NEULION, INC. - FORM 10-Q - August 13, 2010

Attached files

file	filename
EX-32 - NEULION, INC.	ex32.htm
EX-31.2 - NEULION, INC.	ex31_2.htm
EX-31.1 - NEULION, INC.	ex31_1.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, 2010

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)

Canada		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 o 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 August 12, 2010, there were 116,980,017 shares of the registrant’s common shares, no par value, outstanding.

NEULION, INC.

TABLE OF CONTENTS

	Part I. Financial Information	Page No.
Item 1.	Financial Statements	1

	Consolidated Balance Sheets as at
	June 30, 2010 (Unaudited) and December 31, 2009	1

	Consolidated Statements of Operations and Comprehensive Loss for the
	Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)	2

	Consolidated Statement of Shareholders’ Equity for the
	Six Months Ended June 30, 2010 (Unaudited)	3

	Consolidated Statements of Cash Flows for the
	Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)	4

	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial
	Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32

Item 4.	Controls and Procedures	32

	Part II. Other Information

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 6.	Exhibits	33

SIGNATURES		34

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NEULION, INC.

CONSOLIDATED BALANCE SHEETS

[Expressed in U.S. dollars, unless otherwise noted]

	June 30,			December 31,
	2010			2009
	[unaudited]
		$			$

ASSETS
Current
Cash and cash equivalents		3,571,203			12,957,679
Accounts receivable, net of allowance for doubtful accounts of $189,635 and $129,550,
respectively		2,053,785			1,809,147
Other receivables		702,426			857,168
Inventory		440,429			928,592
Prepaid expenses and deposits		838,507			966,101
Due from related parties [note 5]		98,744			246,992
Total current assets		7,705,094			17,765,679
Property, plant and equipment, net		5,138,244			5,754,255
Intangible assets, net		8,419,924			9,542,071
Goodwill		6,757,194			6,757,194
Other assets		393,244			449,964
Total assets		28,413,700			40,269,163

LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable		3,234,334			5,383,518
Accrued liabilities		5,751,732			5,822,385
Derivative liability [note 11]		70,400			1,389,300
Due to related parties [note 5]		224,111			298,595
Deferred revenue		3,432,937			3,907,510
Total current liabilities		12,713,514			16,801,308
Long-term deferred revenue		430,210			469,191
Other long-term liabilities		579,604			728,330
Total liabilities		13,723,328			17,998,829


Shareholders' equity
Share capital		11,433,407			11,260,415
Common shares (par value: none; authorized: unlimited; issued and outstanding:
116,979,809 and 116,731,794, respectively)
Additional paid-in capital		56,513,516			55,023,567
Promissory notes receivable		(209,250	)		(209,250)	)
Accumulated deficit		(53,047,301	)		(43,804,398)	)
Total shareholders' equity		14,690,372			22,270,334
Total liabilities and shareholders' equity		28,413,700			40,269,163

See accompanying notes

NEULION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE LOSS

[unaudited]

[Expressed in U.S. dollars, unless otherwise noted]

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
	$			$			$			$
Revenue
Services revenue		6,692,792			6,038,405			14,155,691			12,072,735
Equipment revenue		565,943			424,033			947,539			963,730
		7,258,735			6,462,438			15,103,230			13,036,465

Costs and expenses
Cost of services revenue, exclusive of depreciation and amortization shown separately below		2,650,266			2,907,965			6,014,674			6,291,844
Cost of equipment revenue		540,192			385,516			894,881			846,121
Selling, general and administrative, including
stock-based compensation [note 8]		8,862,335			6,778,665			16,195,247			13,952,006
Depreciation and amortization		1,285,325			1,037,014			2,562,290			2,051,695
		13,338,118			11,109,160			25,667,092			23,141,666
Operating loss		(6,079,383	)		(4,646,722	)		(10,563,862	)		(10,105,201	)

Other income (expense)
Unrealized gain (loss) on derivative [notes 2 and 11]		319,000			(332,200	)		1,318,900			(809,050	)
Gain (loss) on foreign exchange		20,176			2,991			(28,952	)		47,218
Investment income		9,106			47,801			31,011			145,025
		348,282			(281,408	)		1,320,959			(616,807	)
Net and comprehensive loss for the period		(5,731,101	)		(4,928,130	)		(9,242,903	)		(10,722,008	)


Net loss per weighted average number of shares outstanding - basic and diluted [note 6]		$(0.05	)		$(0.04	)		$(0.08	)		$(0.10	)

Weighted average number of shares outstanding - basic and diluted [note 6]		116,786,463			110,124,504			116,764,569			110,107,138

See accompanying notes

NEULION, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

[unaudited]

[Expressed in U.S. dollars, unless otherwise noted]

			Common shares			Additional paid-in capital			Promissory Notes			Accumulated deficit			Total shareholders' equity
	#			$		$			$			$			$

Balance, December 31, 2009		116,731,794			11,260,415		55,023,567			(209,250	)		(43,804,398	)		22,270,334

Exercise of stock options for
common shares		63,228			52,852		(20,697	)		—			—			32,155
Stock-based compensation:
Issuance of common shares on
vesting of restricted share units		5,460			3,247		—			—			—			3,247
Issuance of common shares under
Directors’ Compensation Plan		179,327			93,250		—			—			—			93,250
Release of common shares from
escrow for services		—			23,643		—			—			—			23,643
Stock options and warrants		—			—		1,510,646			—			—			1,510,646
Net loss		—			—		—			—			(9,242,903	)		(9,242,903	)
Balance, June 30, 2010		116,979,809			11,433,407		56,513,516			(209,250	)		(53,047,301	)		14,690,372

See accompanying notes

NEULION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

[unaudited]

[Expressed in U.S. dollars, unless otherwise noted]

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
	$			$			$			$
OPERATING ACTIVITIES

Net loss		(5,731,101	)		(4,928,130	)		(9,242,903	)		(10,722,008	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		1,285,325			1,037,014			2,562,290			2,051,695
Stock-based compensation [note 8]		1,345,359			361,836			1,552,616			615,579
Unrealized (gain) loss on derivative [note 11]		(319,000	)		332,200			(1,318,900	)		809,050

Changes in operating assets and liabilities
Accounts receivable		(123,728	)		34,508			(244,638	)		467,377
Inventory		111,814			92,185			488,163			56,565
Prepaid expenses, deposits and other assets		421,706			667,066			184,314			763,851
Other receivables		91,801			(292,159	)		154,742			(461,368	)
Due from related parties		109,306			352,480			148,248			50,860
Accounts payable		(735,616	)		(727,787	)		(2,149,182	)		(1,953,844	)
Accrued liabilities		214,361			(784,017	)		7,515			(908,868	)
Deferred revenue		(428,371	)		49,112			(513,554	)		(88,272	)
Long-term liabilities		(74,672	)		(52,392	)		(148,726	)		(155,031	)
Due to related parties		114,425			106,182			(74,484	)		349,763
Cash used in operating activities		(3,718,391	)		(3,751,902	)		(8,594,499	)		(9,124,651	)


INVESTING ACTIVITIES
Purchase of property, plant and equipment		(525,847	)		(149,437	)		(824,132	)		(531,841	)
Cash used in investing activities		(525,847	)		(149,437	)		(824,132	)		(531,841	)


FINANCING ACTIVITIES
Proceeds from exercise of stock options		24,958			67,000			32,155			67,000
Cash provided by financing activities		24,958			67,000			32,155			67,000


Net decrease in cash and cash equivalents during
the period		(4,219,280	)		(3,834,339	)		(9,386,476	)		(9,589,492	)
Cash and cash equivalents, beginning of period		7,790,483			21,567,868			12,957,679			27,323,021
Cash and cash equivalents, end of period		3,571,203			17,733,529			3,571,203			17,733,529

See accompanying notes

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in U.S. dollars, unless otherwise noted]

Information as at June 30, 2010 and for the three and six months ended

June 30, 2010 and 2009 is unaudited

1. Nature of Operations

On June 4, 2009, NeuLion, Inc. changed its name to NeuLion USA, Inc. (“NeuLion USA”). On July 13, 2009, JumpTV Inc. changed its name to NeuLion, Inc. (“NeuLion” or the “Company”). In conjunction with the name change, NeuLion’s stock symbol on the Toronto Stock Exchange was changed from “JTV” to “NLN”. This Quarterly Report on Form 10-Q reflects the name changes described above as they are effective as of the date of filing this report.

On May 19, 2010, the Company announced that it reached an agreement in principle to acquire the operating interests of TransVideo International Ltd. (“TransVideo”), a manufacturer of set top boxes utilized by the Company, in exchange for common shares of the Company (“Shares”) in an aggregate amount of 22,000,802 Shares. TransVideo's passive investment in KyLinTV, Inc. (“KyLinTV”), an IPTV company, will not be transferred as part of the transaction. TransVideo and KyLinTV are both controlled by the Chairman of the Board of Directors of the Company.

On May 28, 2010, the Company executed a non-binding term sheet in connection with a potential private placement, of US$10 million of Class 3 Preference Shares (the “Preferred Shares”). The private placement, if consummated, will be made to a limited partnership in which the Chairman of the Board of Directors of the Company and another director of the Company hold ownership interests and to a trust affiliated with a third director of the Company. The Preferred Shares are priced at CDN$0.60 per share, a 28% premium over CDN$0.47, which was the price per share of the Shares at the close of business on May 28, 2010. The Preferred Shares will bear certain rights, preferences, privileges and restrictions including, as and when duly declared by the Board of Directors of the Company, the right to receive fixed preferential cumulative dividends at the rate of 8% per annum for a period of five years from issuance as provided in the Company’s Articles of Incorporation, as amended. The proceeds of the private placement will be used for general working capital purposes.

On August 12, 2010, the Company executed Subscription Agreements in connection with the proposed private placement of the Preferred Shares. On the same date, the Company also executed a Share Exchange Agreement with the shareholders of TransVideo in connection with the proposed acquisition described above. Both transactions remain subject to customary closing conditions, including regulatory and shareholder approvals. The Company anticipates closing the transactions at the end of the third quarter or beginning of the fourth quarter of 2010.

The Company is a leading Internet Protocol (“IP”) television company, providing end-to-end IPTV services. “IPTV” refers to the distribution over an IP network of streamed audio, video and other multimedia content, similar to television programming content, using industry-standard streaming protocols. The Company builds and manages private networks for content owners and aggregators (its content partners) that are used to stream content, including live and on-demand sports and international and variety programming, which the Company then delivers to subscribers and pay-per-view customers for viewing on Internet-connected browser-based devices such as personal computers, laptops and mobile devices and on standard television sets through Internet-connected set top boxes (“STBs”). NeuLion’s main business objective is to enter into agreements with companies seeking their own private networks to reach target audiences and to provide complete IPTV services to these companies. The Company also acquires the rights to certain sports and international content from television broadcasters (its channel partners), which the Company then streams to end users through its own private networks.

2. Basis of Presentation and Significant Accounting Policies

The Company’s accounting policies are consistent with those presented in our annual consolidated financial statements as at December 31, 2009. 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, 2009 as filed in the Company’s Annual Report on Form 10-K.

The preparation of these financial statements is 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 June 30, 2010 and December 31, 2009 and the results of operations and cash flows for the three- and six-month periods ended June 30, 2010 and 2009.

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in U.S. dollars, unless otherwise noted]

Information as at June 30, 2010 and for the three and six months ended

June 30, 2010 and 2009 is unaudited

Revenue recognition

The Company, at the request of certain customers, entered into a “bill and hold” arrangement. The Company accounts for its bill and hold revenue arrangement consistent with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition,” and recognizes revenue when the risk of ownership has passed to the customer and a fixed commitment to purchase the goods is received. The Company does not retain any specific performance obligations such that the earning process is not complete and ordered goods are segregated from the Company's inventory and not subject to fulfilling other orders. Inventory consists of finished goods. For the three and six months ended June 30, 2010, the Company recognized $414,000 and $586,500, respectively, in revenue associated with these arrangements, respectively. There were no comparable amounts in 2009.

Recently issued accounting standard

In October 2009, the Financial Accounting Standards Board issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). ASU 2009-13 amends guidance included within ASC Topic 605-25 to require an entity to use an estimated selling price when vendor specific objective evidence or acceptable third party evidence does not exist for any products or services included in a multiple element arrangement. The arrangement consideration should be allocated among the products and services based upon their relative selling prices, thus eliminating the use of the residual method of allocation. ASU 2009-13 also requires expanded qualitative and quantitative disclosures regarding significant judgments made and changes in applying this guidance. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption and retrospective application are also permitted. The Company is currently evaluating the impact of adopting the provisions of ASU 2009-13.

Advertising

Advertising costs are expensed as incurred and totaled $341,593 and $588,185 for the three and six months ended June 30, 2010, respectively [three and six months ended June 30, 2009 - $300,087 and $480,431, respectively].

Comparative Information

Certain prior period information was reclassified to conform with the current period’s presentation.

3. Business Combination

On October 31, 2009, the Company consummated the acquisition of 100% of the outstanding securities of Interactive Netcasting Systems Inc. (“INSINC”). Under the terms of the acquisition agreement, shareholders of INSINC received consideration consisting of 6,000,012 Shares, CDN$2.5 million in cash, 1,000,000 Share purchase warrants to acquire common shares at US$1.35 per Share and 500,000 Share purchase warrants to acquire common shares at US$1.80 per Share. Both series of warrants are exercisable for a period of two years. In addition, the Company incurred approximately $515,000 of direct transaction costs.

Pro forma

The results of operations for INSINC have been included in the Company’s consolidated statements of operations since the effective date of the acquisition on October 31, 2009. The following unaudited pro forma financial information presents the combined results of the Company and the acquisition as if the acquisition had occurred at the beginning of 2009:

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in U.S. dollars, unless otherwise noted]

Information as at June 30, 2010 and for the three and six months ended

June 30, 2010 and 2009 is unaudited

		Three months ended June 30,						Six months ended June 30,
		2010			2009			2010			2009
		$			$			$			$
	[unaudited			[unaudited			[unaudited			[unaudited
	actual]			pro forma]			actual]			pro forma]

Total revenue		7,258,735			7,685,079			15,103,230			15,591,821
Cost of services revenue, exclusive of depreciation
and amortization shown separately below		(2,650,266	)		(3,535,688	)		(6,014,674	)		(7,776,195	)
Cost of equipment revenue		(540,192	)		(385,516	)		(894,881	)		(846,120	)
Selling, general and administrative expenses		(7,516,976	)		(6,944,327	)		(14,642,631	)		(14,225,193	)
Stock-based compensation		(1,345,359	)		(361,836	)		(1,552,616	)		(615,579	)
Depreciation and amortization		(1,285,325	)		(1,351,883	)		(2,562,290	)		(2,677,973	)
Operating loss		(6,079,383	)		(4,894,171	)		(10,563,862	)		(10,549,239	)
Net loss		(5,731,101	)		(5,124,942	)		(9,242,903	)		(11,115,410	)
Net loss per weighted average number of shares
outstanding – basic and diluted		(0.05	)		(0.04	)		(0.08	)		(0.09	)

In determining the pro forma amounts above, the Company made adjustments to depreciation and amortization as a result of the revised fair values of tangible and intangible assets recorded as a result of the acquisition.

4. Economic Dependence and Concentration of Credit Risk

As at June 30, 2010, one customer accounted for 10% of accounts receivable and as at June 30, 2010, one vendor accounted for 11% of accounts payable. There were no significant concentrations of accounts receivable or accounts payable on June 30, 2009.

For the three and six months ended June 30, 2009, one customer accounted for 10% of revenue. There were no significant concentrations of revenue for the three and six months ended June 30, 2010.

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:

TransVideo International Ltd. (“TransVideo”)

TransVideo is a company controlled by the Chairman of the Board of Directors of the Company that designs and sells equipment and technology for IPTV content delivery. STB purchases amounted to $70,000 and $88,628 and transcoder licensing fees paid amounted to zero for the three and six months ended June 30, 2010, respectively. STB purchases amounted to $193,856 and $589,136 and transcoder licensing fees paid amounted to $16,000 and $44,000 for the three and six months ended June 30, 2009, respectively. Included in cost of equipment revenue is the cost of STBs sold of $76,974 and $188,970 for the three and six months ended June 30, 2010, respectively. Included in cost of equipment revenue is the cost of STBs sold of $229,656 and $598,816 for the three and six months ended June 30, 2009, respectively.

KyLinTV, Inc. (“KyLinTV”)

KyLinTV is an IPTV company that is controlled by the Chairman of the Board of Directors of the Company. On June 1, 2008, the Company entered into an agreement with KyLinTV to build and deliver the setup and back office operation of an IPTV service. The Company also provides and charges KyLinTV for administrative and general corporate support. The amounts received for these services provided by the Company for the three and six months ended June 30, 2010 were $105,008 and $250,109, respectively [three and six months ended June 30, 2009 - $150,615 and $301,230, respectively]. During the three and six months ended June 30, 2009, the Company purchased STBs from KyLinTV in the amounts of $96,030 and $150,120, respectively. There were no comparable amounts in 2010.

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in U.S. dollars, unless otherwise noted]

Information as at June 30, 2010 and for the three and six months ended

June 30, 2010 and 2009 is unaudited

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

The Company provides IT-related professional 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 $102,333 and $205,960, inclusive of taxes and utilities, is included in selling, general and administrative expense for the three and six months ended June 30, 2010, respectively [three and six months ended June 30, 2009 – $93,419 and $186,837, respectively].

Patstar, Inc. (“Patstar”)

Patstar, an investment holding company, is controlled by the Vice Chairman of the Board of Directors of the Company. Rent expense paid to the Company by Patstar of $1,027 and $2,026 is included as a recovery in selling, general and administrative expense for the three and six months ended June 30, 2010, respectively [three and six months ended June 30, 2009 - $871 and $1,762, respectively].

Hawaii IPTV, LLC (“Hawaii”)

The Company had as an IPTV customer Hawaii, whose principals are family members of the Chairman of the Board of Directors of the Company. Hawaii ceased operations during the third quarter of 2009.

The 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 periods presented as follows:

	Three months				Six months
	ended				ended
	June 30,				June 30,
	2010		2009		2010		2009
		$		$		$		$

New York Islanders		140,506		151,976		237,485		211,976
Renaissance		30,000		30,000		60,000		60,000
Smile Train		27,000		54,000		54,000		54,000
Hawaii		—		15,017		—		31,488
KyLinTV		490,290		485,915		967,503		887,400
		687,796		736,908		1,318,988		1,244,864

As at June 30, 2010 and December 31, 2009, the amounts due from (to) related parties are as follows:

	June 30,			December 31,
	2010			2009
		$			$

Renaissance		(70,963	)		—
New York Islanders		31,510			(304	)
TransVideo		(153,148	)		(298,291	)
KyLinTV		67,234			246,992
		(125,367	)		(51,603	)

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in U.S. dollars, unless otherwise noted]

Information as at June 30, 2010 and for the three and six months ended

June 30, 2010 and 2009 is unaudited

Investment in affiliate – KyLinTV

The Company records its investment in KyLinTV using the equity method.

From January 1, 2008 through February 26, 2010 the Company's equity interest in KyLinTV was 17.1%. On February 26, 2010, a group of private investors invested $10.0 million in KyLinTV, which reduced the Company’s equity interest to 12.2%. Of the total $10.0 million investment, $1.0 million was invested by AvantaLion LLC, a company controlled by the Chairman of the Board of Directors of the Company. As previously discussed, the Company also provides and charges KyLinTV for administrative and general corporate support. Management has determined that as a result of the 12.2% equity interest combined with the services that the Company provides KyLinTV, the Company continues to have significant influence on the operating activities of KyLinTV; therefore, the Company continues to account for its investment in KyLinTV using the equity method.

The Company’s proportionate share of the equity loss from KyLinTV has been accounted for as a charge on the Company's consolidated statements of operations and comprehensive loss. Due to KyLinTV’s accumulated losses, the investment had been reduced to zero as at December 31, 2008. No further charges will be recorded as the Company has no obligation to fund the losses of KyLinTV.

The results of operations and financial position of the Company's equity basis investment in KyLinTV are summarized below for the three and six months ended:

	Three months						Six months
	ended						ended
	June 30,						June 30,
	2010			2009			2010			2009
		$			$			$			$

Condensed income statement information:
Net sales		2,228,120			2,000,681			4,457,198			3,955,764
Net loss		(1,576,072	)		(1,499,109	)		(3,438,369	)		(2,979,890	)

	June 30,		December 31,
	2010		2009
		$		$

Condensed balance sheet information:
Current assets		9,143,052		1,924,891
Non-current assets		827,671		913,977
Total assets		9,970,723		2,838,868
Current liabilities		6,020,139		15,168,149
Equity (deficiency)		3,950,584		(12,329,281	)
Total liabilities and equity		9,970,723		2,838,868

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 and dilutive potential Shares outstanding. For the three and six months ended June 30, 2010 and 2009, diluted earnings per share excludes the effect of dilutive potential Shares, as their inclusion would be anti-dilutive due to the losses recorded by the Company.

The following table summarizes the potential Shares that were outstanding as at June 30, 2010 and 2009 but were not included in the computation of diluted loss per share as their effect would have been anti-dilutive.

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in U.S. dollars, unless otherwise noted]

Information as at June 30, 2010 and for the three and six months ended

June 30, 2010 and 2009 is unaudited

	June 30,		June 30,
	2010		2009
		#		#

Stock options		11,948,354		8,433,270
Restricted share units		1,264		26,716
Stock appreciation rights		1,675,000		1,690,000
Warrants		19,697,500		16,197,500
Retention warrants		754,094		907,005
Contingent performance consideration		—		3,680,194

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. Stock Option and Stock-Based Compensation Plans

The following table shows the breakdown total stock-based compensation expense included in the interim consolidated statement of operations:

	Three months					Six months
	ended					ended
	June 30,					June 30,
	2010			2009		2010			2009
		$			$		$		$

Stock options and warrants		1,315,540			143,315		1,510,646			353,215
Restricted share plan units		317			9,923		3,245			15,769
Stock appreciation rights		(31,638	)		38,375		(78,168	)		70,160
Directors’ compensation		50,000			158,158		93,250			158,158
Escrowed shares		11,140			12,065		23,643			18,277
		1,345,359			361,836		1,552,616			615,579

On January 4, 2010, the Company granted 2,000,000 Series D Warrants to a customer of the Company that are exercisable if the customer achieves certain subscriber levels. In accordance with Accounting Standards Codification (“ASC”) Topic 718, the Company has not recorded any expense for these warrants during the three and six months ended June 30, 2010 as the subscriber levels have not been met.

On March 19, 2010, the Company granted 1,250,000 stock options to employees of the Company with an exercise price of $0.59 that vest evenly over 48 months and expire in 60 months.

On May 17, 2010, the Company granted 2,485,000 stock options to employees of the Company with an exercise price of $0.51 that vest evenly over 48 months and expire in 60 months.

On June 15, 2010, the shareholders of the Company approved a resolution to extend the expiry date of 5,000,000 incentive warrants from October 20, 2010 to October 20, 2013. In accordance with ASC Topic 718, the Company has recorded an expense of $1,089,500 in selling, general and administrative, including stock-based compensation on the consolidated statements of operations for the three and six months ended June 30, 2010 in regards to this modification.

NEULION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[Expressed in U.S. dollars, unless otherwise noted]

Information as at June 30, 2010 and for the three and six months ended

June 30, 2010 and 2009 is unaudited

9. 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.

10. Income Taxes

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes Recognition”. There were no accrued interest and penalties associated with uncertain tax positions as of June 30, 2010 or December 31, 2009.

The Company’s effective tax rate is zero due to current year losses and the associated valuation allowance on the Company’s net operating losses.

11. Derivative Instruments

Effective January 1, 2009, the Company adopted ASC Topic 815-40, “Derivatives and Hedging” (“ASC 815-40”). One of the conclusions reached under ASC 815-40 was that an equity-linked financial instrument would not be considered indexed to the entity’s own stock if the strike price is denominated in a currency other than the issuer’s functional currency. The conclusion reached under ASC 815-40 clarified the accounting treatment for these and certain other financial instruments. ASC 815-40 specifies that a contract would not be treated as a derivative if it met the following conditions: (a) indexed to the Company’s own stock; and (b) classified in shareholders’ equity in the Company’s statement of financial position. The Company’s outstanding warrants denominated in Canadian dollars are not considered to be indexed to its own stock because the exercise price is denominated in Canadian dollars and the Company’s functional currency is United States dollars. Therefore, these warrants have been treated as derivative financial instruments and recorded at their fair value as a liability. All other outstanding convertible instruments are considered to be indexed to the Company’s stock, because their exercise price is denominated in the same currency as the Company’s functional currency, and are included in shareholders’ equity.

The Company’s only derivative instruments are 11,000,000 warrants, the exercise price for which are denominated in a currency other than the Company’s functional currency, as follows:

·	5,500,000 Series A warrants exercisable at Cdn$1.25 that expire on October 20, 2010.

·	5,500,000 Series B warrants exercisable at Cdn$1.50 that expire on October 20, 2010.

These warrants have been recorded at their relative fair values at issuance and will continue to be recorded at fair value at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as other income (expense). These warrants will continue to be reported as a liability until such time as they are exercised or expire. The fair value of these warrants is estimated using the Black-Scholes-Merton option-pricing model.

As of January 1, 2009, the grant date fair value of these warrants in the amount of $2,464,000 was reallocated from additional paid-in-capital and a derivative liability was recorded in the amount of $587,950, being the fair value of the warrants on January 1, 2009 offset by an adjustment to accumulated deficit of $1,876,050.

As of June 30, 2010, the fair value of the warrants was determined to be $70,400; accordingly, the Company recorded an unrealized gain of $319,000 and $1,318,900 in other income (expense) on the consolidated statements of operations for the three and six months ended June 30, 2010, respectively, related to the change in the fair value of these warrants. There is no cash flow impact for these derivatives until the warrants are exercised. If these warrants are exercised, the Company will receive the proceeds from the exercise at the current exchange rate at the time of exercise.

12. Subsequent Event

On July 29, 2010, the Company entered into an agreement with a U.S. bank to provide for a short-term credit facility of $2 million, bearing an interest rate of the London Interbank Offered Rate (“LIBOR”) plus 2.5%, repayable in full on or before October 1, 2010. As of August 13, 2010, the Company has not drawn upon this credit facility.

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

The following Management’s Discussion & Analysis (“MD&A”) of the financial condition and results of operations of NeuLion, Inc. (the “Company”, “NeuLion”, “we”, “us”, “our” and similar phrases), prepared as of August 13, 2010, should be read in conjunction with the Company's unaudited consolidated financial statements and accompanying notes for the three and six months ended June 30, 2010 and 2009, which have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). For additional information and details, readers are referred to the Company’s Annual Report on Form 10-K (“Annual Report”), for the year ended December 31, 2009, which can be found on www.sedar.com and www.sec.gov. All dollar amounts set forth in this MD&A are in U.S. dollars (“US$” or “$”) unless stated otherwise. As at July 30, 2010, the Bank of Canada noon rate for conversion of United States dollars to Canadian dollars was US$1 to CDN$1.0290.

Our MD&A is intended to enable readers to gain an understanding of NeuLion’s 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 the Company’s 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 NeuLion’s Annual Report, and below in the section titled “Cautions Regarding Forward-Looking Statements,” and 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 the Company’s growth, results of operations, performance and business prospects and opportunities.

Statements about the Company’s future plans and intentions, results, levels of activity, performance, goals or achievements or other future events constitute forward-looking statements. Wherever possible, words such as “may,” “will,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” or “potential“ or the negative or other variations of these words, or similar words or phrases, have been used to identify these forward-looking statements. These statements reflect management’s current beliefs and are based on information available to management as at the date hereof.

Forward-looking statements involve significant risk, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements. These factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this MD&A are based upon what management believes to be reasonable assumptions, the Company cannot assure readers that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this MD&A and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law. Many factors could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements, including: 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 relationships with our channel partners; our ability to negotiate favorable terms for contract renewals; competitor activity; product capability and acceptance rates; technology changes and international risk and currency exchange. Additionally, the closing of the proposed TransVideo acquisition and private placement is subject to shareholder and regulatory approval. Furthermore, while the Company expects its content partners and those of its subsidiaries to continue and expand their relationship with each of us, there can be no assurance that such relationships will continue as expected, or at all. A more detailed assessment of the risks that could cause actual results to materially differ from current expectations is contained in the “Risk Factors” section of the Company's Annual Report available on www.sedar.com and www.sec.gov.

RECENT DEVELOPMENTS

On May 19, 2010, the Company announced that it reached an agreement in principle to acquire the operating interests of TransVideo International Ltd. (“TransVideo”), a manufacturer of set top boxes utilized by the Company, in exchange for common shares of the Company (“Shares”) in an aggregate amount of 22,000,802 Shares. TransVideo’s passive investment in KyLinTV, Inc. (“KyLinTV”), an IPTV company, will not be transferred as part of the transaction. TransVideo and KyLinTV are both controlled by the Chairman of the Board of Directors of the Company.

On May 28, 2010, the Company executed a non-binding term sheet in connection with a potential private placement, of US$10 million of Class 3 Preference Shares (the “Preferred Shares”). The private placement, if consummated, will be made to a limited partnership in which the Chairman of the Board of Directors of the Company and another director of the Company hold ownership interests and to a trust affiliated with a third director of the Company. The Preferred Shares are priced at CDN$0.60 per share, a 28% premium over CDN$0.47, which was the price per share of the Shares at the close of business on May 28, 2010. The Preferred Shares will bear certain rights, preferences, privileges and restrictions including, as and when duly declared by the Board of Directors of the Company, the right to receive fixed preferential cumulative dividends at the rate of 8% per annum for a period of five years from issuance as provided in the Company’s articles of incorporation, as amended. The proceeds of the private placement will be used for general working capital purposes.

OVERVIEW

The Company is a leading Internet Protocol (“IP”) television company, providing end-to-end IPTV services. “IPTV” refers to the distribution over an IP network of streamed audio, video and other multimedia content, similar to television programming content, using industry-standard streaming protocols. We build and manage private networks for content owners and aggregators (our content partners) that are used to stream content, including live and on-demand sports and international and variety programming, which we then deliver to subscribers and pay-per-view customers for viewing on Internet-connected browser-based devices such as personal computers, laptops and mobile devices and on standard television sets through Internet-connected set top boxes (“STBs”). NeuLion’s main business objective is to enter into agreements with companies seeking their own private networks to reach target audiences and to provide complete IPTV services to these companies. We also acquire the rights to certain sports and international content from television broadcasters (our channel partners), which we then stream to end users through our own private networks.

Our business model has evolved from a professional IT services and international programming provider to an end-to-end provider of IPTV services. By “end-to-end provider of IPTV services,” we mean that we provide the following services:

content management — encoding and transcoding of various digital and analog TV and video formats;

subscriber management — managing subscriber access and control of subscriber accounts;

digital rights management — preserving the integrity of the content and protecting it from unauthorized access;

billing services — enabling customers to view subscription accounts, providing pay-per-view transactional billing and payment processing;

delivery — delivering streamed audio, video and other multimedia content anywhere, anytime through the Company’s IPTV service and infrastructure; and

advertising insertion.

Customer Relationships

We have two types of relationships: business-to-business (“B2B”) and business-to-consumer (“B2C”).

B2B relationships have been our primary focus in the past and are expected to be our focus in the future. Our B2B relationships generally involve providing an end-to-end solution to a customer to enable that customer to provide its content, by way of an IPTV platform built for that customer, to its end users. B2B customers typically aggregate the content, negotiate the licensing rights and directly market the availability of the content. This customer avails itself of the full services of the Company in delivery to its end users. This type of relationship is typical in the professional and college sports properties and in our agreements with international and broad-based content providers.

Our B2C relationships are individual consumer oriented. We have signed content distribution agreements with our channel partners and content providers in exchange for revenue share or royalty payments to such partners and providers. We then market the content on one (or more) of the proprietary targeted websites that we have developed which are focused on a specific diaspora community, as well as on the general Company website for purchase by an end user. We often aggregate the content into bundles or packages of similar interest (e.g. Talfazat for the Middle East community; TV-Desi for the South Asian community). We incur marketing expenses in promoting the availability of such content.

The United States and Canada are the principal markets in which our sales occur.

Products and Services

Sports programming

Through our comprehensive end-to-end IPTV solution, we provide our sports programming content partners with the ability to deliver live and on-demand content. We maintain distribution and technology services agreements with leading professional and collegiate sports properties as well as with the sports network ESPN. Amongst professional sports leagues, NeuLion counts the National Football League (NFL), the National Hockey League (NHL), Major League Soccer (“MLS”) and the American Hockey League (AHL) as clients. Through our acquisition of Interactive Netcasting Systems Inc. (“INSINC”), a provider of sports, government and entertainment webcasting services, we expanded our portfolio of sports content partners to include the Western Hockey League (WHL), the Ontario Hockey League (OHL), the Central Hockey League (CHL), the British Columbia Hockey League (BCHL), the Central Canadian Hockey League (CCHL), the Alberta Junior Hockey League (AJHL), the Central Junior Hockey League (CJHL) and the Canadian Football League (CFL).

We also operate our own portfolio of sports-oriented websites, including Cycling.tv, CollegeSportsDirect.com and select World Cup soccer properties. On the collegiate level, we are a premier partner for National Collegiate Athletic Association (NCAA) colleges and universities, with agreements in place with approximately 165 colleges, universities or related sites.

Ethnic/international and specialty programming

The Company also offers what is referred to in the industry as “ethnic television,” which the Company defines as programming directed at a specific diaspora community, as determined by a shared nationality, language or culture, and generally excluding communities for which English is the primary language. We have license agreements directly with channel partners representing approximately 170 channels in 50 countries that give NeuLion rights to stream, predominantly on an exclusive world-wide basis, the channel partners’ live linear television feeds over the public Internet using our proprietary private networks such as Talfazat and TV-Desi.

Our subsidiary, INSINC, also distributes government and entertainment content. Its clients in those industries include Business News Network (BNN), CTV News Channel, Rogers Sportsnet, TVG Networks, The Canadian Press, the Canadian Ministry of Justice, the BC Ministry of Education, and the Legislative Assemblies of British Columbia and Newfoundland and Labrador, among others.

We also have relationships with other specialty programming customers such as Sky Angel U.S. LLC, which streams faith-based programming.

Services

Our suite of technology and other services is directed at the entire spectrum of content aggregation and delivery. Our services include:

content ingestion;

web site design and hosting;

live and on-demand streaming of content on multiple platforms;

billing services;

facilitating online merchandise sales;

mobile features (streaming highlights, alerts, wallpaper and ring tones);

online ticketing;

auction engine (jerseys, tickets);

social networking;

customer and fan support; and

marketing and advertising sales.

Distribution Methods

We distribute content through two primary methods:

Internet-connected browser-based devices such as personal computers, laptops and mobile devices; and

standard television sets through use of our Internet-connected STBs.

Both of our distribution methods take advantage of an open IPTV network, the public Internet. As a result, content delivered by NeuLion is available globally and is potentially unlimited in breadth.

Revenue

We earn revenue in two broad categories: services revenue and equipment revenue. Services revenue includes subscriber revenue, eCommerce revenue and technology services revenue. Equipment revenue includes the sale and shipping of STBs. Our revenue streams are described in detail below under the heading “OPERATIONS.”

Overall Performance — Three Months Ended June 30, 2010 vs Three Months Ended June 30, 2009

Highlights

Services Revenue, which is the Company’s recurring revenue stream, increased by $0.7 million, or 11%, as compared to the same period a year ago.

Cost of Services Revenue, exclusive of depreciation and amortization, decreased by $0.3 million, or 9%, as compared to the same period a year ago.

Overview

Revenue for the three months ended June 30, 2010 was $7.3 million, an increase of $0.8 million, or 12% from $6.5 million for the three months ended June 30, 2009. The revenue growth of $0.8 million was due to the following:

· organic growth of $0.1 million; and

· revenue from INSINC of $0.7 million.

The organic revenue growth of $0.1 million was due to an increase in our equipment revenue.

Our net loss for the three months ended June 30, 2010 was $5.7 million, or a loss of $0.05 per basic and diluted Share, compared with a net loss of $4.9 million, or a loss of $0.04 per basic and diluted Share, for the three months ended June 30, 2009. The increase in net loss of $0.8 million, or 16%, was due to the following:

an increase in selling, general and administrative expenses, excluding stock-based compensation of $1.1 million;

an increase in stock-based compensation of $1.0 million (non-cash item); and

an increase in depreciation and amortization of $0.2 million (non-cash item),

which was offset by the following:

an increase in total revenue of $0.8 million;

a decrease in cost of revenue, exclusive of depreciation and amortization of $0.1 million despite the increase in revenue; and

an unrealized gain on derivative of $0.3 million for the three months ended June 30, 2010 as compared to a $0.3 million loss on derivative for the three months ended June 30, 2009 (non-cash item).

On a pro forma basis, as if the acquisition of INSINC had occurred on January 1, 2009, revenue decreased from $7.7 million for the three months ended June 30, 2009 to $7.3 million for the three months ended June 30, 2010. Our pro forma net loss for the three months ended June 30, 2010 was $5.7 million compared with a pro forma net loss for the three months ended June 30, 2009 of $5.1 million, or a loss of $0.04 per basic and diluted Share. The increase in net loss of $0.6 million, or 12% on a pro forma basis, was due to the following:

· a decrease in total revenue of $0.4 million;

an increase in selling, general and administrative expenses, excluding stock-based compensation of $0.5 million; and

an increase in stock-based compensation of $1.0 million (non-cash item),

which was offset by the following:

a decrease in cost of revenue, exclusive of depreciation and amortization of $0.7 million; and

an unrealized gain on derivative of $0.3 million for the three months ended June 30, 2010 as compared to a $0.3 million loss on derivative for the three months ended June 30, 2009 (non-cash item).

Our non-GAAP Adjusted EBITDA loss (as defined below) was $3.4 million for the three months ended June 30, 2010 compared with a non-GAAP Adjusted EBITDA loss of $3.2 million for the three months ended June 30, 2009. The increase in non-GAAP Adjusted EBITDA loss is due to the impact of the items noted in the second set of bullets above. On a pro forma basis, our non-GAAP Adjusted EBITDA loss increased from a loss of $3.2 million for the three months ended June 30, 2009 to a loss of $3.4 million for the three months ended June 30, 2010. The increase in non-GAAP Adjusted EBITDA loss is due to the impact of the items noted in the set of bullets immediately above.

The Company reports non-GAAP Adjusted EBITDA loss because it is a key measure used by management to evaluate the results of the Company 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 loss on derivatives, investment income and foreign exchange gain. This measure does not have any standardized meaning prescribed by U.S. GAAP and therefore is unlikely to be comparable to the calculation of similar measures used by other companies, and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with U.S. GAAP.

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

	Three months ended June 30,
							Pro forma
	2010			2009			2009
		$			$			$

Net loss		(5,731,101	)		(4,928,130	)		(5,124,942	)

Add back:
Depreciation and amortization		1,285,325			1,037,014			1,351,883
Stock-based compensation		1,345,359			361,836			361,836
Unrealized (gain) loss on derivative		(319,000	)		332,200			332,200
Investment income and foreign exchange gain/loss		(29,282	)		(50,792	)		(101,429	)

Non-GAAP Adjusted EBITDA loss		(3,448,699	)		(3,247,872	)		(3,180,452	)

Overall Performance — Six Months Ended June 30, 2010 vs Six Months Ended June 30, 2009

Highlights

Services Revenue, which is the Company’s recurring revenue stream, increased by $2.1 million, or 17%, as compared to the same period a year ago.

Cost of Services Revenue, exclusive of depreciation and amortization, decreased by $0.3 million, or 4%, as compared to the same period a year ago.

Overview

Revenue for the six months ended June 30, 2010 was $15.1 million, an increase of 16% from $13.0 million for the six months ended June 30, 2009. The revenue growth of $2.1 million was due to the following:

· organic growth of $0.5 million; and

· revenue from INSINC of $1.6 million.

The organic revenue growth of $0.5 million was due to an increase in services revenue.

Our net loss for the six months ended June 30, 2010 was $9.2 million, or a loss of $0.08 per basic and diluted Share, compared with a net loss of $10.7 million, or a loss of $0.10 per basic and diluted Share, for the six months ended June 30, 2009. The improvement in net loss of $1.5 million, or 14%, was due to the following:

· an increase in total revenue of $2.1 million;

a decrease in cost of revenue, exclusive of depreciation and amortization of $0.2 million despite the increase in revenue; and

an unrealized gain on derivative of $1.3 million for the six months ended June 30, 2010 as compared to a $0.8 million loss on derivative for the six months ended June 30, 2009 (non-cash item),

which was offset by the following:

an increase in selling, general and administrative expenses, excluding stock-based compensation of $1.3 million;

an increase in stock-based compensation of $0.9 million (non-cash item);

a decrease in gain/loss on foreign exchange of $0.1 million;

a decrease in investment income of $0.1 million; and

an increase in depreciation and amortization of $0.5 million (non-cash item).

On a pro forma basis, as if the acquisition of INSINC had occurred on January 1, 2009, revenue decreased from $15.6 million for the six months ended June 30, 2009 to $15.1 million for the six months ended June 30, 2010. Our pro forma net loss for the six months ended June 30, 2010 was $9.2 million as compared to a pro forma net loss of $11.1 million for the six months ended June 30, 2009, or a loss of $0.09 per basic and diluted Share. The improvement in net loss of $1.9 million, or 17%, on a pro forma basis was due to the following:

a decrease in cost of revenue, exclusive of depreciation and amortization of $1.7 million; and

an unrealized gain on derivative of $1.3 million for the six months ended June 30, 2010 as compared to a $0.8 million loss on derivative for the six months ended June 30, 2009 (non-cash item),

which was offset by the following:

a decrease in total revenue of $0.5 million;

an increase in selling, general and administrative expenses, excluding stock-based compensation of $0.4 million;

an increase in stock-based compensation of $0.9 million (non-cash item); and

an decrease in depreciation and amortization of $0.1 million (non-cash item).

Our non-GAAP Adjusted EBITDA loss (as defined below) was $6.4 million for the six months ended June 30, 2010 compared with a non-GAAP Adjusted EBITDA loss of $7.4 million for the six months ended June 30, 2009. The improvement in non-GAAP Adjusted EBITDA loss is due to the impact of the items noted in the second set of bullets above. On a pro forma basis, our non-GAAP Adjusted EBITDA loss improved from a loss of $7.3 million for the six months ended June 30, 2009 to a loss of $6.4 million for the six months ended June 30, 2010. The improvement in non-GAAP Adjusted EBITDA loss is due to the impact of the items noted in the set of bullets immediately above.

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

	Six months ended June 30,
							Pro forma
	2010			2009			2009
		$			$			$

Net loss		(9,242,903	)		(10,722,008	)		(11,115,410	)

Add back:
Depreciation and amortization		2,562,290			2,051,695			2,677,973
Stock-based compensation		1,552,616			615,579			615,579
Unrealized (gain) loss on derivative		(1,318,900	)		809,050			809,050
Investment income and foreign exchange gain/loss		(2,059	)		(192,243	)		(242,879	)

Non-GAAP Adjusted EBITDA loss		(6,448,956	)		(7,437,927	)		(7,255,687	)

OPERATIONS

Revenue

The Company earns revenue in two broad categories:

(i)	Services revenue, which includes:

	●	Subscriber revenue, which is recognized over the period of service or usage;

	●	eCommerce revenue, which is recognized as the service is performed; and

	●	Technology revenue, which consists of the set up and transcoder revenue and is recognized over the life of the contract.

(ii)	Equipment revenue, which is recognized when title to an STB passes to our customer.

Cost and Expenses

Cost of services revenue

Cost of services revenue primarily consists of:

Cost of subscriber revenue, which consists of :

royalty payments

network operating costs

bandwidth usage fees

colocation fees

Cost of eCommerce revenue, which consists of:

merchandising, donor and ticket sales, which has no associated cost – revenue is booked on a net basis

cost of advertising revenue is subject to revenue shares with the content provider

Cost of technology revenue, which consists of:

third party transcoder licenses purchased

maintenance costs for transcoders

Cost of equipment revenue

Equipment revenue consists of the sale of STBs to content partners and/or end users to enable the end user to receive the content over the Internet and display the signal on a television. Cost of equipment revenue primarily consists of purchases from TransVideo and Tatung Technology Incorporation of the products and parts for resale to our customers. Shipping revenue and costs are included in equipment revenue and cost of equipment revenue, respectively.

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 the Company's full-time and part-time employees as well as fees for consultants who are used by the Company from time to time;

Stock-based compensation – we estimate the fair value of our options, warrants and stock appreciation rights (“Convertible Securities”) for financial accounting purposes using the Black-Scholes-Merton model, which requires a number of subjective assumptions, including the expected life of the Convertible Securities, risk-free interest rate, dividend rate, forfeiture rate and future volatility of the price of our Shares. We expense the estimated fair value over the vesting period of the Convertible Securities, which is normally a four-year period, vesting in an equal amount each month; however, the 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 various target sports properties and ethnic communities. These initiatives include on-line and off-line marketing expenditures, search engine marketing and search engine optimization;

Professional fees – represents legal, accounting and recruiting fees; and

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

SELECTED INTERIM INFORMATION

The selected interim consolidated financial information set out below for the eight most recently completed quarters has been derived from the Company’s unaudited interim consolidated financial statements and accompanying notes posted on www.sedar.com and www.sec.gov. Readers should read the following information in conjunction with those statements and related notes.

(Unaudited)

	Three months ended
	2010						2009												2008
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,			December 31,			September 30,
		$			$			$			$			$			$			$			$
Income Statement Data:
Revenue		7,258,735			7,844,495			8,995,911			6,061,302			6,462,438			6,574,026			5,807,550			2,699,041
Cost of revenue		3,190,458			3,719,097			4,024,350			3,224,838			3,293,481			3,844,483			3,205,272			1,534,807
Net loss for the period		(5,731,101	)		(3,511,802	)		(1,454,962	)		(7,463,951	)		(4,928,130	)		(5,793,878	)		(7,223,468	)		(1,377,667	)
Basic and diluted loss per share		(0.05	)		(0.03	)		(0.01	)		(0.07	)		(0.04	)		(0.05	)		(0.13	)		(0.03	)

The selected interim information for the period from the fourth quarter of 2008 (subsequent to October 20, 2008) through the second quarter of 2010 represents income statement data for NeuLion. For the period from the third quarter of 2008 to the fourth quarter of 2008 (prior to October 20, 2008), the selected interim information represents income statement data for NeuLion USA, Inc., our wholly owned subsidiary, prior to the merger between NeuLion and NeuLion USA, Inc.

The selected interim information for the period from the fourth quarter of 2009 (subsequent to October 31, 2009) through the second quarter of 2010 includes income statement data for Interactive Netcasting Systems Inc. (“INSINC”). For the period from the third quarter of 2008 to the fourth quarter of 2009 (prior to October 31, 2009), the selected interim information excludes income statement data for INSINC.

The fourth quarter of 2008 net loss includes a non-cash impairment charge of $1.0 million. This non-cash impairment charge was not incurred in the comparative periods.

From the first quarter of 2009 to the second quarter of 2010, net losses include a non-cash loss (gain) on derivative charge of $0.5 million, $0.3 million, $2.2 million, $(2.2) million, $(1.0) million and $(0.3) million, respectively. These non-cash losses (gains) on derivative were not incurred in comparative periods.

RESULTS OF OPERATIONS

Comparison of Three Months Ended June 30, 2010 to Three Months Ended June 30, 2009

Our consolidated financial statements for the three months ended June 30, 2010 and 2009 have been prepared in accordance with U.S. GAAP.

(Unaudited)

	2010			2009			Change
		$		$				%
Revenue
Services revenue		6,692,792			6,038,405			11	%
Equipment revenue		565,943			424,033			33	%
Total Revenue		7,258,735			6,462,438			12	%

Costs and expenses
Cost of services revenue, exclusive of depreciation
and amortization shown separately below		2,650,266			2,907,965			-9	%
Cost of equipment revenue		540,192			385,516			40	%
Selling, general and administrative, including
stock-based compensation		8,862,335			6,778,665			31	%
Depreciation and amortization		1,285,325			1,037,014			24	%
		13,338,118			11,109,160			20	%
Operating loss		(6,079,383	)		(4,646,722	)		31	%

Other income (expense)
Unrealized gain (loss) on derivative		319,000			(332,200	)		-196	%
Gain on foreign exchange		20,176			2,991			575	%
Investment income		9,106			47,801			-81	%
		348,282			(281,408	)		-224	%
Net and comprehensive loss for the period		(5,731,101	)		(4,928,130	)		16	%

Revenue

Services revenue

Services revenue includes revenue from subscribers, eCommerce and technology services. Services revenue increased from $6.0 million for the three months ended June 30, 2009 to $6.7 million for the three months ended June 30, 2010. The $0.7 million increase was due to the acquisition of INSINC.

Subscriber revenue increased from $4.2 million for the three months ended June 30, 2009 to $4.5 million for the three months ended June 30, 2010. The increase was due to the acquisition of INSINC, which accounted for $0.1 million of subscriber revenue, coupled with organic growth of $0.2 million. Of the $0.2 million organic increase, $0.1 million was from new customers.

eCommerce revenue was $0.8 million for the three months ended June 30, 2009 and June 30, 2010.

Technology revenue increased from $1.0 million for the three months ended June 30, 2009 to $1.4 million for the three months ended June 30, 2010. The increase was due to the acquisition of INSINC, which accounted for $0.6 million of technology revenue, coupled with an organic decline of $0.2 million.

Equipment revenue

Equipment revenue increased from $0.4 million for the three months ended June 30, 2009 to $0.6 million for the three months ended June 30, 2010. The $0.2 million increase in equipment revenue was the result of STBs sold to a new customer.

Costs and Expenses

Cost of services revenue

Cost of services revenue decreased from $2.9 million, or 48%, of services revenue for the three months ended June 30, 2009 to $2.7 million, or 40%, of services revenue for the three months ended June 30, 2010, despite an increase in services revenue of $0.7 million, or 11%. Included in cost of services revenue is $0.2 million from INSINC. The decrease of $0.2 million and the 8% improvement (as a percentage of services revenue) primarily relate to negotiated lower rates on bandwidth costs.

Cost of equipment revenue

Cost of equipment revenue increased from $0.4 million for the three months ended June 30, 2009 to $0.5 million for the three months ended June 30, 2010 due to increased equipment sales. Cost of equipment revenue is directly variable with changes in equipment revenue. Cost of equipment revenue as a percentage of equipment revenue increased from 91% for the three months ended June 30, 2009 to 95% for the three months ended June 30, 2010 due to increased shipping costs related to TV-Desi and Talfazat rental STBs.

Selling, general and administrative, including stock-based compensation

Selling, general and administrative, including stock-based compensation, increased from $6.8 million for the three months ended June 30, 2009 to $8.9 million for the three months ended June 30, 2010. INSINC comprised $0.5 million of the total $2.1 million increase for the three months ended June 30, 2010. The individual variances are due to the following:

Wages and benefits increased from $4.8 million for the three months ended June 30, 2009 to $5.0 million for the three months ended June 30, 2010. INSINC comprised $0.4 million of total wages and benefits increase for the period. The organic decrease of $0.2 million was due to a decrease in headcount.

Stock-based compensation expense increased from $0.4 million for the three months ended June 30, 2009 to $1.3 million for the three months ended June 30, 2010. The $0.9 million increase primarily relates to the modification of 5,000,000 incentive warrants. On June 15, 2010, the shareholders of the Company approved a resolution to extend the expiry date of 5,000,000 incentive warrants from October 20, 2010 to October 20, 2013. In accordance with Accounting Standards Codification (“ASC”) Topic 718, the Company recorded an expense of $1.1 million as a result of this modification.

Marketing expenses were $0.3 million for the three months ended June 30, 2009 and 2010.

Professional fees increased from $0.3 million for the three months ended June 30, 2009 to $1.0 million for the three months ended June 30, 2010. The increase primarily represents legal expenses incurred in regard to a potential private placement and legal expenses and valuation services incurred in regard to the contemplated acquisition of TransVideo.

Other SG&A expenses increased from $1.0 million for the three months ended June 30, 2009 to $1.3 million for the three months ended June 30, 2010. INSINC accounted for $0.1 million of the total $0.3 million increase for the period. The organic increase of $0.2 million was primarily the result of increases in office-related expenses.

Depreciation and amortization

Depreciation and amortization increased from $1.0 million for the three months ended June 30, 2009 to $1.3 million for the three months ended June 30, 2010. The increase was due to the amortization of INSINC’s acquired fixed and intangible assets.

Unrealized gain on derivative

Unrealized gain on derivative decreased from a loss of $0.3 million for the three months ended June 30, 2009 to a gain of $0.3 million for the three months ended June 30, 2010. The Company adopted ASC 815-40 effective January 1, 2009, which required the Company to record at fair value all Convertible Securities denominated in a currency other than the Company’s functional currency. On January 1, 2009, the grant date fair value of warrants denominated in Canadian dollars of $2.5 million was reallocated from additional paid-in capital and a derivative liability was recorded in the amount of $0.6 million with an adjustment to opening accumulated deficit of $1.9 million. The difference between the fair value at June 30, 2010 of $0.1 million and the fair value at March 31, 2010 of $0.4 million resulted in an unrealized gain on derivative of $0.3 million.

These warrants have been recorded at their relative fair values at issuance, determined using the Black-Scholes-Merton model, and will continue to be recorded at fair value at each subsequent balance sheet date. Any change in value between reporting periods will be recorded as other income (expense). These warrants will continue to be reported as a liability until such time as they are exercised or expire.

RESULTS OF OPERATIONS

Comparison of Six Months Ended June 30, 2010 to Six Months Ended June 30, 2009

Our consolidated financial statements for the six months ended June 30, 2010 and 2009 have been prepared in accordance with U.S. GAAP.

(Unaudited)

	2010			2009			Change
		$		$				%
Revenue
Services revenue		14,155,691			12,072,735			17	%
Equipment revenue		947,539			963,730			-2	%
Total Revenue		15,103,230			13,036,465			16	%

Costs and expenses
Cost of services revenue, exclusive of depreciation
and amortization shown separately below		6,014,674			6,291,844			-4	%
Cost of equipment revenue		894,881			846,121			6	%
Selling, general and administrative, including
stock-based compensation		16,195,247			13,952,006			16	%
Depreciation and amortization		2,562,290			2,051,695			25	%
		25,667,092			23,141,666			11	%
Operating loss		(10,563,862	)		(10,105,201	)		5	%

Other income (expense)
Unrealized gain (loss) on derivative		1,318,900			(809,050	)		-263	%
(Loss) gain on foreign exchange		(28,952	)		47,218			-161	%
Investment income		31,011			145,025			-79	%
		1,320,959			(616,807	)		-314	%
Net and comprehensive loss for the period		(9,242,903	)		(10,722,008	)		-14	%

Revenue

Services revenue

Services revenue includes revenue from subscribers, eCommerce and technology services. Services revenue increased from $12.1 million for the six months ended June 30, 2009 to $14.2 million for the six months ended June 30, 2010. The increase was due to the acquisition of INSINC, which accounted for $1.6 million of services revenue, coupled with organic growth of $0.5 million.

Subscriber revenue increased from $8.5 million for the six months ended June 30, 2009 to $9.5 million for the six months ended June 30, 2010. The increase was due to the acquisition of INSINC, which accounted for $0.5 million, coupled with organic growth of $0.5 million. Of the $0.5 million organic increase, $0.3 million was from new customers.

eCommerce revenue increased from $1.7 million for the six months ended June 30, 2009 to $1.8 million for the six months ended June 30, 2010. The increase was due to an increase in ticketing revenue.

Technology services revenue increased from $1.9 million for the six months ended June 30, 2009 to $2.9 million for the six months ended June 30, 2010. The $1.0 million increase was due to the acquisition of INSINC.

Equipment revenue

Equipment revenue was $0.9 million for the six months ended June 30, 2009 and June 30, 2010.

Costs and Expenses

Cost of services revenue

Cost of services revenue decreased from $6.3 million, or 52%, of services revenue for the six months ended June 30, 2009 to $6.0 million, or 42%, of services revenue for the six months ended June 30, 2010, despite an increase in services revenue of $2.1 million or 17%. Included in cost of services revenue is $0.5 million from INSINC. The decrease of $0.3 million and the 10% improvement (as a percentage of services revenue) primarily relate to negotiated lower rates on bandwidth costs.

Cost of equipment revenue

Cost of equipment revenue increased from $0.8 million for the six months ended June 30, 2009 to $0.9 million for the six months ended June 30, 2010. Cost of equipment revenue is directly variable with changes in equipment revenue. Cost of equipment revenue as a percentage of equipment revenue increased from 88% for the six months ended June 30, 2009 to 94% for the six months ended June 30, 2010 due to increased shipping costs related to TV-Desi and Talfazat rental STBs.

Selling, general and administrative, including stock-based compensation

Selling, general and administrative, including stock-based compensation, increased from $14.0 million for the six months ended June 30, 2009 to $16.2 million for the six months ended June 30, 2010. INSINC comprised $1.0 million of the total $2.2 million increase. The individual variances are due to the following:

Wages and benefits increased from $10.0 million for the six months ended June 30, 2009 to $10.3 million for the six months ended June 30, 2010. INSINC comprised $0.7 million of the increase in total wages and benefits for the period. The organic decrease of $0.4 million was due to a decrease in headcount.

Stock-based compensation expense increased from $0.6 million for the six months ended June 30, 2009 to $1.6 million for the six months ended June 30, 2010. The $1.0 million increase primarily relates to the modification of 5,000,000 incentive warrants. On June 15, 2010, the shareholders of the Company approved a resolution to extend the expiry date of 5,000,000 incentive warrants from October 20, 2010 to October 20, 2013. In accordance with ASC Topic 718, the Company recorded an expense of $1.1 million as a result of this modification.

Marketing expenses increased from $0.5 million for the six months ended June 30, 2009 to $0.6 million for the three months ended June 30, 2010. The increase was due to an increase in marketing expenses for Talfazat.

Professional fees increased from $0.6 million for the six months ended June 30, 2009 to $1.4 million for the six months ended June 30, 2010. The increase primarily represents legal expenses incurred in regard to a potential private placement and legal expenses and valuation services incurred in regard to the contemplated acquisition of TransVideo.

Other SG&A expenses were $2.3 million for the six months ended June 30, 2009 and 2010. INSINC accounted for $0.3 million of the total for the current period. The organic decrease of $0.3 million was primarily the result of decreases in travel and office-related expenses.

Depreciation and amortization

Depreciation and amortization increased from $2.1 million for the six months ended June 30, 2009 to $2.6 million for the six months ended June 30, 2010. The increase was due to the amortization of INSINC’s acquired fixed and intangible assets.

Unrealized gain on derivative

Unrealized gain on derivative decreased from a loss of $0.8 million for the six months ended June 30, 2009 to a gain of $1.3 million for the six months ended June 30, 2010. The Company adopted ASC 815-40 effective January 1, 2009, which required the Company to record at fair value all Convertible Securities denominated in a currency other than the Company’s functional currency. On January 1, 2009, the grant date fair value of warrants denominated in Canadian dollars of $2.5 million was reallocated from additional paid-in capital and a derivative liability was recorded in the amount of $0.6 million with an adjustment to opening accumulated deficit of $1.9 million. The difference between the fair value at June 30, 2010 of $0.1 million and the fair value at December 31, 2009 of $1.4 million resulted in an unrealized gain on derivative of $1.3 million.

LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 30, 2010, the Company’s cash position decreased by $9.4 million. The Company used $8.6 million to fund operations, which included working capital changes of $2.1 million. Additionally, the Company spent $0.8 million to purchase fixed assets.

As of June 30, 2010, our principal sources of liquidity included cash and cash equivalents of $3.6 million and trade accounts receivable of $2.1 million. On July 29, 2010, the Company entered into an agreement with a U.S. bank to provide for a short-term credit facility of $2 million, bearing an interest rate of the London Interbank Offered Rate (“LIBOR”) plus 2.5%, repayable in full on or before October 1, 2010. As of August 13, 2010, the Company has not drawn upon this credit facility. The credit facility is expected to be used for general working capital purposes. Additionally, the Company anticipates closing a $10 million private placement during the end of the third quarter or beginning of the fourth quarter of 2010 (see “Recent Developments”). 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 the Company has sufficient liquidity to meet its working capital and capital expenditure requirements for the next twelve months.

At June 30, 2010, approximately 36% of our cash and cash equivalents were held in bank accounts with a U.S. bank that received an A- rating by Standard and Poors and an A2 rating by Moody’s and 42% of our cash and cash equivalents were held in bank accounts with two of the top five Canadian commercial banks. The Company believes that these U.S. and Canadian financial institutions are secure notwithstanding the current global economy and that we will be able to access the remaining balance of bank deposits as these deposits are with large reputable banks. 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.

The Company’s business is still in its early stages, with only a few years of operating history. From the Company’s inception, it has incurred substantial net losses and has an accumulated deficit of $53.0 million; management expects these losses to continue in the short term. The Company continues to review its operating structure to maximize revenue opportunity, 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 we will have sufficient cash 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 the Company’s delivery infrastructure and office facilities. Cash from operations could be affected by various risks and uncertainties, including, but not limited to, the risks detailed herein or incorporated by reference in our Annual Report in the section titled “Risk Factors.” 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 cash flows.

Working Capital Requirements

The net working capital at June 30, 2010 was a deficit of $5.0 million, a decrease of $6.0 million from the December 31, 2009 net working capital of $1.0 million. Included in current liabilities at June 30, 2010 and December 31, 2009 is approximately $3.5 million and $5.3 million, respectively, of liabilities (derivative liability and deferred revenue), that the Company does not anticipate to settle in cash. Excluding these liabilities, the Company’s working capital ratio at June 30, 2010 and December 31, 2009 is 0.84 and 1.54, respectively.

The decreased working capital is primarily due to a decrease in cash and cash equivalents of $9.4 million which includes a decrease in accounts payable of $2.2 million and a decrease in the derivative liability of $1.3 million (which is a non-cash liability).

Current assets at June 30, 2010 were $7.7 million, a decrease of $10.1 million from the December 31, 2009 balance of $17.8 million. The change is primarily due to a decrease in our cash and cash equivalents of $9.4 million.

Current liabilities at June 30, 2010 were $12.7 million, a decrease of $4.1 million from the December 31, 2009 balance of $16.8 million. The change is primarily due to a decrease in accounts payable of $2.2 million and a decrease in the fair value of the derivative liability of $1.3 million (which is a non-cash liability).

Cash Flows

Summary Balance Sheet Data:

	June 30,		December 31,
	2010		2009
		$		$
Current Assets
Cash and cash equivalents		3,571,203		12,957,679
Accounts receivable, net		2,053,785		1,809,147
Other receivables		702,426		857,168
Inventory		440,429		928,592
Prepaid expenses and deposits		838,507		966,101
Due from related parties		98,744		246,992
Total current assets		7,705,094		17,765,679

Current Liabilities
Accounts payable		3,234,334		5,383,518
Accrued liabilities		5,751,732		5,822,385
Derivative liability		70,400		1,389,300
Due to related parties		224,111		298,595
Deferred revenue		3,432,937		3,907,510
Total current liabilities		12,713,514		16,801,308

Working capital ratio		0.61		1.06

Comparative Summarized Cash Flows

	Three months ended						Six months ended
	June 30,						June 30,
	2010			2009			2010			2009
		$		$				$			$

Cash used in operating activities		(3,718,391	)		(3,751,902	)		(8,594,499	)		(9,124,651	)
Cash used in investing activities		(525,847	)		(149,437	)		(824,132	)		(531,841	)
Cash provided by financing activities		24,958			67,000			32,155			67,000

Operating activities

Cash used in operating activities for the six months ended June 30, 2010 was $8.6 million. Changes in net cash used in operating activities reflect the net loss of $9.2 million for the period, less:

·	non-cash items in the amount of $2.8 million, which relates to stock-based compensation, depreciation and amortization and unrealized gain on derivative; and

·	changes in operating assets and liabilities of $2.2 million.

Investing activities

Cash used in investing activities for the six months ended June 30, 2010 was $0.8 million. These funds were used to purchase fixed assets.

Financing activities

Cash provided by financing activities was a nominal amount for the six months ended June 30, 2010. The funds were received from stock option exercises.

Off Balance Sheet Arrangements

The Company did not have any off balance sheet arrangements as of June 30, 2010.

Financial Instruments

The Company’s financial instruments are comprised of cash and cash equivalents, accounts receivable, other receivables, deposits, accounts payable, accrued liabilities, amounts due to/from related parties, and deferred revenue.

Fair value of financial instruments

Fair value of a financial instrument is defined as the amount for which the instrument could be exchanged in a current transaction between willing parties. The estimated fair value of the Company’s financial instruments approximates their carrying value due to the short maturity term of these financial instruments.

Risks associated with financial instruments

Foreign exchange risk

The Company is exposed to foreign exchange risk as a result of transactions in currencies other than its functional currency of the United States dollar. The majority of the Company’s revenues are transacted in U.S. dollars, whereas a portion of its expenses are transacted in U.S. or Canadian dollars. The Company does not use derivative instruments to hedge against foreign exchange risk.

Interest rate risk

The Company is exposed to interest rate risk on its invested cash and cash equivalents and its short-term investments. The interest rates on these instruments are based on the bank's rate and therefore are subject to change with the market. The Company does not use derivative financial instruments to reduce its interest rate risk.

Credit risk

The Company sells its services to a variety of customers under various payment terms and therefore is exposed to credit risk. The Company has adopted policies and procedures designed to limit this risk. The maximum exposure to credit risk at the reporting date is the carrying value of receivables. The Company establishes an allowance for doubtful accounts that represents its estimate of incurred losses in respect of accounts receivable.

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:

TransVideo International Ltd. (“TransVideo”)

KyLinTV, Inc. (“KyLinTV”)

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

The Company provides IT-related professional 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”)

Patstar, Inc. (“Patstar”)

Hawaii IPTV, LLC (“Hawaii”)

The Company had as an IPTV customer Hawaii, whose principals are family members of the Chairman of the Board of Directors of the Company. Hawaii ceased operations during the third quarter of 2009.

The 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 periods presented as follows:

	Three months				Six months
	ended				ended
	June 30,				June 30,
	2010		2009		2010		2009
		$		$		$		$

New York Islanders		140,506		151,976		237,485		211,976
Renaissance		30,000		30,000		60,000		60,000
Smile Train		27,000		54,000		54,000		54,000
Hawaii		—		15,017		—		31,488
KyLinTV		490,290		485,915		967,503		887,400
		687,796		736,908		1,318,988		1,244,864

As at June 30, 2010 and December 31, 2009, the amounts due from (to) related parties are as follows:

	June 30,			December 31,
	2010			2009
		$			$

Renaissance		(70,963	)		—
New York Islanders		31,510			(304	)
TransVideo		(153,148	)		(298,291	)
KyLinTV		67,234			246,992
		(125,367	)		(51,603	)

Investment in affiliate – KyLinTV

The Company records its investment in KyLinTV using the equity method.

The results of operations and financial position of the Company's equity basis investment in KyLinTV are summarized below for the periods presented below:

	Three months						Six months
	ended						ended
	June 30,						June 30,
	2010			2009			2010			2009
		$			$			$			$

Condensed income statement information:
Net sales		2,228,120			2,000,681			4,457,198			3,955,764
Net loss		(1,576,072	)		(1,499,109	)		(3,438,369	)		(2,979,890	)

	June 30,		December 31,
	2010		2009
		$		$

Condensed balance sheet information:
Current assets		9,143,052		1,924,891
Non-current assets		827,671		913,977
Total assets		9,970,723		2,838,868
Current liabilities		6,020,139		15,168,149
Equity (deficiency)		3,950,584		(12,329,281	)
Total liabilities and equity		9,970,723		2,838,868

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

OUTSTANDING SHARE DATA

The Company had total Shares outstanding as at August 12, 2010 of 116,980,017. In addition, as at such date the Company had 34,076,000 outstanding options, SARs, restricted share units, warrants and retention warrants, which are each exchangeable for one Share upon exercise.

DISCLOSURE CONTROLS AND CONTROLS OVER FINANCIAL REPORTING

Evaluation of Disclosure Controls and Procedures

The Company maintains appropriate disclosure controls and procedures and internal controls over financial reporting (each as defined in National Instrument 52-109, Certification of Disclosure in Issuers' Annual and Interim Filings (“NI 52-109”), of the Canadian Securities Administrators) to ensure that information disclosed externally is complete, reliable and timely. The Company's Chief Executive Officer and Chief Financial Officer evaluated, or caused an evaluation under their direct supervision of, the design and operating effectiveness of the Company's disclosure controls and procedures (“DC&P”) and internal controls over financial reporting (“ICFR”) as at June 30, 2010, and have concluded that such DC&P and ICFR were appropriately designed and were operating effectively, except as outlined below. See “Limitation on Scope of Design” below.

Limitation on Scope of Design

We have limited the scope of design of our internal controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures of INSINC, which we acquired effective October 31, 2009. The chart below presents the summary financial information of INSINC.

Balance Sheet Data:		Income Statement Data:
	June 30,		Three months ended,		Six months ended,
	2010		June 30, 2010		June 30, 2010
	$		$		$
Current assets	704,547	Total revenue	723,844		1,599,618
Long-term assets	185,633	Total cost of revenue	239,801		609,121
Current liabilities	891,467	Net loss for the period	(39,918	)	(35,156	)
Long-term liabilities	49,284

The scope limitation is in accordance with section 3.3(1)(b) of NI 52-109 to which this MD&A relates, which allows an issuer to limit its design of DC&P and ICFR to exclude controls, policies and procedures of a business that the issuer acquired not more than 365 days prior to the end of the fiscal period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

The Company’s principal executive officer and principal financial officer, with the assistance of other members of the Company’s management, have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon such evaluation, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this quarterly report.

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, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

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

1. On April 16, 2010, a former employee of the Company residing within the United States exercised 11,666 stock options to purchase 11,666 Shares, with an exercise price of $0.47 per Share, for aggregate gross proceeds to the Company of $5,483. The Company offered and sold the Shares in reliance on the exemption from the registration requirements of the Securities Act, of 1933 as amended (“Securities Act”) afforded by Rule 701 promulgated thereunder.

2. On April 29, 2010, two former employees of the Company residing within the United States exercised 36,250 stock options to purchase 36,250 Shares, with an exercise price of $0.47 per Share for 17,500 Shares and an exercise price of $0.60 per Share for 18,750 Shares, for aggregate gross proceeds to the Company of $19,476. The Company offered and sold the Shares in reliance on the exemption from the registration requirements of the Securities Act afforded by Rule 701 promulgated thereunder.

3. On June 29, 2010, the Company issued Shares, without registration under the Securities Act, to non-management directors in payment pursuant to the Company’s Directors’ Compensation Plan of their semi-annual directors’ fees for the six-month period ended June 30, 2010 in the following aggregate amounts:

John R. Anderson	24,519
Gabriel A. Battista	20,192
Shirley Strum Kenny	52,885
David Kronfeld	50,962
Charles B. Wang	30,769
Total	179,327

The aggregate value of the 179,327 Shares issued to Dr. Kenny and Messrs. Anderson, Battista, Kronfeld and Wang was $93,250 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.

4. Between April 1, 2010 and June 30, 2010, the Company issued 624 Shares to a former consultant upon vesting of certain restricted share units issued pursuant to the Company’s Restricted Share Plan. The aggregate value attributable to such Shares was $317. The Company issued the Shares to the former consultant residing within the United States in reliance on the exemption from the registration of the Securities Act afforded by Rule 701 promulgated thereunder.

Item 6. Exhibits.

The exhibits listed on the Exhibit Index are filed as part of this report.

EXHIBIT INDEX

Exhibit No.		Description
10.1 #		Second Amended and Restated Stock Option Plan, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 5, 2010)

10.2 #		2006 Stock Appreciation Rights Plan, as amended (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 5, 2010)

10.3 #		Amended and Restated Retention Warrants Plan, as amended (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 5, 2010)

10.4 #		Restricted Share Plan, as amended (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 5, 2010)

10.5		Amendment to that Certain “Contract for Services” Agreement dated June 22, 2007 by and between Sky Angel U.S. LLC and NeuLion, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on July 2, 2010)

31.1	*	Certification of principal executive officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)

31.2	*	Certification of principal financial officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)

32	*	Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the principal executive officer of the Company and the principal financial officer of the Company

______________________

*Filed herewith

# Management contract or compensatory plan or arrangement

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: August 13, 2010	/s/ Nancy Li
	Name: Nancy Li
	Title: Chief Executive Officer



Date: August 13, 2010	/s/ Arthur J. McCarthy
	Name: Arthur J. McCarthy
	Title: Chief Financial Officer

Attached files

NEULION, INC. Reports

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