Narrowstep, Inc - Basis of Presentation. Throughout this...

Narrowstep, Inc - Recent Material Event

Item 1 - Financial Statements

NARROWSTEP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
	November 30, 2007	February 28, 2007
	(Unaudited)
	$	$
Assets
Current assets:
Cash and cash equivalents	6,558,875	466,870
Accounts receivable, net of allowance for doubtful accounts	1,261,836	1,403,779
of $1,344,892 and $940,534, respectively
Prepaid expenses and other current assets	458,308	332,192
Total current assets	8,279,019	2,202,841
Property and equipment, net	3,118,601	1,234,557
Software development costs, net	508,213	149,080
Restricted cash – security deposit	281,790	-
Total Assets	12,187,623	3,586,478

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Unearned revenue	158,070	384,295
Accounts payable	675,367	960,580
Net obligations under capital leases, current	162,320	88,110
Accrued expenses and other current liabilities	901,573	977,948
Total current liabilities	1,897,330	2,410,933
Net obligations under capital leases, long-term	186,246	135,470
Other long term liabilities	6,237	-
Total Liabilities	2,089,813	2,546,403
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.000001 par value 450,000,000 shares authorized,	125	45
124,944,487 issued and outstanding at November 30, 2007 and
45,348,974 issued and outstanding at February 28, 2007
Additional paid-in capital	40,449,648	20,543,688
Accumulated deficit	( 30,529,123)	( 19,555,533)
Accumulated other comprehensive income	177,160	51,875
Total Stockholders' Equity	10,097,810	1,040,075
Total Liabilities and Stockholders' Equity	12,187,623	3,586,478

See Notes to Condensed Consolidated Financial Statements.

NARROWSTEP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (Unaudited)
	Three Months Ended		Nine Months Ended
	November 30, 2007	November 30, 2006	November 30, 2007	November 30, 2006
	$	$	$	$
Revenue
Narrowcasting and other	1,735,539	1,163,968	4,294,654	3,042,461
Production services	(20,828)	485,617	296,707	1,320,014
Total revenue	1,714,711	1,649,585	4,591,361	4,362,475
Costs and Expenses
Operating	1,516,689	713,176	4,104,004	1,846,479
Selling, general and administrative	2,322,616	2,161,159	8,417,442	5,742,409
Research & development	716,406	270,533	2,298,454	810,683
Total operating expenses	4,555,711	3,144,868	14,819,900	8,399,571
Operating Loss	(2,841,000)	(1,495,283)	(10,228,539)	(4,037,096)
Interest income (expense), net	54,674	23,005	(724,249)	108,270
Currency exchange income (loss)	(4,864)	(5,126)	(20,803)	(3,970)
Net Loss	(2,791,190)	(1,477,404)	(10,973,591)	(3,932,796)
Foreign currency translation adjustment	88,850	47,143	125,285	90,126
Comprehensive Loss	(2,702,340)	(1,430,261)	(10,848,306)	(3,842,670)

Net Loss per Common Share - Basic and Diluted	(0.02)	(0.03)	(0.14)	(0.09)
Weighted-Average Number of Shares Outstanding, Basic and Diluted	125,033,232	45,248,974	79,247,649	45,214,292

See Notes to Condensed Consolidated Financial Statements.

NARROWSTEP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	Nine Months Ended
	November 30, 2007	November 30, 2006
	$	$
Cash Flows from Operating Activities
Net loss	( 10,973,591)	( 3,932,796)
Adjustments to reconcile net loss to net cash used in operating activities:
Allowance for doubtful accounts	404,358	188,975
Depreciation and amortization	676,603	407,647
Stock-based compensation expense	2,165,658	968,992
Interest on short-term investment	-	( 57,609)
Fair value of options and warrants granted to third party suppliers	19,625	-
Interest on debt issuance	853,200	-
Changes in net cash attributable to changes in operating assets and liabilities:
Accounts receivable	( 262,415)	( 1,154,574)
Prepaid expenses and other current assets	( 126,116)	( 156,073)
Unearned revenue	( 226,225)	101,575
Accounts payable, accrued expenses and other current liabilities	( 355,351)	166,188
Net Cash Used in Operating Activities	( 7,824,254)	( 3,467,675)
Cash Flows from Investing Activities
Purchases of property and equipment	( 2,177,084)	( 808,131)
Purchases of restricted cash-security deposit	( 281,790)	-
Payments for software development costs	( 435,688)	( 116,406)
Proceeds from short-term investments	-	2,557,609
Net Cash Provided by (Used in) Investing Activities	( 2,894,562)	1,633,072
Cash Flows from Financing Activities
Net proceeds from issuance of common stock	10,094,920	1,363,333
Proceeds from exercise of stock options and warrants	-	6,250
Retirement of Narrowstep shares	( 177,491)	-
Payments on capital leases	( 71,716)	( 54,755)
Net proceeds from issuance of debt instrument	6,950,130	-
Net Cash Provided by Financing Activities	16,795,843	1,314,828
Net Increase (Decrease) in Cash and Cash Equivalents	6,077,027	( 519,775)
Effect of exchange rates on change in cash	14,978	42,450
Cash and cash equivalents at the beginning of period	466,870	2,232,854
Cash and Cash Equivalents at the End of the Period	6,558,875