Narrowstep(TM) Inc Second Quarter Revenues Increase 118 Percent

Narrowstep(TM) Inc Second Quarter Revenues Increase 118 Percent

LONDON and NEW YORK, Oct. 16 /PRNewswire-FirstCall/ -- Narrowstep(TM) Inc (BULLETIN BOARD: NRWS) , the TV on the Internet Company, announced its financial results for the second quarter of fiscal 2007 ended August 31, 2006. Revenues increased 118 percent to $1,568,367, from $717,985 for the comparable period of fiscal 2006. For the six months ended August 31, 2006, revenue increased 144 percent to $2,712,890, from $1,110,236 for the six months ended August 31, 2005. Sequential revenues increased 50 percent in the second quarter from the $1,144,523 reported in the first quarter of fiscal 2007. Results for the second quarter were driven primarily by a 308 percent increase in narrowcasting and related activities to $1,041,980, compared with $255,304 in the second quarter of fiscal 2006. Revenues for the three and six months ended August 31, 2006, do not include any contribution from the Company's previously announced agreement with Terra Networks, which will be recognized in the third quarter.

Gross profit for the second quarter increased 322 percent to $949,461, compared to $225,220 for the same period last year. The gross profit margin for the quarter was 61 percent, an increase of nearly 100 percent, compared to 31 percent for the second quarter of fiscal 2006. The increase in gross margins reflected the higher margins of the fast-growing narrowcasting segment of the Company's business. For the six months ended August 31, 2006, gross profit increased 610 percent to $1,716,450, versus $241,619 for the same period last year. The gross profit margin for the six months ended August 31, 2006, was 63 percent, an increase of 186 percent, compared to 22 percent for the six months ended August 31, 2005. Net loss for the second quarter of fiscal 2007 was $1,285,587, or $0.03 per share, versus a net loss of $741,243, or $0.02 per share, for the quarter ended August 31, 2006; while the net loss for the first six months of fiscal 2007 was $2,455,392, or $0.05 per share, compared to $1,977,312, or $0.06 per share, for the same period last year.

Commenting on today's announcement, Steve Beaumont, Narrowstep President and CEO said, "Revenues from our narrowcasting and related activities, which represent recurring revenue streams, have increased dramatically compared to our results from the prior year. We believe that narrowcasting revenues will continue to increase, primarily driven by the addition of new customers and the resulting increase in licensing, bandwidth usage and storage fees. The increase in narrowcasting revenues, which have significantly higher margins, drove our strong increase in gross profits and gross profit margin for the quarter, which we believe demonstrates the scalability of our business model."

"The Company is showing strong growth in key markets," continued Beaumont. "The US, Central and South America show continuing opportunity for channel development and sales. As I've emphasized previously, we continue to view the United States market as essential and are committed to increasing US-based sales. So I'm pleased to say that for the three months ended August 31, 2006, sales in the US increased 104 percent over the same period last year. We also continue to reinvest in the Company, having hired additional sales and marketing staff in the US, and in the UK."

The Company garnered a significant number of new customers during the quarter, including ROMEreports TV, the Country Channel, MACExperience, HorseTV Access, Terra Networks, MSN UK and JWTwo, the entertainment division of JWT, the United States' largest advertising agency.

Results Conference Call

At 11:00 AM EDT today (4:00 PM BST and 8:00 AM PDT) management will host its quarterly conference call to discuss its financial results. This call will be broadcast live over the Internet. Those interested in listening to the live webcast may do so by going to the Company's website at www.narrowstep.com or www.vcall.com. Web participants are encouraged to go to either website at least 15 minutes prior to the start of the call to register, download, and install any necessary audio software. The online archive will be available shortly after the conclusion of the call and continue for seven days.

About Narrowstep(TM) Inc

Narrowstep(TM) Inc (BULLETIN BOARD: NRWS) , the TV on the Internet Company, is a leading global provider of broadband television services. Narrowstep's proprietary technologies and customer-focused services enable TV channels to be delivered over the Internet. 90+ companies worldwide have chosen Narrowstep because it offers the most television-like and true community building broadband experience. The Company's telvOS(TM) (Television Operating System(TM)) and nBed(TM) technologies enable the most comprehensive delivery of video to mobile, wireless, Internet, broadband, video-over-IP and entirely new IP-delivered broadcast services. For more information, go to www.narrowstep.com or call 212-404-1400.

Forward-looking Statement

Certain statements in this news release constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known or unknown risks, including those detailed in the Company's filings with the Securities and Exchange Commission, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

For further information please contact:

Jesse Deal (investors)
Allen & Caron
Tel: + 1 212 691 8087
Email: jesse@allencaron.com

NARROWSTEP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

August 31, February 28,
2006 2006
$ $
Assets (Unaudited)
Current assets:
Cash and cash equivalents 1,183,482 2,232,854
Short-term investments 2,557,609 2,500,000
Accounts receivable, net of allowance for
doubtful accounts of $255,619 on
August 31, 2006 and $201,715 at
February 28, 2006 1,334,984 418,394
Prepaid expenses and other current assets 209,247 135,542
Total current assets 5,285,322 5,286,790
Property and equipment, net 854,729 289,148
Software development costs, net 169,054 146,166
Goodwill 1,157,581 1,157,581
Intangible assets, net 92,015 113,173
Total Assets 7,558,701 6,992,858

Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Unearned revenue 391,085 176,628
Accounts payable 868,702 504,919
Net obligations under capital leases, current 73,814 58,113
Accrued expenses and other current liabilities 523,629 424,104
Total current liabilities 1,857,230 1,163,764
Net obligations under capital leases - long-term 128,634 43,997
Total Liabilities 1,985,864 1,207,761
Stockholders' Equity
Common stock, $0.000001 par value 450,000,000
shares authorized with 45,248,974 (unaudited)
issued at August 31, 2006 and 45,136,474
issued at February 28, 2006 45 45
Additional paid-in capital 16,470,026 16,443,374
Stock compensation 4,031,494 3,267,997
Stock subscription receivable (1,410,000)
Accumulated deficit (14,949,451) (12,494,059)
Accumulated other comprehensive income (loss) 20,723 (22,260)
Total stockholders' equity 5,572,837 5,785,097
Total Liabilities and Stockholders' Equity 7,558,701 6,992,858

NARROWSTEP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three months ended Six months ended
August 31, August 31,
2006 2005 2006 2005
$ $ $ $
Operating Revenue
Narrowcasting and other 1,041,980 255,304 1,878,493 483,765
Production services 526,387 462,681 834,397 626,471
Total revenue 1,568,367 717,985 2,712,890 1,110,236
Costs of Revenue:
Direct costs 585,294 460,317 930,591 803,887
Software amortization 33,612 32,448 65,849 64,730
Total costs of revenue 618,906 492,765 996,440 868,617
Gross Profit 949,461 225,220 1,716,450 241,619
Operating Expenses:
Selling, general and
administrative 2,277,959 967,042 4,258,263 2,196,391
Total operating expenses 2,277,959 967,042 4,258,263 2,196,391
Operating Loss (1,328,498) (741,822) (2,541,813) (1,954,772)
Other income (expense) 41,166 71 85,265 350
Currency exchange income
(loss) 1,745 508 1,156 (22,890)
Net Loss (1,285,587) (741,243) (2,455,392) (1,977,312)

Net Loss per Common Share -
Basic and Diluted (0.03) (0.02) (0.05) (0.06)
Weighted-average Number
of Shares Outstanding,
Basic and Diluted 45,248,974 31,809,656 45,192,724 30,878,929

Source: Narrowstep Inc

CONTACT: Investors, Jesse Deal of Allen & Caron, +1-212-691-8087,
jesse@allencaron.com, for Narrowstep Inc

Web site: http://www.vcall.com/

Web site: http://www.narrowstep.com/

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