UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
x
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE
ACT OF 1934
For
the quarterly period ended August 31, 2008
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For
the transition period from ________ to________
Commission
file number 333-108632
NARROWSTEP
INC.
(Exact
name of small business issuer as specified in its charter)
|
DELAWARE
|
33-1010941
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
116
Village Blvd, Suite 200
Princeton,
New Jersey 08540
United
States
(Address
of principal executive offices)
(609)
951-2221
(Issuer’s
telephone number)
Check
whether the issuer (1) has 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 registrant was required to file such reports), and (2) has
been
subject to such filing requirements for the past 90 days.
x
Yes
¨
No
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
¨
Yes
x
No
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 137,117,977 shares of common stock, $0.000001
par value.
Item
1 - Financial Statements
|
NARROWSTEP
INC. AND SUBSIDIARIES
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
August 31, 2008
|
|
February 29, 2008
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
$
|
|
$
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
1,153,747
|
|
|
4,170,850
|
|
|
Short-term
investments
|
|
|
281,790
|
|
|
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of $727,890 and
$767,470 at August 31, 2008 (unaudited) and February 29, 2008,
respectively
|
|
|
502,514
|
|
|
923,850
|
|
|
Prepaid
expenses and other current assets
|
|
|
154,830
|
|
|
411,110
|
|
|
Total
current assets
|
|
|
2,092,881
|
|
|
5,505,810
|
|
|
Property
and equipment, net
|
|
|
1,485,822
|
|
|
1,995,504
|
|
|
Software
development costs, net
|
|
|
732,771
|
|
|
682,060
|
|
|
Other
assets
|
|
|
–
|
|
|
281,790
|
|
|
Total
Assets
|
|
|
4,311,474
|
|
|
8,465,164
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Unearned
revenue
|
|
|
313,502
|
|
|
31,536
|
|
|
Accounts
payable
|
|
|
817,503
|
|
|
735,776
|
|
|
Net
obligations under capital leases, current
|
|
|
133,723
|
|
|
153,322
|
|
|
Accrued
expenses and other current liabilities
|
|
|
325,912
|
|
|
814,214
|
|
|
Total
current liabilities
|
|
|
1,590,640
|
|
|
1,734,848
|
|
|
Net
obligations under capital leases, long-term
|
|
|
67,631
|
|
|
143,408
|
|
|
Total
Liabilities
|
|
|
1,658,271
|
|
|
1,878,256
|
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock, $0.000001 par value 450,000,000 shares authorized, 137,117,977
issued and outstanding at August 31, 2008 (unaudited) and 137,561,227
issued and outstanding at February 29, 2008
|
|
|
137
|
|
|
137
|
|
|
Additional
paid-in capital
|
|
|
41,320,106
|
|
|
40,745,085
|
|
|
Accumulated
deficit
|
|
|
(
38,531,387
|
)
|
|
(
34,196,475
|
)
|
|
Accumulated
other comprehensive income
|
|
|
(
135,653
|
)
|
|
38,161
|
|
|
Total
Stockholders' Equity
|
|
|
2,653,203
|
|
|
6,586,908
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
|
4,311,474
|
|
|
8,465,164
|
|
See
Notes
to Condensed Consolidated Financial Statements.
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
AND
COMPREHENSIVE LOSS
(Unaudited)
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
|
August 31, 2008
|
|
August 31, 2007
|
|
August 31, 2008
|
|
August 31, 2007
|
|
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Narrowcasting
and other
|
|
|
659,333
|
|
|
1,143,955
|
|
|
1,620,414
|
|
|
2,559,115
|
|
|
Production
services
|
|
|
–
|
|
|
141,902
|
|
|
–
|
|
|
317,535
|
|
|
Total
revenue
|
|
|
659,333
|
|
|
1,285,857
|
|
|
1,620,414
|
|
|
2,876,650
|
|
|
Costs
and Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
774,565
|
|
|
1,361,524
|
|
|
1,713,112
|
|
|
2,587,315
|
|
|
Selling,
general and administrative
|
|
|
1,414,529
|
|
|
3,449,202
|
|
|
3,721,203
|
|
|
6,094,826
|
|
|
Research
& development
|
|
|
291,161
|
|
|
783,298
|
|
|
536,590
|
|
|
1,582,048
|
|
|
Total
operating expenses
|
|
|
2,480,255
|
|
|
5,594,024
|
|
|
5,970,905
|
|
|
10,264,189
|
|
|
Operating
Loss
|
|
|
(1,820,922
|
)
|
|
(4,308,167
|
)
|
|
(4,350,491
|
)
|
|
(7,387,539
|
)
|
|
Interest
income
|
|
|
10,337
|
|
|
38,275
|
|
|
31,189
|
|
|
86,524
|
|
|
Interest
expense
|
|
|
(6,790
|
)
|
|
(637,555
|
)
|
|
(14,798
|
)
|
|
(865,447
|
)
|
|
Currency
exchange income (loss)
|
|
|
(1,156
|
)
|
|
(14,036
|
)
|
|
(812
|
)
|
|
(15,939
|
)
|
|
Net
Loss
|
|
|
(1,818,531
|
)
|
|
(4,921,483
|
)
|
|
(4,334,912
|
)
|
|
(8,182,401
|
)
|
|
Foreign
currency translation adjustment
|
|
|
(164,041
|
)
|
|
18,963
|
|
|
(173,814
|
)
|
|
36,435
|
|
|
Comprehensive
Loss
|
|
|
(1,982,572
|
)
|
|
(4,902,520
|
)
|
|
(4,508,726
|
)
|
|
(8,145,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss per Common Share - Basic and Diluted
|
|
|
(0.01
|
)
|
|
(0.07
|
)
|
|
(0.03
|
)
|
|
(0.14
|
)
|
Weighted-Average
Number of Common Shares Outstanding,
Basic
and Diluted
|
|
|
137,693,515
|
|
|
67,858,410
|
|
|
137,954,810
|
|
|
56,603,692
|
|
See
Notes
to Condensed Consolidated Financial Statements.
|
NARROWSTEP
INC. AND SUBSIDIARIES
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
August 31, 2008
|
|
August 31, 2007
|
|
|
|
|
$
|
|
$
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(4,334,912
|
)
|
|
(8,182,401
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
(39,580
|
)
|
|
633,556
|
|
|
Depreciation
and amortization
|
|
|
497,061
|
|
|
439,978
|
|
|
Loss
on disposal of property and equipment
|
|
|
54,919
|
|
|
–
|
|
|
Stock-based
compensation expense
|
|
|
575,021
|
|
|
1,619,270
|
|
|
Interest
on short-term investment
|
|
|
(7,139
|
)
|
|
–
|
|
|
Fair
value of options and warrants granted to third party
suppliers
|
|
|
–
|
|
|
19,625
|
|
|
Interest
on debt issuance
|
|
|
–
|
|
|
853,200
|
|
|
Changes
in net cash attributable to changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
460,916
|
|
|
(441,770
|
)
|
|
Prepaid
expenses and other current assets
|
|
|
256,280
|
|
|
(88,480
|
)
|
|
Unearned
revenue
|
|
|
281,966
|
|
|
(193,291
|
)
|
|
Accounts
payable, accrued expenses and other current liabilities
|
|
|
(406,575
|
)
|
|
(216,716
|
)
|
|
Net
Cash Used in Operating Activities
|
|
|
(2,662,043
|
)
|
|
(5,557,029
|
)
|
|
Cash
Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(62,026
|
)
|
|
(1,583,660
|
)
|
|
Payments
for software development costs
|
|
|
(184,962
|
)
|
|
(141,588
|
)
|
|
Net
proceeds from sale of assets
|
|
|
9,512
|
|
|
|
|
|
Repayment
of security deposit
|
|
|
281,790
|
|
|
–
|
|
|
Purchase
of short-term investments
|
|
|
(281,790
|
)
|
|
–
|
|
|
Net
Cash (Used in) Investing Activities
|
|
|
(237,476
|
)
|
|
(1,725,248
|
)
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock
|
|
|
–
|
|
|
10,127,457
|
|
|
Payments
on capital leases
|
|
|
(95,376
|
)
|
|
(42,998
|
)
|
|
Net
proceeds from issuance of debt instrument
|
|
|
–
|
|
|
6,950,130
|
|
|
Net
Cash Provided by (Used in) Financing Activities
|
|
|
(95,376
|
)
|
|
17,034,589
|
|
|
Net
Increase (Decrease) in Cash and Cash Equivalents
|
|
|
(2,994,895
|
)
|
|
9,752,312
|
|
|
Effect
of exchange rates on change in cash
|
|
|
(22,208
|
)
|
|
(48,621
|
)
|
|
Cash
and cash equivalents at the beginning of period
|
|
|
4,170,850
|
|
|
466,870
|
|
|
Cash
and Cash Equivalents at the End of the Period
|
|
|
1,153,747
|
|
|
10,170,561
|
|
See
Notes
to Condensed Consolidated Financial Statements.
NARROWSTEP
INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis
of Presentation.
Throughout
this document, Narrowstep Inc. and its subsidiaries are referred to as
“Narrowstep,” “we” or the “Company.” The interim condensed consolidated
financial statements have been prepared pursuant to the rules and regulations
of
the Securities and Exchange Commission (“SEC”) that permit reduced disclosure
for interim periods. We believe that these interim condensed consolidated
financial statements include all adjustments necessary to present fairly the
results for the interim periods shown. The results for the interim periods
are
not necessarily indicative of the results of any other interim period or for
the
full year. The reader is referred to the audited consolidated financial
statements and notes thereto for the year ended February 29, 2008 filed as
part
of Narrowstep Inc. and Subsidiaries (collectively, the “Company”) Form 10-KSB
for such year.
Principles
of Consolidation.
The
interim condensed consolidated financial statements include the accounts of
the
Company and its wholly-owned subsidiaries. Our subsidiaries operate in the
TV
over the Internet services industry both domestically and internationally
providing various services. All intercompany transactions have been eliminated
in consolidation.
Use
of Estimates.
The
preparation of the interim condensed 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 condensed consolidated financial statements and the reported
amounts of revenue and expenses during the reporting periods. Actual results
could differ from those estimates.
NOTE
2. GOING CONCERN
The
Company has incurred net losses and negative cash flow from operations since
inception. We had an accumulated deficit of approximately $38.5 million as
of
August 31, 2008. The Company historically has financed its operations primarily
through private equity and convertible debt financing. The Company currently
does not have the liquidity or financing available to fund its operations for
the next 12 months without additional capital being raised or financing being
acquired. On May 29, 2008, we entered into a definitive merger agreement
pursuant to which the Company will be acquired by Onstream Media Corporation
(See Note 3 for more details). We are currently operating our business in
accordance with the Restructuring Plan, as outlined in the Merger Agreement
with
Onstream, which is intended to reduce costs and operating losses. However,
we
cannot be certain when we will operate profitably, if ever, and in the event
the
Merger Agreement is terminated, we may not be able to continue as a going
concern.
NOTE
3. MERGER
Merger
Agreement
On
May
29, 2008, the Company entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Onstream Media Corporation, a Florida corporation (“Onstream”),
Onstream Merger Corp., a newly formed Delaware corporation and a wholly-owned
subsidiary of Onstream (“Merger Sub”) and W. Austin Lewis IV, as stockholder
representative for the Company’s stockholders. Pursuant to the terms and subject
to the conditions set forth in the Merger Agreement, Onstream will acquire
the
Company by means of a merger of Merger Sub with and into the Company (the
“Merger”), with the Company continuing as the surviving corporation and a
wholly-owned subsidiary of Onstream after the Merger (the “Surviving
Corporation”).
Pursuant
to the Merger Agreement, at the effectiveness of the Merger (the “Effective
Time”), each outstanding share of the Company’s common stock, par value
$0.000001 per share, other than shares held by stockholders who have perfected
their appraisal rights under Delaware law, shares held by Onstream and shares
held by any subsidiary of the Company (collectively, the “Shares to be
Converted”), will be converted into (i) shares of Onstream common stock, par
value $0.0001 per share (“Onstream Common Stock”), based on an exchange ratio
determined as described below and (ii) one contingent value right (a “Contingent
Value Right”) having terms and conditions described below. Onstream Common Stock
and Contingent Value Rights issued in respect of the Company’s common stock
subject to certain restricted stock awards will be subject to any vesting
conditions contained in such awards.
The
aggregate number of shares of Onstream Common Stock issuable in the Merger
in
exchange for the Shares to be Converted will be the greater of (i) the sum
of
(A) two (2) times Annualized Company Revenue (as defined in the Merger
Agreement) and (B) the greater of (1) the amount of the Company’s cash and cash
equivalents immediately prior to the Effective Time and (2) 1,500,000 and (ii)
10,500,000. The exchange ratio will be the amount determined as described in
the
prior sentence divided by the Shares to be Converted (the “Exchange
Ratio”).
The
final
Exchange Ratio will be determined based on the Company’s consolidated revenues
for the quarter ended May 31, 2008 (as adjusted pursuant to the terms of the
Merger Agreement) and may not be known prior to the Effective Time. Accordingly,
the Merger Agreement provides that the Shares to be Converted will receive
an
aggregate of 10,500,000 shares of Onstream Common Stock (the “Minimum Exchange
Ratio”) upon consummation of the Merger. In the event that the final Exchange
Ratio exceeds the Minimum Exchange Ratio, former holders of Shares to be
Converted will receive additional shares of Onstream Common Stock within 30
days
after the final determination of the Exchange Ratio. No assurance can be given
that the Exchange Ratio will exceed the Minimum Exchange Ratio.
In
the
Merger, outstanding shares of the Company’s Series A Preferred Stock, par value
$.000001 per share, will be converted into an aggregate of 600,000 shares of
Onstream Common Stock.
In
connection with the Merger, the Surviving Corporation will assume the Company’s
obligations under its outstanding warrants. From and after the Merger, except
as
summarized below, holders of warrants will have the right to exercise their
warrants for a number of shares of Onstream Common Stock and at exercise prices
appropriately adjusted to give effect to the greater of the Exchange Ratio
and
the Minimum Exchange Ratio. Holders of warrants to acquire an aggregate of
22,726,400 shares of Company Common Stock issued by the Company in August 2007
(the “2007 Warrants”) will have the right to exercise their 2007 Warrants for
cash only for an aggregate of 1,000,000 shares of Onstream Common Stock at
an
exercise price of $3.50 per share. In the event that any of the warrants are
exercised prior to the Final Exercise Date (as defined in the CVR Agreement
referenced below), an exercising holder will also be entitled to receive
Contingent Value Rights in an amount equal to the number of Contingent Value
Rights such holder would have received had its warrants been exercised
immediately prior to the Effective Time. In connection with the Merger
Agreement, holders of a majority of the 2007 Warrants have entered into an
Amendment and Waiver Agreement with the Company (the “Amendment and Waiver
Agreement”) pursuant to which such holders, on behalf of themselves and all
other holders of the 2007 Warrants, agreed to amend the terms of the 2007
Warrants as provided above and to waive certain antidilution and other
rights.
The
Contingent Value Rights will be issued pursuant to the terms of a Contingent
Value Rights Agreement to be entered into among Onstream, Mr. Lewis as the
CVR
Representative and Interwest Transfer Co., as Rights Agent, in the form attached
to the Merger Agreement (the “CVR Agreement”). Pursuant to the terms and subject
to the conditions set forth in the CVR Agreement, the Contingent Value Rights
will be converted into shares of Onstream Common Stock in the event that the
Company reaches certain revenue targets for the initial 12-month and subsequent
6-month periods following the Merger; provided, however, that the maximum number
of shares of Onstream Common Stock issuable in the Merger, including those
pursuant to the Contingent Value Rights and the conversion of the Company’s
Series A Preferred Stock, will not exceed 20,000,000. The number of shares
of
Onstream Common Stock issuable upon the conversion of each Contingent Value
Right will depend on a number of factors, including the Company’s business
meeting the revenue targets set forth in the CVR Agreement and the number of
warrants, if any, exercised prior to the final determination of the
consideration, if any, to be paid pursuant to the CVR Agreement. The conversion
of Contingent Value Rights into Onstream Common Stock will occur in two stages,
shortly following the final determination of whether the initial 12-month and
subsequent 6-month targets have been met.
The
Contingent Value Rights will not be transferable by the holders thereof except
by operation of law in limited circumstances. The Company does not expect a
market to develop for the Contingent Value Rights. No assurance can be given
that the Contingent Value Rights will result in the issuance of additional
shares of Onstream Common Stock.
The
Merger Agreement contains customary representations and warranties of the
Company, Onstream and Merger Sub. The Merger Agreement also contains customary
covenants, including covenants regarding operation of the business of the
Company and its subsidiaries prior to the closing of the Merger.
In
addition, the Company has agreed to use its commercially reasonable efforts
to
operate its business in accordance with a restructuring plan attached as an
exhibit to the Merger Agreement (the “Restructuring Plan”), which is designed to
significantly reduce or eliminate substantial costs related to Company’s
facility leases, selling, general and administrative expenses, public company
and headquarters costs, and other professional fees and services. Specifically,
the Restructuring Plan is a transitional business plan that the Company will
follow until the close of the Merger. The Restructuring Plan includes a detailed
four month cash operating budget for the Company beginning June 2008. The budget
consists of a breakdown of cash proceeds to the Company from customer
receivables, equipment sales and additional investments and a breakdown of
various cash operating expenses and other cash payments out from the Company.
The Restructuring Plan also lists certain employees and contractors that will
be
terminated prior to the closing of the Merger as well as certain employees
that
will enter into one-year employment contracts with the Company. The Company
is
responsible for the funding of all salaries and benefits for the terminated
employees and consultants, as well as the cost of any severance, from
pre-closing cash. The Restructuring Plan further sets forth an approval process
that the Company will follow for travel, telephone, communication and other
various operating expense purchases. The Restructuring Plan also requires that
the Company send its weekly reports, such as accounts receivable, payroll and
accounts payable, to Onstream for review at least three days prior to payment.
Pursuant to the Restructuring Plan, the Company may not enter into any
contracts, hire any new employees or make any purchases greater than $1,000.00
without first obtaining Onstream’s approval. The Restructuring Plan also effects
a reorganization of management in that certain of the Company’s departments are
required to report to the senior manager of the equivalent department at
Onstream. The Restructuring Plan also requires that, at the closing of the
Merger, the Company’s current assets (excluding cash) will exceed the Company’s
current liabilities, as determined on a basis consistent with the Company’s
previously issued financial statements. Lastly, the Restructuring Plan states
that proceeds from the sale of equipment (as set forth in the operating budget
described above) will be limited to equipment located at the Company’s
California POP (Point of Presence) located in the Company’s internal content
delivery network (CDN), which was shut down during April 2008.
In
connection with the conditions to closing set forth in the Merger Agreement,
we
have entered into subscription agreements (the “Subscription Agreements”) with
three of our major stockholders, including Mr. Lewis and David C. McCourt,
our
Chairman and Interim Chief Executive Officer. Under the Subscription
Agreements, the three stockholders agreed to purchase immediately prior to
the
Merger shares of a to-be-established Series A Preferred Stock at a purchase
price of $100,000 per stockholder. In connection therewith, each such
stockholder is expected to receive 10,000 shares of Series A Preferred
Stock. Holders of the Series A Preferred Stock will be entitled to
such dividends, if any, as may be declared by our Board of Directors out of
funds legally available therefore (no such dividends are expected to be paid
under the terms of the Restructuring Plan), will not have any voting rights
(except to the extent required by applicable law), will have no right to convert
the Series A Preferred Stock into shares of our common stock or any other of
our
securities and will have no right to force our redemption or repurchase of
the
Series A Preferred Stock. It is expected that we will file a
certificate of designations establishing the terms of the Series A Preferred
Stock with the Secretary of State of Delaware shortly prior to the closing
of
the Merger. The sale of the Series A Preferred Stock pursuant to the
Subscription Agreements is exempt from registration pursuant to Section 4(2)
of
the Securities Act of 1933, as amended, and Regulation D promulgated
thereunder.
The
Merger is subject to customary closing conditions, including obtaining the
approval of the Company’s and Onstream’s stockholders. The Merger Agreement may
be terminated under certain specified events. If the Merger Agreement is
terminated under certain circumstances specified in the Merger Agreement, the
Company may be required to pay a termination fee of $377,000 to Onstream. Both
the Company and Onstream have entered into voting agreements (“Voting
Agreements”) pursuant to which several significant stockholders have agreed to
vote their shares in favor of the adoption of the Merger Agreement. Pursuant
to
the Voting Agreements, the holders of approximately 35% of the Company’s common
stock presently outstanding and approximately 42% of the Onstream Common Stock
presently outstanding have agreed to vote their shares in favor of the adoption
of the Merger Agreement.
Merger
Agreement-Amendment
On
August
13, 2008, Narrowstep, Onstream and Merger Sub entered into an amendment to
the
Merger Agreement (the "Amendment"). Pursuant to the Amendment, among other
things, the aggregate number of shares of Onstream Common Stock initially
issuable in the Merger in exchange for each outstanding share of Company Common
Stock, other than Shares to be Converted was reduced from 10,500,000 to
9,100,000 shares. In addition, the calculation of the aggregate number of
Onstream Common Stock initially issuable in the Merger in exchange for the
Shares to be Converted was modified to limit the value attributed to
Narrowstep's cash balances at closing to a maximum of $600,000. Further,
Narrowstep agreed to increase the aggregate value of its Series A Preferred
Stock, from at least $300,000 to $1,000,000 and to increase the number of shares
of Onstream Common Stock from 600,000 to 2,000,000 shares into which the Series
A Preferred Stock will convert. In order to assure that this condition would
be
satisfied, the Company entered into additional subscription agreements (the
"Additional Subscription Agreements") with five of its existing stockholders.
The sale of the Series A Preferred Stock pursuant to the Additional Subscription
Agreements is exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended, and Regulation D promulgated thereunder.
In
accordance with the terms of the Amendment, the CVR Agreement was revised.
Pursuant to those revisions, among other things, the relevant revenue
measurement time periods were changed so that the initial revenue measurement
time period will now commence on the 180th day following the date of closing
of
the Merger, rather than at closing and the second year revenue period will
now
commence on the 18th month anniversary of the closing date. In addition, the
revenue target for the first revenue time period was reduced from $4,500,000
to
$4,250,000, if the Minimum Exchange Ratio is used. The definition of Second
Year
Revenue Shares was also revised so that if the First Year Revenue is less than
$4,250,000, no additional shares of Onstream Common Stock will be issuable
in
respect of Second Year Revenue.
The
Amendment also extends the date by which the parties may terminate the Merger
Agreement (the "Termination Date") if the Merger has not been completed by
November 30, 2008.
On
September 15, 2008, Narrowstep, Onstream and Merger Sub entered into a second
amendment to the Merger Agreement ("the Second Amendment"), dated effective
September 12, 2008. Pursuant to the Second Amendment, among other things, the
aggregate number of shares of Onstream Common Stock, initially issuable in
the
Merger in exchange for each outstanding share of Narrowstep Common Stock, other
than the Shares to be Converted was amended from 9,100,000 to 8,100,000 shares.
There was no change in the potential total share consideration of 20,000,000
shares, including the shares potentially available under the CVR Agreement
(9,900,000), and the additional number of shares of Onstream Common Stock
(2,000,000) into which the shares of Narrowstep's Series A Preferred Stock,
will
convert at the time of the Merger.
In
accordance with the terms of the Second Amendment, the CVR Agreement was
revised. Pursuant to those revisions, among other things, the revenue target
for
the first revenue measurement time period (the twelve months commencing on
the
180th day following the date of closing of the Merger) was reduced from
$4,250,000 to $4,000,000, if the Minimum Exchange Ratio (as defined in the
Merger Agreement) is used. The definition of Second Year Revenue Shares was
also
revised so that if the First Year Revenue is less than $4,000,000, additional
shares of Onstream Common Stock might be issuable in respect of Second Year
Revenue, but only to the extent that Second Year Revenue, which is for a six
month period commencing on the 18th month anniversary of the closing date,
exceeds $2,000,000 (50% of the $4,000,000 annual threshold).
In
accordance with the terms of the Second Amendment, and notwithstanding anything
to the contrary contained in the CVR Agreement, Onstream may require Narrowstep
to promptly make certain identified adjustments to its operations and the entity
prior to the Effective Time, based solely upon Onstream's evaluation of certain
items identified in the Second Amendment. In the event that the certain
identified adjustments are made prior to the Effective Time as a result of
Onstream's directives, the $4,000,000 thresholds discussed in the previous
paragraph will be replaced with $2,000,000, provided that Narrowstep takes
all
reasonable actions within its power to carry out those directives. In addition,
the waiting period of three months after the Effective Date (in the CVR
Agreement provision that provides the amounts that the future projected revenues
from the Narrowstep business, as determined in good faith by Onstream's Board
of
Directors, if not exceeded would allow Onstream to terminate the Narrowstep
business) was eliminated, subject to Onstream's evaluation of certain items
identified in the Second Amendment.
NOTE
4. SALE OF COMMON STOCK
On
August
8, 2007, we closed a private financing with a number of accredited investors
for
the sale of common stock and warrants for a total purchase price of $10,510,000.
Pursuant to the financing we sold a total of 42,040,000 shares of common stock
at a purchase price of $0.25 per share. We also issued warrants to purchase
an
aggregate of 21,020,000 shares of common stock at an exercise price of $0.50
per
share, subject to adjustment. The warrants are exercisable at any
time on or prior to August 8, 2012. The warrants contain customary
anti-dilution provisions in the event of any stock split, reverse stock split,
reclassification or recapitalization of the Company. In addition, the
exercise price and the number of shares issuable upon the exercise of the
warrants are subject to adjustment on a full-ratchet basis in the event that
we
issue or are deemed to have issued shares of common stock at an effective
purchase price of less than $0.50 per share, subject to certain
exceptions. In the financing, we issued to the placement agents
warrants to purchase an aggregate of 1,706,400 shares of common
stock. Those warrants have the same terms as the warrants issued in
the financing, except that the warrants issued to the placement agents have
a
cashless exercise right.
NOTE
5. CONVERTIBLE NOTES PAYABLE
On
March
2, 2007, the Company entered into a Purchase Agreement (the “Purchase
Agreement”) with a number of 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% of 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. In connection
with the August 8, 2007 financing, the full amount of the Notes was
automatically converted into an aggregate of 35,392,003 shares of common stock
at a conversion price of $0.225 per share.
NOTE
6. RELATED PARTY TRANSACTIONS
Options
granted to current directors.
On
January 10, 2008, the Company granted Jon Harrington, a member of the board
of
directors, 300,000 restricted shares which he transferred to Omni Capital.
The
Company also granted 300,000 restricted shares to Roger L. Werner, Jr. and
500,000 to Jack Whyte. All the shares granted on January 10, 2008 have the
following vesting schedule: 25% vested upon grant, the remaining vest in equal
installments on the first of every month beginning February 1, 2008 with the
last vesting date to be September 1, 2008.
Options
granted to former officers.
On
February 8, 2007, the Company granted options to purchase 200,000 shares to
Lisa
VanPatten, the Company’s then Chief Financial Officer, at an exercise price of
$0.92 per share. These options vest over a three-year period and expire on
February 8, 2017. On April 30, 2007, the Company granted options to purchase
250,000 shares to Lou Holder, the Company’s then Chief Technology Officer, at an
exercise price of $0.68 per share. These options vest over a three-year period
and expire on April 30, 2017.
On
June
8, 2007, the Company entered into an employment agreement with David C. McCourt
pursuant to which the Company granted Mr. McCourt 1,250,000 shares of restricted
stock units which vested monthly until November 30, 2007 and 2,500,000 shares
of
restricted stock which vested based on the Company’s meeting certain performance
milestones. All of the restricted stock units and shares of restricted stock
granted to Mr. McCourt in 2007 pursuant to his employment agreement have fully
vested as of November 30, 2007, as determined by the Company’s Compensation
Committee. Mr. McCourt elected to issue back to the Company 336,000 shares
of
restricted stock with an approximate value of $177,000 to cover the taxes due
on
the vested restricted stock that the Company paid for on behalf of Mr. McCourt.
On December 18, 2007, the Company granted Mr. McCourt 1,250,000 restricted
shares which fully vested. Mr. McCourt elected to issue back to the Company
992,000 shares of restricted stock with an approximate value of $140,000 to
cover the taxes due on the vested restricted stock that the Company paid for
on
behalf of Mr. McCourt.
On
January 10, 2008, the Company granted Lisa VanPatten 500,000 shares of
restricted stock, Lou Holder 750,000 shares of restricted stock, David C.
McCourt 900,000 shares of restricted stock and Barak Bar-Cohen 1,000,000 shares
of restricted stock which vest upon $4M EBITDA attainment, or upon change of
control in the event of separation of employment. Also on this date, pursuant
to
the June 8, 2007 employment agreement between the Company and Mr. McCourt,
the
Company granted 2,500,000 shares of restricted stock to Mr. McCourt which are
subject to vesting upon the Company’s meeting certain targets established by the
Company’s Compensation Committee. None of these shares of restricted stock have
vested to date.
On
March
24, 2008, pursuant to the employment agreement, the Company granted Mr. McCourt
1,250,000 shares of restricted stock units which vest monthly up until November
1, 2008. On March 25, 2008, the Company granted Barak Bar-Cohen an additional
1,000,000 shares of restricted stock which had the same vesting schedule as
those restricted shares granted on January 10, 2008, however such shares were
canceled on July 2, 2008.
Transactions
with companies in which certain persons hold an interest.
Outdoor
Channel, a customer of the Company, began utilizing the Company’s services in
May 2007. The Chief Executive Officer and President of Outdoor Channel is Roger
L. Werner Jr., a member of the Company’s board of directors. The Company billed
Outdoor Channel, $67,705 for the fiscal year ended February 29, 2008 and the
balance in accounts receivable at February 29, 2008 is $6,459. The Company
billed Outdoor Channel, $34,595 for the six months ended August 31, 2008 and
the
balance in accounts receivable at August 31, 2008 is $5,601.
In
connection with the Company’s August 2007 financing, Mr. McCourt purchased
4,000,000 shares of common stock and warrants to purchase 2,000,000 shares
of
common stock for a total purchase price of $1,000,000. In addition, Mr. McCourt
entered into a lock up agreement pursuant to which he and certain entities
controlled by him agreed for a period of nine months from August 8, 2007 not
to
sell, dispose or otherwise transfer any shares of common stock owned by them,
subject to certain exceptions.
On
May
29, 2008, we entered into a definitive merger agreement pursuant to which our
company will be acquired by Onstream Media Corporation. In connection with
the
conditions to closing set forth in the Merger Agreement, we have entered into
subscription agreements (the “Subscription Agreements”) with three of our major
stockholders, including Mr. Lewis and David C. McCourt, our Chairman and Interim
Chief Executive Officer for the purchase of preferred stock upon the
consummation of the Merger. For a more complete discussion regarding the Merger,
see Note 3.
NOTE
7. CONCENTRATIONS
The
largest four customers in the aggregate accounted for $243,231, or 37% of our
revenues for the three months ended August 31, 2008 and $517,640 or 32% of
our
revenues for the six months ended August 31, 2008. The largest four customers
in
the aggregate accounted for $423,296, or 33% of our revenues for the three
months ended August 31, 2007 and $923,580 or 32% of our revenues for the six
months ended August 31, 2007. The accounts receivable balance for the largest
four customers was $353,410 as of August 31, 2008.
NOTE
8. SUBSEQUENT EVENTS
On
September 23, 2008, Onstream filed Form S-4 Registration Statement under the
Securities Act of 1933 with the Securities and Exchange Commission.
Item
2. Management’s Discussion and Analysis or Plan of
Operation.
For
ease
of reading, Narrowstep Inc. is referred to as “Narrowstep,” “we” or the
“Company” throughout this document and the names of the particular subsidiaries
providing the services generally have been omitted. Narrowstep is a holding
company whose subsidiaries operate in the TV over the Internet services industry
both domestically and internationally providing distribution services and
equipment. You should read this discussion in conjunction with the interim
condensed consolidated financial statements, accompanying notes and management’s
discussion and analysis of financial condition and results of operations
included in our Annual Report on Form 10-KSB for the year ended February 29,
2008.
Consolidated
revenues
for
the
three months ended August 31, 2008 decreased by $626,524, or 49%, to $659,333
as
compared to $1,285,857 for the three months ended August 31, 2007. Consolidated
revenues
for
the
six months ended August 31, 2008 decreased by $1,256,236, or 44%, to $1,620,414
as compared to $2,876,650 for the six months ended August 31, 2007 as
follows:
Narrowcasting
Revenues
for
the
three months ended August 31, 2008 decreased by $484,622, or 42%, to $659,333
as
compared to $1,143,955 for the three months ended August 31, 2007. Narrowcasting
Revenues
for
the
six months ended August 31, 2008 decreased by $938,701, or 37%, to $1,620,414
as
compared to $2,559,115 for the six months ended August 31, 2007. The decrease
in
revenue resulted primarily in an increase in net customer loss, particularly
in
Europe.
Revenues
were negatively impacted by the non-renewal of several large customer contracts
which expired during the first quarter. The Company re-negotiated the contract
of its largest customer which resulted in a significant decrease in the overall
value of the contract as compared to the previous year. Revenues also declined
as a result of our previously announced exit from the production services
business.
Geographical
distribution of consolidated revenues (unaudited):
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
August 31, 2008
|
|
August 31, 2007
|
|
Percent
|
|
|
|
|
$
|
|
$
|
|
Change
|
|
|
United States
|
|
|
323,463
|
|
|
431,647
|
|
|
-25
|
%
|
|
Europe,
Middle-East and Africa
|
|
|
1,194,974
|
|
|
2,388,230
|
|
|
-50
|
%
|
|
Asia
Pacific
|
|
|
94,592
|
|
|
38,559
|
|
|
145
|
%
|
|
Internet
Sales
|
|
|
7,385
|
|
|
18,214
|
|
|
-59
|
%
|
|
Total
|
|
|
1,620,414
|
|
|
2,876,650
|
|
|
-44
|
%
|
Consolidated
costs and expenses
for
the
three months ended August 31, 2008 decreased by $3,113,769, or 56%, to
$2,480,255 as compared to $5,594,024 for the three months ended August 31,
2007.
Consolidated
costs and expenses
for
the
six months ended August 31, 2008 decreased by $4,293,284, or 42%, to $5,970,905
as compared to $10,264,189 for the six months ended August 31, 2007 as
follows:
Operating
expenses
include
the cost of bandwidth, direct labor, sub-contracted labor, consulting fees
and
depreciation. For the three months ended August 31, 2008, these costs were
$774,565, a 43%, decrease over the $1,361,524 reported in the three months
ended
August 31, 2007. Operating expenses for the six months ended August 31, 2008
were $1,713,112, a 34%, decrease over the $2,587,315 reported in the six months
ended August 31, 2007. The decrease resulted primarily from headcount reductions
in customer support and production services related to the restructuring and
streamlining of sales support and our previously announced decision to exit
the
production business.
Selling,
general and administrative expenses
include
employee compensation and related costs for personnel engaged in marketing,
direct and reseller sales support functions, the executive team and back office
help. For the three months ended August 31, 2008, these costs were $1,414,529,
a
59% decrease over the $3,449,202 reported for the three months ended August
31,
2007. Selling, general and administrative expenses for the six months ended
August 31, 2008 were $3,721,203, a 39% decrease over the $6,094,826 reported
for
the six months ended August 31, 2007. The decrease resulted primarily from
headcount reductions in sales and administrative staff. Due to our efforts
in
establishing policies and procedures to lower bad debt expense, there was also
a
significant reduction in bad debt expenses as compared to the previous year.
Partially
offsetting this decrease was a settlement payment made in connection with the
cancellation of our lease at Carnegie Center. The Company decided to exit this
lease because of the reduction in headcount and to reduce facility expenses
going forward. During the quarter, the Company canceled 1,304,500 restricted
shares associated with employee separations. Of these canceled shares, 1,000,000
were canceled in connection with the separation of employment with the Company’s
President and Chief Operating Officer, Barak Bar-Cohen.
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 three
months ended August 31, 2008, these costs were $291,161, a 63% decrease over
the
$783,298 reported for the three months ended August 31, 2007. Research &
development expenses for the six months ended August 31, 2008, these costs
were
$536,590, and a 66% decrease over the $1,582,048 reported for the six months
ended August 31, 2007. The decrease came primarily from reductions in consulting
costs and in employee headcount. Many of the projects launched last year were
completed in the third and fourth quarter of the fiscal year ended February
29,
2008. Current initiatives are being managed by the existing staff.
Liquidity
and Capital Resources
Net
cash used in operating activities
was
$2,662,043 for the six months ended August 31, 2008, compared to $5,557,029
for
the six months ended August 31, 2007. The decrease in cash used in operations
was due primarily to the decrease in our net loss. Our net loss for the period
decreased significantly for the reasons described above.
Net
cash used in investing activities
was
$237,476 for the six months ended August 31, 2008, compared to $1,725,248 for
the six months ended August 31, 2007. This decrease resulted primarily from
the
reduction in our capital equipment purchases.
Net
cash provided by (used in) financing activities
was
($95,376) for the six months ended August 31, 2008, compared to $17,034,589
for
the six months ended August 31, 2007. The decrease is primarily attributable
to
the issuance of the Company’s 12% mandatorily convertible notes issued March 2,
2007 and the private equity raise on August 8, 2007 as described
below.
We
had
$1,153,747 in cash and cash equivalents available at August 31, 2008 and
available bank overdraft facilities of $54,615.
We
have
financed our operations primarily through private sales of our equity and
convertible debt securities since inception. From our inception date through
August 31, 2008, we issued an aggregate of 122,780,977 shares of our common
stock for gross proceeds of approximately $32.4 million. In addition,
we have granted options and issued shares in lieu of cash as payment to third
parties for services rendered. 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 August 31, 2008, we had an accumulated deficit
of approximately $38.5 million.
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 August 31, 2008 and February 29, 2008, the overdraft facilities
consisted of approximately $18,200 and $19,800, respectively, with Barclays
Bank
PLC (“Barclays”) and $34,400 and $39,700, respectively, with National
Westminster Bank PLC (“NatWest”). Neither facility was utilized on August 31,
2008 or February 29, 2008. The interest rate on the Barclays facility is 5.75%
above Barclays’ variable base rate (which base rate was 5.0% per annum as of
August 31, 2008). 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 August
31, 2008). The Barclays overdraft facility was renewed on March 20, 2008. The
NatWest overdraft facility was renewed on October 10, 2007 and it will expire
in
one year.
Our
current ratio (current assets divided by current liabilities) relates to our
ability to pay our short-term debts as they become due. At August 31, 2008,
our
current ratio was 1.3, compared to 5.7 at August 31, 2007. Our current ratio
fluctuates primarily because we use cash to develop our business and raise
additional funds from private financing from time to time.
On
August
8, 2007, we closed a private financing with a number of accredited investors
for
the sale of common stock and warrants for a total purchase price of $10,510,000.
Pursuant to the financing we sold a total of 42,040,000 shares of common stock
at a purchase price of $0.25 per share. We also issued warrants to purchase
an
aggregate of 21,020,000 shares of common stock at an exercise price of $0.50
per
share, subject to adjustment. The warrants are exercisable at any
time on or prior to August 8, 2012. The warrants contain customary
anti-dilution provisions in the event of any stock split, reverse stock split,
reclassification or recapitalization of the Company. In addition, the
exercise price and the number of shares issuable upon the exercise of the
warrants are subject to adjustment on a full-ratchet basis in the event that
we
issue or are deemed to have issued shares of common stock at an effective
purchase price of less than $0.50 per share, subject to certain
exceptions. In the financing, we issued to the placement agents
warrants to purchase an aggregate of 1,706,400 shares of common
stock. Those warrants have the same terms as the warrants issued in
the financing, except that the warrants issued to the placement agents have
a
cashless exercise right.
On
March
2, 2007, the Company entered into a Purchase Agreement (the “Purchase
Agreement”) with a number of 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. In connection
with the August 8, 2007 financing, the full amount of the Notes was
automatically converted into an aggregate of 35,392,003 shares of common stock
at a conversion price of $0.225 per share.
We
will
have sufficient working capital to fund our operations for the next three to
four months. In the event that the Merger Agreement is terminated, we will
need
to raise further funds to continue operations thereafter. We are unable to
determine if such funding will be available, and if available, what terms such
funding may require.
As
of
August 31, 2008, our principal capital commitments consisted of obligations
outstanding under capital leases as shown in the table below
(unaudited):
|
|
|
|
|
|
|
|
August 31, 2008
|
|
|
|
|
$
|
|
|
Amounts
payable:
|
|
|
|
|
|
Within
12 months
|
|
|
147,520
|
|
|
Between
one and two years
|
|
|
70,907
|
|
|
Between
two and three years
|
|
|
0
|
|
|
Total
future commitment
|
|
|
218,427
|
|
|
Less:
finance charges allocated to future periods
|
|
|
(
17,073
|
)
|
|
Present
Value
|
|
|
201,354
|
|
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
3. Controls and Procedures
We
maintain disclosure controls and procedures designed to ensure that information
required to be disclosed in the reports filed or submitted under Securities
Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed,
summarized and reported, within the time period specified in the SEC’s rules and
forms. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed
in
the reports filed under the Exchange Act is accumulated and communicated to
management, including Mr. McCourt, the Company’s Interim Chief Executive
Officer, as appropriate, to allow timely decisions regarding required
disclosure. In establishing and maintaining the disclosure controls and
procedures, management recognized that any controls and procedures have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
As
of the
end of the period covered by this report, the Company's management, under the
supervision of and with the participation of the Company's interim chief
executive officer and principal 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 Exchange Act). Based on such evaluation, our interim
chief executive officer and principal financial officer have concluded that
our
disclosure controls and procedures were effective as of August 31,
2008.
Due
to
changes in staffing level, the Company has addressed control procedures and
there has been no significant change in the Company’s internal controls over
financial reporting during our most recent fiscal quarter that has materially
affected, or is reasonably likely to affect, our internal controls over
financial reporting.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
report contains forward-looking statements including, without limitation, in
the
discussion under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations." 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,
our
inability to obtain adequate financing, insufficient cash flows and resulting
illiquidity, our dependence upon significant customers, our 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 "Risk
Factors" and elsewhere in the most recent Form 10-KSB that we have filed with
the Securities and Exchange Commission.
Because
of the risks and uncertainties related to these factors and the forward-looking
statements, readers 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 financial statements and the related notes contained in this report
and
the other documents we file from time to time with the Securities and Exchange
Commission.
PART
II - OTHER INFORMATION
Departing
Company officers
included
the termination of
Barak
Bar-Cohen as President and Chief Operating Officer on June 30, 2008. This
termination was made pursuant to the Restructuring Plan (See Note 3). On July
28, 2008, Lisa VanPatten submitted notice of her resignation as Chief Financial
Officer effective August 15, 2008. Ms. VanPatten has agreed to provide certain
services to the Company during a transition period. On August 22, 2008 Louis
J.
Holder, the Company’s Chief Technology Officer, was terminated from employment,
pursuant to the Restructuring Plan (See Note 3) effective September 1, 2008.
Mr.
Holder has agreed to provide certain services to the Company during a transition
period. No post-termination severance obligations exist with any of the above
officers.
Item
6. Exhibits
|
EXHIBIT 31.1
|
|
CERTIFICATION
FILED PURSUANT TO EXCHANGE ACT RULES 13a-14 AND 15d-14 AS ADOPTED
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|
|
|
|
|
|
EXHIBIT 31.2
|
|
CERTIFICATION
FILED PURSUANT TO EXCHANGE ACT RULES 13a-14 AND 15d-14 AS ADOPTED
PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|
|
|
|
|
|
EXHIBIT 32.1
|
|
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER FURNISHED PURSUANT TO 18 U.S.C. SECTION
1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
|
|
|
|
|
|
EXHIBIT 32.2
|
|
CERTIFICATION
OF PRINCIPAL FINANCIAL OFFICER FURNISHED PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
OF
2002
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NARROWSTEP
INC.
|
|
By:
|
/s/
David McCourt
|
|
Dated: October
14, 2008
|
|
David
McCourt
|
|
|
|
Interim
Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Lisa VanPatten
|
|
Dated: October
14, 2008
|
|
Lisa
VanPattenVanVLisa V
|
|
|
|
Principal
Financial Officer
|
Narrowstep (CE) (USOTC:NRWS)
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Narrowstep (CE) (USOTC:NRWS)
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