Neulion (NEUL) 8-K Unaudited Pro Forma Condensed Consolidated Financial Statements

Exhibit 99.1

NeuLion, Inc.

Unaudited Pro Forma Condensed Consolidated Financial Statements

1

NEULION, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

As of September 30, 2017

(in thousands, except share data)

(Expressed in U.S. dollars)

	Historical						Pro Forma
	September 30,		Pro Forma				September 30,
	2017		Adjustments			Notes	2017
ASSETS
Current
Cash and cash equivalents	$	53,908	$	40,500		(i)	$	94,408
Accounts receivable, net of allowance of doubtful accounts of $629		14,590						14,590
Other receivables		395						395
Inventory		179						179
Assets held for sale		6,833						6,833
Prepaid expenses and deposits		3,288		(865	)	(ii)		2,423
Due from related parties		266						266
Total current assets		79,459		39,635				119,094
Property, plant and equipment, net		8,662						8,662
Intangible assets, net		19,296		(11,188	)	(iii)		8,108
Goodwill		13,229		(6,541	)	(iii)		6,688
Deferred tax assets		34,388		1,244		(iv)		35,632
Other assets		4,252		(3,778	)	(ii)		474
Total assets	$	159,286	$	19,372			$	178,658
LIABILITIES AND EQUITY
Current
Accounts payable	$	35,480					$	35,480
Accrued liabilities		10,016						10,016
Due to related parties		40						40
Deferred revenue		13,063		(410	)	(v)		12,653
Total current liabilities		58,599		(410	)			58,189
Long-term deferred revenue		1,311		(78	)	(v)		1,233
Deferred rent liabilities		1,488						1,488
Deferred tax liabilities		844						844
Other long-term liabilities		11						11
Total liabilities		62,253		(488	)			61,765
Total stockholders’ equity		97,033		19,860		(vi)		116,893
Total liabilities and stockholders’ equity	$	159,286	$	19,372			$	178,658

See accompanying notes

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NEULION, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the nine months ended September 30, 2017

(in thousands, except for number of shares and per share data)

(expressed in U.S. dollars)

	Nine Months Ended
	September 30, 2017			Pro Forma				Pro Forma
	NeuLion			Adjustments			Notes	Total
	$			$				$
Revenue	$	69,792		$	(14,969	)	(1)	$	54,823
Other costs and expenses
Cost of revenue, exclusive of depreciation and
amortization shown separately below		13,333			(1,104	)	(2)		12,229
Selling, general and administration, including
stock-based compensation		44,802			(5,585	)	(3)		39,217
Research and development		13,787			(1,998	)	(4)		11,789
Depreciation and amortization		7,483			(3,238	)	(5)		4,245
Loss on assets held for sale		395							395
	$	79,800		$	(11,925	)		$	67,875
Operating income (loss)		(10,008	)		(3,044	)			(13,052	)
Other income (expense)
Gain on foreign exchange	$	534		$	(86	)	(6)	$	448
Investment income, net		26							26
Other income (expense)		560			(86	)			474
Net income (loss) before income taxes		(9,448	)		(3,130	)			(12,578	)
Income tax benefit		163			257		(7)		420
Net income (loss) after income taxes	$	(9,285	)	$	(2,873	)		$	(12,158	)
Net income per weighted average number of shares outstanding – basic and diluted	$	(0.03	)					$	(0.04	)
Weighted average number of shares outstanding – basic and diluted		278,072,525							278,072,525

See accompanying notes

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NEULION, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For the year ended December 31, 2016

(in thousands, except for number of shares and per share data)

(expressed in U.S. dollars)

	Year Ended
	December 31, 2016			Pro Forma				Pro Forma
	NeuLion			Adjustments			Notes	Total
	$			$				$
Revenue	$	99,788		$	(20,707	)	(1)	$	79,081
Other costs and expenses
Cost of revenue, exclusive of depreciation and
amortization shown separately below		18,312			(2,316	)	(2)		15,996
Selling, general and administration, including
stock-based compensation		52,922			(9,076	)	(3)		43,846
Research and development		19,903			(5,594	)	(4)		14,309
Depreciation and amortization		8,899			(4,317	)	(5)		4,582
	$	100,036		$	(21,303	)		$	78,733
Operating income (loss)		(248	)		596				348
Other income (expense)
Loss on foreign exchange	$	(170	)	$	99		(6)	$	(71	)
Investment income, net		76							76
		(94	)		99				5
Net income (loss) before income taxes		(342	)		695				353
Income tax expense		(1,411	)		(1,037	)	(7)		(2,448	)
Net income (loss) after income taxes	$	(1,753	)	$	(342	)		$	(2,095	)
Net income per weighted average number of shares outstanding – basic and diluted	$	(0.01	)					$	(0.01	)
Weighted average number of shares outstanding – basic and diluted		281,690,556							281,690,556

See accompanying notes

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

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

1. Description of Transaction
  

On February 12, 2018, NeuLion, Inc. (“NeuLion” or the “Company”) completed the sale of certain assets of the DivX Corporation business for total consideration of approximately $41.5 million (the “Transaction”).  The assets sold as part of the Transaction predominantly consisted of patents that the Company acquired as part of its purchase of DivX Corporation in January 2015.

2. Basis of Presentation

The accompanying unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2017 and the 12 months ended December 31, 2016 give effect to the Transaction as if it had occurred on January 1, 2016. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2017 gives effect to the transaction as if it had occurred on September 30, 2017.

The unaudited pro forma condensed consolidated financial statements (the “Pro Forma Statements”) have been prepared in accordance with accounting principles generally accepted in the United States.  The accounting policies used in the preparation of the Pro Forma Statements are consistent with those used by the Company in the preparation of its consolidated financial statements for the year ended December 31, 2016 and the nine-month period ended September 30, 2017.

The Pro Forma Statements have been prepared and should be read in conjunction with the following information:

(i) Audited consolidated financial statements of NeuLion for the fiscal year ended December 31, 2016; and

(ii) Unaudited consolidated financial statements of NeuLion for the nine-month period ended September 30, 2017.

The Pro Forma Statements do not include any anticipated financial benefits from such items as cost savings arising from the Transaction. The Pro Forma Statements are not necessarily indicative of the results of operations or the financial position that would have resulted had the Transaction been effected on the dates indicated, or the results that may be obtained in the future.

3. Accounting for the Transaction

The net assets sold are as follows:

Prepaid expenses and deposits	$	865
Intangible assets, net		11,188
Goodwill		6,541
Other assets		3,778
Deferred tax liabilities		(1,244	)
Deferred revenue		(410	)
Long-term deferred revenue		(78	)
Net Assets Sold	$	20,640
Gain on sale		19,860
Proceeds from sale (net of transaction costs)	$	40,500

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

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

Allocation of goodwill to the business sold is preliminary and may be adjusted as a result of obtaining additional information regarding preliminary estimates of fair values made at the date of sale.

4. Pro Forma Condensed Consolidated Balance Sheet Adjustments

The unaudited pro forma condensed consolidated balance sheet adjustments at September 30, 2017 incorporates the following adjustments:

(i) Cash and cash equivalents have been increased by $40,500, which represents $41,500 of total consideration net of $1,000 in transaction costs.

(ii) Prepaid expenses and other assets have been decreased by $865 and $3,778, respectively, which principally represent assets that will no longer be used by the Company after the transaction.

(iii) Intangible assets and goodwill have been decreased by $11,188 and $6,541, respectively, which represent the estimated amounts allocated to the business sold to the buyer.

(iv) Deferred tax assets have been increased by $1,244, which represents the estimated deferred tax liability associated with the intangible assets sold to the buyer.

(v) Short-term and long-term deferred revenue have been decreased by $410 and $78, respectively, which represent prepayments received on customer contracts sold to the buyer.

(vi) Retained earnings has been increased by $19,860, which represents the difference between the sale price and the carrying value of assets sold. This estimated gain has not been reflected in the pro forma condensed consolidated statement of operations as it is considered to be nonrecurring in nature.

5. Pro Forma Condensed Consolidated Statement of Operations Adjustments

The unaudited pro forma condensed consolidated statement of operations adjustments for the nine-month period ended September 30, 2017 and the year ended December 31, 2016 incorporates the following adjustments:

1) Revenue has been decreased by $14,969 and $20,707 for the nine-month period ended September 30, 2017 and for the year ended December 31, 2016, respectively, to reflect the revenue lost due to the sale of the customer contracts sold in the Transaction.

2) Cost of revenue, exclusive of depreciation and amortization, has been decreased by $1,104 and $2,316 for the nine-month period ended September 30, 2017 and for the year ended December 31, 2016, respectively, to reflect the reduction in costs due to the sale of the customer contracts sold in the Transaction.

3) Selling, general and administrative, including stock-based compensation, has been decreased by $5,585 and $9,076 for the nine-month period ended September 30, 2017 and for the year ended December 31, 2016, respectively, to reflect the reduction in expenses due to the sale of the customer contracts sold in the Transaction.

4) Research and development has been decreased by $1,998 and $5,594 for the nine-month period ended September 30, 2017 and for the year ended December 31, 2016, respectively, to reflect the reduction in expenses due to the sale of the customer contracts sold in the Transaction.

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands)

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

5) Amortization and depreciation has been decreased by $3,238 and $4,317 for the nine-month period ended September 30, 2017 and for the year ended December 31, 2016, respectively, to eliminate amortization expense of intangible assets sold in the Transaction.

6) Gain (loss) on foreign exchange has been decreased by $86 for the nine-month period ended September 30, 2017 and increased by $99 for the year ended December 31, 2016, to eliminate foreign exposure due to the sale of the customer contracts sold in the Transaction.

7) Income tax benefit (expense) has been decreased by $257 for the nine-month period ended September 30, 2017 and increased by $1,037 for the year ended December 31, 2016, to reflect the income tax effect due to the sale of the customer contracts sold in the Transaction.

6. Loss Per Share

Basic loss per share is computed by dividing net loss for the period by the weighted average number of shares outstanding for the period.  Diluted loss per share is computed by dividing net loss for the period by the weighted average number of shares outstanding and if dilutive, potential common shares using the treasury stock method. Potential common shares consist of stock options and warrants.

The basic and diluted loss per share for the nine-month period ended September 30, 2017 and for the fiscal year ended December 31, 2016 have been adjusted to reflect the revised net loss for the period.

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