, 2012 to Three Months Ended March 31, 2011

Our consolidated financial statements for the three months ended March 31, 2012 and 2011 have been prepared in accordance with U.S. GAAP.  A comparison of our results of operations for the three months ended March 31, 2012 and 2011 is as follows:

	2012			2011			Change
		$		$				%
Revenue
Services revenue		9,831,354			9,563,930			3	%
Equipment revenue		537,162			382,068			41	%
		10,368,516			9,945,998			4	%
Costs and expenses
Cost of services revenue, exclusive of depreciation
and amortization shown separately below		4,047,543			3,668,811			10	%
Cost of equipment revenue		466,693			311,562			50	%
Selling, general and administrative,  including
stock-based compensation		6,464,858			6,911,413			-6	%
Research and development		1,556,550			1,487,661			5	%
Depreciation and amortization		1,238,600			1,445,419			-14	%
		13,774,244			13,824,866			0	%
Operating loss		(3,405,728	)		(3,878,868	)		-12	%
Other income (expense)
Loss on foreign exchange		(13,881	)		(38,096	)		-64	%
Interest income		2,246			13,910			-84	%
		(11,635	)		(24,186	)		-52	%
Net and comprehensive loss before income taxes		(3,417,363	)		(3,903,054	)		-12	%
Income tax provision		(127,000	)		-			-
Net and comprehensive loss		(3,544,363	)		(3,903,054	)		-9	%
Net loss attributable to non-controlling interest		-			9,754			-100	%
Net loss attributable to controlling interest		(3,544,363	)		(3,893,300	)		-9	%
Adjustment to the carrying amount of redeemable preferred stock		-			(267,656	)		-100	%
Net and comprehensive loss attributable to NeuLion, Inc. common stockholders		(3,544,363	)		(4,160,956	)		-15	%

Revenue

Services revenue

Services revenue increased from $9.5 million for the three months ended March 31, 2011 to $9.8million for the three months ended March 31, 2012.  Services revenue includes revenue from TV Everywhere, Pro Sports, College Sports and Other customers and is comprised of set-up fees, annual/monthly fees and variable fees.  Period-over-period variances in each sector are detailed below: 

TV Everywhere

Revenue from TV Everywhere customers increased from $2.2 million for the three months ended March 31, 2011 to $2.5 million for the three months ended March 31, 2012.  The $0.3 million increase was a result of an increase in monthly/annual fees of $0.2 million and in set-up fees of $0.1 million.

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Pro Sports

Revenue from Pro Sports customers increased from $3.4 million for the three months ended March 31, 2011 to $3.8 million for the three months ended March 31, 2012.  The $0.4 million improvement was the result of an increase in revenues from variable usage fees.

College Sports

Revenue from College Sports customers was $2.7 million for the three months ended March 31, 2011 and 2012.  

Other

Revenue from Other customers decreased from $1.2 million for the three months ended March 31, 2011 to $0.8 million for the three months ended March 31, 2012.  The $0.4 million change primarily resulted from a decrease of $0.3 million in variable subscription fees.
 

Equipment revenue
 

Equipment revenue increased from $0.4million for the three months ended March 31, 2011 to $0.6million for the three months ended March 31, 2012.The $0.2million improvement was due to an increase in purchases by an existing customer.  Over 85% of our equipment revenue is generated from our TV Everywhere customers.

Costs and Expenses

Cost of services revenue

Cost of services revenue increased from $3.7 million for the three months ended March 31, 2011 to $4.0 million for the three months ended March 31, 2012.  Cost of services revenue as a percentage of services revenue increased from 38% for the three months ended March 31, 2011 to 41% for the three months ended March 31, 2012. 

Cost of equipment revenue

Cost of equipment revenue increased from $0.3 million for the three months ended March 31, 2011 to $0.5 million for the three months ended March 31, 2012.  Cost of equipment revenue as a percentage of equipment revenue increased from 82% for the three months ended March 31, 2011 to 87% for the three months ended March 31, 2012.  

Selling, general and administrative, including stock-based compensation

Selling, general and administrative, including stock-based compensation, decreased from $6.9million for the three months ended March 31, 2011 to $6.5 million for the three months ended March 31, 2012.  The individual variances are as follows:

· Wages and benefits were $4.6 million for the three months ended March 31, 2011 and 2012.

· Stock-based compensation expense decreased from $0.4 million for the three months ended March 31, 2011 to $0.2million for the three months ended March 31, 2012.  The decrease of $0.2 million was due to the issuance of common stock to a consultant and restricted stock to an employee during the three months ended March 31, 2011.

· Marketing expenses decreased from $0.2 million for the three months ended March 31, 2011 to $0.1 million for the three months ended March 31, 2012.  

· Professional fees were $0.5 million for the three months ended March 31, 2011 and 2012.   

· Other SG&A expenses decreased from $1.2 million for the three months ended March 31, 2011 to $1.1 million for the three months ended March 31, 2012.  

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Research and development

Research and development costs increased from $1.5 million for the three months ended March 31, 2011 to $1.6 million for the three months ended March 31, 2012.  

Depreciation and amortization

Depreciation and amortization decreased from $1.4million for the three months ended March 31, 2011 to $1.2million for the three months ended March 31, 2012.   

 LIQUIDITY AND CAPITAL RESOURCES

Our cash position was $9.3 million at March 31, 2012.  For the three months ended March 31, 2012, we used $2.7million to fund operations, which included cash inflows from changes in operating assets and liabilities of $1.0 million.   Additionally, we spent $0.3million to purchase fixed assets.

As of March 31, 2012, our principal sources of liquidity included cash and cash equivalents of $9.3 million and trade accounts receivable of $2.9 million.  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 the next twelve months.

At March 31, 2012, approximately 85% 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 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.  Our core business and business model has evolved from being a provider of professional information technology services and international programming to a provider of 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 $78.9million; however, our non-GAAP Adjusted EBITDA Losses (as previously defined) have 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, 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 working capital and operating cash 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 in our Annual Report on Form 10-K for the fiscal year December 31, 2011.  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, 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 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 deficit at March 31, 2012 was $(5.0)million, a decrease of $2.3million from the December 31, 2011 net working capital deficit of $(2.7) million.  Our working capital ratios at March 31, 2012 and December 31, 2011 were 0.75 and 0.88, respectively.  Included in current liabilities at March 31, 2012 and December 31, 2011 are approximately $5.0million and $6.6 million, respectively, of liabilities (deferred revenue) that we do not anticipate settling in cash.  Excluding these liabilities, our working capital ratios at March 31, 2012 and December 31, 2011 were 1.00and 1.26, respectively.

The change in working capital was primarily due to a decrease in current assets of $3.6 million offset by a decrease in current liabilities of $1.3 million.

Current assets at March 31, 2012 were $15.3million, a decrease of $3.6million from the December 31, 2011 balance of $18.9 million.  The decrease was the result of a decrease in cash and cash equivalents of $3.0 million and a decrease in accounts receivable of $0.6 million.

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Current liabilities at March 31, 2012 were $20.3million, a decrease of $1.3million from the December 31, 2011 balance of $21.6 million.  The change was due to a decrease in deferred revenue of $1.7 million and a decrease in accounts payable of $0.1 million offset by an increase in accrued liabilities of $0.5 million.
 

Cash Flows

Summary balance sheet data:

	As at
	March 31,  2012		December 31, 2011
		$		$
Current Assets
Cash and cash equivalents		9,333,193		12,346,882
Accounts receivable, net		2,861,605		3,494,077
Other receivables		275,455		309,764
Inventory, net		891,928		797,436
Prepaid expenses and deposits		1,015,836		1,189,311
Due from related parties		937,961		734,452
Total current assets		15,315,978		18,871,922
Current Liabilities
Accounts payable		9,522,300		9,597,359
Accrued liabilities		5,823,442		5,314,308
Due to related parties		16,256		13,298
Deferred revenue		4,958,670		6,624,693
Total current liabilities		20,320,668		21,549,658
Working capital ratio		0.75		0.88

Comparative summarized cash flows:

	Three months ended
	March 31,
	2012			2011
		$			$
Cash used in operating activities		(2,691,642	)		(4,547,532	)
Cash used in investing activities		(322,047	)		(299,286	)
Cash provided by financing activities		-			-

Operating activities
 

Cash used in operating activities for the three months ended March 31, 2012 was $2.7million.  Changes in net cash used in operating activities reflect the consolidated net loss of $3.5millionfor the period:
 

· plus non-cash items in the amount of $1.6 million,which relates to stock-based compensation, depreciation and amortization, and deferred income taxes; and

· less changes in operating assets and liabilities of $0.8million.

Investing activities

Cash used in investing activities for the three months ended was$0.3million.  These funds were used to purchase fixed assets.

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Financing activities

No cash was provided by or used in financing activities.

Recently Issued Accounting Standards

 In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (“ASU No. 2011-05”), which improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in Other Comprehensive Income (“OCI”) by eliminating the option to present components of OCI as part of the statement of changes in stockholders' equity. The amendments in this standard require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Subsequently in December 2011, the FASB issued Accounting Standards Update No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income” (“ASU No. 2011-12”), which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in these standards do not change the items that must be reported in OCI, when an item of OCI must be reclassified to net income, or change the option for an entity to present components of OCI gross or net of the effect of income taxes. The amendments in ASU No. 2011-05 and ASU No. 2011-12 are effective for interim and annual periods beginning after December 15, 2011 and are to be applied retrospectively. We adopted ASU No. 2011-05 and ASU No. 2011-12 on January 1, 2012, and its application did not have a material impact on the Company's consolidated financial position or results of operations.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08, “Testing Goodwill for Impairment” (“ASU No. 2011-08”), which allows entities to use a qualitative approach to test goodwill for impairment. ASU No. 2011-08 permits an entity to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the currently prescribed two-step goodwill impairment test. Otherwise, the two-step goodwill impairment test is not required. ASU No. 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of the provisions of ASU No. 2011-08 will not have a material impact on our consolidated financial position or results of operations.

Off Balance Sheet Arrangements

The Company did not have any off balance sheet arrangements as of March 31, 2012.

OUTSTANDING SHARE DATA
 

We had a total of 140,827,310 shares of common stock outstanding at May 4, 2012.  In addition, at such date we had outstanding, in the aggregate, 51,104,322Class 3 Preference Shares, Class 4 Preference Shares, options, stock appreciation rights, warrants and retention warrants, each of which is exchangeable for one share of common stock upon exercise or conversion.

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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

           In connection with the preparation of this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, 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 March 31, 2012.

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.

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PART II. OTHER INFORMATION

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

1.           On January 17, 2012, the Company issued shares of common stock, without registration under the Securities Act of 1933, as amended (the “Securities Act”), to non-management directors pursuant to the Company’s Directors’ Compensation Plan as compensation for their services for the second half of 2011 in the following aggregate amounts:

John R. Anderson	42,727
Gabriel A. Battista	34,545
Shirley Strum Kenny	36,364
David Kronfeld	36,364
Charles B. Wang	40,000
Total	190,000

The aggregate value of the 190,000 shares of common stock issued to Dr. Kenny and Messrs. Anderson, Battista, Kronfeld and Wang was $47,723 on the date of issuance. The Company sold these shares pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act and Regulation D promulgated there under. This issuance qualified for exemption from registration under the Securities Act because (i) each of the directors was an accredited investor at the time of the sale, (ii) the Company did not engage in any general solicitation or advertising in connection with the sale, and (iii) each of the directors received restricted securities.

2.           On March 30, 2012, the Company issued 625,000 shares of restricted stock, without registration under the securities Act, to Marc Sokol, a former Executive Vice President of the Company residing within the United States, pursuant to a restricted share agreement dated November 12, 2010. Pursuant to the agreement, the Company agreed to issue 2,500,000 shares of common stock to Mr. Sokol over a four-year period, of which 25% of the shares was to be issued on each anniversary of November 12, 2010.  In the event of Mr. Sokol’s termination prior to issuance of all of the shares, all unissued shares were to be forfeited.  Mr. Sokol resigned from his position as Executive Vice President on January 31, 2012 and forfeited 1,875,000 shares of common stock upon his resignation. The aggregate value attributable of the 625,000 shares of common stock was $162,906 on the date of issuance. The Company issued the shares of restricted stock to Mr. Sokol in reliance on the exemption from the registration of the Securities Act afforded by Section 4(2) of the Securities Act because (i) Mr. Sokol was an accredited investor at the time of the sale, (ii) the Company did not engage in any general solicitation or advertising in connection with the sale, and (iii) Mr. Sokol received restricted securities.

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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
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 of 1933 and Section 18 of the Securities Exchange Act of 1934 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 of 1933, as amended, except as expressly set forth by specific reference in such filing.

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SIGNATURES

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:  May 9, 2012	/s/ Nancy Li
	Name:  Nancy Li
	Title:  Chief Executive Officer
Date:  May 9, 2012	/s/ Arthur J. McCarthy
	Name:  Arthur J. McCarthy
	Title:  Chief Financial Officer

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