<PAGE>

================================================================================
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(MARK ONE)

|X| ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934

                   FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2007

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934

            FOR THE TRANSITION PERIOD FROM__________________TO_________________

                         COMMISSION FILE NO. 333-108632

                                 NARROWSTEP INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

            DELAWARE                                         33-1010941
 (STATE OR OTHER JURISDICTION OF                          (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                         IDENTIFICATION NO.)

                        116 VILLAGE BOULEVARD, SUITE 200
                           PRINCETON, NEW JERSEY 08540
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (609) 951-2221
                           (ISSUER'S TELEPHONE NUMBER)


       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE

       SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT: NONE



Check whether the issuer is not required to file reports pursuant to Section 13
of 15(d) of the Exchange Act. [ ]

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

Indicate by check mark whether the issuer is a shell company (as defined under
Rule 12b-2 of the Exchange Act). Yes [ ] No |X|

Issuer's revenues for the year ended February 28, 2007:    $6,008,835

The aggregate market value of the Common Stock of the issuer held by
non-affiliates of the issuer on May 15, 2007, based on the average of the
closing bid and asked price of the issuer's Common Stock on such date as
reported on the OTC Bulletin Board, was $0.60

At May 15, 2007, 45,348,974 shares of the issuer's Common Stock, par value
$0.000001 per share, were outstanding.

Transitional Small Business Disclosure Format:    Yes  [ ]    No  |X|
================================================================================

<PAGE>



                                 NARROWSTEP INC.
                                   FORM 10-KSB
                   FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2007

                                TABLE OF CONTENTS



PART I                                                                    Page #

Item 1.     Description of Business.......................................     4
Item 1A.    Risk Factors..................................................    10
Item 2.     Properties....................................................    14
Item 3.     Legal Proceedings ............................................    14
Item 4.     Submission of Matters to a Vote of Security Holders...........    14

PART II

Item 5.     Market for Common Equity and Related Stockholder Matters......    14
Item 6.     Management's Discussion and Analysis or Plan of Operation.....    15
Item 7.     Financial Statements..........................................    21
Item 8.     Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosures                              21
Item 8A.    Controls and Procedures.......................................    21
Item 8B.    Other Information.............................................    22

PART III

Item 9.     Directors, Executives Officers, Promoter and Control Persons..    22
Item 10.    Executive Compensation........................................    24
Item 11.    Security Ownership of Certain Beneficial Owners and
            Management and Related Stockholder Matters....................    28
Item 12.    Certain Relationships and Related Transactions................    30
Item 13.    Exhibits......................................................    31
Item 14.    Principal Accountant Fees and Services........................    33


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              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements. Any and all statements
contained in this report that are not statements of historical fact may be
deemed forward-looking statements. Terms such as "may," "might," "would,"
"should," "could," "project," "estimate," "pro forma," "predict," "potential,"
"strategy," "anticipate," "attempt," "develop," "plan," "help," "believe,"
"continue," "intend," "expect," "future," and similar terms and terms of similar
import (including the negative of any of the foregoing) may be intended to
identify forward-looking statements. However, not all forward-looking statements
may contain one or more of these identifying terms. Forward-looking statements
in this report may include, without limitation, statements regarding (i) a
projection of revenues, income (including income/loss), earnings (including
earnings/loss) per share, capital expenditures, dividends, capital structure, or
other financial items, (ii) the plans and objectives of management for future
operations, including plans or objectives relating to our products or services,
(iii) our future financial performance, including any such statement contained
in a discussion and analysis of financial condition by management or in the
results of operations included pursuant to the rules and regulations of the
Securities and Exchange Commission, and (iv) the assumptions underlying or
relating to any statement described in subparagraphs (i), (ii), or (iii).

The forward-looking statements are not meant to predict or guarantee actual
results, performance, events, or circumstances and may not be realized because
they are based upon our current projections, plans, objectives, beliefs,
expectations, estimates, and assumptions and are subject to a number of risks
and uncertainties and other influences, many of which we have no control over.
Actual results and the timing of certain events and circumstances may differ
materially from those described by the forward-looking statements as a result of
these risks and uncertainties. Factors that may influence or contribute to the
inaccuracy of the forward-looking statements or cause actual results to differ
materially from expected or desired results may include, without limitation,
inability to obtain adequate financing, insufficient cash flows and resulting
illiquidity, dependence upon significant customers, inability to expand our
business, government regulations, increased competition, changing customer
preferences, stock illiquidity, failure to implement our business plans or
strategies, and ineffectiveness of our marketing program and our acquisition
opportunities. A description of some of the risks and uncertainties that could
cause our actual results to differ materially from those described by the
forward-looking statements in this report appears under the caption
"Management's Discussion and Analysis or Plan of Operation--Risk Factors" and
elsewhere in this report.

Because of the risks and uncertainties related to these factors and the
forward-looking statements, readers of this report are cautioned not to place
undue reliance on the forward-looking statements. We disclaim any obligation to
update these forward-looking statements or to announce publicly the results of
any revisions to any of the forward-looking statements contained in this report
to reflect any new information or future events or circumstances or otherwise
unless required to do so under applicable federal securities laws.

Readers should read this report and the following discussion and analysis in
conjunction with the discussion under the caption "Item 1A--Risk Factors" in
this report, our financial statements and the related notes thereto in this
report, and other documents we file from time to time with the Securities and
Exchange Commission.



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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

GENERAL

Narrowstep is a pioneer in the field of internet-based video content delivery.
Our objective is to provide world class tools to content owners, best of breed
tools to the internet television viewer, and to move video around the globe
efficiently and effectively utilizing our own content delivery network. Our
proprietary operating system, which we have termed the Television Operating
System - TelvOS, provides comprehensive delivery of video content and
television-like programming to mobile, wireless, internet, broadband and
broadcast services. Our system provides a platform to enable owners and users of
video content to reach specific audiences by "narrowcasting" - targeting
delivery of specific content to interested groups. Narrowcasting provides new
business opportunities for content providers to build commercial channels by
creating a new model for delivering content. In addition to enabling delivery of
content, the Narrowstep platform enables our clients to commercialize
video-based content. This can be achieved through directed advertising,
sponsorship, pay-per-view, subscription, and/or e-commerce.

MARKET OVERVIEW

We believe the media industry is in the process of a fundamental transformation.
The delivery of video content, which previously has been dominated by
terrestrial and satellite cable delivery systems, and national and cable
broadcasters, is facing many of the same changes that publishing faced in the
1980s - desktop video, lower production costs and easier distribution are
changing the marketplace just as desktop publishing changed the publishing world
forever.

Traditional distribution of video content on terrestrial bands, satellite and
cable is now augmented by broadband distribution on the internet. This model may
fragment further as wireless and mobile networks provide newer and more
efficient distribution for video content through the delivery of television
signals over internet protocol or TV over IP. Our goal is to establish our
platform as the de facto standard for building TV over IP channels and
delivering video content over broadband, mobile and wireless networks.

We believe that the delivery of video content over the internet is an effective
means of providing entertainment and information and has a multitude of
applications. Internet-based distribution of video content creates possibilities
for directed programming not usually feasible in traditional broadcasting.
Narrowcasting describes a field that is evolving due to a number of factors
which we believe are changing the traditional broadcast model:

        o       NEW TECHNOLOGY. The internet and mobile communications are two
                media that have taken market share from traditional TV viewing
                in recent years. Increasingly, video content is being made
                available over these media.

        o       PROLIFERATION OF CHANNELS. Content owners are able to access
                viewers through distribution on cable, satellite and digital
                services. The number of traditional channels has increased
                markedly over the last 20 years as these distribution media have
                been exploited. The internet offers a further distribution
                medium with launch costs significantly lower than for a new
                cable or satellite channel.

        o       TARGETED MARKETING. We believe that marketers are looking beyond
                broadcasting's focus on broad, mass markets and that content
                providers and advertisers are increasingly seeking to
                differentiate and target specific markets.

Narrowstep was formed to provide content delivery solutions for targeted video
programming through an internet-based delivery solution. Traditional delivery of
video content is largely achieved through the transmission of content over mass
market media such as terrestrial transmission, satellite and cable systems based
on a "play once, view anywhere" model. Traditional broadcasting relies on diary
entries made by small samplings of viewers in order to gauge viewing habits and
trends. These entries are then compiled into viewing surveys by market research
agencies such as Nielson and BARB in an effort to extrapolate audience
measurement and viewing trends among various populations. These technologies and
the commercial model which pays for the deployment of traditional television
stations require the delivery of mass market audiences, since advertisers pay
for audience delivery.

Using internet protocol technology and our content delivery solutions, it is
possible to identify all individual viewers of content by location, using their
internet addresses, and by subject interest, by recording the viewer's viewing
habits. In addition, it is also possible to require a viewer to register and
provide additional detail in order to access content. As a result, content
providers can target delivery of video content to specific individuals or groups
of individuals. Since the internet is available globally, unlike most
traditional broadcasting mechanisms which are generally limited to geographical
regions, targeted audiences can also be aggregated across the world providing a
means of grouping a desired audience in sufficient numbers to make directed
content economically viable.


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Narrowstep's primary marketplace is in the delivery of broadband TV over IP.
Broadband is experiencing explosive growth. More than two-thirds of all active
U.S. Web users connect via broadband, according to February 2006 data from
Nielsen/NetRatings.

We believe that the provision of broadband content will be a fast-growth market
in media and technology. In addition, other network delivery systems such as
wireless and mobile will also provide considerable market opportunities beyond
the growth of broadband, providing longevity to our plans and business model.
The increasing availability of bandwidth, combined with the significantly
cheaper costs of internet transmission as compared with traditional satellite
and cable televisions, as well as the potential to reach a greater number of
viewers due to its global accessibility, are creating a market for
internet-based video content which we believe is attractive to content
providers, channel producers, and advertisers.

PRODUCTS AND SERVICES

We provide a range of products and services based on our core technology
platform, TelvOS. This is a comprehensive video and audio management and
play-out system. It facilitates making video and audio content available as a
live stream, distributing images of live events over the network; as highlights,
or video on demand; as searchable content from an archive; and as a 24 x 7
stream, like television. A video stream is not downloaded to the viewer's
computer; rather it is made available as a continuously playing service, similar
to traditional broadcast television. Additionally, video can be offered for
download with integrated digital rights management.

From the TelvOS platform, content can be made available to the internet,
broadband services, cable and satellite, mobile networks, wireless systems, and
to digital signage, point of sale and point of information displays. All
elements can be controlled in real time from a web-based interface. The service
can be commercialized using pay-per-view, subscription, content syndication,
advertising, sponsorship and e-commerce functions, and can be controlled and
changed in real time. It also provides full real time monitoring and statistical
feedback to the channel operator.

The Narrowstep family of products and services consists of the following:

TELVOS - CORE SYSTEM
        The TelvOS core system is a complete platform for the management and
        play-out of rich media over the Internet and other IP networks. The
        TelvOS Core System includes a content management system to manage,
        search, and publish rich media assets. Content can be uploaded
        automatically or manually in any common computer audio, video or
        streaming format and then managed with full metadata support. Metadata
        provides detailed descriptions of the content and attaches details such
        as the length, category and copyright owner. Channel owners can create
        video sequences for play-out including advertising, station
        identifications and content trailers, along with the programming
        content. The content can be made available to viewers as a live, `as it
        happens' service; as video on demand; via an archive and search
        function; and as scheduled programming streams in the Narrowstep Player.
        The TelvOS cores system features control over in which territories the
        content is made available provides full security and digital rights
        management control and can include advertising and sponsorship support,
        along with pay-per-view and subscription payment packages. Once
        prepared, the content can be made available to mobile, wireless,
        broadband and broadcast networks. This system enables customers to build
        and manage video channels over multiple media outlets. The TelvOS Core
        System provides detailed statistics on all elements of the system's
        performance, from the number of unique viewers to the length of time the
        channel was watched and the number of advertisements delivered.

        TelvOS provides clients with a complete suite of content management
        tools. Content can be uploaded automatically or manually in any common
        computer audio, video or streaming format and then managed with full
        metadata support. A statistics function delivers real time intelligence
        on the number of viewers, data transferred and even the proportion of
        the data viewed or listened to. In addition, a detailed search engine
        supports the retrieval of content from the archive. TelvOS also allows
        clients to determine how and when to make the content available to
        viewers. Our technology enables clients to control where the content is
        available, provides full security and digital rights management control
        and can include advertising and sponsorship support, along with
        pay-per-view, subscription and microcharging options. Clients can use
        TelvOS to make video and audio content available as a live stream, to
        distribute live event coverage, to play highlights, to provide video on
        demand; to enable viewers to obtain searchable content from an archive;
        and to provide continuous play video 24 hours per day, similar to
        broadcast and cable television.

        Our system enables clients to fully commercialize broadband video
        distribution by providing complete control and management of advertising
        content. With TelvOS, clients can upload, store and manage
        advertisements, infomercials and sponsored programs. Advertising
        campaigns can be constructed in real time by defining the required
        profile of the target audience and selecting how many views of the
        advertisement - called ad impressions - are desired by the advertiser.
        Advertisements are then automatically played out to any viewer matching
        this profile. Where there are more ads than advertising slots, the
        advertiser can bid for the slot, and the highest paying advertisement
        will be played out by default.


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<PAGE>


        The Narrowstep Player provides the graphic user interface for viewers to
        access and control content from TelvOS and is not marketed as a separate
        product. During a viewer's initial connection, the Narrowstep Player
        automatically runs a bandwidth check to detect the viewer's connection,
        device and platform and then provides the content in a format and size,
        and at a data rate most appropriate for the viewer. The Narrowstep
        Player then provides the viewer with controls over the video content
        being displayed, including the ability to select between live content,
        scheduled content, on demand content and content in the video or audio
        archive. Where a pay-per-view or subscription model is deployed the
        Narrowstep Player enables the viewer to pay for the content. Narrowstep
        Players can be embedded into an existing website or application, thus
        extending the reach of the channel through third party web site
        syndication.

ADSERVER
        AdServer is an online system that enables the commercialization of
        broadband video distribution by providing complete control and
        management of advertising content. Using adServer, clients can upload,
        store and manage advertisements, infomercials and sponsored programs.
        Advertising campaigns can be constructed in real time by defining the
        required profile of the target audience and selecting how many views of
        the advertisement - called ad impressions - are desired by the
        advertiser as well as bidding terms. Advertisements are then
        automatically played out matching the viewer profile to the available
        campaigns while maximizing the advertising revenue for the channel.

PAYGATE
        PayGate is an interface between the TelvOS platform and payment
        gateways, such as PayPal and Cybersource. Any item on the platform, such
        as an on-demand video or a channel can have a payment rule attached to
        it which requires the viewer to pay before they can view or access the
        content. PayGate supports single and recurring transactions for pay per
        view and subscription business models. All transactions are captured and
        reported for each channel. Sensitive payment details are not stored, but
        are forwarded to a payment service provider (PSP) for processing.

NCODER
        NCoder is an encoding hardware solution that provides direct encoding
        capability for video content and attaches to a client's edit machine or
        network. Video files are placed in an upload file folder on the nCoder
        by the client and the files are compressed into all the selected
        formats, sizes and data rates required and then uploaded into the
        client's TelvOS account. The nCoder is offered in 2 tiers, nCoder and
        nCoder Pro. The nCoder Pro includes faster encoding up to real time
        feeds in multiple data formats.

DOWNLOADSERVER
        DownloadServer is a product integrated within TelvOS to offer secure
        downloads of any rich media. Multiple files or file formats can be
        bundled into a download pack and secured with Microsoft digital rights
        management (DRM). Channel owners can configure the license terms of the
        DRM of the download pack and payment rules such as pay per download and
        subscription access.

We also provide a full range of services complementary to our technology
platform, including:

        CHANNEL AND PLAYER SET UP. We use our core technology to establish
        internet channels and customized players for clients according to their
        specifications which then operate under a license arrangement. Player
        customization can be ongoing work through the life of the channel,
        because an Internet TV channel, like any website, is constantly being
        updated and improved.

        PRODUCTION SERVICES. We provide a full range of production services for
        our clients, focusing on high quality content encoding, ingestion into
        TelvOS, metadata entry, support for live streaming, and pre-production
        and production services.

        CONSULTING SERVICES. We provide a variety of additional consulting and
        management services. These vary depending upon client needs and include
        such things as advice on advertising and distribution strategies,
        technology integration services, digital media, content acquisition, and
        providing advertising for content through arrangements with advertisers.

        CUSTOMER SERVICE & SUPPORT: For our Internet TV channels, we provide
        24x7 email and phone support as it pertains to the TelvOS System


NARROWSTEP'S CONTENT DELIVERY NETWORK (CDN)

Our platform is generally deployed under an application service provider model.
Clients and partners are provided with logins and we control the applications
and the platform they run on. The Narrowstep platform and all Narrowstep
products are operated on our


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servers; under certain circumstances, we will install a copy of the server
within a client's network. This is most likely to happen with internet service
providers and telecom partners.

Our technology has been designed and engineered to be scalable and replicable.
When a client uploads a file to any Narrowstep server, this file is replicated
to every server on the network, unless otherwise configured. Our network is
currently capable of handling approximately 5,000 simultaneous users. We are
currently in the process of upgrading our CDN to increase the amount of
simultaneous users to 10,000.

We operate our core technology platform on top of our content delivery network
or "CDN", which is hosted by some of the world's leading internet service
providers. We have points of presence or "POP" locations with each of Teleglobe
and Interoute in London and Interoute in New York. More recently, we added a
network within the network of Telewest Communications, one of only two cable
operators in the United Kingdom, to deliver services to their cable modem IP
service, blueyonder. We plan to continue investing in our own CDN which we
believe will be cost effective and give us the ability to deliver the highest
quality video to our end users.

SALES AND MARKETING

To date, we have sold and marketed our services largely through direct
approaches to potential clients. More recently many sales leads have been
generated by word of mouth, via our web site and by attending and presenting at
various industry trade shows. As of February 28, 2007, we had 16 full-time sales
and marketing employees.

We have also established partnering or reseller arrangements with third parties
under which we have agreed to pay our partners a portion of the revenues they
generate in reselling our products. Under these arrangements partners are
entitled to receive commissions of between 10% and 30% for work resulting from
introductions and are expected to continue to provide related supporting
services. We believe these arrangements will enable us to enter specialized and
more diverse geographical markets than we might otherwise be able to penetrate
using solely our own sales efforts. We intend to continue to update our support
arrangements, training and promotional materials to provide additional support
for our partners.

We plan to continue expanding our sales and marketing activities, including
hiring additional employees for our sales and marketing efforts and developing
marketing programs, trade show participation and speaking engagements. We plan
to concentrate primarily on the following marketing techniques in the coming
year:

        o       Direct sales - by our in-house sales team;
        o       Channel sales - building a network of resellers for our
                products;
        o       Public relations - attracting increased media coverage for our
                business;
        o       Trade shows - exhibiting at key trade shows in Europe and the
                United States; and
        o       Marketing materials - updating our literature, website and
                general marketing materials to more effectively promote our
                business, products and services.

CLIENTS

Many of our customers are producers, owners of content or have rights to
content. Many of these customers use our solutions to address a specific niche
in the marketplace. Some examples of these niche areas are faith based channels,
Travel channels, and extreme sports. We also have customers that are cable
operators that have also launched channels on the web and are using our services
to broadcast and manage their content. In addition, we provide production
services for various content owners or companies that have rights to film a
sporting event.

COMPETITION

The internet video distribution market is highly competitive and subject to
changing technology and market dynamics. We believe the principal competitive
factors in our market include:

        o       ability to provide a complete solution;
        o       content management capabilities;
        o       enabling clients to monetize content;
        o       quality of video stream; and
        o       service reliability.


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We believe we compete effectively in all of these areas. TelvOS enables us to
provide clients with a user friendly complete end-to-end content management and
delivery system whereas many of our competitors specialize on only one
particular part of the video delivery process. For example, certain of our
competitors focus on player design and build but do not provide tools for the
direct control of content delivery. Others focus on advertising and syndication
without addressing clients' need to manage digital rights, content registration,
and content delivery. In addition to TelvOS, we provide a number of
complementary services, including channel and player set up and customization,
production services and consulting services. These service offerings allow us to
offer complete turn-key solutions to our clients.

We focus primarily on providing clients with the ability to manage and stream
long form video content (longer than 30 minute streams) compared to many of our
competitors who provide short form streaming tools. Although existing technology
can be used to provide both long form and short form streaming capability, the
ability to provide high quality long form content depends primarily on the
reliability of the network used to stream the content and the availability of
sufficient bandwidth. Unlike many of our competitors, who contract with third
parties aggregators, such as Akamai, to carry their video content through shared
networks, we contract directly with network owners to provide dedicated network
availability for the channels we host. In addition, to boost service reliability
we have established a number of points of presence (POPs) on the internet. These
POPs enable us to route content more directly, thereby enhancing the quality and
reliability of our channels.

Many of our competitors have significantly longer operating histories,
significantly greater financial, marketing and other resources, and
significantly greater name recognition than us. In addition, costs of entry are
low and as a result new entrants may enter the market in the future with a
commercial advantage that would undermine our business model. We do not own any
patented technology that precludes or inhibits others from entering our market.
As a result, new entrants pose a threat to our business and we may face further
competition in the future from companies who do not currently offer competitive
services or products.

INTELLECTUAL PROPERTY RIGHTS

Our success is dependent in part upon our proprietary TelvOS system. To date, we
have not filed for any patents or registered copyrights relating to any of our
intellectual property rights.

We currently rely on a combination of trade secret, nondisclosure and other
contractual agreements, as well as existing copyright and trademark laws to
protect our intellectual property. We require all personnel and outside
contractors to execute agreements to keep secret and confidential our
proprietary technology and we have a policy of not providing third parties with
any secret or proprietary information regarding our technology. Since our
technology is centrally controlled by us, no third parties have access to the
systems or source code. We cannot assure stockholders, however, that these
arrangements will be adequate to deter misappropriation of our proprietary
information or that we will be able to detect unauthorized use and take
appropriate steps to enforce our intellectual property rights.

GOVERNMENT REGULATION

Few existing laws or regulations specifically apply to the internet, other than
laws and regulations generally applicable to businesses. Certain U.S. export
controls and import controls of other countries may apply to our products. Many
laws and regulations, however, are pending and may be adopted in the United
States, individual states and local jurisdictions and other countries with
respect to the internet. These laws may relate to many areas that impact our
business, including content issues (such as obscenity, indecency and
defamation), copyright and other intellectual property rights, digital rights
management, encryption, caching of content by server products, personal privacy,
taxation, e-mail, sweepstakes, promotions, network and information security and
the convergence of traditional communication services with internet
communications, including the future availability of broadband transmission
capability and wireless networks. These types of regulations are likely to
differ between countries and other political and geographic divisions. It is
likely that other countries and political organizations will impose or favor
more and different regulation than that which has been proposed in the United
States, thus furthering the complexity of regulation. In addition, state and
local governments may impose regulations in addition to, inconsistent with, or
stricter than federal regulations. The adoption of such laws or regulations, and
uncertainties associated with their validity, interpretation, applicability and
enforcement, may affect the available distribution channels for and costs
associated with our services, and may affect the growth of the internet.
Although Narrowstep is able to control the distribution of content on a
territorial basis, such laws or regulations may harm our business. Our services
may also become subject to investigation and regulation of foreign data
protection and e-commerce authorities, including those in the European Union.
Such activities could result in additional costs for us in order to comply with
such regulation.

Many laws governing issues such as property ownership, copyright, patent and
other intellectual property issues, digital rights management, taxation,
gambling, security, illegal or obscene content, retransmission of media, and
personal privacy and data


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protection apply to the internet. However, the vast majority of such laws were
adopted before the advent of the internet and related technologies and their
applicability to the internet continues to evolve.

In addition to potential legislation from local, state, federal and foreign
governments, labor guild agreements and other laws and regulations that impose
fees, royalties or unanticipated payments regarding the distribution of media
over the internet may directly or indirectly affect our business. While we and
our customers may be directly affected by such agreements, we are not a party to
such agreements and have little ability to influence the degree such agreements
favor or disfavor internet distribution or our business models. Changes to or
the interpretation of these laws and the entry into such industry agreements
could:

        o       limit the growth of the internet;
        o       create uncertainty in the marketplace that could reduce demand
                for our services;
        o       increase our cost of doing business;
        o       expose us to increased litigation risk, substantial defense
                costs and significant liabilities associated with content
                available on our websites or distributed or accessed through our
                services, with our provision of services, and with the features
                or performance of our websites;
        o       lead to increased development costs or otherwise harm our
                business; or
        o       decrease the rate of growth of our user base and limit our
                ability to effectively communicate with and market to our user
                base.

The U.S. Digital Millennium Copyright Act (DMCA) includes statutory licenses for
the performance of sound recordings and for the making of recordings to
facilitate transmissions. Under these statutory licenses, we and third party
channel owners may be required to pay licensing fees for digital sound
recordings we deliver in original and archived programming and through
retransmissions of radio broadcasts. The DMCA does not specify the rate and
terms of the licenses, which are determined by arbitration proceedings, known as
CARP proceedings, supervised by the U.S. Copyright Office. Past CARP proceedings
have resulted in proposed rates for statutory webcasting that were significantly
in excess of rates requested by webcasters. CARP proceedings relating to music
subscription and non-subscription services offering music programming that
qualify for various licenses under U.S. copyright law are pending. We cannot
predict the outcome of these CARP proceedings and may elect instead to directly
license music content for our subscription and/or non-subscription services,
either alone or in concert with other affected companies. Such licenses may only
apply to music performed in the United States, and the availability of
corresponding licenses for international performances is unclear. Therefore, our
ability to find rights holders and negotiate appropriate licenses is uncertain.
We and third party channel owners may be affected by these rates, which may
negatively impact our revenues. Depending on the rates and terms adopted for the
statutory licenses, our business could be harmed both by increasing our own cost
of doing business, as well as by increasing the cost of doing business for third
party channel owners. We anticipate future CARPs relating to music subscription
delivery services, which may also adversely affect the online distribution of
music.

The Child Online Protection Act and the Child Online Privacy Protection Act
impose civil and criminal penalties on persons distributing material harmful to
minors (e.g., obscene material) over the internet to persons under the age of
17, or collecting personal information from children under the age of 13. We do
not knowingly distribute harmful materials to minors or collect personal
information from children under the age of 13. The manner in which these Acts
may be interpreted and enforced cannot be fully determined, and future
legislation similar to these Acts could subject us to potential liability if we
were deemed to be non-compliant with such rules and regulations, which in turn
could harm our business.

There are a large number of legislative proposals before the United States
Congress and various state legislatures regarding intellectual property, digital
rights management, copy protection requirements, privacy, email marketing and
security issues related to our business. It is not possible to predict whether
or when such legislation may be adopted, and certain proposals, if adopted,
could materially and adversely affect our business.


EMPLOYEES

As of February 28, 2007, Narrowstep had a total of 56 employees of whom 21 were
in operations, 16 in sales & marketing, 6 in administration, and 13 in research
& development. To date, Narrowstep has been successful in recruiting and hiring
individuals with the desired skills and experience.

None of Narrowstep's employees are represented by labor unions and Narrowstep
has never experienced a work stoppage. We believe our employee relations are
good.


                                       9
<PAGE>

ITEM 1A.  RISK FACTORS

The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business.

RISKS RELATING TO OUR BUSINESS

WE HAVE A BRIEF OPERATING HISTORY WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS AND PREDICT OUR SUCCESS.

Narrowstep was incorporated as a start-up business on May 9, 2002. As a result,
we have a brief operating history upon which to evaluate our business and
prospects. Our historical results of operations are limited, so they may not
give an accurate indication of our future results of operations or prospects. We
are in an early stage of operations and we face risks and uncertainties relating
to our ability to successfully implement our business strategy. Our prospects
must be considered in light of these risks and the expenses and difficulties
frequently encountered in new and rapidly evolving businesses, such as
internet-based video content. These difficulties can include:

        o       commercializing new technology;
        o       educating the market;
        o       finding early adopters;
        o       getting large customers to try the product;
        o       increasing system capacity;
        o       developing and enhancing software products with limited
                resources;
        o       hiring and maintaining key employees with the correct skills;
        o       the time and effort needed to market the company and products;
        o       building infrastructure to support future growth;
        o       setting up and working effective channels of distribution; and
        o       capital raising to fund operations through to breakeven.

We may not be successful in meeting the challenges we face. If we are unable to
do so, our business will not be successful and the value of our common stock
will decline.

WE HAVE A HISTORY OF LOSSES, ARE NOT CURRENTLY PROFITABLE AND ANTICIPATE FUTURE
LOSSES.

Our operating losses have exceeded our revenue in each quarter since inception.
We had an accumulated deficit of approximately $19.5 million as of February 28,
2007 and $12.5 million for the fiscal year ended February 28, 2006. Although our
revenues have grown significantly since 2002, this growth may not be sustainable
or indicative of future results of operations. We intend to continue to invest
in internal expansion, infrastructure, strategic acquisitions, integration of
any acquired companies into our existing operations, and our sales and marketing
efforts. We cannot be certain when we will operate profitably, if ever.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE
ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD. AS A RESULT,
CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL
REPORTING, WHICH WOULD HARM OUR BUSINESS AND THE PRICE OF OUR STOCK.

Effective internal controls are necessary for us to provide reliable financial
reports and effectively prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, our business and operating results could be harmed. On
May 24, 2007, in connection with its audit of our consolidated financial
statements for the year ended February 28, 2007, Rothstein, Kass & Company,
P.C., our independent registered public accounting firm, informed us and our
audit committee of certain deficiencies in our internal controls over financial
reporting that they considered to be material and non-material weaknesses. The
material weaknesses were as follows:

        o       We did not record the stock-based compensation expense on
                certain stock options, issued to one of our directors, on a
                timely basis. As a result of this, our third quarter interim
                financial statements were misstated.

The non-material weaknesses were as follows:

        o       We did not record a sufficient allowance for bad debts related
                to a customer's accounts receivable balance that was in
                question.

        o       We were recording invoices billed to certain customers in such a
                manner that the result was to recognize revenues on a cash
                basis, which is not in accordance with accounting principals
                generally accepted in the United States.

Inferior internal controls could harm our operating results or cause us to fail
to meet our reporting obligations and could also cause our current and potential
stockholders to lose confidence in our reported financial information, which
could have a negative effect on the price of our stock.

We will take steps to correct the material and non-material weaknesses in our
internal controls identified by Rothstein, Kass & Company, P.C.

WE WILL NEED TO OBTAIN ADDITIONAL CAPITAL IN THE FUTURE AND IF WE ARE UNABLE TO
DO SO ON ACCEPTABLE TERMS, OR AT THE APPROPRIATE TIME, WE MAY NOT BE ABLE TO
CONTINUE TO DEVELOP AND MARKET OUR PRODUCTS AND SERVICES, OR EVEN TO CONTINUE AS
A GOING CONCERN.

We do not currently generate revenues sufficient to operate our business and do
not believe we will do so in the foreseeable future. As a result, we must rely
on our ability to raise capital from outside sources in order to continue
operations in the long term. We will seek to raise additional capital through
various financing alternatives, including equity or possibly debt financings or
corporate partnering arrangements. However, we may not be able to raise
additional needed capital on terms that are acceptable to us, or at all. If we
do not receive an adequate amount of additional financing in the future, we may
not have sufficient funds to further develop and market our products and
services, or even to continue as a going concern.

                                       10
<PAGE>

WE HAVE RECEIVED AN OPINION FROM OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM EXPRESSING DOUBT REGARDING OUR ABILITY TO CONTINUE AS A GOING CONCERN

Our independent registered public accounting firm noted in their report
accompanying our financial statements for the fiscal year ended February 28,
2007 that we have reported significant losses from operations and require
additional financing to fund future operations and stated that those conditions
raised substantial doubt about our ability to continue as a going concern. We
cannot assure you that our plans to address these matters will be successful.
This doubt about our ability to continue as a going concern could adversely
affect our ability to obtain additional financing at favorable terms, if at all,
as such an opinion may cause investors to lose faith in our long-term prospects.
If we cannot successfully continue as a going concern, our stockholders may lose
their entire investment in us.

IF THE INTERNET-BASED VIDEO CONTENT MARKET DOES NOT GROW, WE WILL NOT BE
SUCCESSFUL.

The market for our products and services is new and rapidly evolving. As a
company in the internet-based video content delivery field, our business model
is based on an expectation that demand for internet-based video content will
increase significantly and compete with more traditional methods of television
broadcasting. There can be no assurance that there is a substantial market for
the services we offer. If this market does not grow, we will not be able to
achieve meaningful revenues and our business will fail.

IF HIGH-SPEED INTERNET ACCESS WITH VIDEO VIEWING CAPABILITY IS NOT SUCCESSFULLY
ADOPTED GLOBALLY, THERE WILL BE LITTLE DEMAND FOR OUR PRODUCTS AND SERVICES.

The success of our business is dependent upon extensive use of the internet. The
video content we deliver is best viewed over a high-speed internet connection.
We believe increased internet use may depend on the availability of greater
bandwidth or data transmission speeds or on other technological improvements,
and we are largely dependent on third party companies to provide or facilitate
these improvements. If networks cannot offer high-speed services because of
congestion or other reasons, or if high-speed internet access fails to gain wide
market acceptance, we believe there will be little demand for our products and
services and our revenues may be insufficient to achieve and maintain
profitability. The deployment of corporate firewalls may also restrict the
growth and availability of streaming media services and adversely affect our
business model by limiting access to the content broadcast through our service.
Changes in content delivery methods and emergence of new internet access devices
such as TV set-top boxes could dramatically change the market for streaming
media products and services if new delivery methods or devices do not use
streaming media or if they provide a more efficient method for transferring data
than streaming media.

WE FACE SUBSTANTIAL COMPETITION AND IF WE ARE UNABLE TO COMPETE EFFECTIVELY, THE
DEMAND FOR, OR THE PRICES OF, OUR PRODUCTS AND SERVICES MAY DECLINE.

We face numerous competitors both in the internet-based distribution market, and
in the more traditional broadcasting arena. Many of these companies have
substantially longer operating histories, significantly greater financial,
marketing, manufacturing and technical expertise, and greater resources and name
recognition than we do. If we fail to attain commercial acceptance of our
products and services and to be competitive with these companies, we may not
ever generate meaningful revenues. In addition, new companies may emerge at any
time with products or services that are superior, or that the marketplace
perceives are superior, to ours. There are relatively few barriers preventing
companies from competing with us. We do not own any patented technology that
precludes or inhibits others from entering our market. We may not be able to
compete effectively with any potential future competitors and the demand for,
and prices of, our products and services may decline.

IF WE ARE UNABLE TO CONTINUE DEVELOPMENT OF ONE OR MORE OF OUR PRODUCTS, OUR
ENTIRE BUSINESS STRATEGY MAY BE UNSUCCESSFUL.

Our overall business strategy is dependent upon providing effective solutions to
our customers. We are continuing the development and improvement of the products
and services we believe will be necessary for our future growth. We anticipate
that enhancements to our existing products will continue to take the majority of
the time of our Chief Technology Officer and support from a number of developers
on an ongoing basis. Development of any product, however, can be more expensive
and time-consuming than originally planned, and face unexpected delays or
problems. Any delays in development could cause significant additional expense,
result in operating losses and lost corporate opportunities, and create
significant marketing opportunities for our competition. Because we are
continuing to develop and improve a number of products, all of which are
integral to our complete solution, the possibility of a problem is much greater
than if we were developing only one product. Problems or delays in the continued
development and deployment of any of our products could defeat our business
strategy and substantially harm our prospects for future revenues.

IF AUDIO-VIDEO PLAYER SOFTWARE IS NOT READILY AVAILABLE, OUR PRODUCTS WILL NOT
GAIN ACCEPTANCE.

To view our products, a viewer must have an audio-video player such as Microsoft
Media Player. If free distribution of player software does not continue or
player software becomes less accessible, the potential market for our products
and services will not grow, which in turn would have an adverse effect on our
revenues and ability to achieve and maintain profitability.

IF WE LOSE ONE OR MORE OF OUR MAJOR CLIENTS OUR REVENUES WILL DECLINE
SUBSTANTIALLY.


                                       11
<PAGE>


For the fiscal year ended February 28, 2007, our four largest clients accounted
for approximately 23% of our revenue. For the fiscal year ended February 28,
2006, our four largest clients accounted for approximately 44% of our revenue.
If we lose one or more of these clients, our revenues will decline
substantially.

IF WE ARE UNABLE TO OBTAIN AND MAINTAIN SUFFICIENT BANDWIDTH FROM THIRD PARTY
PROVIDERS, OUR BUSINESS WILL SUFFER.

We depend on network operators such as Teleglobe and Interoute to distribute
video over the internet. These network operators may choose to compete with us,
to enter into relationships with competitors, to change the terms on which they
distribute our channels, including to increase their prices, or not to do
business with us because of our size and lack of operating history. If we are
unable to obtain sufficient bandwidth on terms acceptable to us, the scalability
and reliability of our system would be adversely affected.

IF CONTENT OWNERS DO NOT ADOPT INTERNET-BASED DELIVERY AS A MEANS FOR
DISTRIBUTING THEIR CONTENT, WE MAY NOT BE ABLE TO GENERATE SIGNIFICANT REVENUES.

The success of our business model is highly dependent on video content being
available for distribution over the internet. Content owners may choose not to
make their content available over the internet. If sufficient content is not
available we may not generate sufficient revenues and our business may fail.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE
ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS OR PREVENT FRAUD. AS A RESULT,
CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL
REPORTING, WHICH WOULD HARM OUR BUSINESS AND THE PRICE OF OUR STOCK.

Effective internal controls are necessary for us to provide reliable financial
reports and effectively prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, our business and operating results could be harmed.

IF WE LOSE THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER OUR BUSINESS MAY SUFFER.

We are heavily dependent upon the continued services of David McCourt, Interim
Chief Executive Officer. The loss could seriously impede our success. We do not
carry life insurance on the life of our CEO. In the event that our CEO becomes
unavailable for any reason, our business may suffer.

AS A START-UP BUSINESS, WE MAY BE UNABLE TO ATTRACT AND RETAIN THE QUALIFIED
TECHNICAL, SALES AND SUPPORT STAFF NECESSARY FOR OUR GROWTH.

Our ability to continue to develop and market our products and services is
dependent upon our ability to identify, recruit, retain and motivate qualified
personnel. As a start-up business, salaries for our employees are significantly
below those of competitors in our industry and most of our existing employees
are stockholders or are otherwise incentivized with periodic option grants. The
low salaries and lack of assurance of our ability to secure additional funding
may affect our efforts to recruit and retain additional personnel necessary to
meet our growth targets. In addition, if we continue to issue additional equity
in order to finance the business, future stock option grants may be less
attractive to potential new hires and may not provide adequate motivation for
existing personnel. If we are unable to hire and retain sufficient additional
in-house personnel, we will be unable to complete development of our products
and services, and our business will suffer.

IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR IF OUR INTELLECTUAL
PROPERTY IS FOUND TO INFRINGE ANOTHER'S INTELLECTUAL PROPERTY, WE MAY BE UNABLE
TO GENERATE REVENUES BASED ON OUR PRODUCTS.

None of our intellectual property is covered by patents. We currently rely on a
combination of trade secret, nondisclosure and other contractual agreements, as
well as existing copyright and trademark laws to protect our confidential and
proprietary information, but this may not be sufficient to prevent third parties
from infringing upon or designing around our intellectual property to develop a
competing product. We cannot be sure that our technology will not infringe any
third party's intellectual property. In the event that a third party either
infringes upon our intellectual property or makes a claim that our products
infringe upon its proprietary rights, we may not have sufficient financial or
other resources to enforce our rights or to successfully defend against any
claim. Any infringement of or by our intellectual property could restrict our
ability to generate revenues from our products.

SYSTEM FAILURES AND/OR SECURITY RISKS MAY IMPAIR OUR OPERATIONS.

The core of our network infrastructure could be vulnerable to unforeseen
computer problems. We may experience interruptions in service in the future as a
result of the accidental or intentional actions of internet users, current and
former employees or others. These


                                       12
<PAGE>


risks are heightened by our reliance on a small number of network providers.
Unknown security risks may result in liability to Narrowstep and also may deter
new clients from using our products and services. The security measures we
implement may still be circumvented in the future, which could impair our
operations and have a material adverse effect on our business.

AS A THIRD-PARTY DISTRIBUTOR OF PROPRIETARY VIDEO CONTENT, WE ARE VULNERABLE TO
CLAIMS OF BREACH OF CONTENT RIGHTS WHICH MAY HARM OUR BUSINESS.

As a third-party deliverer of proprietary video content, we rely on our clients
to have the appropriate rights to use and distribute this content. If the rights
of the content owners are contravened, knowingly or otherwise, or if a content
owner claims their rights are contravened, we could be subject to substantial
lawsuits which could be time-consuming and costly to defend and our reputation
may be harmed for having delivered the content.

RISKS RELATED TO CONDUCTING BUSINESS OUTSIDE OF THE UNITED STATES MAY ADVERSELY
IMPACT OUR BUSINESS.

We market and sell our products and services in Europe, Asia, and the United
States. As a result, we are subject to the normal risks of doing business
abroad. Risks include unexpected changes in regulatory requirements, export and
import restrictions, difficulties in staffing and managing foreign operations,
longer payment cycles, problems in collecting accounts receivable, potential
adverse tax consequences, exchange rate fluctuations, increased risks of piracy,
limits on our ability to enforce our intellectual property rights, discontinuity
of our infrastructures, subsidized competition from local nationalized providers
and other legal and political risks. Such limitations and interruptions could
have a material adverse effect on our business.

ADDITIONAL EQUITY FINANCING WILL DILUTE THE OWNERSHIP INTEREST OF OUR EXISTING
STOCKHOLDERS.

We will need to raise additional capital in the future to continue development
and marketing of our products and services. We anticipate that we may raise
capital in the future by selling additional equity or financial instruments
which are exchangeable or convertible into equity. Any future equity or
equity-related financings will dilute the ownership interest of our existing
stockholders.

BECAUSE OUR ASSETS ARE LOCATED PRIMARILY IN THE UNITED KINGDOM, IT MAY BE
DIFFICULT TO PROCEED WITH AN ACTION, OR TO ENFORCE A JUDGMENT, AGAINST US.

Our primary offices and assets are located exclusively in the United Kingdom. As
a result, it may be difficult for stockholders located in the United States to
pursue an action, or enforce a judgment against us, in the event of any
litigation.

RISKS RELATED TO INVESTING IN SHARES

IF THERE IS NO ACTIVE TRADING MARKET FOR OUR STOCK, YOU MAY BE UNABLE TO SELL
THE SHARES.

There can be no assurance that an active trading market for our shares will ever
develop in the United States, or elsewhere. In the event that no active trading
market for the shares develops, it will be extremely difficult for stockholders
to dispose of the shares. In the event an active trading market develops, there
can be no assurance that the market will be strong enough to absorb all of the
shares which may be offered for sale by the stockholders.

OUR STOCK PRICE IS HIGHLY VOLATILE AND CAN FLUCTUATE IN RESPONSE TO MANY
FACTORS, SOME OF WHICH ARE BEYOND OUR CONTROL.

The trading price of our shares is highly volatile and could be subject to wide
fluctuations in response to factors such as actual or anticipated variations in
quarterly operating results, announcements of technological innovations, new
sales forecasts, or new products and services by us or our competitors, changes
in financial estimates by securities analysts, conditions or trends in internet
markets, changes in the market valuations of other business service providers
providing similar services or products, announcements by us or our competitors
of significant acquisitions, strategic partnerships, joint ventures, capital
commitments, additions or departures of key personnel, sales of shares and other
events or factors, many of which are beyond our control. Consequently, future
announcements concerning us or our competitors, litigation, or public concerns
as to the commercial value of one or more of our products or services may cause
the market price of our shares to fluctuate substantially for reasons which may
be unrelated to operating results. These fluctuations, as well as general
economic, political and market conditions, may have a material adverse effect on
the market price of our shares. In addition, because our common stock is quoted
on the OTC Bulletin Board, price quotations will reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not represent actual
transactions.


                                       13
<PAGE>


In addition, the stock market in general has experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of many companies. These broad market factors may
materially adversely affect the market price of the shares, regardless of our
operating performance.

BECAUSE WE HAVE A LIMITED OFFERING QUALIFICATION IN CALIFORNIA, SALES OF THE
SHARES ARE LIMITED IN CALIFORNIA.

The offering of our shares in California was approved on the basis of a limited
offering qualification where offers/sales can only be made to proposed
California investors based on their meeting certain suitability standards. The
California Department of Corporations refers to and specified this standard as a
"super suitability" standard, which requires any California investor in our
common stock to have not less than (i) $250,000 in liquid net worth (a net worth
exclusive of home, home furnishings and automobile) plus $65,000 gross annual
income, (ii) $500,000 in liquid net worth, (iii) $1,000,000 in net worth
(inclusive), or (iv) $200,000 gross annual income.

Because the offering was approved in California on the basis of a limited
offering qualification, we were not required to demonstrate compliance with some
of the merit regulations of the California Department of Corporations as found
in Title 10, California Code of Regulations, Rule 260.140 et seq. In addition,
the exemptions for secondary trading in California available under California
Corporations Code Section 25104(h) will not be available, although there may be
other exemptions to cover private sales in California of a bona fide owner of
our common stock for his own account without advertising and without being
effected by or through a broker dealer in a public offering. These restrictions
will make it more difficult to sell our shares in California.

CERTAIN PROVISIONS OF OUR CHARTER AND BY-LAWS COULD DISCOURAGE POTENTIAL
ACQUISITION PROPOSALS OR A CHANGE IN CONTROL.

Certain provisions of our Certificate of Incorporation, By-Laws and Delaware law
could discourage, delay or prevent a change in control of our company or an
acquisition of our company at a price which many stockholders may find
attractive. The existence of these provisions could limit the price that
investors might be willing to pay in the future for shares of our common stock.
Our Board of Directors, without further stockholder approval, may issue
preferred stock with voting, conversion and other rights and preferences that
could adversely affect the voting power or other rights of the holders of common
stock.

ITEM 2.  PROPERTIES

We currently maintain offices in the United Kingdom and the United States. Our
facilities in London holds our administrative, sales & marketing, customer
service & developers which we believe will be adequate to meet our office space
needs for the next several years as we currently utilize approximately 90% of
the total office space. We are currently negotiating our lease in London which
at the moment are on a month-to-month lease. Our offices in New York
predominantly hold our sales and sales support personnel. We have a twelve month
renewable lease which expires on September 30, 2007. Our offices in New Jersey
currently hold many of our senior executives and most of our back office staff.
Our lease for that facility is on a six month renewable term, expiring July 31,
2007.

ITEM 3.  LEGAL PROCEEDINGS

During the fiscal year we were not involved in any legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the Company's fiscal year
ended February 28, 2007.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION FOR COMMON EQUITY

Our Common stock has traded on the OTC Bulletin Board under the symbol "NRWS"
since August 4, 2005. Prior to that time, there was no public trading market for
our common stock. As of February 28, 2007, we had 105 holders of record.

The following table sets for the period indicated, the high and low sales prices
of our common stock as reported by the OTC Bulletin Board, on the trading day
during the respective period:


                                       14
<PAGE>



------------------------------------------------------------------------------
Fiscal Year 2007                                       High              Low
------------------------------------------------------------------------------
Fourth Quarter ended February 28, 2007               $   1.29         $   0.83
Third Quarter ended November 30, 2006                $   1.04         $   0.75
Second Quarter ended August 31, 2006                 $   0.92         $   0.61
First Quarter ended May 31, 2006                     $   0.68         $   0.61


------------------------------------------------------------------------------
Fiscal Year 2006                                       High              Low
------------------------------------------------------------------------------
Fourth Quarter ended February 28, 2006               $   1.49         $   0.52
* Third Quarter ended November 30, 2005*             $   1.70         $   0.95


* The OTC Bulletin Board first began publishing quotations for our common stock
on September 13, 2005


On May 15, 2007, the closing price of our common stock was $0.60 per share.

DIVIDEND POLICY

We paid no cash dividends during the fiscal year ended February 28, 2007 and we
expect to continue our current policy of paying no cash dividends to holders of
our common stock for the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

A total of 100,000 shares of common stock were granted to Granahan McCourt
Advisors, LLC on May 30, 2006 pursuant to an investor relations agreement with
Narrowstep Inc. of the same date. The issuance was made in reliance on Section
4(2) of the Securities Act.

A total of 100,000 shares of common stock were issued on December 11, 2006 to
Ramp Partners upon the exercise of warrants previously granted to them.

On May 3, 2006 the Company issued warrants to purchase 40,000 shares at an
exercise price of $1.01 and are exercisable until May 3, 2011. On October 16,
2006 the Company issued warrants to purchase 6,000 shares at an exercise price
of $0.95 and are exercisable until October 16, 2011. All warrants were issued
for consultancy services for the fiscal year ended February 28, 2007.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES INCLUDED ELSEWHERE IN THIS
ANNUAL REPORT AND THE SECTION "RISK FACTORS" IN ITEM 1A, AS WELL AS OTHER
CAUTIONARY STATEMENTS AND RISKS DESCRIBED ELSEWHERE IN THIS REPORT, BEFORE
DECIDING TO PURCHASE, SELL OR HOLD OUR COMMON STOCK.

OVERVIEW

We provide our customers with technology that allows them to transmit video
content over the internet to targeted audiences. Our services allow customers to
format and manage content, create programming, transmit programming to specific
audiences and create and manage subscription, pay-per-view and other revenue
generation models. We also provide production services to customers; however,
production services have declined as a percentage of total revenues as our core
"narrowcasting" service grows in importance.

We were initially incorporated as a Delaware corporation in May 2002. Our
headquarters is in Princeton, New Jersey and we have offices in London and New
York City. For the fiscal year ended February 28, 2007, approximately 80% of our
total revenues were generated from customers in Europe, the Middle East and
Africa, 13% was generated from customers in the United States and the


                                       15
<PAGE>


remaining 7% was generated from customers in the Asia Pacific region. We expect
our revenues from sources in the United States to continue to increase as a
percentage of total revenues as we begin to focus more on revenue opportunities
there.

HOW WE GENERATE REVENUE

We generate revenue primarily from fees we charge for the use of our technology
and related services for narrowcasting and from the sale of production services.
Revenues from our narrowcasting activities include fees paid for the
establishment and maintenance of channels, encoding and uploading of content, as
well as the management of channels on behalf of clients. The fee charged for the
establishment of a channel depends on the level of service desired by the
customer and typically ranges from $5,000 to $100,000. We also charge a monthly
license fee which ranges from $1,000 to $30,000, depending upon the range of
features and capabilities being licensed, which covers the use of the TelvOS
system, cost of support, maintenance and upgrades. In addition, based on the
customer's contract, we may obtain additional revenues from content hosting (the
storage of files on our network on a per gigabyte basis), content delivery (the
cost of bandwidth, on a per gigabyte basis, to deliver the content to the end
viewer), and, to a lesser extent, revenue sharing arrangements. These revenue
sharing arrangements come from monthly or annual subscription fees charged to
the viewer for the channel, pay per view events, and in some cases from
advertising campaigns that we have provided for the content owner. The majority
of our customers sign twelve month contracts which are the basis of our billing
arrangements.

Revenues for narrowcasting are recognized in our financial statements as
follows: any consulting services or one-time setup fees for a customer channel
are recognized once the work is completed and accepted by the customer. The
monthly recurring revenue items are, the monthly license fee, the monthly usage
of bandwidth, and the amount of storage at time of billing. We currently do not
use any estimates for recording revenue. The revenue recognized during the month
is based on a contractual rate or monthly fee which covers the month invoiced.

Revenues from production services include fees paid for the production, filming,
editing and encoding of programs. We charge our clients on a time and expense
basis for these services, typically on a project-by-project basis, although
occasionally under longer term agreements. Revenues for production services are
recognized only when the project is completed and delivered to the customer.

The Company may receive payments in advance for narrowcasting and production
services. These payments are deferred and recognized only when the revenue is
earned as described above.

73% of our revenues for the fiscal year ended February 28, 2007 came from
narrowcasting and other services and 27% came from production services. 55% of
our revenues for the fiscal year ended February 28, 2006 came from our
narrowcasting activities and 45% came from production services. We expect that
the proportion of our revenues generated by our narrowcasting business will
continue to increase.

KEY REVENUE DRIVERS

Currently we have identified several key drivers that we believe significantly
affect our revenue and operations and are beginning to track these drivers. We
expect to report these drivers in future filings once our systems infrastructure
is able to accurately track and report the relevant data. Below is a description
of the drivers we believe are important to track and monitor in order to gauge
the success and/or indicate any problems occurring in the business.

AVERAGE MONTHLY RECURRING REVENUE which is total monthly recurring revenue
divided by the number of customers. We belive that an increase in our average
monthly recurring revenue, which is the largest component in our monthly billing
for narrowcasting, indicates that our customers are increasing their usage of
our TelvOS capabilities.

AVERAGE BANDWIDTH USAGE which is the total bandwidth usage divided by the total
number of customers. An increase in average bandwidth usage is an indicator of
the popularity of our customer channels as a group. We expect that such an
increase would have a positive effect on our related revenue streams, such as
revenue sharing arrangements which includes subscription or advertising.

AVERAGE STORAGE which is the total amount of content stored divided by the total
number of customers. We believe that an increase in average storage is an
indicator of new and fresh content which can also drive traffic and affect
related revenue streams.


                                       16
<PAGE>
<TABLE>
<CAPTION>

RESULTS OF OPERATIONS


                                                Year ended
                                        --------------------------
                                        February 28,  February 28,
                                           2007          2006         Inc (Dec)       Percent
                                             $             $              $            Change
-----------------------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>                  <C>
REVENUE

  Narrowcasting and other                4,369,117      1,499,633      2,869,484            191%
  Production services                    1,639,718      1,206,629        433,089             36%
-----------------------------------------------------------------------------------------------
Total Revenue                            6,008,835      2,706,262      3,302,573            122%

TOTAL COSTS AND EXPENSES
  Operating                              2,655,395      1,804,879        850,516             47%
  Selling, general and
    administrative                       8,206,223      4,779,764      3,426,459             72%
  Research & development                 1,088,723        390,606        698,117            179%
  Impairment  charge  on  long-lived
    assets                               1,228,437              -      1,228,437              0%
-----------------------------------------------------------------------------------------------
Total Operating expenses                13,178,778      6,975,249      6,203,529             89%

  Other income (expense), net              118,814        (14,641)       133,455           -912%
  Currency exchange income (loss)          (10,345)        (6,149)        (4,196)            68%
-----------------------------------------------------------------------------------------------
NET LOSS                                (7,061,474)    (4,289,777)    (2,771,697)            65%
===============================================================================================

Headcount                                       56             34             22
</TABLE>


CONSOLIDATED REVENUES increased $3,300,000 or 122% over the prior year for
fiscal year ended February 28, 2007 as follows:

NARROWCASTING AND OTHER REVENUES for the fiscal year ended February 28, 2007
increased $2,900,000, or 191% over the prior year. This increase in
narrowcasting revenues resulted primarily from a net increase in customers.
Narrowcasting revenues also include one-time implementation fees, which will
continue to contribute to revenue as more customers are added. The addition of
the sales team in the United States has begun making strides in that market. As
a result, we have seen an increase of revenue in the United States over the
prior year of 126% (see geographical distribution below).

PRODUCTION SERVICES REVENUES for the fiscal year ended February 28, 2007
increased $433,000, or 36% over the prior year. This increase in production
services revenues resulted primarily from revenues from new customers added over
the past year and sales of previously recorded programming. This business
remains seasonal in nature and dependent on one-time assignments. Since the end
of fiscal 2007, the number of jobs has decreased primarily as a result of the
termination of employment of several senior employees of this business and a
decreased emphasis on the production services business. We are currently
reviewing our strategic plans for this business segment.

GEOGRAPHICAL DISTRIBUTION OF CONSOLIDATED REVENUES:


                                           Year Ended
                                          February 28,
                                     ------------------------
                                       2007           2006         Percent
                                         $              $           Change
----------------------------------------------------------------------------
United States                          755,452        333,884            126%

Europe, Middle-East and Africa       4,794,144      2,137,260            124%

Asia Pacific                           356,765        212,037             68%

Internet Sales                         102,474         23,081            344%
----------------------------------------------------------------------------

Total                                6,008,835      2,706,262            122%
============================================================================


CONSOLIDATED COSTS AND EXPENSES for the fiscal year ended February 28, 2007
increased $6,200,000, or 89%, over the prior year as follows:

OPERATING EXPENSES includes the cost of bandwidth, direct labor, sub-contracted
labor, consulting fees and depreciation. For the fiscal year ended February 28,
2007 these costs were $2,700,000, a 47% increase over the prior year.

The increase resulted primarily from increased headcount to meet customer
support needs and to begin building our internal CDN system. Operating expenses
also increased as a result of an increased use of independent contractors in
order to meet the increased work load of the production service business. The
total cost of operations were offset in part by lower bandwidth costs
year-over-year, due to a large credit that was issued by our network carrier
related to an overcharge that applied towards costs recognized in fiscal year
2006 and fiscal year 2007. Once the errors in our bills were detected, the
carrier issued the credit and corrected all future invoices.


                                       17
<PAGE>


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES includes employee compensation and
related costs for personnel engaged in marketing, direct and reseller sales
support functions, the executive team and backoffice help. For the fiscal year
ended February 28, 2007 these costs were $8,200,000, a 72% increase over the
prior year. This increase is due increased headcount primarily in direct sales.
SG&A expenses were also adversely impacted by a large increase in bad debt. This
increase primarily resulted from the failure of a number of narrowcasting
customers to have sufficient capital to sustain their business models as well as
non-payments by several production services customers. We are pursing collection
efforts where appropriate. The Company has implemented new controls and
procedures aimed at minimizing bad debt expense in future periods. SG&A also
increased as a result of increased legal and accounting fees as well as
increased expenses to house a growing number of employees.

RESEARCH & DEVELOPMENT EXPENSES include employee compensation, stock options and
depreciation and any related costs for personnel primarily focused on research
and development efforts. For the fiscal year ended February 28, 2007 these costs
were $1,100,000, a 179% increase over the prior year. During the fiscal year the
company began to hire developers to further enhance the TelvOS system and to add
new functionality. Aside from adding new capabilities to the TelvOS system, new
employees were also needed in order to maintain the system and support our
growing customer base.

IMPAIRMENT CHARGE ON LONG-LIVED ASSETS reflects the write off of the goodwill
and intangible assets of Sportshows Television, Ltd., our production services
business.

The reason for the impairment was due to several factors. In the past the
production segment has not been profitable and the company is currently
re-evaluating the products and services being offered by the production segment.
Several senior employees of STV are no longer employed with the Company. The
prospects or sales leads generated from this segment have been declining, and we
have incurred significant bad debts related to the existing sales.

TRENDS IN OUR BUSINESS

During 2004, we completed the initial development of our product suite and began
to focus primarily on the sale of licenses to use our narrowcasting products.
Since then, we have added significantly to our customer base and expect growth
in the number of clients using our products and services to continue to
increase. Revenues generated by our narrowcasting activities grew to exceed
those from production services in the fiscal year ended February 28, 2007. In
addition, we have increased our U.S. customer base which is becoming an
important source of revenue as we increase our focus on opportunities there.

We expect that our operating expenses will continue to increase as we seek to
improve and upgrade our products, continue to build our infrastructure and
devote resources to building a sales and marketing network. We expect that
non-operating expenses, such as accounting, legal and other professional fees
will decrease as a percentage of revenues as we focus on holding those costs
down and look for opportunities to reduce these costs through better management
and through automation.

LIQUIDITY AND CAPITAL RESOURCES

We had $466,870 in cash and cash equivalents available at February 28, 2007 and
available bank overdraft facilities of $58,600. Cash was used to meet the needs
of the business including, but not limited to, payment of operating expenses,
funding capital expenditures and, working capital. We discuss many of these
factors in detail below.

We have financed our operations from inception through private equity financing.
From inception through February 28, 2007, we sold an aggregate of 45,348,974
shares of our common stock for gross proceeds of approximately $14.8 million. In
addition, we have granted options and issued shares in lieu of cash in payment
to third parties for services rendered and in connection with the acquisition of
Sportshows Television, Ltd. To a lesser extent, we have also used capital leases
to fund some of our equipment acquisitions. We have incurred significant losses
since our inception and, at February 28, 2007, had an accumulated deficit of
approximately $19.5 million.

Our current ratio (current assets divided by current liabilities) relates to our
ability to pay our short-term debts as they become due. At February 28, 2007,
our current ratio was 0.9, compared to 4.5 at February 28, 2006. Our current
ratio fluctuates primarily as we use cash to develop our business and raise
additional funds from private equity financing from time to time.

On March 2, 2007, the Company entered into a Purchase Agreement (the "Purchase
Agreement") with sixteen accredited investors (the "Investors") for the sale of
its 12% Mandatorily Convertible Notes (the "Notes") and Warrants (the
"Warrants") for a total purchase price of $7,110,000. The Notes, which mature on
March 2, 2009, bear interest at 12% per annum, payable at maturity. The Notes
will mandatorily convert at a 10% discount into the securities issued by the
Company in any subsequent private placement that results in gross proceeds to
the Company of at least $3,000,000 or, in the event of a sale of the Company
prior thereto, shares of common stock valued at a discount of 10% to the per
share price to be paid in the Company sale. The Warrants are exercisable at any
time on or prior to March 2, 2012 for an aggregate of 3,555,000 shares of


                                       18
<PAGE>


common stock at an exercise price of $0.60 per share, subject to adjustment. The
Company has the right to force the cash exercise of the Warrants if the common
stock trades at or above $1.80 per share for at least 20 consecutive trading
days. Both the Notes and the Warrants contain customary anti-dilution provisions
in the event of any stock split, reverse stock split, reclassification or
recapitalization of the Company.

With the completion of this financing we will have sufficient working capital to
fund our operations for the next six to nine months. Management will continue to
pursue various financing options in order to fully fund our longer term cash
requirements. We also are making efforts to improve our financial position by
evaluating ongoing operating expenses, increasing our effort to collect
outstanding receivables and continuing to focus on increasing sales.

NET CASH USED IN OPERATING ACTIVITIES was approximately $4,500,000 for the
fiscal year ended February 28, 2007 and approximately $2,700,000 for the fiscal
year ended February 28, 2006. The increase in cash used in operations was due
primarily to an increase in our net loss. This increase was primarily due to an
increase in sales and marketing expenses as we sought to build our narrowcasting
customer base and an increase in the operations and development to enhance the
TelvOS system capabilities.

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES was approximately $1,300,000
for the fiscal year ended February 28, 2007 and approximately ($2,700,000) for
the fiscal year ended February 28, 2006. The increase over the prior year
resulted from the sale of short-term investments offset in part by capital
equipment purchased for our network.

NET CASH PROVIDED BY FINANCING ACTIVITIES was approximately $1,400,000 for the
fiscal year ended February 28, 2007 and approximately $7,600,000 for the fiscal
year ended February 28, 2006. The decrease resulted primarily from the two
equity financing completed during the fiscal year ended February 28, 2006.

As of February 28, 2007, our principal capital commitments consisted of
obligations outstanding under capital leases as shown in the table below:

                                                         Year Ended
                                                         February 28,
                                                             2007
                                                               $
     -----------------------------------------------------------------
     Amounts payable:
     Within 12 months                                          104,235
     Between one and two years                                  99,388
     Between two and three years                                45,725
     -----------------------------------------------------------------
     Total future commitment                                   249,348
     Less: finance charges allocated to future
     periods                                                   (25,767)
     -----------------------------------------------------------------
     Present Value                                             223,581
     =================================================================


An overdraft facility is a line of credit arrangement, negotiated with a bank
and usually reviewable on an annual basis, whereby the bank's customer is
permitted to take its checking account into a debit balance on a pre-agreed
interest basis up to an agreed amount. Amounts utilized under overdraft
facilities are payable on demand. At February 28, 2007 and February 28, 2006,
the overdraft facilities consisted of approximately $19,600 and $70,000,
respectively, with Barclays Bank PLC and $39,000 and $34,000, respectively, with
National Westminster Bank PLC (NatWest). Neither facility was utilized on
February 28, 2007 or February 28, 2006. The interest rate on the Barclays
facility is 5.75% above Barclays' variable base rate (which base rate was 5.25%
per annum as of February 28, 2007). The interest rate on the NatWest facility is
5.75% above NatWest's variable base rate (which base rate was 5.25% per annum as
of February 28, 2007). The Barclays overdraft facility was renewed on March 20,
2006. The NatWest overdraft facility was renewed on May 31, 2006.


                                       19
<PAGE>

STOCK-BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), "Accounting for Stock-Based Compensation (Revised)." SFAS No. 123(R)
supersedes APB No. 25 and its related implementation guidance. SFAS No. 123(R)
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. SFAS No. 123(R)
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R) requires
a public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service in exchange for the
award the requisite service period (usually the vesting period). No compensation
costs are recognized for equity instruments for which employees do not render
the requisite service. The grant-date fair value of employee share options and
similar instruments will be estimated using option-pricing models adjusted for
the unique characteristics of those instruments (unless observable market prices
for the same or similar instruments are available). If an equity award is
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award over
the fair value of the original award immediately before the modification. The
Company adopted SFAS No. 123(R), effective March 1, 2006. Based on stock options
that vested during the year ended February 28, 2007, the Company recorded
approximately $702,000 in additional compensation expense for the year ended
December 31, 2006, under SFAS No. 123(R).

Prior to January 1, 2006 the Company followed SFAS No. 123, "Accounting for
Stock-Based Compensation." The provisions of SFAS No. 123 allowed companies to
either expense the estimated fair value of stock options or to continue to
follow the intrinsic value method set forth in APB Opinion 25, "Accounting for
Stock Issued to Employees" ("APB 25"), but disclose the pro forma effect on net
income (loss) had the fair value of the options been expensed.

Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant or issue date prior to January 1, 2006 and
consistent with the provisions of SFAS No. 123(R), the Company's net income and
income per share would have been reduced to the pro forma amounts indicated
below:

                                                                  Year Ended
                                                                  February 28,
                                                                     2006
                                                                       $
     ------------------------------------------------------------------------
     Net loss as reported                                        (4,289,777)
     Add: Stock-based employee compensation included in
     reported net loss                                               695,297
     Less: Pro forma stock based compensation expense            (3,019,437)
     ------------------------------------------------------------------------
     Pro forma net loss                                          (6,613,917)
     ------------------------------------------------------------------------
     Basic and diluted loss per common share as                       (0.13)
     reported
     Pro forma basic and diluted loss per common share                (0.21)
     Weighted-average common shares outstanding                   32,190,594


FOREIGN EXCHANGE RISKS

We are a Delaware corporation and since our inception we have been raising funds
in US dollars. However, we have significant operations in London, and a
substantial portion of our business is conducted in sterling. This currency
difference between our fundraising and business operations represents a risk
related to the rate of exchange from US dollars to sterling. We hold surplus
funds mainly in US dollars. A larger currency exchange risk results from our
primary assets being denominated almost entirely in sterling. The dollar value
of our assets, and thus our stockholders' equity, increases when the dollar
weakens relative to the pound and vice versa. In the future, we expect to
generate a greater percentage of our revenues from operations in the United
States which would be received in US dollars and which should help mitigate the
exchange risk.


                                       20
<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amount of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. SFAS 159 is effective for fiscal years beginning after November
15, 2007. The Company does not expect the adoption of SFAS 159 to have a
material impact on its consolidated financial position, results of operations or
cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109" ("FIN
No. 48"). FIN No. 48 clarifies what criteria must be met prior to recognition of
the financial statement benefit of a position taken in a tax return. FIN No. 48
will require companies to include additional qualitative and quantitative
disclosures within their financial statements. The disclosures will include
potential tax benefits from positions taken for tax return purposes that have
not been recognized for financial reporting purposes and a tabular presentation
of significant changes during each period. The disclosures will also include a
discussion of the nature of uncertainties, factors which could cause a change,
and an estimated range of reasonably possible changes in tax uncertainties.

FIN No. 48 will also require a company to recognize a financial statement
benefit for a position taken for tax return purposes when it will be
more-likely-than-not that the position will be sustained. FIN No. 48 will be
effective for fiscal years beginning after December 15, 2006. The adoption of
FIN No. 48 is not expected to have a material impact on the company's financial
statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 is effective in fiscal years beginning after
November 15, 2007. Management is currently evaluating the impact that the
adoption of this statement will have on the Company's consolidated financial
statements.

OFF BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements that have had or are reasonably likely
to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.

ITEM 7. FINANCIAL STATEMENTS

The information required by this item is incorporated herein by reference to the
financial statements beginning on Page 37.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

On December 9, 2005 we and Ernst & Young LLP mutually agreed to terminate our
company-auditor relationship so that Ernst & Young LLP will no longer serve as
our independent registered public accounting firm, and on December 14, 2005 we
appointed Rothstein, Kass & Company, P.C. as our independent registered public
accounting firm. The decision to terminate the relationship with Ernst & Young
LLP and engage Rothstein Kass was approved by our Board of Directors.

ITEM 8A. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company's management,
with the participation of the Company's chief executive officer and chief
financial officer, evaluated the effectiveness of the Company's disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on such
evaluation, our chief executive officer and chief financial officer have
concluded that our disclosure controls and procedures were effective as of
February 28, 2007 to ensure that the information required to be disclosed by us
in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Commission's rules and forms.

There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act)
during the last fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

On May 24, 2007, in connection with its audit of our consolidated financial
statements for the year ended February 28, 2007, Rothstein, Kass & Company,
P.C., our independent registered public accounting firm, informed us and our
audit committee of certain deficiencies in our internal controls over financial
reporting that they considered to be a material weakness and significant
deficiencies. The material weakness was as follows:

        o       We did not record the stock-based compensation expense on
                certain stock options, issued to one of our directors, on a
                timely basis. As a result of this, our third quarter interim
                financial statements were misstated.


                                       21
<PAGE>


The significant deficiencies were as follows:

        o       We did not record a sufficient allowance for bad debts related
                to a customer's accounts receivable balance that was in
                question.

        o       We were recording invoices billed to certain customers in such a
                manner that the result was to recognize revenues on a cash
                basis, which is not in accordance with accounting principals
                generally accepted in the United States.

Inferior internal controls could harm our operating results or cause us to fail
to meet our reporting obligations and could also cause our current and potential
stockholders to lose confidence in our reported financial information, which
could have a negative effect on the price of our stock.

We will take steps to correct these deficiencies in our internal controls
identified by Rothstein, Kass & Company, P.C.

We will be documenting and testing our internal control procedures in order to
satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002.
Pursuant to Section 404, beginning with our fiscal year ending February 29,
2008, we will be required to include in our annual report on Form 10-KSB a
management assessment of the effectiveness of our internal controls over
financial reporting. For the fiscal year ending February 28, 2009, a report by
our independent registered public accounting firm will be included addressing
these assessments. We are exposed to increased costs associated with complying
with these requirements, and will be spending management time and resources to
document and test our internal controls in anticipation of Section 404 reporting
requirements. In addition, we cannot assure you that we will not in the future
identify material weaknesses or significant deficiencies in our internal
controls over financial reporting that we have not discovered to date.

If we are not able to complete testing of all of our internal controls, or if
during the course of our testing we identify deficiencies that we are not able
to remediate in time, we and/or our independent registered public accounting
firm may not be able to complete our/its respective assessments before the
deadline for compliance with the requirements of Section 404 of the
Sarbanes-Oxley Act. If we fail to timely complete our evaluation and testing in
order to allow for the assessment by our management, or if our independent
registered public accounting firm cannot timely attest to our management's
assessment, we could be subject to regulatory scrutiny and a loss of public
confidence in our internal controls, which could harm our business and our stock
price. Further, if our independent registered public accounting firm is not
satisfied with our internal controls over financial reporting or with the level
at which they are documented, designed, operated or reviewed, it may decline to
attest to management's assessment or may issue a qualified report identifying a
material weakness in our internal controls. This could result in significant
additional expenditures responding to the Section 404 internal control audit, a
diversion of management attention and a decline in our stock price.

ITEM 8B. OTHER INFORMATION

None

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The following table and subsequent discussion sets forth information about our
directors and executive officers as of February 28, 2007.


NAME                     AGE                  POSITIONS
-------------            ---      ----------------------------------------------
David McCourt            50       Chairman of the Board, Interim Chief Executive
                                  Officer and Director
Iolo Jones               42       Chief Strategy Officer and Director
Lisa VanPatten           43       Chief Financial Officer
Louis Holder             36       Chief Technology Officer
Jason Jack               42       Chief System Architect
Carolyn Wall             64       President, North America
Rajan Chopra             55       Director
Dennis Edmonds           50       Director
Roger Werner             57       Director
John Whyte               66       Director


DAVID MCCOURT, Chairman of the Board, Interim Chief Executive Officer and a
director, has been a director of Narrowstep since June 2006. Mr. McCourt became
the Chairman of the Board and Interim Chief Executive Officer in December 2006.
Mr. McCourt is the Founder and Chief Executive Officer of Granahan McCourt
Capital, LLC, a private investment firm focused in the telecommunications and
media industries, a position he has held since January 2005. Mr. McCourt has
over 25 years of experience in the telecommunications and media industries,
founding or acquiring over ten companies in four countries in North America and
Europe. Mr. McCourt served as the Chairman and Chief Executive Officer of RCN
Corporation (a cable television operator) from October 1997 until December 2004.
In 2005, Mr. McCourt received an Emmy Award for his role as Executive Producer
of the award-winning children's show "Reading Rainbow". Mr. McCourt serves on
the National Advisory Board of JPMorgan Chase Bank, the



                                       22
<PAGE>


North American Advisory Board of the Michael Smurfit Graduate School of Business
at University College in Dublin, Ireland, the Board of Overseers of the Robert
Wood Johnson Medicine and Dentistry of New Jersey.

IOLO JONES, Chief Strategy Officer and a director, joined Narrowstep in May
2002. Mr. Jones was Chief Executive Officer and President of Narrowstep until
his resignation from those positions on March 28, 2006. Mr. Jones holds degrees
in Radio, Film & Television and Educational Broadcasting from the Unviersity of
Kent at Canterbury.

LISA VANPATTEN, Chief Financial Officer, joined Narrowstep in December 2006.
From 2004 until joining Narrowstep, Ms. VanPatten served as Controller and VP of
Finance at NYSE-listed Vonage where she managed the Company's financial,
accounting and treasury function during its recent period of explosive growth.
Ms. VanPatten was also responsible for the consolidation of eight international
companies and was a key member of the Sarbanes-Oxley compliance team where she
helped identify and document all internal control and procedure gaps. From 2003
through 2004, Ms. VanPatten served as VP of Finance for Princeton Lightwave Inc,
a start-up where she assisted in the development of the new business plan,
including the implementation of a new accounting system. From 2000 through 2003,
Ms. VanPatten served as the Director of Financial Planning and Analysis at
Nasdaq-listed RCN Inc, one of the first bundled telecommunications services
providers. While at RCN, Ms. VanPatten was instrumental in implementing the
processes, financial systems, and reporting mechanisms necessary to scale a
rapidly growing company. Mrs. VanPatten holds a Bachelor of Science in
Management, graduating Cum Laude, from Rider University; she is also an
accredited CPA in the state of New Jersey.

LOUIS HOLDER, Chief Technology Officer, joined Narrowstep in April 2007 and is
responsible for our technical operations, including our network and internal IT.
From April 2005 through April 2007, Mr. Holder was President of Novega Venture
Partners, a wholly-owned subsidiary of Vonage Holdings Corp, where he was
focused on the development of new business and product offerings. Mr. Holder is
one of the original co-founders of Vonage, where, from January 2001 through
April 2005, he led the company's technology infrastructure, products and support
services, including systems development and web application development. Mr.
Holder holds a bachelor's degree in electrical engineering with a minor in
computer science from Polytechnic University, New York.

JASON JACK, Chief System Architect, joined Narrowstep in May 2002 and is
responsible for our technical operations, including our network, internal IT,
and software development and operations. Mr. Jack designs and develops the
majority of the software for our core products, working with other developers in
the United Kingdom.

CAROLYN WALL, President, North America, joined Narrowstep in November 2005 and
is responsible for sales, marketing and operations in North America. From 2001
until joining Narrowstep, Ms. Wall was an independent sales and marketing
consultant, including a period from 2003 until 2005 when she was a founding
partner of Branded Radio Networks, an entrepreneurial venture to build a music
and messaging service for retail stores.

RAJAN CHOPRA has been a director of Narrowstep since October 2006. Mr. Chopra
has been a Managing Director for fixed income derivatives at Cantor Fitzgerald &
Co since January 2006. From February 2003 to December, 2005, Mr. Chopra held a
similar position as Managing Director at Fimat, USA. From July 1998 until
December 2002, Mr. Chopra was engaged in the start-up of several business
ventures around risk management, derivatives and telecom products. Mr. Chopra
has an MBA degree from Stockholm University, Sweden, and a Bachelor's Degree in
commerce and economics from Delhi University, India.

DENNIS EDMONDS has been a director of Narrowstep since March 1, 2004. Mr.
Edmonds originally qualified as a lawyer in South Africa, where he established
the Johannesburg law firm of Edmonds Dykes & Co. and worked as a senior partner
from June, 1987 to March, 1990. In April, 1990, he moved to the United Kingdom
where he worked for the law firm of Alsop Wilkinson from June, 1993 to January,
1996 and thereafter at the law firm of Donne, Mileham & Haddock until September,
2000. During his career as a corporate lawyer Mr. Edmonds has advised a range of
banks, venture capitalists, corporations and governments on a spectrum of
commercial issues. In addition, from February 14, 2001 to March 29, 2004, Mr.
Edmonds served as a full time director of IcePartners.net, a private equity
investment company, where his role was in negotiating and structuring corporate
transactions and running investment companies.

ROGER WERNER has been a director of Narrowstep since March 28, 2006. Mr. Werner
is a graduate of Trinity College in Hartford, CT, and holds a Masters in
Business Administration from the University of Virginia. Mr. Werner is Chairman
of WATV Productions, LLC, a television production and marketing company.

JOHN WHYTE has been a director of Narrowstep since June 27, 2006. Mr. Whyte has
been the Managing Director of Whyte WorldWide Professional Corporate Executives
and related entities (Whyte WorldWide PCE) (a management consulting firm), since
July 1986. Mr. Whyte has been a director of Commonwealth Telephone Enterprises,
Incorporated since January, 1997.


                                       23
<PAGE>

BOARD OF DIRECTORS AND BOARD COMMITTEES

The number of directors constituting the Board of Directors is currently fixed
at nine. Narrowstep's amended and restated certificate of incorporation divides
the Board of Directors into three classes. The members of each class of
directors serve for staggered three-year terms. The Board of Directors is
composed of (i) one Class I director (Mr. Whyte), whose term expires upon the
election and qualification of directors at the annual meeting of stockholders to
be held in 2009, (ii) two Class II directors (Messrs. Edmonds and Werner), whose
terms expire upon the election and qualification of directors at the annual
meeting of stockholders to be held in 2009, and (iii) three Class III directors
(Messrs. Jones, Chopra and McCourt), whose terms expire upon the election and
qualification of directors at the annual meeting of stockholders to be held in
2007.

Our executive officers are elected by and serve at the discretion of the Board
of Directors. We have a standing audit committee of the Board of Directors. The
members of the audit committee are Messrs. Whyte, Chopra and Edmonds. Mr. Whyte
has been designated as the financial expert of the audit committee. The audit
committee oversees the retention, performance and compensation of our
independent auditors, and oversees and establishes procedures concerning systems
of internal accounting and control.

We have a standing compensation committee of the Board of Directors. The members
of the compensation committee consist of Messrs. Whyte, Werner and Chopra. The
compensation committee's duties are to review and evaluate the salaries and
incentive compensation of our management and employees and administer our 2004
Stock Plan.

CODE OF ETHICS

We have adopted a code of ethics that is applicable to our officers, directors
and employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions.

DIRECTOR COMPENSATION

Directors are eligible to receive options to purchase shares of our common
stock. There is no set formula for these grants and they may vary from director
to director and from month to month. In addition, our non-employee directors are
entitled to monthly compensation equal to a grant of options for 2,000 shares
for each month of service, such options to be granted on a semi-annual basis and
to have an exercise price equal to the fair market value of the common stock on
the date of grant. Each director is also reimbursed for reasonable travel and
other out-of-pocket expenses incurred in attending meetings of the Board of
Directors.

INDEMNITY AGREEMENTS

Narrowstep has entered into an indemnity agreement with each of its directors
and certain of its executive officers containing provisions that may require
Narrowstep, among other things, to indemnify to the fullest extent permitted by
law its executive officers and directors against liabilities that may arise by
reason of their status or service as executive officers or directors and to
advance expenses incurred as a result of any proceeding against them as to which
they could be indemnified.

ITEM 10. EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth, for the fiscal year ended February 28, 2007, a
summary of the compensation earned by each person who served as our principal
executive officer during the fiscal year, the two additional most highly
compensated executives who were serving as such at the end of the fiscal year
and two additional executives who would have been the most highly compensated
executives had they been serving as executive officers as of the end of the
fiscal year. In this document, we refer to these executive officers as the
"Named Officers".


                                       24
<PAGE>
<TABLE>
<CAPTION>

                                              SUMMARY COMPENSATION TABLE


                                                                                                ALL
                                                                                 OPTION        OTHER
 NAME AND PRINCIPAL            FISCAL       SALARY(1)         BONUS(1)          AWARDS(2)   COMPENSATION      TOTAL
     POSITION                   YEAR           ($)               ($)              ($)           ($)            ($)
--------------------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>               <C>              <C>             <C>          <C>
David C. McCourt                2007             --               --             80,820          --           80,820
Chairman and Interim
Chief Executive
Officer(3)

--------------------------------------------------------------------------------------------------------------------
Stephen Beaumont                2007          298,156             --            120,539          --          418,695
President and Chief
Executive Officer (4)           2006          143,988             --            255,283          --          399,271

--------------------------------------------------------------------------------------------------------------------
Iolo Jones                      2007          187,248             --               --            --          187,248
Founder and Chief
Strategy                        2006          143,988             --            478,025          --          622,013
Officer
--------------------------------------------------------------------------------------------------------------------
Jason Jack                      2007          180,336           10,000          132,182          --          322,518
Chief System
Architect                       2006          103,847             --            205,422          --          309,269

--------------------------------------------------------------------------------------------------------------------
Clifford                        2007          187,248             --               --            --          187,248
Webb
Chief Operating                 2006          134,989             --            507,100          --          642,089
Officer (5)

--------------------------------------------------------------------------------------------------------------------
Steven Crowther                 2007          191,452             --             86,856          --          278,308
Chief Financial
Officer (5)                     2006          146,500             --            450,655          --          597,155

--------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) Amounts paid to Messrs. Beaumont, Jones and Webb were paid in British pounds
and are converted to dollars at a conversion rate of $0.5341 per pound for
fiscal year 2007 and $0.5556 per pound for fiscal year 2006.
(2) The value of option awards granted to the Named Officer has been estimated
pursuant to SFAS 123(R) using the Black-Scholes option pricing model with the
following weighted average assumptions: expected life: 2.0 years; volatility:
75%; risk free interest rate: 4.72% to 5.12%; and dividend yield: none. See Note
6 to Notes to the Consolidated Financial Statements. In certain instances,
option award values reflect, in part, the vesting of options granted in prior
periods.
(3) Mr. McCourt became Chairman and Interim Chief Executive Officer in December
2006.
(4) Mr. Beaumont ceased to be the Company's President and Chief Executive
Officer in December 2006.
(5) Mr. Webb ceased to be the Company's Chief Operating Officer in January 2007.
(6) Mr. Crowther ceased to be the Company's Chief Financial Officer in June
2006.
We did not make any stock awards or pay any non-equity incentive plan
compensation or non-qualified deferred compensation earnings to any of the Named
Officers in respect of the periods covered by the Summary Compensation Table.

Other than as described in the Summary Compensation Table, the Company did not
pay any other compensation or provide any perquisites to any of the Named
Officers during the periods covered by the Summary Compensation Table persons.

2004 STOCK PLAN

The Narrowstep, Inc. 2004 Stock Plan (the "Plan") was adopted by vote of our
Board of Directors on December 15, 2003 and became effective on January 1, 2004.
The Plan was amended by vote of the Board of Directors in July, 2004, and the
Plan, as amended, was approved by stockholders in July, 2004. The Plan is
designed to attract, retain and reward our employees, directors and consultants
by allowing them to participate in Narrowstep's growth through the acquisition
of shares of our common stock or other performance awards. 17,000,000 shares are
reserved for issuance under the Plan. No more than 5,000,000 shares may be the
subject of awards to any participant during any calendar year. The term of the
Plan is 10 years, and options granted under the Plan can have a term of no more
than 10 years.

Under the Plan, participants may be awarded stock options, stock appreciation
rights, restricted stock, restricted stock units, performance units, performance
shares and other stock based awards. Options awarded under the Plan may be
either incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended or non-qualified options. The Plan is administered by our Board
of Directors or by a committee appointed by the Board. The Board (or such
committee) has authority to, among other things, determine when awards will be
granted, the award recipients, the size and type of each award, vesting and
forfeiture terms and all other terms and conditions of awards. The Board may
also amend, suspend or terminate the Plan at any time, but without


                                       25
<PAGE>


stockholder approval, no amendment may increase the number of shares available
for issuance under the Plan, materially change eligibility terms or extend the
term of the Plan.

None of the Named Officers exercised any stock options during the fiscal year
ended February 28, 2007. The Company has not made any stock awards to any of the
Named Officers.

The following table sets forth, for each of the Named Officers, information
regarding stock options outstanding at February 28, 2007 for each of the Named
Officers. Each of the stock option grants referred to in the table below were
granted pursuant to our 2004 Stock Plan. The vesting dates applicable to each
stock award are set forth in footnotes that follow the columnar explanations
below the table.

<TABLE>
<CAPTION>

                               OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END


                              NUMBER OF             NUMBER OF
                              SECURITIES            SECURITIES         OPTION
                              UNDERLYING            UNDERLYING        EXERCISE
                         UNEXERCISED OPTIONS   UNEXERCISED OPTIONS      PRICE
         NAME                    (#)                   (#)               ($)     OPTION EXPIRATION DATE
                             EXERCISABLE          UNEXERCISABLE
---------------------------------------------------------------------------------------------------------
<S>                            <C>                  <C>                 <C>              <C>
 David C. McCourt              300,000                  --              0.67             6/27/11
---------------------------------------------------------------------------------------------------------
 Stephen Beaumont              200,000                  --              1.50            12/31/07
                               225,000                  --              1.50            12/31/07
                               250,000                  --              1.00            12/31/07
---------------------------------------------------------------------------------------------------------
 Iolo Jones                    942,664                  --              1.20             2/28/15
---------------------------------------------------------------------------------------------------------
 Jason Jack                    777,252                  --              0.20            12/31/08
                               333,334              333,334(1)          1.20             8/11/15
                               166,666              166,666(2)          1.20             8/11/05
---------------------------------------------------------------------------------------------------------
Clifford Webb                 1,000,000                 --              1.20            12/31/07
---------------------------------------------------------------------------------------------------------
Steven Crowther                500,000                  --              1.20             6/30/07
                               500,000                  --              1.20             6/30/07
                                50,000                  --              0.90             6/30/07
---------------------------------------------------------------------------------------------------------
</TABLE>


(1) Options covering 166,667 shares vest on July 1, 2007 and options covering
166,667 shares vest on July 1, 2008.
(2) Options covering 83,333 shares vest on July 1, 2007 and options covering
83,333 shares vest on July 1, 2008.

EMPLOYMENT AGREEMENTS

IOLO JONES. Iolo Jones, our former Chief Executive Officer and President and
current Founder and Chief Strategy Officer, is a party to an employment
agreement with Narrowstep Ltd., our wholly-owned subsidiary, dated March 28,
2006. His employment agreement generally continues until terminated by either
party upon one years' notice if received in the first year of the agreement and,
thereafter upon six months' notice or until he is 65 years old. Under his
employment agreement, Mr. Jones is entitled to receive a base salary of $183,000
per year, subject to yearly review on March 1 of every year beginning in 2007.

If Mr. Jones's employment is terminated by us without cause on less than six
months' notice, Mr. Jones is entitled to receive his salary for that part of the
period of notice which was not given. If Mr. Jones's employment is terminated
for cause as specified in the employment agreement, our obligation to pay any
further compensation ends. Mr. Jones's employment agreement prohibits him from
soliciting, in a manner that directly or indirectly competes with us, our
employees, customers, or suppliers with whom he had personal dealings in the
normal course of his employment for a period of six months after he stops
working for us. Under his employment agreement, Mr. Jones is also bound to keep
certain information confidential and to assign to us any intellectual property
developed by him during the term of his employment. Mr. Jones may be paid a
bonus from time to time, at the discretion of our Board of Directors.

Pursuant to the terms of his prior employment agreement, Mr. Jones was granted
options for 942,664 shares in March 2005 due to dilution in his stock ownership
interest occurring on or prior to December 31, 2004. On February 13, 2006, our
Board of Directors unanimously confirmed that it is in the best interests of
Narrowstep and its stockholders that no further options be issued to Mr. Jones
pursuant to the terms of the "antidilution provisions" of his prior employment
agreement which has now been terminated.

JASON JACK. Jason Jack, our Chief System Architect, is a party to an employment
agreement with Narrowstep Ltd., our wholly-owned subsidiary, dated October 1,
2002, as amended. His employment agreement generally continues until terminated
by either party


                                       26
<PAGE>


upon three months' notice, by us upon one month's notice in the event of Mr.
Jack's disability as specified in the agreement, or until he is 60 years old.
With Mr. Jack's consent, Narrowstep Inc. has assumed this employment agreement
and Jason Jack is currently an employee of Narrowstep Inc. Under the terms of
this arrangement, Narrowstep Inc., Narrowstep Ltd. and Mr. Jack have agreed that
Mr. Jack will be paid in US dollars and will receive a base salary of $175,000
per year, commencing July 2006.

If Mr. Jack's employment is terminated by us without cause on less than three
months' notice, Mr. Jack is entitled to receive his salary for that part of the
period of notice which was not given. If Mr. Jack's employment is terminated for
cause as specified in the employment agreement, our obligation to pay any
further compensation ends. Mr. Jack's employment agreement prohibits him from
soliciting, in a manner that directly or indirectly competes with us, our
employees, customers, or suppliers with whom he had personal dealings in the
normal course of his employment for a period of twelve months after he stops
working for us.

Under his employment agreement, Mr. Jack is also bound to keep certain
information confidential and to assign to us any intellectual property developed
by him during the term of his employment.

DIRECTOR COMPENSATION

Directors are eligible to receive options to purchase shares of our common
stock. There is no set formula for these grants and they may vary from director
to director and from month to month. In addition, our non-employee directors are
entitled to monthly compensation equal to a grant of options for 2,000 shares
for each month of service, such options to be granted on a semi-annual basis and
to have an exercise price equal to the fair market value of the common stock on
the date of grant. Each director is also reimbursed for reasonable travel and
other out-of-pocket expenses incurred in attending meetings of the Board of
Directors.

The following table sets forth certain information regarding the compensation we
paid to our non-employee directors during the fiscal year ended February 28,
2007.


                           FEES
                         EARNED OR                       ALL
                          PAID IN                       OTHER
                           CASH       OPTION AWARDS  COMPENSATION       TOTAL
     NAME                   ($)          ($)(1)          ($)             ($)
     -------------------------------------------------------------------------
     Rajan Chopra           --         103,710(2)        --            103,710
     -------------------------------------------------------------------------
     Dennis Edmonds         --          1,952(3)         --             1,952
     -------------------------------------------------------------------------
     Shelly Palmer          --          1,952(4)         --             1,952
     -------------------------------------------------------------------------
     Peter Sidall           --          1,952(5)         --             1,952
     -------------------------------------------------------------------------
     Roger Werner           --         143,379(6)        --            143,379
     -------------------------------------------------------------------------
     Jack Whyte             --         80,280(7)         --             80,280
     -------------------------------------------------------------------------

(1) The value of option awards granted to the non-employee directors has been
estimated pursuant to SFAS 123(R) using the Black-Scholes option pricing model
with the following weighted average assumptions: expected life: 2.0 years;
volatility: 75%; risk free interest rate: 4.72% to 5.12%; and dividend yield:
none. See Note 6 to Notes to the Consolidated Financial Statements.
(2) Mr. Chopra held options to acquire an aggregate of 300,000 shares of common
stock as of February 28, 2007, all of which were presently exercisable as of
that date.
(3) Mr. Edmonds held options to acquire an aggregate of 133,957 shares of common
stock as of February 28, 2007, all of which were presently exercisable as of
that date.
(4) Mr. Palmer held options to acquire an aggregate of 306,000 shares of common
stock as of February 28, 2007, all of which were presently exercisable as of
that date. Mr. Palmer resigned as a director effective February 14, 2007.
(5) Mr. Sidall held options to acquire an aggregate of 171,234 shares of common
stock as of February 28, 2007, all of which were presently exercisable as of
that date. Mr. Sidall resigned as a director effective October 20, 2006.
(6) Mr. Werner held options to acquire an aggregate of 330,000 shares of common
stock as of February 28, 2007, all of which were presently exercisable as of
that date.
(7) Mr. Whyte held options to acquire an aggregate of 300,000 shares of common
stock as of February 28, 2007, all of which were presently exercisable as of
that date.


                                       27
<PAGE>


Certain directors of the Company, or entities that they control, are parties to
consulting and other arrangements with the Company. For a description of these
arrangements, see Item 13. Certain Relationships and Related Transactions --
Transactions with companies in which certain persons hold an interest.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table sets forth information about the beneficial ownership of our
common stock for (i) each person known by us to own beneficially more than five
percent of our outstanding common stock, (ii) each director and named executive
officer, and (iii) all directors and executive officers as a group Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. Except as indicated by footnote and subject to community
property laws where applicable, to our knowledge, the persons named below have
sole voting and investment power with respect to the shares of common stock
shown as beneficially owned by them. The numbers in the table reflect shared
held as of February 28. 2007 and are based upon 45,348,974 shares being
outstanding: In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, shares of common stock subject to
options or warrants held by that person that are exercisable as of February 28,
2007, or will become exercisable within 60 days thereafter are deemed
outstanding, while such shares are not deemed outstanding for purposes of
computing percentage ownership of any other person.

<TABLE>
<CAPTION>

                                                             Number of
                                                              Shares
                                                           Beneficially          Percent of
                                                               owned                Class
-------------------------------------------------------------------------------------------
<S>                                                          <C>                       <C>
Iolo Jones                                                   6,005,164  (1)            9.4%
103 B. South Hill Park
London NW3 2SP
United Kingdom
-------------------------------------------------------------------------------------------
Clifford Webb                                                4,407,582  (2)            6.9%
13 Muirdown Avenue
East Sheen
London  SW14 8JX
-------------------------------------------------------------------------------------------
Allard de Stoppelaar                                         1,900,000  (3)            3.0%
En Belleevue 8
1163 Etoy
Switzerland
-------------------------------------------------------------------------------------------
David C. McCourt                                            10,406,000  (4)           16.3%
Granahan & McCourt, LLC
PO Box AQ
Princeton, NJ 08542
-------------------------------------------------------------------------------------------
Ian P. Ellis and Chris A. Jarrous                            3,333,333  (5)            5.2%
MicroCapital Fund
201 Post St, Suite 1001
San Francisco, CA 94108
-------------------------------------------------------------------------------------------
Oded Aboodi and Stanley Mauss                                3,333,335  (6)            5.2%
Sano Ventures XII LLC
c/o Stanley Mauss
1700 Broadway, 17th Floor
New York, NY 10019

</TABLE>



                                       28
<PAGE>
<TABLE>
<CAPTION>


-------------------------------------------------------------------------------------------
<S>                                                          <C>                       <C>
Roberto Lederboer                                            5,000,000  (8)            7.8%
Zwolsestraat 13 K
Den Haag
2587 TX
Netherlands
-------------------------------------------------------------------------------------------
Jason Jack                                                   1,894,345  (9)            3.0%
20822 Farnsworth Lane
Huntington Beach, CA  92646
-------------------------------------------------------------------------------------------
Dennis Edmonds                                                 133,957  (10)              *
Battersea Studios
80 Silverthorne Road
London, SW8 3HE, UK
-------------------------------------------------------------------------------------------
Shelly Palmer                                                  306,000  (11)              *
330 East 33rd St., 19M
New York, NY  10016
-------------------------------------------------------------------------------------------
Roger Werner                                                 1,330,000  (12)           2.1%
10 Barnstable Lane
Greenwich, CT 08630
-------------------------------------------------------------------------------------------
Carolyn Wall                                                   233,332  (13)              *
440 9th Avenue, 17th Floor
New York, NY 10001
-------------------------------------------------------------------------------------------
Lisa VanPatten                                                       -                    *
116 Village Bldv, Suite 200
Princeton, NJ  08540
-------------------------------------------------------------------------------------------
Rajan Chopra                                                   300,000  (14)              *
116 Village Bldv, Suite 200
Princeton, NJ  08540
-------------------------------------------------------------------------------------------
Louis Holder                                                         -                    *
116 Village Bldv, Suite 200
Princeton, NJ  08540
-------------------------------------------------------------------------------------------
John Whyte                                                     300,000  (15)              *
35 Crescent Street, Unit 617
Waltham, MA 02453
-------------------------------------------------------------------------------------------
All Directors and Executive Officers as a group (16
persons)                                                    38,883,048  (16)          61.0%
-------------------------------------------------------------------------------------------
</TABLE>


* Less than 1% of the outstanding shares.

(1) Includes 942,664 shares issuable upon the exercise of options owned by Mr.
Jones which are exercisable within 60 days of February 28, 2007.

(2) Includes 1,000,000 shares issuable upon the exercise of options owned by Mr.
Webb which are exercisable within 60 days of February 28, 2007.


                                       29
<PAGE>


(3) Includes (i) 275,000 shares issuable upon the exercise of warrants owned by
Mr. de Stoppelaar which are exercisable within 60 days of February 28, 2007and
(ii) 1,625,000 shares issuable upon the exercise of options owned by Mr. de
Stoppelaar which are exercisable within 60 days of February 28, 2007.

(4) Includes (i) 5,000,000 shares held by Granahan McCourt Capital LLC, (ii)
5,006,000 shares issuable upon the exercise of warrants owned by Granahan
McCourt Capital LLC which are exercisable within 60 days of February 28, 2007,
(iii) 100,000 shares held by Granahan McCourt Advisors, LLC, and (iv) 300,000
shares issuable upon the exercise of options granted to David C. McCourt which
are exercisable within 60 days of February 28, 2007. Mr. McCourt is responsible
for the voting, selection, acquisition and disposition of the shares held by
Granahan McCourt Capital, LLC, and thus may be deemed to be the beneficial owner
of such shares. Mr. McCourt is a director of the Company.

(5) Consists of (i) 1,125,000 shares owned by MicroCapital Fund LP, (ii)
1,125,000 shares issuable upon the exercise of warrants owned by MicroCapital
Fund LP which are exercisable within 60 days of February 28, 2007, (iii) 541,666
shares owned by MicroCapital Fund Ltd. and (iv) 541,666 shares issuable upon the
exercise of warrants owned by MicroCapital Fund Ltd. which are exercisable
within 60 days of February 28, 2007. Ian P. Ellis and Chris A. Jarrous are
responsible for the voting, selection, acquisition and disposition of the shares
held by MicroCapital Fund LP and MircoCapital Fund Ltd. and thus may be deemed
to be the beneficial owners of such shares.

(6) Consists of (i) 1,666,667 shares owned by Sano Ventures XII LLC and (ii)
1,666,668 shares issuable upon the exercise of warrants owned by Sano Ventures
XII LLC which are exercisable within 60 days of February 28, 2007. Obed Aboodi
and Stanley Mauss are responsible for the voting, selection, acquisition and
disposition of the shares held by Sano Ventures XII LLC and thus may be deemed
to be the beneficial owners of such shares.

(8) Includes 2,500,000 shares issuable upon the exercise of warrants owned by
Mr. Lederboer which are exercisable within 60 days of February 28, 2007.

(9) Includes 1,277,252 shares issuable upon the exercise of options held by Mr.
Jack which are exercisable within 60 days of February 28, 2007.

(10) Consists of 133,957 shares issuable upon the exercise of options held by
Mr. Edmonds which are exercisable within 60 days of February 28, 2007.

(11) Consists of 306,000 shares issuable upon the exercise of options held by
Mr. Palmer which are exercisable within 60 days of February 28, 2007.

(12) Includes 830,000 shares issuable upon the exercise of options and warrants
held by Mr. Werner which are exercisable within 60 days of February 28, 2007.

(13) Includes 216,666 shares issuable upon the exercise of options and warrants
held by Ms. Wall which are exercisable within 60 days of February 28, 2007.

(14) Consists of 300,000 shares issuable upon the exercise of options held by
Mr. Chopra which are exercisable within 60 days of February 28, 2007.

(15) Consists of 300,000 shares issuable upon the exercise of options held by
Mr. Whyte which are exercisable within 60 days of February 28, 2007.

(16) Includes 18,345,873 shares issuable upon the exercise of options and
warrants held by the directors and executive officers, or entities related to
them, which are exercisable within 60 days of February 28, 2007.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


OPTIONS GRANTED TO CURRENT DIRECTORS. The Company has granted to Roger Werner, a
member of the Board of Directors, options to purchase 300,000 shares at an
exercise price of $1.18 on March 28, 2006 which are exercisable until March 28,
2016. The Company has granted Rajan Chopra, a member of the Board of Directors,
options to purchase 300,000 shares at an exercise price of $0.80 on September
28, 2006 which are exercisable until September 28, 2016. The Company has granted
to both David McCourt and Jack Whyte, members of the board of directors, options
to purchase 300,000 shares at an exercise price of $0.67 per share on June 7,
2006 which is exercisable until June 27, 2011. All the option granted above
fully vested on the date granted.

On May 23, 2006, the Company granted options to purchase 6,000 shares to Dennis
Edmonds, a member of the Board of Directors, at an exercise price of $0.75 per
share. These options vested on the grant date and are exercisable until May 23,
2016.

On December 2, 2005, the Company entered into a consultancy agreement with Roger
L. Werner Jr. Pursuant to this agreement, on May 23, 2006, Mr. Werner was
granted options to purchase 30,000 shares at an exercise price of $0.75 per
share, for consultancy services for the year ended February 28, 2006.

OPTIONS GRANTED TO FORMER DIRECTORS. The Company has granted Shelly Palmer, a
former member of the Board of Directors, options to purchase 6,000 shares at an
exercise price of $0.75 per share. These options were granted and vested on May
23, 2006 and are no longer exercisable. The Company has granted Peter Sidall, a
former member of the Board of Directors, options to purchase 6,000 shares at an
exercise price of $0.75 per share. These options were granted and vested on May
23, 2006 and are exercisable until December 31, 2007 per his separation
agreement. The Company had granted options to Cliff Webb, a former officer and
Board member, options to purchase 1,000,000 shares at an exercise price of $1.20
per share. The options are fully vested and exercisable until December 31, 2007
per his separation agreement.


                                       30
<PAGE>


OPTIONS GRANTED TO CURRENT OFFICERS. On February 8, 2007, the Company granted
options to purchase 200,000 shares to Lisa VanPatten, CFO, at an exercise price
of $0.92 per share. These options vest annually for 3 years and expire on
February 8, 2017.

OPTIONS GRANTED TO FORMER OFFICERS. The Company has granted options to purchase
1,000,000 shares to Steven Crowther, our former Senior Vice President and Chief
Financial Officer, at an exercise price of $1.20 per share. 500,000 of these
options were granted and vested on March 1, 2005 and are exercisable until
February 28, 2015. 500,000 of these options were granted on August 11, 2005,
100,000 of which vested immediately and the remaining 400,000 vest on July 1,
2006. When vested, these options are exercisable until August 11, 2015. On
January 17, 2006, the Company granted Steven Crowther additional options to
purchase 100,000 shares, at an exercise price of $0.90 per share. 50,000 of
these options vested immediately on January 17, 2006. In connection with the
Separation and General Release Agreement between us and Mr. Crowther, the period
during which Mr. Crowther may exercise his vested options was extended from
September 29, 2006 until June 29, 2007.

The Company has granted options to purchase a total of 900,000 shares to Stephen
Beaumont, our former President and Chief Executive Officer. 200,000 of these
options were granted on November 15, 2005 at an exercise price of $1.50, 100,000
vested immediately and the remainder vested on February 1, 2006. The remaining
options were granted on February 28, 2006, 250,000 at an exercise price of $1.00
per share, which vested immediately, and 450,000 at an exercise price of $1.50
per share, 225,000 of which vest on June 30, 2006 and 225,000 of which vest on
December 31, 2006. In connection with the Separation and General Release
Agreement between us and Mr. Beaumont, the period during which Mr. Beaumont may
exercise his vested options was extended until December 31, 2007.

TRANSACTIONS WITH COMPANIES IN WHICH CERTAIN PERSONS HOLD AN INTEREST. Shelly
Palmer, a former director of the Company, is the owner of a consulting company,
SLP Productions Inc. Pursuant to an unwritten agreement between the parties, SLP
Productions billed the Company $38,000 and $36,000 for fiscal year ending
February 28, 2007 and February 28, 2006, respectively for consulting services.
As of February 28, 2007 there was a balance of $19,000 in accounts payable.

On December 2, 2005, the Company entered into a consultancy agreement with Roger
L. Werner Jr. Pursuant to this agreement, on May 23, 2006, Mr. Werner was
granted options to purchase 30,000 shares at an exercise price of $0.75 per
share, for consultancy services for the year ended February 28, 2006. Mr. Werner
became a shareholder of the Company on February 22, 2006 and a director of the
Company on March 28, 2006.

On May 30, 2006, the Company entered into an advisory agreement with Granahan
McCourt Advisors, LLC. David C McCourt is the beneficial owner of Granahan
McCourt Advisors, LLC and Granahan McCourt Capital, LLC, a shareholder in the
Company and the Company's interim CEO. Pursuant to this agreement, Granahan
McCourt Advisors, LLC was issued 100,000 shares of common stock on May 30, 2006
and received warrants to purchase 6,000 shares, with an exercise price equal to
$0.95 per share. Mr. McCourt became a director of the Company on June 27, 2006
and was named as Chairman of the Board and Interim Chief Executive Officer in
December 2006. The Company paid Granahan McCourt Advisors, LLC $80,000 for
consulting services and $9,000 to cover out of pocket expenses for fiscal year
ending February 28, 2007. Mr. McCourt voluntarily terminated the advisory
agreement once he became interim CEO and forfeited the remaining balance in the
contract.

ITEM 13. EXHIBITS

The following exhibits are filed as part of this report:

EXHIBIT NO.      DESCRIPTION

3.1     Amended and Restated Certificate of Incorporation (1)
3.2     Amended and Restated By-laws (2)
4.1     Specimen Common Stock Certificate (3)
5.1     Opinion of Lowenstein Sandler PC*
10.1    Employment Agreement by and between Narrowstep Limited and Iolo Jones
        dated March 28, 2006 (4)
10.2    Agreement by and between Narrowstep Ltd. and Jason Jack, dated October
        1, 2002 (5)
10.2.1  First Amendment to Employment Agreement by and among Narrowstep Limited,
        Narrowstep Inc., and Jason Jack, dated November 24, 2004 (6)
10.4    Server Hosting Agreements between Narrowstep and Teleglobe Ltd., dated
        October 23, 2003 (7)
10.5+   Agency Agreement between Narrowstep Inc. and Global Sportnet, dated
        February 4, 2004 (8)
10.6    Narrowstep Inc. 2004 Restated Stock Plan (9)
10.7    Agreement by and between Narrowstep Inc. and Mobestar Ltd., dated
        February 9, 2004 (10)
10.8    Letter Agreement by and between Narrowstep Inc. and Allard de
        Stoppelaar, dated May 11, 2005 (11)


                                       31
<PAGE>


10.9    Purchase Agreement by and among Narrowstep Inc. and the Investors set
        forth on the signature pages dated February 22, 2006 (12)
10.10   Registration Rights Agreement by and among Narrowstep Inc. and the
        Investors named in the Purchase Agreement dated as of February 22, 2006
        (13)
10.11   Form of Warrant to Purchase Shares of Narrowstep Common Stock at the
        Warrant Price of $0.60 per Share (14)
10.12   Form of Warrant to Purchase Shares of Narrowstep Common Stock at the
        Warrant Price of $1.20 per Share (15)
10.13   Employment Agreement dated October 3, 2005 by and between Narrowstep
        Inc. and Carolyn Wall. (16)
10.14   Agreement dated May 30, 2006 by and between Narrowstep Inc. and Granahan
        McCourt Advisors LLC. (17)
10.15   Purchase Agreement by and among Narrowstep Inc. and the Investors set
        forth on the signature pages dated March 2, 2007 (18)
10.16   Form of Warrant to Purchase Shares of Narrowstep Common Stock at the
        Warrant Price of $0.60 per Share, dated as of March 2, 2007 (19)
10.17   Form of 12% Mandatorily Convertible Note, dated as of March 2, 2007 (20)
16.1    Letter on change in certifying accountants (21)
22.1    Subsidiaries of the registrant (22)
23.1    Consent of Lowenstein Sandler PC*
23.2    Consent of Rothstein, Kass & Company, P.C.
31.1    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
        under the Securities Exchange Act of 1934
31.2    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
        under the Securities Exchange Act of 1934
32.1    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of
        2002
32.2    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section
        1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of
        2002

* Previously filed.
(1) Previously filed as exhibit 3.4 to the Company's Amendment No. 2 to Form
SB-2 (Registration No. 333-108632) which was filed on December 6, 2004 and
incorporated herein by reference.
(2) Previously filed as exhibit 3.5 to the Company's Amendment No. 2 to Form
SB-2 (Registration No. 333-108632) which was filed on December 6, 2004 and
incorporated herein by reference.
(3) Previously filed as exhibit 4.1 to the Company's Form SB-2 (Registration No.
333-108632) which was filed on September 9, 2003 and is incorporated herein by
reference.
(4) Previously filed as Exhibit 10.2.3 to the Company's Form SB-2 (Registration
No. 333-134023) which was filed on May 11, 2006 and incorporated herein by
reference.
(5) Previously filed as exhibit 10.4 to the Company's Amendment No. 2 to Form
SB-2 (Registration No. 333-108632) which was filed on
December 6, 2004 and incorporated herein by reference.
(6) Previously filed as exhibit 10.4.1 to the Company's Amendment No. 2 to Form
SB-2 (Registration No. 333-108632) which was filed on December 6, 2004 and
incorporated herein by reference.
(7) Previously filed as exhibit 10.9 to the Company's Amendment No. 1 to Form
SB-2 (Registration No. 333-108632) which was filed on July 12, 2004 and
incorporated herein by reference.
(8) Previously filed as exhibit 10.12 to the Company's Amendment No. 4 to Form
SB-2 (Registration No. 333-108632) which was filed on March 4, 2005 and
incorporated herein by reference.
(9) Previously filed as exhibit 16.1 to the Company's Amendment No. 1 to Form
SB-2 (Registration No. 333-108632) which was filed on July 12, 2004 and
incorporated herein by reference.
(10) Previously filed as exhibit 10.19 to the Company's Amendment No. 2 to Form
SB-2 (Registration No. 333-108632) which was filed on December 6, 2004 and
incorporated herein by reference.
(11) Previously filed as exhibit 10.23 to the Company's Post Effective Amendment
No. 2 to Form SB-2 (Registration No. 333-108632) which was filed on August 8,
2005 and incorporated herein by reference.
(12) Previously filed as exhibit 10.1 to Form 8-K which was filed on February
22, 2006 and incorporated herein by reference.
(13) Previously filed as exhibit 10.2 to Form 8-K which was filed on February
22, 2006 and incorporated herein by reference.
(14) Previously filed as exhibit 10.3 to Form 8-K which was filed on February
22, 2006 and incorporated herein by reference.
(15) Previously filed as exhibit 10.4 to Form 8-K which was filed on February
22, 2006 and incorporated herein by reference.
(16) Previously filed as exhibit 10.29 to the Company's Form SB-2 (Registration
No. 333-134023) which was filed on May 11, 2006 and incorporated herein by
reference.
(17) Previously filed as exhibit 10.23 to Post-Effective Amendment No. 1 to the
Company's Form SB-2 (Registration No. 333-134023) which was filed on September
12, 2006 and incorporated herein by reference.
(18) Previously filed as exhibit 10.1 to Form 8-K which was filed on March 6,
2007 and incorporated herein by reference.
(19) Previously filed as exhibit 10.2 to Form 8-K which was filed on March 6,
2007 and incorporated herein by reference.


                                       32
<PAGE>


(20) Previously filed as exhibit 10.3 to Form 8-K which was filed on March 6,
2007 and incorporated herein by reference.
(21) Previously filed as exhibit 16.1 to Form 8-K/A which was filed on December
20, 2005 and incorporated herein by reference.
(22) Previously filed as exhibit 22.1 to the Company's Amendment No. 1 to Form
SB-2 (Registration No. 333-108632) which was filed on July 12, 2004 and
incorporated herein by reference.
+ Confidential portions of this agreement have been omitted and filed separately
with the Securities and Exchange Commission pursuant to an application for
confidential treatment.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table shows the fees paid or accrued for the audit and other
services provided by Rothstein, Kass & Company and audit related services such
as reviews of the quarterly SEC reports and quarterly SB2 provided by Ernst &
Young for the fiscal year ended February 28, 2007 and 2006 as applicable.


                                                   Year Ended
                                                  February 28,
                                             2007             2006
                                              $                 $
     ----------------------------------------------------------------
     ROTHSTEIN KASS & COMPANY, P.C
     -----------------------------
     Audit Fees                              215,711           30,820
     Audit-Related Fees                            0           10,000
     Tax Fees                                      0            7,885
     ----------------------------------------------------------------
     Total                                   215,711           48,705

     ERNST & YOUNG LLP
     -----------------
     Audit-Related Fees                       72,650          280,211
     ----------------------------------------------------------------
     Total                                    72,650          280,211



                                       33
<PAGE>



                                   SIGNATURES


Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.


                                                NARROWSTEP INC.

                                                /s/  David McCourt
                                                --------------------------------
                                                David McCourt
                                                Interim Chief Executive Officer


In accordance with the Exchange Act, this Report has been signed below by the
following persons on behalf of the Registrant and in the capacities indicated,
on May 30, 2007.



     SIGNATURE                              TITLE                      DATE

/s/ David C. McCourt   Chairman of the Board of Directors and      May 30, 2007
--------------------   Interim Chief Executive Officer
David C. McCourt

/s/ Lisa VanPatten     Chief Financial Officer                     May 30, 2007
------------------
Lisa VanPatten

/s/ Iolo Jones         Chief Strategy Officer and Director         May 30, 2007
------------------
Iolo Jones

/s/ Dennis Edmonds     Director                                    May 30, 2007
------------------
Dennis Edmonds

/s/ Roger Werner       Director                                    May 30, 2007
------------------
Roger Werner

/s/ John Whyte         Director                                    May 30, 2007
------------------
John Whyte

/s/ Rajan Chopra       Director                                    May 30, 2007
------------------
Rajan Chopra




                                       34
<PAGE>





                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS





                                                                           Page
Report of independent registered public accounting firm.............        36

Consolidated balance sheet..........................................        37

Consolidated statements of operations and comprehensive loss .......        38

Consolidated statements of changes in stockholders' equity .........        39

Consolidated statements of cash flows ..............................        40

Notes to consolidated financial statements..........................        41





                                       35
<PAGE>




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
Narrowstep Inc.

We have audited the accompanying consolidated balance sheet of Narrowstep Inc.
and Subsidiaries (collectively, the "Company") as of February 28, 2007, and the
related consolidated statements of operations and comprehensive loss, changes in
stockholders' equity, and cash flows for each of the years in the two year
period ended February 28, 2007. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of February 28, 2007, and the results of its consolidated operations
and its consolidated cash flows for the years in the two year period ended
February 28, 2007, in conformity with accounting principles generally accepted
in the United States.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has reported significant losses
from operations, had an accumulated deficit, utilized a significant amount of
cash from operations, and requires additional financing to fund future
operations. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.



/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
April 18, 2007


                                       36
<PAGE>


NARROWSTEP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
-------------------------------------------------------------------------------
                                                                    February 28,
                                                                        2007
                                                                          $
-------------------------------------------------------------------------------
ASSETS
  Current assets:
  Cash and cash equivalents                                             466,870
  Accounts  receivable, net of allowance for doubtful accounts of
    $940,534                                                          1,403,779
  Prepaid expenses and other current assets                             332,192
-------------------------------------------------------------------------------
Total current assets                                                  2,202,841
-------------------------------------------------------------------------------
  Property and equipment, net                                         1,234,557
  Software development costs, net                                       149,080
-------------------------------------------------------------------------------
TOTAL ASSETS                                                          3,586,478
===============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Current liabilities:
    Unearned revenue                                                    384,295
    Accounts payable                                                    960,580
    Net obligations under capital leases, current                        88,110
    Accrued expenses and other current liabilities                      977,948
-------------------------------------------------------------------------------
  Total current liabilities                                           2,410,933
    Net obligations under capital leases - long-term                    135,470
-------------------------------------------------------------------------------
TOTAL LIABILITIES                                                     2,546,403
-------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
  Common stock, $0.000001 par value 450,000,000 shares authorized,           45
    45,348,974 issued and outstanding
  Additional paid-in capital                                         20,543,688
  Accumulated deficit                                               (19,555,533)
  Accumulated other comprehensive income (loss)                          51,875
-------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY                                            1,040,075
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            3,586,478
===============================================================================
See Notes to Consolidated Financial Statements.


                                       37
<PAGE>


NARROWSTEP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
--------------------------------------------------------------------------------
                                                        Year Ended
                                                       February 28,
                                                  2007              2006
                                                    $                 $
----------------------------------------------------------------------------
REVENUE
  Narrowcasting and other                        4,369,117         1,499,633
  Production services                            1,639,718         1,206,629
----------------------------------------------------------------------------
Total revenue                                    6,008,835         2,706,262
----------------------------------------------------------------------------
COSTS AND EXPENSES
  Operating                                      2,655,395         1,804,879
  Selling, general and administrative            8,206,223         4,779,764
  Research & development                         1,088,723           390,606
  Impairment charge on long-lived assets         1,228,437                 -
----------------------------------------------------------------------------
Total operating expenses                        13,178,778         6,975,249
----------------------------------------------------------------------------
OPERATING LOSS                                  (7,169,943)       (4,268,987)
----------------------------------------------------------------------------
  Other income (expense), net                      118,814           (14,641)
  Currency exchange income (loss)                  (10,345)           (6,149)
----------------------------------------------------------------------------
NET LOSS                                        (7,061,474)       (4,289,777)
============================================================================
  Foreign currency translation adjustment           74,135           (36,669)
----------------------------------------------------------------------------
COMPREHENSIVE LOSS                              (6,987,339)       (4,326,446)
============================================================================

NET LOSS PER COMMON SHARE - BASIC AND DILUTED        (0.16)            (0.13)
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING,
BASIC AND DILUTED                               45,240,652        32,190,594

See Notes to Consolidated Financial Statements.


                                       38
<PAGE>
<TABLE>
<CAPTION>

NARROWSTEP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                                                                                      ACCUMULATED
                                                              ADDITIONAL      STOCK                      OTHER
                                         COMMON    COMMON       PAID-IN    SUBSCRIPTION  ACCUMULATED COMPREHENSIVE
                                         SHARES     STOCK       CAPITAL     RECEIVABLE     DEFICIT    INCOME/(LOSS)    TOTAL
                                                      $            $            $             $             $             $
-------------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>       <C>          <C>          <C>               <C>       <C>
BALANCES - MARCH 1, 2005                30,375,743        30    9,323,577          -     (8,204,282)        14,409    1,133,734
-------------------------------------------------------------------------------------------------------------------------------
Common stock sold in private placement,
net of expenses                         14,420,389        15    9,822,503   (1,560,000)                               8,262,518
Commission paid for private placement
services including related
party transactions of $760,702                                 (1,532,675)     150,000                               (1,382,675)
Fair value of warrants issued in
connection with private placement                                 710,550                                               710,550
Payment for services in kind               255,342                649,619                                               649,619
Stock options exercised                     85,000                 42,500                                                42,500
Net loss                                                                                 (4,289,777)                 (4,289,777)
Foreign currency translation loss                                                                          (36,669)     (36,669)
Stock based compensation charge                                   695,297                                               695,297
-------------------------------------------------------------------------------------------------------------------------------
BALANCES - FEBRUARY 28, 2006            45,136,474        45   19,711,371   (1,410,000) (12,494,059)       (22,260)   5,785,097
-------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock subscribed,
net of commissions                                                           1,410,000                                1,410,000
Payment for services in kind to
related parties                            100,000                 68,000                                                68,000
Warrants exercised                         100,000                  1,000                                                 1,000
Stock options exercised                     12,500                  6,250                                                 6,250
Placement legal fees                                              (46,668)                                              (46,668)
Net loss                                                                                 (7,061,474)                 (7,061,474)
Foreign currency translation gain                                                                           74,135       74,135
Stock based compensation charge                                   803,735                                               803,735
-------------------------------------------------------------------------------------------------------------------------------
BALANCES - FEBRUARY 28, 2007            45,348,974        45   20,543,688          -    (19,555,533)        51,875    1,040,075
-------------------------------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.
</TABLE>



                                       39
<PAGE>
<TABLE>
<CAPTION>


NARROWSTEP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------
                                                                                              Years Ended
                                                                                              February 28
                                                                                         2007             2006
                                                                                           $                $
------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss                                                                             (7,061,474)      (4,289,777)
  Adjustments to reconcile net loss to net cash used in operating activities:
  Allowance for Doubtful accounts                                                         738,821         (103,695)
  Depreciation and amortization                                                           573,934          520,806

  Loss on disposal of property and equipment                                                    -            5,437
  Stock-based compensation expense                                                        803,735          695,297

  Interest on short-term investment                                                       (57,609)               -

  Fair value of options and warrants granted to third party suppliers                           -          649,619

  Impairment charge on long-lived assets                                                1,228,437                -
  Changes in net cash attributable to changes in operating assets and
    liabilities:
  Accounts receivable,                                                                 (1,724,206)          64,075
  Prepaid expenses and other current assets                                              (196,650)         (48,335)

  Unearned revenue                                                                        207,667          176,628
  Accounts payable, accrued expenses and other current liabilities                      1,009,503         (364,063)
------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES                                                  (4,477,842)      (2,694,008)
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                                                  (1,132,945)        (124,749)

  Purchase of short-term investments                                                            -       (2,500,000)
  Payments for software development costs                                                (120,136)        (101,776)

  Proceeds from sale of short-term investments                                          2,557,609                -
------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                     1,304,528       (2,726,525)
------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net proceeds from issuance of common stock                                            1,431,333        7,590,393

  Proceeds from exercise of stock options and warrants                                      7,250           42,500
  Payments on capital leases                                                              (75,298)         (47,742)
------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                               1,363,285        7,585,151
------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   (1,810,029)       2,164,618
Effect of exchange rates on change in cash                                                 44,045            9,445
Cash and cash equivalents at the beginning of year                                      2,232,854           58,791
------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR                                          466,870        2,232,854
==================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
  Property and equipment acquired under capital leases                                    196,769
  Common stock issued pursuant to consulting agreement                                     68,000

See Notes to Consolidated Financial Statements.
</TABLE>


                                       40
<PAGE>



                        NARROWSTEP INC. AND SUBSIDIARIES
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION AND GOING CONCERN

Narrowstep Inc. was incorporated in Delaware on May 9, 2002 and adopted a fiscal
year-end of February 28th (or 29th). The accompanying consolidated financial
statements include the accounts of Narrowstep Inc. and its wholly-owned
subsidiaries Narrowstep Ltd. and Sportshows Television Ltd. ("STV"),
(collectively, the "Company").

Narrowstep Inc. is in the business of developing, producing, transmitting and
managing, via the Internet, television-like channels of streaming video
broadcasts which are tailored for, and targeted to, specific audiences.
Narrowstep Ltd. also offers a comprehensive range of related services which
facilitate channel development, including consulting, channel design,
maintenance, operation and content production. STV's main business is the
filming and production of sporting events, plus distribution of TV programs
internationally. The main areas of specialization are water sports such as sail
boat racing, windsurfing, and extreme sports such as mountain biking, skating
and snow sports.

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. The
Company has incurred cumulative losses of approximately $19,600,000 since
inception. The Company has a working capital deficit of approximately $208,000
and has utilized cash from operations over the past two fiscal years of
approximately $7,172,000. These factors among others, raise substantial doubt
about the company's ability to continue as a going concern.

On March 2, 2007 the company raised $7,110,000 in a debt offering that is
mandatorily convertible into common stock in a subsequent financing round (See
Note 11). With the completion of this financing the Company has sufficient
working capital to fund our operations for the next six to nine months.
Management will continue to pursue various financing options in order to fully
fund our longer term cash requirements. In addition, we are making efforts to
improve our financial position by evaluating ongoing operating expenses,
increasing our effort to collect outstanding receivables and continuing to focus
on increasing revenues.

There are currently no commitments in place for additional financing, nor can
assurances be given that such financing will be available. While the Company is
confident that it will raise the capital necessary to fund operations, there can
be no assurances in that regard. The consolidated financial statements do not
include any adjustments that may arise as a result of this uncertainty.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries and are expressed in US dollars. All inter-company
accounts and transactions have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amount of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

REVENUE RECOGNITION

The Company's two primary sources of revenue are production services and
Internet TV channel building or "narrowcasting".

Internet TV channel building service revenue includes the following: (i)
consulting fees charged to assist customers in the design and development of the
customer's channel, (ii) consulting fees related to recording and encoding of
specific customer content, and (iii) monthly license fees charged for ongoing
maintenance, support, upgrades and content hosting activity. The minimum license
period is 12 months unless it is an evaluation license. Revenues for the
consulting fees are only recognized once the design and


                                       41
<PAGE>


development of the channel is completed and accepted by the customer. Recording
and encoding fees are due on delivery of the tapes or on completion of the
upload of the encoded material onto the Company's servers. Monthly license fees
are recognized month-by-month starting with the month when the channel starts
narrowcasting. Any up-front fees are deferred until the revenue is earned by
either completion of the consulting activity or month-by-month hosting activity.

Production services revenues include the following: (i) preparation, scripting
and filming of a single or multiple series of events, (ii) live editing and
encoding of such events, (iii) editing of footage and final production into
programs in the Company's editing suites, and (iv) copying and delivery of the
programs. Revenues are recognized once delivery of a program, in the form of
edited tape, takes place. If it is a series then payments are staged and
revenues recognized on completion of each discrete program. Any up-front fees
are deferred and only recognized once the program, editing and production are
complete. Until the revenues are earned and recognized any cash received
up-front is treated as unearned revenue and any costs incurred in connection
with services that have not been completed are capitalized as prepaid expenses.

The Company's revenue recognition policy complies with the Securities and
Exchange Commission Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition", amended by SAB 104. Revenue is recognized when all of the
following criteria are met:

        o       Persuasive evidence of an arrangement exists - A non-cancelable
                signed agreement between the Company and the customer is
                considered to be evidence of an arrangement.

        o       Delivery has occurred or services have been rendered - Although
                deposits or prepayments are common with orders, revenues are
                recognized only on the delivery of content or channel or
                service. Revenue from resellers is recognized upon sell-through
                to the end customer.

        o       The seller's price to the buyer is fixed or determinable - All
                our customers sign a written contract that states the price the
                customer will pay for the monthly license fee and for the
                bandwidth and storage usage. Our contracts terms are typically
                12 months. If the customer decides to cancel a channel, all of
                the development work, content production, initial license and
                monthly license fees to-date remain due and non-cancelable.

        o       Collectibility is reasonably assured - The Company runs normal
                business credit checks on unknown new customers to minimize the
                risk of a customer avoiding payment. Collection is deemed
                probable if the Company expects that the customer will be able
                to pay amounts under the arrangement as payments become due. If
                the Company determines that collection is not probable, the
                revenue is deferred and recognized upon cash collection. The
                Company also seeks a deposit wherever possible before commencing
                work on a new contract.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the Company's assets and liabilities, which qualify as
financial instruments under Statement of Financial Accounting Standards ("SFAS")
No. 107, "Disclosures About Fair Value of Financial Instruments," approximates
the carrying amounts presented in the consolidated balance sheet.

CASH AND CASH EQUIVALENTS

For the purposes of the consolidated statements of cash flows, the Company
considers all highly-liquid debt instruments purchased with maturities of three
months or less to be cash equivalents. At February 28, 2007 cash and cash
equivalents consisted of checking and money market accounts aggregating
$466,870. As of February 28, 2007 and at various times during the year, balances
of cash at financial institutions exceeded the federally insured limit. The
Company has not experienced any losses in such accounts and believes it is not
subject to any significant credit risk on cash and cash equivalents.

SHORT-TERM INVESTMENTS

As of February 28, 2007, there were no short-term investments. Short-term
investments as of February 28, 2006 consisted of a certificate of deposit which
matured on September 25, 2006.


                                       42
<PAGE>


ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable represent uncollateralized customer obligations due under
normal trade terms generally requiring payment within 30 days from the invoice
date. Follow-up calls and correspondence is made if unpaid accounts receivable
go beyond the invoice due date. Payments of accounts receivable are allocated to
the specific invoices identified on the customer's remittance advice.

Accounts receivable are stated at the amount management expects to collect from
outstanding balances. The carrying amounts of accounts receivable is reduced by
a valuation allowance that reflects management's best estimate of the amounts
that will not be collected. Management individually reviews all accounts
receivable balances that exceed the due date and estimates the portion, if any,
of the balance that will not be collected. Management provides for probable
uncollectible amounts through a charge to earnings and a credit to a valuation
allowance based on its assessment of the current status of individual accounts.
Balances that are still outstanding after management has used reasonable
collection efforts are written off through a charge to the valuation allowance
and a credit to accounts receivable.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost net of accumulated depreciation and
amortization. Costs of additions and substantial improvements to property and
equipment are also capitalized. Maintenance and repairs are charged to
operations, while betterments and improvements are capitalized. The Company
computes depreciation and amortization for all property and equipment using the
straight-line method over the estimated useful lives of assets. The estimated
useful lives of assets are as follows: Computer & other Equipment are 3 years,
Furniture and Fixtures are 4 years, Motor Vehicles are 4 years and Leasehold
improvements are over the term of the lease.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company adheres to SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" and periodically assesses the recoverability of the
carrying amounts of long-lived assets, including intangible assets. A loss is
recognized when expected undiscounted future cash flows are less than the
carrying amount of the asset. The impairment loss is the difference by which the
carrying amount of the asset exceeds its fair value.

SOFTWARE DEVELOPMENT COSTS

The Company accounts for its internal use software under SOP 98-1, "Accounting
for the Costs of Computer Software Developed for or Obtained for Internal Use",
which requires the capitalization of certain costs incurred in connection with
developing or obtaining software for internal use. Capitalized software
development costs consist primarily of programmers' compensation and benefits,
where applicable. These costs are amortized over a period not to exceed three
years beginning when the asset is substantially ready for use. Costs incurred
during the preliminary project stage, as well as maintenance and training costs
are expensed as incurred.

During the years ended February 28, 2007 and 2006, the Company capitalized
$120,136 and $101,776 respectively, and recorded amortization expense of
$128,491 and $129,850, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is the excess of the purchase price over the fair value of net assets
acquired in business combinations accounted for under the purchase method. In
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets", goodwill
and indefinite-lived intangible assets are not amortized, but instead are tested
for impairment at least annually. Intangible assets that have finite useful
lives are amortized over their useful lives, which range from three to seven
years.

FOREIGN CURRENCY TRANSLATION

The Company complies with the accounting and disclosure requirements of SFAS No.
52 "Foreign Currency Translation." For operations outside the United States that
prepare financial statements in currencies other than the U.S. dollar, statement
of operations amounts are translated at an average exchange rate for the year.
Assets and liabilities are translated at period end exchange rates. Translation
adjustments are presented as a component of accumulated other comprehensive
income (loss) within stockholders' equity. Gains and losses from foreign
currency transactions are included in the consolidated statements of operations.


                                       43
<PAGE>


ADVERTISING AND PROMOTIONAL COSTS

Advertising and promotional costs are expensed as incurred. Such costs are
included in selling, general and administrative expenses in the accompanying
consolidated statements of operations. Advertising and promotional costs charged
to operations were $457,051 and $77,824 for the years ended February 28, 2007
and February 28, 2006, respectively.

COMPREHENSIVE INCOME

The Company complies with SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes rules for the reporting and display of comprehensive income
(loss) and its components. SFAS No. 130 requires the Company's change in the
foreign currency translation adjustments to be included in other comprehensive
income (loss).

INCOME TAXES

Narrowstep Inc., the parent company, is a United States corporation and files
corporate income tax returns in the United States. Narrowstep Ltd. and STV are
companies incorporated in England and Wales and, as such, file their own
corporate income tax returns in the United Kingdom. The provision for income
taxes is based on reported income before income taxes. Deferred income taxes are
provided in accordance with SFAS No. 109 "Accounting for Income Taxes", for the
effect of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for
income tax purposes. Deferred tax assets and liabilities are measured using
currently enacted tax laws and the effects of any changes in income tax laws are
included in the provision for income taxes in the period of enactment. Valuation
allowances are recognized to reduce deferred tax assets when it is more likely
than not that the asset will not be realized. In assessing the likelihood of
realization, the Company considers estimates of future taxable income, the
character of income needed to realize future benefits and all available
evidence.

STOCK-BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), "Accounting for Stock-Based Compensation (Revised)." SFAS No. 123(R)
supersedes APB No. 25 and its related implementation guidance. SFAS No. 123(R)
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services. It also addresses
transactions in which an entity incurs liabilities in exchange for goods or
services that are based on the fair value of the entity's equity instruments or
that may be settled by the issuance of those equity instruments. SFAS No. 123(R)
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R) requires
a public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). That cost will be recognized over the period
during which an employee is required to provide service in exchange for the
award the requisite service period (usually the vesting period). No compensation
costs are recognized for equity instruments for which employees do not render
the requisite service. The grant-date fair value of employee share options and
similar instruments will be estimated using option-pricing models adjusted for
the unique characteristics of those instruments (unless observable market prices
for the same or similar instruments are available). If an equity award is
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award over
the fair value of the original award immediately before the modification. The
Company adopted SFAS No. 123(R), effective March 1, 2006. Based on stock options
that vested during the year ended February 28, 2007, the Company recorded
approximately $702,000 in additional compensation expense for the year ended
February 28, 2007, under SFAS No. 123(R).

Prior to March 1, 2006 the Company followed SFAS No. 123, "Accounting for
Stock-Based Compensation." The provisions of SFAS No. 123 allowed companies to
either expense the estimated fair value of stock options or to continue to
follow the intrinsic value method set forth in APB Opinion 25, "Accounting for
Stock Issued to Employees" ("APB 25"), but disclose the pro forma effect on net
income (loss) had the fair value of the options been expensed.

Had compensation cost for the Company's stock option plan been determined based
on the fair value at the grant or issue date prior to March 1, 2006 and
consistent with the provisions of SFAS No. 123(R), the Company's net loss and
loss per common share would have been reduced to the pro forma amounts indicated
below:


                                       44
<PAGE>

--------------------------------------------------------------------
                                                          Year Ended
                                                         February 28,
                                                             2006
                                                              $
--------------------------------------------------------------------
Net loss as reported                                     (4,289,777)
Add: Stock-based employee compensation included in
reported net loss                                           695,297
Less: Pro forma stock based compensation expense         (3,019,437)
--------------------------------------------------------------------
Pro forma net loss                                       (6,613,917)
--------------------------------------------------------------------
Basic and diluted loss per common share as                    (0.13)
reported
Pro forma basic and diluted loss per common share             (0.21)
Weighted-average common shares outstanding               32,190,594


PENSION, POST-RETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS

Certain employees of STV are covered by a non-contributory defined contribution
pension plan. Pension costs charged to operations were $12,330 and $12,250 for
the years ended February 28, 2007 and 2006, respectively.

BORROWINGS

An overdraft facility is a line of credit arrangement, negotiated with a bank
and usually renewable on an annual basis, whereby the bank's customer is
permitted to take its checking account into a debit balance on a pre-agreed
interest basis up to an agreed amount. Amounts utilized under overdraft
facilities are payable on demand. At February 28, 2007 and February 28, 2006,
the overdraft facilities consisted of approximately $19,600 and $70,000 with
Barclays Bank PLC, respectively and approximately $39,000 and $34,000 with
Natwest Bank PLC, respectively. Neither facility was utilized on February 28,
2007. The interest rate on the Barclays facility is 5.75% above Barclays'
variable base rate (which base rate was 5.25% per annum as of February 28,
2007). The interest rate on the Natwest facility is 5.75% above Natwest's
variable base rate (which base rate was 5.25% per annum as of February 28,
2007). The Barclays overdraft facility was renewed on March 20, 2006. The
Natwest facility was renewed on May 31, 2006.

IMPACTS OF RECENT ACCOUNTING PRONOUNCEMENTS

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value. SFAS 159 is effective for fiscal years beginning after November
15, 2007. The Company does not expect the adoption of SFAS 159 to have a
material impact on its consolidated financial position, results of operations or
cash flows.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109" ("FIN
No. 48"). FIN No. 48 clarifies what criteria must be met prior to recognition of
the financial statement benefit of a position taken in a tax return. FIN No. 48
will require companies to include additional qualitative and quantitative
disclosures within their financial statements. The disclosures will include
potential tax benefits from positions taken for tax return purposes that have
not been recognized for financial reporting purposes and a tabular presentation
of significant changes during each period. The disclosures will also include a
discussion of the nature of uncertainties, factors which could cause a change,
and an estimated range of reasonably possible changes in tax uncertainties.

FIN No. 48 will also require a company to recognize a financial statement
benefit for a position taken for tax return purposes when it will be
more-likely-than-not that the position will be sustained. FIN No. 48 will be
effective for fiscal years beginning after December 15, 2006. The adoption of
FIN No. 48 is not expected to have a material impact on the company's financial
statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS No. 157 is effective in fiscal years beginning after
November 15, 2007. Management is currently evaluating the impact that the
adoption of this statement will have on the Company's consolidated financial
statements.


                                       45
<PAGE>


RECLASSIFICATIONS

The presentation of the February 28, 2006 consolidated statement of operations
and comprehensive loss has been reclassified to conform to the February 28, 2007
presentation.

3. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets relate to the Company's acquisition of STV. At
the end of the fiscal year, the Company evaluated the goodwill and intangible
assets, and determined that these assets were impaired. The carrying value of
the goodwill of $1,157,581 was written off during the fourth quarter of fiscal
2007. The net intangible assets, of $70,856 as of February 28, 2007, were also
written off during the fourth quarter of fiscal 2007.

The reason for the impairment was due to several factors. In the past the
production segment has not been profitable and the company is currently
re-evaluating the products and services being offered by the production segment.
Several senior employees of STV are no longer employed with the Company. The
prospects or sales leads generated from this segment have been declining, and we
have incurred significant bad debts related to the existing sales.

4.  PROPERTY AND EQUIPMENT

Property and equipment consists of the following at February 28,2007:

     ----------------------------------------------------------------
                                                      Year Ended
                                                   February 28, 2007
                                                           $
     ----------------------------------------------------------------
     Leasehold improvements                                  174,095
     Furniture and fixtures                                  102,026
     Computer & other equipment                            2,486,641
     Motor vehicles                                           25,530
     Less:  Accumulated depreciation and
     amortization                                        (1,553,735)
     ----------------------------------------------------------------
     Net Book Value                                        1,234,557
     ================================================================

The Company leases certain equipment under capital lease arrangements.
Depreciation for assets recorded under capital lease agreements is included
within depreciation in the consolidated statements of operations. Assets
recorded under capital lease agreements included in computer and other equipment
consisted of equipment with a cost of $532,007, with an associated balance of
accumulated depreciation of $336,989, as of February 28, 2007.

5.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consists of the following at
February 28, 2007:

-----------------------------------------------------------------
                                                      Year Ended
                                                     February 28,
                                                         2007
                                                           $
-----------------------------------------------------------------
Compensation accrual                                     311,183
Professional fees accrual                                601,557
Other accural                                             65,208
-----------------------------------------------------------------
Total                                                    977,948
=================================================================


                                       46
<PAGE>


6. STOCK OPTION PLAN

In December 2003, the Board of Directors adopted the Narrowstep Inc. 2004 Stock
Option Plan. The purpose of the stock option plan is to allow the Company to
provide a means by which eligible employees, Board members and certain
non-employees may be given an opportunity to benefit from increases in value of
its common shares. The stock option plan is administered by the Board of
Directors. The Board is empowered to determine from time-to-time which of the
persons eligible under the stock option plan shall be granted awards; when and
how each award shall be granted; what type or combination of types of awards
shall be granted; the provisions of each award granted, including the time or
times when a person shall be permitted to receive common shares pursuant to an
award; and the number of common shares with respect to which an award shall be
granted to each person; to construe and interpret the stock option plan and
awards granted under it, and to establish, amend and revoke rules and
regulations for its administration.

The Board, at any time, and from time to time, may amend the stock option plan.

The following table summarizes activity of the Company's stock option plan for
the years ended February 28, 2007 and 2006:

     ------------------------------------------------------------------------
                                                                 Weighted-Avg.
                                                    Number of       Exercise
                                                     Shares          Price
                                                                       $
     -----------------------------------------------------------------------
     Outstanding at February 28, 2005               3,396,358           0.22
     Granted                                        6,960,855           1.17
     Exercised                                       (85,000)           0.50
     Forfeited                                      (150,000)           0.20
     -----------------------------------------------------------------------
     Outstanding at February 28, 2006              10,122,213           0.95
     Granted                                        2,666,500           0.89
     Exercised                                       (12,500)           0.50
     Forfeited                                      (504,106)           0.85
     -----------------------------------------------------------------------
     Outstanding at February 28, 2007              12,272,107           0.94


The following table contains information concerning outstanding stock options as
of February 28, 2007

<TABLE>
<CAPTION>

                                                                                             Weighted Avg
 Number of                         Weighted Avg       Weighted Avg         Number of      Exercise Price of
  Options        Range of        Exercise Price of    Contractual           Options            Options
Outstanding   Exercise Prices   Options Outstanding       Life            Exercisable        Exercisable
--------------------------------------------------------------------------------------------------------
<S>            <C>                            <C>              <C>         <C>                     <C>
  1,567,252    $0.00 - $0.30                  $0.20            2.17        1,567,252               $0.20
  1,020,000    $0.31 - $0.45                  $0.40            1.84        1,010,000               $0.40
    317,500    $0.46 - $0.60                  $0.50            3.29          317,500               $0.50
    653,000    $0.61 - $0.75                  $0.68            6.86          653,000               $0.68
    430,000    $0.76 - $0.90                  $0.83            9.37          380,000               $0.82
  2,135,000    $0.91 - $1.05                  $0.95            6.98          750,000               $1.00
  4,552,664    $1.06 - $1.20                  $1.20            5.97        4,052,664               $1.20
    128,500    $1.21 - $1.35                  $1.25            8.32          128,500               $1.25
  1,468,191    $1.36 - $1.50                  $1.50            3.99        1,468,191               $1.50
--------------------------------------------------------------------------------------------------------
 12,272,107    $0.00 - $1.50                  $0.94            5.20       10,327,107               $0.93
--------------------------------------------------------------------------------------------------------
</TABLE>



                                       47
<PAGE>


On May 3, 2006 the Company issued warrants to purchase 40,000 shares at an
exercise price of $1.01 and are exercisable until May 3, 2011. On October 16,
2006 the Company issued warrants to purchase 6,000 shares at an exercise price
of $0.95 and are exercisable until October 16, 2011. All warrants were issued
for consultancy services for the fiscal year ended February 28, 2007.

The fair value of options and warrants granted during the years ended February
28, 2007 and 2006 were estimated using the Black-Scholes option pricing model
with the following weighted average assumptions:

             -----------------------------------------------------------
             Expected life in years                          2
             Risk-free interest rate                   4.72% to 5.12%
             Volatility                                     75%
             Dividend Yield                                 Nil
             -----------------------------------------------------------

7.  INCOME TAXES

The Company did not incur taxes due to the net losses in the fiscal years ended
February 28, 2007 and 2006. The components of net loss before income taxes are
as follows

-------------------------------------------------------------------------------
                                                Year Ended       Year Ended
                                           February 28, 2007  February 28, 2006
                                                    $                $
-------------------------------------------------------------------------------
United States                                  (5,399,827)      (2,427,885)
Foreign                                        (1,661,647)      (1,861,892)
-------------------------------------------------------------------------------
Net Loss                                       (7,061,474)      (4,289,777)
================================================================================


The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate as follows:

------------------------------------------------------------------------------
                                             Year Ended        Year Ended
                                          February 28, 2007  February 28, 2006
                                                 $                 $
------------------------------------------------------------------------------
Income tax at the federal
  statutory rate of 35%                     (2,471,516)      (1,501,422)
Non-deductible costs                           732,512          525,797
Change in valuation allowances               1,659,081          884,781
Foreign tax rate differences                    83,082           93,095
Other                                           (3,159)          (2,251)
------------------------------------------------------------------------------
Total provision for income taxes                     0                0
==============================================================================

Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The components of deferred income
tax assets and liabilities are as follows:

-----------------------------------------------------------------------------
                                              Year Ended       Year Ended
                                         February 28, 2007  February 28, 2006
                                                  $                 $
-----------------------------------------------------------------------------
  Net operating loss carryforwards            (3,904,964)      (2,551,340)
    Allowance for bad debts                     (329,187)
-----------------------------------------------------------------------------
Gross deferred tax assets                     (4,234,151)      (2,551,340)
  Depreciation and amortization                   39,819           16,090
-----------------------------------------------------------------------------
Gross deferred tax liabilities                    39,819           16,090
  Less:  valuation allowance                   4,194,332        2,535,250
-----------------------------------------------------------------------------
Net Book Value                                         0                0
=============================================================================


                                       48
<PAGE>


Management regularly assesses the ability to realize deferred tax assets based
upon the weight of available evidence, including such factors as the recent
earnings history and expected future taxable income. The methodology used by
management to determine the amount of deferred tax assets that are likely to be
realized is based upon the Company's recent earnings and estimated future
taxable income in applicable tax jurisdictions.

The Company has not generated any taxable income to date, and therefore has not
had to pay any income tax since its inception. The Company has provided a full
valuation allowance against the deferred tax asset since it is more likely than
not that the asset will not be recovered. For the fiscal year ended February 28,
2007, the Company's net operating loss carryforward, at the expected tax rates
for its operations, is approximately $5,570,000 which is deductible against
future taxable income generated in the United Kingdom, which will remain in
place until utilized and approximately $5,526,000 which is deductible against
future taxable income generated in the United States, which will remain
available until utilized or begin to expire through February 28, 2025.

8.       REPORTABLE SEGMENTS

The Company complies with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires disclosures of
segment information on the basis that is used internally for evaluating segment
performance and deciding how to allocate resources to segments.

Narrowstep Inc. manages its business as two main segments, Narrowstep Ltd. which
consists of a single operating segment - "narrowcasting" (i.e. the provision of
television channels to niche audiences globally), and STV's business - the
production of specialized sailing and extreme sports activities.

Management relies on an internal management reporting process that provides
revenue and segment operating income (loss) for making financial decisions and
allocating resources based on these segments. Management believes that
segment-operating income (loss) is an appropriate measure of evaluating the
operational performance of the Company's segments. However, this measure should
be considered in addition to, not as a substitute for, or superior to, income
(loss) from operations or other measures of financial performance prepared in
accordance with accounting principles generally accepted in the United States.

Summarized information by segment for the years ended February 28, 2007 and 2006
is as follows:

<TABLE>
<CAPTION>

                                                                          Fiscal Year Ended
                                       ------------------------------------------------------------------------------------
                                                    February 28, 2007                          February 28, 2006
                                       ----------------------------------------     ---------------------------------------
                                      Narrowcasting    Production                  Narrowcasting    Production
                                        and other       Services       Total         and other       Services       Total
                                            $              $                             $              $             $
                                       ----------     ----------     ----------     ----------     ----------    ----------
<S>                                     <C>            <C>            <C>            <C>            <C>            <C>
  Total revenue by segment              4,369,117      1,639,718      6,008,835      1,499,633      1,206,629      2,706,262
                                       ----------     ----------     ----------     ----------     ----------    ----------
  Operating expenses                   (7,085,971)    (2,263,992)    (9,349,963)    (2,692,066)    (1,577,894)    (4,269,960)
  Depreciation and amortization          (488,119)       (43,498)      (531,617)      (344,253)      (134,238)      (478,491)
  Interest expense                        (13,075)          (152)       (13,227)       (12,817)        (4,354)       (17,171)
  Interest income                         130,825          1,216        132,041          2,021            510          2,531
                                       ----------     ----------     ----------     ----------     ----------    ----------
OPERATING LOSS BY SEGMENT              (3,087,223)      (666,708)    (3,753,931)    (1,547,482)      (509,347)    (2,056,829)
                                       ==========     ==========     ==========     ==========     ==========    ==========

  Unallocated corporate expenses                                     (1,233,054)                                   (845,716)

  Impairment of long-lived assets                                    (1,228,437)                                          -
  Stock based compensation charges                                     (803,735)                                   (695,297)
  Costs related to options and
warrants                                                                      -                                    (649,619)
  Amortization of intangible assets                                     (42,317)                                    (42,316)
                                       ----------     ----------     ----------     ----------     ----------    ----------
TOTAL NET LOSS                                                       (7,061,474)                                 (4,289,777)
                                       ==========     ==========     ==========     ==========     ==========    ==========

PROPERTY, EQUIPMENT AND SOFTWARE        1,301,293         82,344      1,383,637        399,982        35,332       435,314
DEVELOPMENT
</TABLE>


                                       49
<PAGE>


Summarized information by geographic region for the years ended February 28,
2007 and 2006 is as follows:

-------------------------------------------------------------------------------
                                            Year Ended
                                            February 28,
                                         2007            2006            Percent
                                          $                $             Change
-------------------------------------------------------------------------------
United States                          755,452          333,884             126%
Europe, Middle-East and Africa       4,794,144        2,137,260             124%
Asia Pacific                           356,765          212,037              68%
Internet Sales                         102,474           23,081             344%
-------------------------------------------------------------------------------
Total                                6,008,835        2,706,262             122%
===============================================================================


MAJOR CUSTOMERS

For the fiscal year ended February 28, 2007, the largest four customers in the
aggregate accounted for approximately $1,400,000, or 23% of revenues compared
with approximately $1,200,000, or 44% of revenues, for the fiscal year ended
February 28, 2006. The accounts receivable balance for the largest four
customers was approximately $479,000 as of February 28, 2007.

9.       RELATED PARTY TRANSACTIONS

OPTIONS GRANTED TO DIRECTORS AND OFFICERS

OPTIONS GRANTED TO CURRENT DIRECTORS. The Company has granted to Roger Werner, a
member of the Board of Directors, options to purchase 300,000 shares at an
exercise price of $1.18 on March 28, 2006 which are exercisable until March 28,
2016. The Company has granted Rajan Chopra, a member of the Board of Directors,
options to purchase 300,000 shares at an exercise price of $0.80 on September
28, 2006 which are exercisable until September 28, 2016. The Company has granted
to both David McCourt and Jack Whyte, members of the board of directors, options
to purchase 300,000 shares at an exercise price of $0.67 per share on June 7,
2006 which is exercisable until June 27, 2011. All the option granted above
fully vested on the date granted.

On May 23, 2006, the Company granted options to purchase 6,000 shares to Dennis
Edmonds, a member of the Board of Directors, at an exercise price of $0.75 per
share. These options vested on the grant date and are exercisable until May 23,
2016.

On December 2, 2005, the Company entered into a consultancy agreement with Roger
L. Werner Jr. Pursuant to this agreement, on May 23, 2006, Mr. Werner was
granted options to purchase 30,000 shares at an exercise price of $0.75 per
share, for consultancy services for the year ended February 28, 2006.

OPTIONS GRANTED TO FORMER DIRECTORS. The Company has granted Shelly Palmer, a
former member of the Board of Directors, options to purchase 6,000 shares at an
exercise price of $0.75 per share. These options were granted and vested on May
23, 2006 and are no longer exercisable. The Company has granted Peter Sidall, a
former member of the Board of Directors, options to purchase 6,000 shares at an
exercise price of $0.75 per share. These options were granted and vested on May
23, 2006 and are exercisable until December 31, 2007 per his separation
agreement. The Company had granted options to Cliff Webb, a former officer and
Board member, options to purchase 1,000,000 shares at an exercise price of $1.20
per share. The options are fully vested and exercisable until December 31, 2007
per his separation agreement.

OPTIONS GRANTED TO CURRENT OFFICERS. On February 8, 2007, the Company granted
options to purchase 200,000 shares to Lisa VanPatten, CFO, at an exercise price
of $0.92 per share. These options vest annually for 3 years and expire on
February 8, 2017.

OPTIONS GRANTED TO FORMER OFFICERS. The Company has granted options to purchase
1,000,000 shares to Steven Crowther, our former Senior Vice President and Chief
Financial Officer, at an exercise price of $1.20 per share. 500,000 of these
options were granted and vested on March 1, 2005 and are exercisable until
February 28, 2015. 500,000 of these options were granted on August 11, 2005,
100,000 of which vested immediately and the remaining 400,000 vest on July 1,
2006. When vested, these options are exercisable until August 11, 2015. On
January 17, 2006, the Company granted Steven Crowther additional options to
purchase 100,000 shares, at an exercise price of $0.90 per share. 50,000 of
these options vested immediately on January 17, 2006. In connection with


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the Separation and General Release Agreement between us and Mr. Crowther, the
period during which Mr. Crowther may exercise his vested options was extended
from September 29, 2006 until June 29, 2007.

The Company has granted options to purchase a total of 900,000 shares to Stephen
Beaumont, our former President and Chief Executive Officer. 200,000 of these
options were granted on November 15, 2005 at an exercise price of $1.50, 100,000
vested immediately and the remainder vested on February 1, 2006. The remaining
options were granted on February 28, 2006, 250,000 at an exercise price of $1.00
per share, which vested immediately, and 450,000 at an exercise price of $1.50
per share, 225,000 of which vest on June 30, 2006 and 225,000 of which vest on
December 31, 2006. In connection with the Separation and General Release
Agreement between us and Mr. Beaumont, the period during which Mr. Beaumont may
exercise his vested options was extended until December 31, 2007.

TRANSACTIONS WITH COMPANIES IN WHICH STOCKHOLDERS HOLD AN INTEREST

Narrowstep Ltd. has developed a channel for LTR Consultancy. John Goedegebuure,
a founder and shareholder of Narrowstep Inc., is the Managing Director and a
shareholder of LTR Consultancy. For the years ended February 28, 2006 LTR
Consultancy was billed $71,422 for services provided. These bills were not paid
as of February 28, 2006 and the associated revenue was not recognized. In the
year ended February 28, 2006, LTR Consultancy earned re-seller commissions of
$9,752. This commission was settled by a reduction in the amount receivable from
LTR Consultancy as at February 28, 2006, in the amount of $9,752. The net
receivable from LTR Consultancy at February 28, 2006 was $112,655. This amount
was provided for in the allowance for doubtful accounts. Total revenue and total
receivables from LTR Consultancy for fiscal year ending February 28, 2007, was
$185,482 and $53,614 respectively. The total amount in receivables remained
unpaid and was fully reserved for at February 28, 2007.

Pursuant to an Investor Relations Agreement with the Company, LTR Consultancy
earned fees for investor relations services of $33,705, for fiscal year ended
February 28, 2007. Of these fees, $5,892 was unpaid as of February 28, 2007.

Shelly Palmer, a former director of the Company, is the owner of a consulting
company, SLP Productions Inc. Pursuant to an unwritten agreement between the
parties, SLP Productions billed the Company $38,000 and $36,000 for fiscal year
ending February 28, 2007 and February 28, 2006, respectively for consulting
services. As of February 28, 2007 there was a balance of $19,000 in accounts
payable.

On December 2, 2005, the Company entered into a consultancy agreement with Roger
L. Werner Jr. Pursuant to this agreement, on May 23, 2006, Mr. Werner was
granted options to purchase 30,000 shares at an exercise price of $0.75 per
share, for consultancy services for the year ended February 28, 2006. Mr. Werner
became a shareholder of the Company on February 22, 2006 and a director of the
Company on March 28, 2006.

On May 30, 2006, the Company entered into an advisory agreement with Granahan
McCourt Advisors, LLC. David C McCourt is the beneficial owner of Granahan
McCourt Advisors, LLC and Granahan McCourt Capital, LLC, a shareholder in the
Company and the interim CEO. Pursuant to this agreement, Granahan McCourt
Advisors, LLC was issued 100,000 shares of common stock on May 30, 2006 and
received warrants to purchase 6,000 shares, with an exercise price equal to
$0.95 per share. Mr. McCourt became a director of the Company on June 27, 2006
and was named as Chairman of the Board and Interim Chief Executive Officer in
December 2006. The Company paid Granahan McCourt Advisors, LLC $80,000 for
consulting services and $9,000 to cover out of pocket expenses for fiscal year
ending February 28, 2007. Mr. McCourt voluntarily terminated the advisory
agreement once he became interim CEO and forfeited the remaining balance in the
contract.

COMMISSION PAID TO STOCKHOLDERS

The Company paid commissions to certain stockholders for raising funds of
$478,124 during the fiscal year ended February 28, 2006. The Company paid
commissions of $150,000 to certain shareholders during fiscal year ended
February 28, 2007 for raising funds during the fiscal year ended February 28,
2006. There was no outstanding amount payable in connection with these
commissions as of February 28, 2007.

10.      COMMITMENTS

When a lease is classified as an operating lease, the risks and rewards remain
with the lessor and the lease expenses are treated as operating expense.

The Company has non-cancelable operating leases to occupy the following
properties: Princeton NJ, which terminates on July 31, 2007; and New York, NY,
which terminates on September 30, 2007. We are currently negotiating our lease
in London and are on a


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<PAGE>


month-to-month lease. The total remaining rental commitment at February 28, 2007
is approximately $163,000. For the years ended February 28, 2007 and 2006,
rental expense was $386,700 and $111,800 respectively.

When a lease is classified as a capital lease, the present value of the lease
expenses is treated as debt. Assets held under capital leases are capitalized in
the balance sheet and are depreciated over their estimated useful lives. The
interest element of the rental obligation is charged to the Statements of
Operations over the period of the lease and represents a constant proportion of
the balance of capital repayment outstanding.

As of February 28, 2007, our principal capital commitments consisted of
obligations outstanding under capital leases as shown in the table below:

        --------------------------------------------------------------
                                                           Year Ended
                                                          February 28,
                                                               2007
                                                                $
        --------------------------------------------------------------
        Amounts payable:
        Within 12 months                                       104,235
        Between one and two years                               99,388
        Between two and three years                             45,725
        --------------------------------------------------------------
        Total future commitment                                249,348
        Less: finance charges allocated to future periods      (25,767)
        --------------------------------------------------------------
        Present Value                                          223,581
        ==============================================================


At February 28, 2007 the Company has two employment agreements outstanding, one
with Iolo Jones, Founder and Chief Strategy Officer and the other with Jason
Jack, Chief Software Architect. These agreements stay in effect until employment
is terminated (See Item 10. Executive Compensation for further details). For
fiscal year ending February 28, 2007, Iolo Jones was paid a salary of $187,248
and Jason Jack was paid a salary of $180,336.

11.      SUBSEQUENT EVENTS

On March 2, 2007, the Company entered into a Purchase Agreement (the "Purchase
Agreement") with sixteen accredited investors (the "Investors") for the sale of
its 12% Mandatorily Convertible Notes (the "Notes") and Warrants (the
"Warrants") for a total purchase price of $7,110,000. The Notes, which mature on
March 2, 2009, bear interest at 12% per annum, payable at maturity. The Notes
will mandatorily convert at a 10% discount into the securities issued by the
Company in any subsequent private placement that results in gross proceeds to
the Company of at least $3,000,000 or, in the event of a sale of the Company
prior thereto, shares of common stock valued at a discount of 10% to the per
share price to be paid in the Company sale. The Warrants are exercisable at any
time on or prior to March 2, 2012 for an aggregate of 3,555,000 shares of common
stock at an exercise price of $0.60 per share, subject to adjustment. The
Company has the right to force the cash exercise of the Warrants if the common
stock trades at or above $1.80 per share for at least 20 consecutive trading
days. Both the Notes and the Warrants contain customary anti-dilution provisions
in the event of any stock split, reverse stock split, reclassification or
recapitalization of the Company.



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