<PAGE>

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

                                   FORM 10-QSB

|X|     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2005

|_|     TRANSITION REPORT PURSUANT TO 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 registrant as specified in its charter)

                  DELAWARE                          33-1010941
        (State or other jurisdiction of          (I.R.S. Employer
        incorporation or organization)          Identification No.)

                              60 PARSONS GREEN LANE
                                 LONDON SW6 4HU
                                 UNITED KINGDOM
                    (Address of principal executive offices)

                               011 44 20 7731 4242
               (Registrant's telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.

Yes |X|       No

    APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
                              PRECEDING FIVE YEARS

                                 Not applicable

                      APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of the issuer's common stock as of August 31,
2005: 32,462,796 shares of common stock.

<PAGE>

                                 NARROWSTEP INC.

                                      INDEX

PART I.         FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS

ITEM 2.         MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

ITEM 3.         CONTROLS AND PROCEDURES

PART II.        OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

ITEM 2.         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3.         DEFAULTS UPON SENIOR SECURITIES - NOT APPLICABLE

ITEM 4.         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -  NOT
                APPLICABLE

ITEM 5.         OTHER INFORMATION - NOT APPLICABLE

ITEM 6.         EXHIBITS

SIGNATURES


                                       2
<PAGE>

PART 1 FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

------------------------------------------------------------------------ -------
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NARROWSTEP INC.            PAGE
------------------------------------------------------------------------ -------
CONDENSED consolidated balance sheet as of February 28, 2005 and
August 31, 2005 (unaudited)                                                F-2
------------------------------------------------------------------------ -------
CONDENSED consolidated statements of operations for the three
months ended August 31, 2004 (unaudited) and 2005 (unaudited) and
the six months ended August 31, 2004 (unaudited) and 2005 (unaudited)      F-3
------------------------------------------------------------------------ -------
CONDENSED consolidated statements of other comprehensive loss for the
three months ended August 31, 2004 (unaudited) and 2005 (unaudited) and
the six months ended August 31, 2004 (unaudited) and 2005 (unaudited)      F-4
------------------------------------------------------------------------ -------
CONDENSED consolidated statements of changes in stockholders'
equity for the six months ended August 31, 2005 (unaudited)                F-5
------------------------------------------------------------------------ -------
CONDENSED consolidated statements of cash flows for the six months
ended August 31, 2004 (unaudited) and the six months ended August 31,
2005 (unaudited)                                                           F-6
------------------------------------------------------------------------ -------
Notes to CONDENSED consolidated financial statements (unaudited)           F-8
------------------------------------------------------------------------ -------


                                      F-1
<PAGE>
<TABLE>
<CAPTION>

                                              NARROWSTEP INC. AND SUBSIDIARIES
                                            CONDENSED CONSOLIDATED BALANCE SHEET


----------------------------------------------------------------------------------- ------------------- -------------------
                                                                                      AUGUST 31, 2005    FEBRUARY 28, 2005
                                                                                        (UNAUDITED)          (NOTE 1.)
                                                                                             $                   $
=================================================================================== =================== ===================
<S>                                                                                 <C>                 <C>
ASSETS
Current assets:
          Cash and cash equivalents                                                            561,837              58,791
          Accounts receivable, net of allowance for doubtful accounts of $43,305               454,836             378,774
          at February 28, 2005 and $25,144 at August 31, 2005
          Amounts receivable from related parties, net of allowance for doubtful                     -                   -
          accounts of $238,851 at February  28, 2005 and  $231,707 at August 31,
          2005
          Prepaid expenses and other current assets                                             71,206              87,207
----------------------------------------------------------------------------------- ------------------- -------------------
          Total current assets                                                               1,087,879             524,772
----------------------------------------------------------------------------------- ------------------- -------------------
Property and equipment, net of accumulated depreciation                                        350,826             551,499
Software development costs, net of accumulated amortization                                    188,787             187,333
Goodwill                                                                                     1,157,581           1,157,581
Intangible assets, net                                                                         134,331             155,488
----------------------------------------------------------------------------------- ------------------- -------------------
TOTAL ASSETS                                                                                 2,919,404           2,576,673
=================================================================================== =================== ===================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
          Accounts payable                                                                     580,599             447,381
          Net obligations under capital leases                                                  78,618             109,569
          Accrued expenses and other liabilities                                               560,493             845,705
----------------------------------------------------------------------------------- ------------------- -------------------
          Total current liabilities                                                          1,219,710           1,402,655
----------------------------------------------------------------------------------- ------------------- -------------------

Net obligations under capital leases - greater than 1 year                                       8,059              40,284
----------------------------------------------------------------------------------- ------------------- -------------------
Total liabilities                                                                            1,227,769           1,442,939
----------------------------------------------------------------------------------- ------------------- -------------------

STOCKHOLDERS' EQUITY:
          Common stock, $0.000001 par value 450,000,000 shares authorized with                      32                  30
          30,375,740 issued at February 28, 2005 and 32,462,796 issued at August
          31, 2005
          Additional paid-in capital                                                         9,941,256           8,111,046
          Deferred stock compensation                                                        1,937,513           1,212,531
          Accumulated deficit                                                             (10,181,594)         (8,204,282)
          Accumulated other comprehensive (loss)/income                                        (5,572)              14,409
----------------------------------------------------------------------------------- ------------------- -------------------
          Total stockholders' equity                                                         1,691,635           1,133,734
----------------------------------------------------------------------------------- ------------------- -------------------

----------------------------------------------------------------------------------- ------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                   2,919,404           2,576,673
=================================================================================== =================== ===================

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                            F-2
<PAGE>
<TABLE>
<CAPTION>

                                                 NARROWSTEP INC. AND SUBSIDIARIES
                                         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


----------------------------------------------- --------------------- ------------------- ------------------ -------------------
                                                     Six months           Six months        Three months        Three months
                                                  ended August 31,     ended August 31,   ended August 31,    ended August 31,
                                                        2005                 2004               2005                2004
                                                    (unaudited)          (unaudited)         (unaudited)        (unaudited)
                                                         $                    $                   $                  $
=============================================== ===================== =================== ================== ===================
<S>                                             <C>                   <C>                 <C>                <C>
Revenue:
        Production services                                  626,471             396,829            462,681             283,676
        Narrowcasting and other (including                   483,765             391,762            255,304             165,792
        related party transactions of $0 in
        the three and six months ended August
        31, 2005 and $72,888 in the three
        months and $166,355 in the six months
        ended August 31, 2004)
----------------------------------------------- --------------------- ------------------- ------------------ -------------------
        Total revenue                                      1,110,236             788,591            717,985             449,468
----------------------------------------------- --------------------- ------------------- ------------------ -------------------

Cost of revenue:
        Direct costs                                         463,163             335,643            294,457             156,866
        Software amortization                                 64,730              47,599             32,448              26,623
----------------------------------------------- --------------------- ------------------- ------------------ -------------------
        Total costs of revenue                               527,893             383,242            326,905             183,489
----------------------------------------------- --------------------- ------------------- ------------------ -------------------
Gross profit                                                 582,343             405,349            391,080             265,979
----------------------------------------------- --------------------- ------------------- ------------------ -------------------

Operating expenses:
        Selling, general and administrative                2,537,115           2,364,241          1,132,902           1,086,671
        (including non-cash stock
        compensation expense of  $13,524 for
        the three months and $402,852 for the
        six months ended August 31, 2005 and
        $285,067 for the three months and
        $865,598 for the six months ended
        August 31, 2004)

----------------------------------------------- --------------------- ------------------- ------------------ -------------------
        Total operating expenses                           2,537,115           2,364,241          1,132,902           1,086,671
----------------------------------------------- --------------------- ------------------- ------------------ -------------------
Loss from operations                                     (1,954,772)         (1,958,892)          (741,822)           (820,692)
----------------------------------------------- --------------------- ------------------- ------------------ -------------------

Other income                                                     350                 748                 71                  64
Exchange (losses)/profits                                   (22,890)             (1,895)                508              13,146
----------------------------------------------- --------------------- ------------------- ------------------ -------------------
Net loss                                                 (1,977,312)         (1,960,039)          (741,243)           (807,482)
=============================================== ===================== =================== ================== ===================

Net loss per share - basic and diluted                        (0.06)              (0.07)             (0.02)              (0.03)
Weighted-average number of shares                         30,878,929          27,329,750         31,809,656          27,939,310
outstanding, basic and diluted
----------------------------------------------- --------------------- ------------------- ------------------ -------------------

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                               F-3
<PAGE>
<TABLE>
<CAPTION>

                                   NARROWSTEP INC. AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE LOSS


                                 Six months        Six months        Three months      Three months
                              ended August 31,  ended August 31,   ended August 31,  ended August 31,
                                    2005              2004              2005              2004
                                (unaudited)        (unaudited)       (unaudited)       (unaudited)
                                     $                  $                 $                 $
=====================================================================================================
<S>                               <C>                <C>                 <C>              <C>
Net Loss                          (1,977,312)        (1,960,039)         (741,243)        (807,482)
Foreign currency                     (19,981)          (126,216)           (7,752)        (140,668)
translation adjustment
Comprehensive loss                (1,997,293)        (2,086,255)         (748,995)        (948,150)
-----------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                  F-4
<PAGE>
<TABLE>
<CAPTION>

                                                  NARROWSTEP INC. AND SUBSIDIARIES
                                CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


------------------------------ ----------- --------- ------------- ------------- -------------- ----------- ------------ -----------
                                                                                                  STOCK
                                            COMMON     ADDITIONAL    DEFERRED        OTHER       SUBSCR-
                                 COMMON    STOCK PAR    PAID-IN        STOCK     COMPREHENSIVE    IPTION     ACCUMULATED
                                STOCK NO     VALUE      CAPITAL    COMPENSATION      LOSS       RECEIVABLE     DEFICIT      TOTAL
                                OF SHARES      $           $             $             $            $             $           $
============================== =========== ========= ============= ============= ============== =========== ============ ===========
<S>                             <C>              <C>    <C>           <C>               <C>              <C> <C>          <C>
BALANCES - MARCH 1, 2005        30,375,740       30     8,111,046     1,212,531         14,409           0   (8,204,282)  1,133,734
Common stock sold in
  private placement, net
  of expenses (unaudited)        2,087,056        2     2,504,467                                                         2,504,469
Commission paid for
  private placement
  services (including
  related party
  transactions of $328,124)
  (unaudited)                                            (674,257)                                                         (674,257)
Fair value of warrants
  issued in connection
  with private placement
  (unaudited)                                                           322,130                                             322,130
Net loss for the six months
  ended August 31, 2005
  (unaudited)                                                                                                (1,977,312) (1,977,312)
Foreign currency translation
  loss (unaudited)                                                                     (19,981)                             (19,981)
Stock compensation charge
  (unaudited)                                                           402,852                                             402,852
------------------------------ ----------- --------- ------------- ------------- -------------- ----------- ------------ -----------
BALANCES - AUGUST 31, 2005
  (UNAUDITED)                   32,462,796       32     9,941,256     1,937,513         (5,572)           0 (10,181,594)  1,691,635
============================== =========== ========= ============= ============= ============== =========== ============ ===========


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                                                F-5
<PAGE>
<TABLE>
<CAPTION>

                                      NARROWSTEP INC. AND SUBSIDIARIES
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS


---------------------------------------------------------------------- ----------------- ------------------
                                                                           Six months        Six months
                                                                          ended August    ended August 31,
                                                                           31, 2005            2004
                                                                          (unaudited)       (unaudited)
                                                                               $                 $
====================================================================== ================= ==================
<S>                                                                          <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                     (1,977,312)        (1,960,039)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:

Depreciation and amortization                                                   281,963            179,371

Loss on disposal of property and equipment                                        5,544                  -

Stock-based compensation expense                                                402,852            865,598

Changes in net cash attributable to changes in operating assets
and liabilities:

Accounts receivable                                                             (76,062)          (137,613)

Prepaid expenses and other current assets                                        16,001            (84,813)

Accounts payable and accrued expenses                                          (151,994)           160,796
---------------------------------------------------------------------- ----------------- ------------------
NET CASH (USED IN) PROVIDED BY  OPERATING ACTIVITIES                         (1,499,008)          (976,700)
====================================================================== ================= ==================

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment                                             (33,511)           (69,149)

Deposits and repayments on capital leases                                       (63,176)           (37,196)

Capitalized software development costs                                          (77,345)           (78,706)

Acquisition of Sportshows Television Ltd.adjusted for cash acquired                    -           (18,990)
---------------------------------------------------------------------- ----------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES                                          (174,032)          (204,041)
====================================================================== ================= ==================
CASH FLOWS FROM FINANCING ACTIVITIES:

Net proceeds from issuance of common stock                                    2,152,342          1,377,384

Borrowings                                                                            -           (116,905)
---------------------------------------------------------------------- ----------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                     2,152,342          1,260,479
---------------------------------------------------------------------- ----------------- ------------------

---------------------------------------------------------------------- ----------------- ------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                            479,302             79,738
---------------------------------------------------------------------- ----------------- ------------------
Effect of exchange rates on change in cash                                       23,744            (93,076)
---------------------------------------------------------------------- ----------------- ------------------
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF PERIOD                             58,791            592,471
---------------------------------------------------------------------- ----------------- ------------------
CASH AND CASH EQUIVALENTS AT THE END OF PERIOD                                  561,837            579,133
====================================================================== ================= ==================

SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING AND FINANCING ACTIVITIES:

Acquisition of subsidiary for obligation paid in shares to principal
shareholder                                                                           -            864,875
---------------------------------------------------------------------- ----------------- ------------------

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                                    F-6
<PAGE>

                        NARROWSTEP INC. AND SUBSIDIARIES

           NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.      BASIS OF PRESENTATION

These condensed unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
(GAAP) for interim financial information. Accordingly, they do not include all
of the information and footnotes required by GAAP and Regulation SB for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for fair presentation
of results for the interim periods have been reflected in these condensed
consolidated financial statements. Operating results for the six months ended
August 31, 2005 are not necessarily reflective of the results that may be
expected for the entire year.

The Company's condensed consolidated balance sheet as at February 28, 2005 is
derived from the Company's Special Financial Report under cover of Form 10-KSB,
filed on July 12, 2005.

The Company started operations in 2002 and as a start-up company has experienced
operating losses in 2003, 2004 and 2005. These losses are expected to continue
for additional periods in the future. As at August 31, 2005, the Company's
accumulated losses were $10.2 million. There can be no assurance that the
Company's operations will become profitable. The Company's cash position as at
August 31, 2005 was $0.6 million. The Company requires an infusion of additional
funds to continue operations. The Company intends to fund its operational and
capital requirements in 2005 and 2006 using cash on hand, cash flow from
operations, and additional funding.

The accompanying financial statements are prepared on a going concern basis. The
validity of this assumption depends on the Company being successful in raising
funding and generating business. If, for any reason, the Company is unable to
obtain adequate additional funding and ceases to be a going concern, adjustments
may have to be made to reduce the monetary value of assets to the recoverable
amounts, provide for further liabilities that might arise and reclassify fixed
assets and long term liabilities as current assets and liabilities.

The consolidated financial statements include all the Company's subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

2.      USE OF ESTIMATES

The preparation of 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 financial
statements and the reported amount of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Estimates are used
when accounting for certain items, such as allowances for doubtful accounts,
access and local connectivity costs, depreciation and amortization, and
recoverability of goodwill, pricing of stock-based compensation, valuation of
acquired intangible assets in both method and estimated useful lives and in
capitalization of software development costs.



                                      F-7
<PAGE>

3.      OTHER INTANGIBLE ASSETS

Other intangible assets are carried at cost less accumulated amortization. They
are generally amortized on a straight-line basis over the economic lives of the
respective assets. Amortizable intangible assets have estimated useful lives as
follows:

         ----------------------------------------------------------
                                                             YEARS
         ==========================================================
         Brand names and trademarks                              7
         Customer contracts                                    3.5
         ----------------------------------------------------------


Acquired other intangible assets subject to amortization were as follows:

----------------------------- ----------------------------------------------
                                       AUGUST 31, 2005 (UNAUDITED)
----------------------------- ----------------------------------------------
                                                ACCUMULATED
                                   COST         AMORTIZATION        NET
                                    $                $               $
============================= ==============================================
Brand names and trademarks         120,554            30,138       90,416
Customer contracts                  87,832            43,917       43,915
----------------------------- ----------------------------------------------
TOTAL                              208,386            74,055      134,331
============================= ==============================================

For the six months ended August 31, 2005 and August 31, 2004, amortization
expense for other intangible assets was $21,159 and $21,158 respectively. The
estimated future annual amortization expense for other intangible assets is
$42,317 for the fiscal years ending in 2006 and 2007, $23,494 for the fiscal
year ending in 2008, $17,222 for the fiscal years ending in 2009 and 2010, and
$12,915 for the fiscal year ending in 2011.

4.      STOCKHOLDERS' EQUITY

During the six months ended August 31, 2005 the Company raised a total
$2,504,467, in a series of private equity placements. A total of 2,087,056
shares were issued at a price of $1.20 per share. The Company paid commissions
in connection with the private placements in the amount of $352,127.

During the six months ended August 31, 2005, the Company granted options to
purchase 15,000 shares to an independent contractor for services rendered. These
options were granted on March 1, 2005 with an exercise price of $0.50 per share.
These options were valued under the provisions of SFAS No. 123 using the Black
Scholes model and accounted for as consultancy expenses and included in selling,
general and administrative expenses in the Statements of Operations for the six
months ended August 31, 2005. These options were valued at $12,150. The
following assumptions were used in the Black Scholes option-pricing model:

        -------------------------------------------------------------------
           Expected life                                   2 years
        -------------------------------------------------------------------
           Risk free interest rate                          3.73%
        -------------------------------------------------------------------
           Volatility                                        75%
        -------------------------------------------------------------------
           Dividend yield                                     0%
        -------------------------------------------------------------------

During the six months ended August 31, 2005, the Company granted warrants to
purchase a total of 550,000 shares to two third parties in consideration for
services related to the private placement of securities. These warrants were


                                      F-8
<PAGE>

granted on August 31, 2005 with an exercise price of $1.20 per share. These
warrants were valued under the provisions of SFAS No. 123 using the Black
Scholes model and accounted for as an expense of the private placement. These
warrants were valued at $281,235. The following assumptions were used in the
Black Scholes model:

        -------------------------------------------------------------------
           Expected life                                   2 years
        -------------------------------------------------------------------
           Risk free interest rate                      3.65% to 3.77%
        -------------------------------------------------------------------
           Volatility                                        75%
        -------------------------------------------------------------------
           Dividend yield                                     0%
        -------------------------------------------------------------------

During the six months ended August 31, 2005, the Company granted warrants to
purchase a total of 80,000 shares to five third parties in consideration for
subscribing to the private placement of securities. These warrants were granted
on August 31, 2005 with an exercise price of $1.20 per share. These warrants
were valued under the provisions of SFAS No. 123 using the Black Scholes model
and accounted for as an expense of the private placement. These warrants were
valued at $40,895. The following assumptions were used in the Black Scholes
model:

        -------------------------------------------------------------------
           Expected life                                   2 years
        -------------------------------------------------------------------
           Risk free interest rate                          3.66%
        -------------------------------------------------------------------
           Volatility                                        75%
        -------------------------------------------------------------------
           Dividend yield                                     0%
        -------------------------------------------------------------------

5.      EMPLOYEE STOCK COMPENSATION PLANS

In December 2003, the Board of Directors adopted the Narrowstep Inc. 2004 Stock
Plan (the "Incentive Plan"). The purpose of the Incentive Plan is to allow the
Company to provide a means by which eligible employees and directors may be
given an opportunity to benefit from increases in value of its common shares,
subsequent to the listing. The Incentive 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 Incentive 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 Incentive Plan and awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration.

The Board of Directors has absolute authority on all determinations,
interpretations and constructions of the Incentive Plan which shall not be
subject to review by any person and shall be final, binding and conclusive on
all persons. The Board, at any time, and from time to time, may amend the
Incentive Plan, subject to any stockholder approval required by applicable law.

The Company accounts for this plan under the recognition and measurement
principles of APB 25. The following table summarizes activity of the Company's
Incentive Plan since February 28, 2005:

<TABLE>
<CAPTION>
        -------------------------------------------------- ---------------- -------------------------
                                                                               WEIGHTED -AVERAGE
                                                              NUMBER OF          EXERCISE PRICE
                                                               SHARES                  $
        ================================================== ================ =========================
<S>                                                              <C>                            <C>
        Outstanding at March 1, 2005                             1,762,252                      0.22
        Granted                                                  4,692,664                      1.04
        Exercised                                                        -                         -
        Forfeited                                                        -                         -
        -------------------------------------------------- ---------------- -------------------------
        Outstanding at August 31, 2005                           6,454,916                      0.88
        Shares exercisable at August 31, 2005                    4,167,191                      0.85
        -------------------------------------------------- ---------------- -------------------------
</TABLE>

                                      F-9
<PAGE>

Of the options outstanding as at August 31, 2005, 560,000 incorporate
performance criteria as follows:

     o    100,000 vest on achievement of monthly revenue of $91,915 in the
          aggregate for two channels for three consecutive months;

     o    200,000 vest on achievement of monthly revenue of $183,830 in the
          aggregate for two channels for three consecutive months;

     o    10,000 vest on achievement of a quarterly profit of $27,575 in the
          aggregate for two channels;

     o    50,000 vest on achievement of a quarterly profit for the Company;

     o    100,000 vest on achievement of an annual profit as shown in the
          Company's audited financial statements; and

     o    100,000 vest on the achievement of a 10% growth in annual profit as
          shown in the Company's audited financial statements.

These options are treated as variable compensatory options under APB 25 and the
expense is based on the intrinsic value, re-measured at each balance sheet date
and spread over the performance period.

Information related to the stock options outstanding as at August 31, 2005 is as
follows:

        ------------- -------------------------------------------------
                                                     AUGUST 31, 2005
                                                        (UNAUDITED)
        ------------- -------------------------------------------------
                                      WEIGHTED -
                                       AVERAGE           WEIGHTED -
                          STOCK        EXERCISE      AVERAGE REMAINING
         EXERCISE        OPTIONS        PRICE        CONTRACTUAL LIFE
         PRICES        OUTSTANDING        $               (YEARS)
        ------------- ------------- --------------- -------------------
                0.20     1,592,252            0.20                3.7
                0.30       250,000            0.30                3.3
                0.40        20,000            0.40                3.3
                0.50       350,000            0.50                9.5
                1.20     4,242,664            1.20                9.8
        ------------- ------------- --------------- ------------------
                         6,454,916
        ============= ============= =============== ==================

The Company is obliged to provide the expanded disclosures required under SFAS
No. 148 for stock-based compensation granted, including, if materially different
from reported results, disclosure of pro forma net earnings and earnings per
share had compensation expense relating to grants been measured under the fair
value recognition provisions of SFAS No. 123.

<TABLE>
<CAPTION>
         --------------------------------------------------------------------------------------------------------
                                              SIX MONTHS       SIX MONTHS       THREE MONTHS     THREE MONTHS
                                                ENDED         ENDED AUGUST    ENDED AUGUST 31,      ENDED
                                           AUGUST 31, 2005      31, 2004            2005        AUGUST 31, 2004
                                             (UNAUDITED)       (UNAUDITED)       (UNAUDITED)      (UNAUDITED)
                                                  $                $                  $                $
         ========================================================================================================
<S>                                            <C>              <C>                <C>              <C>
           Net loss as reported                (1,977,312)      (1,960,039)        (741,243)        (807,482)
         --------------------------------------------------------------------------------------------------------
           Add: Stock-based employee               402,853          285,620           13,524           13,904
           compensation included in
           reported net income
         --------------------------------------------------------------------------------------------------------
           Less: Pro forma stock based         (1,813,676)        (318,737)        (504,545)        (125,225)
           compensation expense
         --------------------------------------------------------------------------------------------------------
           Pro forma net loss                  (3,388,135)      (1,993,156)      (1,232,264)        (918,803)
         --------------------------------------------------------------------------------------------------------
           Basic and diluted loss per               (0.06)           (0.07)           (0.02)           (0.03)
           share as reported
         --------------------------------------------------------------------------------------------------------
           Pro forma basic and diluted              (0.11)           (0.07)           (0.04)           (0.03)
           loss per share
         --------------------------------------------------------------------------------------------------------
           Weighted-average common shares       30,878,925       27,329,750       31,809,656       27,939,310
           outstanding
         --------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-10
<PAGE>

The weighted-average fair values of options granted during the six months ended
August 31, 2005, where the stock price was greater than the exercise price on
the date of grant, was $0.86 per option and the weighted average fair value of
options granted where the stock price was equal to the exercise price on the
date of grant was $0.51 per option. The fair value of options at date of grant
was estimated using the Black-Scholes option-pricing model with the following
weighted-average assumptions:

        ---------------------------------------------
        Expected life in years                     2
        ---------------------------------------------
        Risk-free interest rate       3.73% to 4.11%
        ---------------------------------------------
        Volatility                               75%
        ---------------------------------------------
        Dividend yield                           Nil
        ---------------------------------------------

6.      REPORTABLE 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, which is
the production of specialized programming, including sailing and extreme sport
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 generally accepted accounting principles.

Summarized information by segment for the six months ended August 31, 2005 and
2004 and the three months ended August 31, 2005 and 2004 is as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                               SIX MONTHS                   SIX MONTHS               THREE MONTHS              THREE MONTHS
                          ENDED AUGUST 31, 2005       ENDED AUGUST 31, 2004     ENDED AUGUST 31, 2005         ENDED AUGUST 31,
                              (UNAUDITED)                  (UNAUDITED)               (UNAUDITED)                (UNAUDITED)
                                   $                           $                          $                          $
                         ----------------------------------------------------------------------------------------------------------
                         PRODUCTION  NARROWCASTING  PRODUCTION  NARROWCASTING  PRODUCTION  NARROWCASTING  PRODUCTION  NARROWCASTING
                          SERVICES    AND OTHER      SERVICES    AND OTHER      SERVICES    AND OTHER      SERVICES    AND OTHER
                              $           $             $            $             $            $             $            $
===================================================================================================================================
<S>                         <C>           <C>          <C>           <C>          <C>           <C>          <C>           <C>
REVENUES BY SEGMENT:
Revenues from external
customers                   626,471       483,765      396,829       391,762      449,578       255,304      283,676       165,792
Revenues from internal
customers                         -             -            -        13,598            -             -                      4,586
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES              626,471       483,765      396,829       405,360      449,578       255,304      283,676       170,378
-----------------------------------------------------------------------------------------------------------------------------------
Depreciation and
amortization                (98,104)     (162,700)     (49,479)     (108,734)     (44,418)      (81,015)        (653)      (67,293)
Interest expense             (2,464)       (5,705)           -             -       (1,508)       (3,928)        (431)       (3,231)
Interest revenue                344             6            -             -           67             4            -            64
-----------------------------------------------------------------------------------------------------------------------------------
OPERATING LOSSES           (144,434)     (840,555)    (228,274)     (566,503)     (13,035)     (477,861)     (14,168)     (430,813)
===================================================================================================================================
PLANT AND EQUIPMENT          73,979       276,848      172,358       568,318       73,979       276,848      172,358       568,318
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-11
<PAGE>
<TABLE>
<CAPTION>

       -----------------------------------------------------------------------------------------------------------------
                                                    SIX MONTHS         SIX MONTHS       THREE MONTHS      THREE MONTHS
          RECONCILIATION TO CONSOLIDATED              ENDED              ENDED              ENDED            ENDED
          REPORTED REVENUES                       AUGUST 31, 2005    AUGUST 31, 2004   AUGUST 31, 2005   AUGUST 31, 2004
                                                    (UNAUDITED)        (UNAUDITED)       (UNAUDITED)       (UNAUDITED)
       =================================================================================================================
<S>                                                   <C>                  <C>               <C>               <C>
          Total reportable segments                   1,110,236            802,189           717,985           454,054
          Elimination of inter-segment revenues               -            (13,598)                -            (4,586)
       -----------------------------------------------------------------------------------------------------------------
          TOTAL REPORTED CONSOLIDATED REVENUES        1,110,236            788,591           717,985           449,468
       =================================================================================================================


       --------------------------------------------------------------------------------------------------------
                                                                          SIX MONTHS ENDED    SIX MONTHS ENDED
          RECONCILIATION TO CONSOLIDATED REPORTED LOSSES FROM              AUGUST 31, 2005     AUGUST 31, 2004
          OPERATIONS BEFORE INCOME TAX                                       (UNAUDITED)         (UNAUDITED)
       ========================================================================================================
          Total reportable segments                                            (984,989)           (794,777)
          Unallocated  corporate expenses (primarily legal and audit fees)     (568,312)           (278,506)
          Stock compensation charges                                           (402,852)           (865,598)
          Amortization of intangible  assets acquired in acquisition of STV     (21,159)            (21,158)
       --------------------------------------------------------------------------------------------------------
          TOTAL REPORTED CONSOLIDATED LOSSES FROM OPERATIONS                 (1,977,312)         (1,960,039)
       ========================================================================================================
</TABLE>

GEOGRAPHICAL SEGMENTATION OF REVENUES

<TABLE>
<CAPTION>

       ----------------------------------------------------------------------------------------------------------------
          GEOGRAPHICAL SEGMENTATION OF      SIX MONTHS ENDED        SIX MONTHS        THREE MONTHS      THREE MONTHS
          REVENUES                           AUGUST 31, 2005     AUGUST 31, 2004     AUGUST 31, 2005   AUGUST 31, 2004
                                                (UNAUDITED)         (UNAUDITED)        (UNAUDITED)       (UNAUDITED)
       ----------------------------------------------------------------------------------------------------------------
<S>                                              <C>                  <C>               <C>                <C>
          United States                            210,272              91,838            117,337            35,752
          EMEA                                     892,409             665,498            598,336           394,875
          Asia Pacific                               2,590              27,452               (71)            17,026
          Internet sales                             4,965               3,803              2,383             1,815
       ----------------------------------------------------------------------------------------------------------------
          TOTAL                                  1,110,236             788,591            717,985           449,468
       ================================================================================================================
</TABLE>


                                      F-12
<PAGE>

7.      RELATED PARTY TRANSACTIONS

OPTIONS GRANTED TO DIRECTORS AND OFFICERS

The Company has granted options to purchase 942,664 shares to Iolo Jones,
President and Chief Executive Officer and a member of the Board of Directors, at
an exercise price of $1.20 per share. These options were granted and vested on
March 1, 2005 and are exercisable until February 28, 2015.

The Company has granted options to purchase 1,000,000 shares to Steven Crowther,
Senior Vice President and Chief Financial Officer and a member of the Board of
Directors, 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.

The Company has granted options to purchase 300,000 shares to Shelly Palmer, a
member of the Board of Directors, at an exercise price of $1.20 per share. These
options were granted and vested on March 1, 2005 and are exercisable until
February 28, 2015.

The Company has granted options to purchase 100,000 shares to Dennis Edmonds, a
member of the Board of Directors, at an exercise price of $0.20 per share. These
options were granted and vested on March 1, 2005 and are exercisable until
February 28, 2015.

The Company has granted options to purchase 1,000,000 shares to Clifford Webb,
Chief Operating Officer and a member of the Board of Directors, at an exercise
price of $1.20 per share. These options were granted on August 11, 2005, 500,000
vested immediately and 500,000 vest on January 1, 2006. When vested, these
options are exercisable until August 11, 2015.

The Company has granted options to purchase a total of 1,000,000 shares to Jason
Jack, Chief Technical Officer, at an exercise price of $1.20 per share. These
options were granted on August 11, 2005, 250,000 vested immediately, 250,000
vest on July 1,2006, 250,000 vest on July 1, 2007 and 250,000 vest on July 1,
2008. When vested, these options are exercisable until August 11, 2015.

OPTIONS GRANTED TO EMPLOYEES

The Company has granted options to purchase a total of 350,000 shares to its
employees, at an exercise price of $0.50 per share. These options were granted
and vested on March 1, 2005 and are exercisable until February 28, 2015.

TRANSACTIONS WITH COMPANIES IN WHICH SHAREHOLDERS HOLD AN INTEREST

Paul Robinson, Sales Director until March 10, 2005 and Promoter of Narrowstep
Inc., owns 20% of Strella Ltd, a film production company, and has served on its
Board since May 2003. Revenues from Strella Ltd, net of credit notes issued,
were $8,374 in the three months ended August 31, 2004 and $800 in the six months
ended August 31, 2004 and there were no transactions in the three months or six
months ended August 31, 2005. The amount receivable from Strella Ltd was $800 as
at August 31, 2004 and $45,626 as at August 31, 2005. This amount has been
provided for in the allowance for doubtful accounts.

Paul Robinson is also a founder of Mobestar Ltd, a cellular phone-based gaming
service company, holds 10% of the shares and serves on its Board. Narrowstep
Ltd. was engaged to develop an online software product for Mobestar Ltd, in the
year ended February 29, 2004. The agreement with Mobestar Ltd was terminated
after a dispute with its Chief Executive Officer. Mobestar Ltd filed a lawsuit
against Narrowstep Ltd. for the return of $50,935 in payments and interest paid
by Mobestar Ltd against delivery of the planned


                                      F-13
<PAGE>

product asserting that Narrowstep Ltd. did not perform the requisite work.
Narrowstep settled this lawsuit by agreeing to pay the amount claimed in
installments ending on July 31, 2005 and has paid the liability in full.

Revenues from Mobestar were $44,120 in the three months ended August 31, 2004
and $113,384, in the six months ended August 31, 2004. The amount receivable was
$45,000 as at August 31, 2004. There were no transactions with Mobestar in the
six months ended August 31, 2005 and no amount receivable as at August 31, 2005.

Mr. Robinson is also a founder, director and 10% shareholder in The Content
Corporation. The Content Corporation produced and broadcasted niche TV channels
over the internet using Narrowstep's services. In the three months ended August
31, 2004 and the six months ended August 31, 2004, the revenues recognized from
this transaction were $21,000 and $41,000, respectively, and the amount
receivable from The Content Corporation as at August 31 2004 was $5,000. In the
three months and six months ended August 31, 2005, The Content Corporation was
billed $0 and $3,670 respectively for services provided. These bills have not
been paid and hence, the associated revenue has not been recognized. The amount
receivable from The Content Corporation as at August 31, 2005 was $136,345. This
amount has been provided for in the allowance for doubtful accounts.

Narrowstep Ltd. has developed a channel for LTR Consultancy. John Goedegebuure,
a founder and shareholder of Narrowstep Inc., is the Managing Director and
shareholder of LTR Consultancy. The revenues recognized from this transaction
were $11,100 in the three months ended August 31, 2004 and $22,700 in the six
months ended August 31, 2004 and the amount receivable from LTR Consultancy as
at August 31, 2004 was $32,000. In the three months ended August 31, 2005 and
the six months ended August 31, 2005, LTR Consultancy was billed $11,562 and
$23,124 for services provided. These bills have not been paid and hence the
associated revenue has not been recognized. The amount receivable from LTR
Consultancy as at August 31, 2005 was $76,853. This amount has been provided for
in the allowance for doubtful accounts.

COMMISSION PAID TO SHAREHOLDERS

The Company paid commissions to certain shareholders for raising funds of
$156,273 during the six months ended August 31, 2004 and $328,124 during the six
months ended August 31, 2005. There is no outstanding amount payable as at
August 31, 2005.


                                      F-14
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION OF THE RESULTS OF OPERATIONS

        SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements including, without limitation,
in the discussion under the caption "Management's Discussion of the 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 Registration Statement on Form SB-2 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.

<PAGE>

COMPARISON OF THE SIX MONTH PERIOD ENDED AUGUST 31, 2005 TO THE SIX MONTH PERIOD
ENDED AUGUST 31, 2004.

        REVENUES.

        Revenues for the two operating segments for the six months ended August
31, 2005 and the six months ended August 31, 2004 were as follows:

<TABLE>
<CAPTION>
        --------------------------------- ------------ ----------- ------------ ------------- --------------
                                              SIX                      SIX
                                            MONTHS                   MONTHS
                                             ENDED                    ENDED
                                           AUGUST 31,  PERCENTAGE   AUGUST 31,   PERCENTAGE
                                             2005       OF TOTAL      2004        OF TOTAL      AMOUNT OF
                                          (UNAUDITED)   REVENUES   (UNAUDITED)    REVENUES       INCREASE
                                               $            %            $           %               $
        ================================= ============ =========== ============ ============= ==============
<S>                                       <C>          <C>         <C>          <C>           <C>
        Production services                   626,471          56      396,829            50        229,642
        Narrowcasting and other               483,765          44      391,762            50         92,003
        --------------------------------- ------------ ----------- ------------ ------------- --------------
        TOTAL REVENUE                       1,110,236         100      788,591           100        321,645
        --------------------------------- ------------ ----------- ------------ ------------- --------------
</TABLE>

        PRODUCTION SERVICES. Production services revenues were approximately
$626,000 for the six months ended August 31, 2005, an increase of 58% over the
comparable period of 2004. The increase is due to revenues from new customers.
Production services revenue is seasonal in nature due to a number of customers
being engaged in summer sports and quarterly revenue is likely to be lower in
the remaining two quarters of the fiscal year.

        NARROWCASTING AND OTHER. Narrowcasting revenues were approximately
$484,000 for the six months ended August 31, 2005, an increase of approximately
23%, compared to the comparable period of 2004. This increase in narrowcasting
revenues resulted primarily from increased promotional, sales and marketing
efforts and the completion of the initial development of our narrowcasting
technology. Approximately $78,000 of the 2004 narrowcasting revenue was from
related parties, substantially all of which has now either been refunded or
remains unpaid. After eliminating related party revenue, underlying sales growth
from narrowcasting was approximately 54%.

        COSTS AND EXPENSES. Costs and expenses for the six months ended August
31, 2005 and the six months ended August 31, 2004 were as follows:

<TABLE>
<CAPTION>
        --------------------------------- ------------ ----------- ------------ ------------- --------------
                                              SIX                      SIX
                                            MONTHS                   MONTHS
                                             ENDED     PERCENTAGE     ENDED      PERCENTAGE
                                           AUGUST 31,   OF COSTS    AUGUST 31,    OF COSTS       INCREASE/
                                             2005         AND         2004           AND        (DECREASE)
                                          (UNAUDITED)   EXPENSES   (UNAUDITED)    EXPENSES     IN EXPENSES
                                               $            %            $            %              $
        ================================= ============ =========== ============ ============= ==============
<S>                                       <C>          <C>         <C>          <C>           <C>
        TOTAL COSTS AND EXPENSES/OTHER:
        Direct costs of revenue               463,163          15      335,643            12        127,520
        Sales and marketing                   178,828           6      153,998             6         24,830
        Software amortization                  64,730           2       47,599             2         17,131
        General, administrative and other   1,956,816          63    1,324,634            48        632,182
        Stock compensation expense            402,852          13      865,598            31       (462,746)
        Amortization of intangibles            21,159           1       21,158             1              1
        --------------------------------- ------------ ----------- ------------ ------------- --------------
        TOTAL                               3,087,548         100    2,748,630           100        338,918
        --------------------------------- ------------ ----------- ------------ ------------- --------------
</TABLE>

<PAGE>

        COST OF REVENUE. Direct costs of revenue, including the cost of
bandwidth, sub-contracted labor and consulting fees, were approximately $463,000
for the six months ended August 31, 2005, an increase of approximately $127,000
compared to approximately $336,000 for the six months ended August 31, 2004.

        Direct costs of revenue as a percentage of total revenue were 42% for
the six months ended August 31, 2005, compared to 43% for the comparable period
of 2004. We anticipate that direct costs of revenue as a percentage of total
revenues will decrease as the mix of business reflects an increasing proportion
of narrowcasting revenue, as management focuses on growing this revenue stream.

        SALES AND MARKETING EXPENSES. Sales and marketing expenses, including
employee compensation and related costs for personnel engaged in marketing,
customer service and sales and sales support functions, as well as direct
advertising, public relations and promotional expenditures, were approximately
$179,000 for the six months ended August 31, 2005, compared to approximately
$154,000 for the six months ended August 31, 2004. We plan to increase the level
of sales and marketing expenditure over the remainder of the fiscal year but a
trend of increasing sales would enable this category of expenditure to decline
as a percentage of sales.

        GENERAL, ADMINISTRATIVE AND OTHER EXPENSES. General, administrative and
other expenses, including employee compensation and related costs for personnel
engaged in administrative functions, legal and accounting fees, amortization and
depreciation and other items, were approximately $1,957,000 for the six months
ended August 31, 2005, an increase of approximately $632,000, or 48%, compared
to approximately $1,325,000 for the six months ended August 31, 2004. The
increase resulted primarily from increases in headcount, as we sought to expand
and scale-up our operations, as well as costs associated with becoming a public
company. As a percentage of total revenue, general administrative and other
expenses increased to 176% of total revenue for the six months ended August 31,
2005, compared to 168% for the comparable period of 2004. We expect general,
administrative and other expenses as a percentage of total revenue to decline as
revenue increases.

        The breakdown of general, administrative and other expenses for the six
months ended August 31, 2005 and August 31, 2004 is as follows:

<TABLE>
<CAPTION>
        --------------------------------------------------- ----------- -------------- ------------- --------------
                                                               SIX                         SIX
                                                              MONTHS      PERCENTAGE      MONTHS       PERCENTAGE
                                                              ENDED       OF GENERAL       ENDED       OF GENERAL
                                                              AUGUST         AND         AUGUST 31,        AND
                                                             31, 2005   ADMINISTRATIVE     2004      ADMINISTRATIVE
                                                            (UNAUDITED)    EXPENSES     (UNAUDITED)     EXPENSES
                                                                $             %             $              %
        =================================================== =========== ============== ============= ==============
<S>                                                         <C>         <C>            <C>           <C>
        TOTAL GENERAL, ADMINISTRATIVE AND OTHER EXPENSES:
        Wages and salaries                                     755,839             39       447,368             34
        Legal, accounting and audit                            601,370             31       455,932             35
        Depreciation                                           196,074             10       110,614              8
        Foreign exchange losses/(gains)                         22,890              1         1,895              0
        Other                                                  380,643             19       308,825             23
         TOTAL                                               1,956,816            100     1,324,634            100
        --------------------------------------------------- ----------- -------------- ------------- --------------
</TABLE>

<PAGE>

        STOCK-BASED COMPENSATION EXPENSE. For the six months ended August 31,
2005, we recorded a non-cash charge of approximately $403,000, primarily as a
result of granting new stock options to employees and directors. Stock-based
compensation expense for the six months ended August 31, 2004 was approximately
$866,000, primarily as a result of granting options and issuing discounted
shares to employees and directors and the payment in shares to a director for
services rendered.

        SOFTWARE DEVELOPMENT. Software development expenses consist primarily of
compensation and related costs for personnel responsible for the development of
new products and services, as well as significant improvements to existing
products and services. We currently capitalize our development costs and
amortize a portion of them each year. During the six months ended August 31,
2005, we capitalized approximately $77,000 of software development and amortized
approximately $65,000. For the six months ended August 31, 2004, approximately
$79,000 of software development was capitalized and $48,000 was amortized. The
increase in software development amortization resulted primarily from the
increase in the brought forward balance of capitalized costs now subject to
amortization.

        INCOME TAXES. We have not generated any taxable income to date, and
therefore have not paid any income tax or made any provision for income tax
since inception. As at August 31, 2005, we have net tax losses to carry forward
of approximately $2,321,000, including approximately $1,515,000 which will
remain in place until utilized and $806,000 which will remain in place until
utilized or February 2025, whichever is the earlier.

LIQUIDITY AND CAPITAL RESOURCES

        We have financed our operations from inception through private equity
financing. From inception through August 31, 2005, we sold an aggregate of
24,848,820 shares of our common stock for gross proceeds of approximately
$6,162,000. 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 production services equipment. We have
incurred significant losses since our inception and, at August 31, 2005, had an
accumulated deficit of approximately $10.2 million. As of September 29, 2005 we
had cash of approximately $245,000, and available bank overdraft facilities of
$54,000.

        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, 2005, our current ratio was 0.9, compared to 0.4 at February 28, 2005 and
1.3 at August 31, 2004. Our current ratio fluctuates primarily as we use cash to
develop our business and raise additional equity from time to time.

        Net cash provided by financing activities was $2,152,342 for the six
months ended August 31, 2005 and $1,260,479 for the comparable period of 2004.
Net cash provided by financing activities was $2,086,012 for the year ended
February 28, 2005 and $1,794,378 for the prior year ended February 29, 2004. Net
cash provided by financing activities for the six months ended August 31, 2005
resulted primarily from the issuance of capital stock to our investors to
support our operations. Net cash used in operating activities amounted to
$1,499,008 for the six months ended August 31, 2005 and $1,093,605 for the
comparable period of 2004. The increase in operating costs was due primarily to
additional payroll costs as the Company increased its headcount and legal and
audit fees incurred in connection with becoming a public company.

<PAGE>

        Net cash used in investing activities was $174,032 for the six months
ended August 31, 2005 and $204,041 for the comparable period of 2004. This
reduction was mainly due to lower capital expenditures being incurred in the six
months ended August 31, 2005.

        As at August 31, 2005, our principal capital commitments consisted of
obligations outstanding under capital leases as shown in the table below:

        --------------------------------------------------- ------------------
                                                                 AUGUST 31,
                                                                   2005
                                                                (UNAUDITED)
                                                                     $
        =================================================== ==================
        Amounts payable:
        Within 12 months                                               82,104
        Between one year and two years                                  8,130
        Between two years and three years                                   -
        --------------------------------------------------- ------------------
        Total future commitment                                        90,234
        --------------------------------------------------- ------------------
        Less: finance charges allocated to future periods             (3,557)
        --------------------------------------------------- ------------------
        PRESENT VALUE                                                  86,677
        =================================================== ==================

Our cash and cash equivalents as of August 31, 2005 were approximately $562,000
and we had bank overdraft facilities of $107,000 as of that date. 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, 2005 and August 31, 2005, the overdraft facilities
consisted of $74,000 and $71,000 respectively with Barclays Bank PLC and $36,000
and $36,000 respectively with National Westminster Bank PLC (Natwest). Neither
facility was utilized on August 31, 2005. The interest rate on the Barclays
facility is 5.25% above Barclays' variable base rate (which base rate is
currently 4.5% per annum). The interest rate on the Natwest facility is 4.5%
above Natwest's variable base rate (which base rate is currently 4.5% per
annum). The Barclays facility is in the process of being reviewed by the bank
and the facility has been reduced to $18,000 as at September 29, 2005. The
Natwest facility is reviewable by the bank on May 31, 2006. Based on our
business plans and anticipated levels of operation and capital expenditure, we
have projected our cash requirement through February, 2006 to be approximately
$1,000,000, which will be required to fund our growth and working capital needs.
Of this amount, we anticipate that approximately $300,000 will be used for
capital expenditures (primarily equipment purchases) necessary to enhance our
infrastructure, approximately $500,000 to cover our ongoing need for working
capital and approximately $200,000 will be used for professional and other fees.

        We intend to fund these requirements in the remainder of the fiscal year
using cash on hand, cash flow from operations, and the sale of debt and/or
equity securities. In the six months ended August 31, 2005, we have raised gross
proceeds of $2,540,467 through private sales of stock. We intend to raise
additional capital through further private financings.

<PAGE>

ITEM 3. CONTROLS AND PROCEDURES

Disclosure 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, the Company's chief executive officer and chief financial officer
have concluded that, based on material weaknesses in the Company's internal
control over financial reporting described below, the Company's disclosure
controls and procedures were not effective as of the end of the period covered
by this report, to ensure that the information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Commission's rules and forms. We intend to supplement our finance team,
including adding additional accounting resource in the United States.

Internal Control Over Financial Reporting.

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 June 30, 2005, in connection with its audit of our financial statements for
the year ended February 28, 2005, Ernst & Young LLP, 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 weaknesses and significant deficiencies. The material
weaknesses are as follows:

     1.   No control is in place to ensure that revenue is recognized only when
          there is evidence of a contract or arrangement and proof of service
          delivery.

     2.   No control is in place to ensure adequate accrual is made for all
          goods and services received in a period but not invoiced.

     3.   No control is in place to reconcile on a monthly basis all control
          accounts and to correct errors as they are detected.

     4.   No control is in place to ensure that time spent to support the
          capitalization of software development costs is recorded and that
          projects are segregated into major enhancements and improvements.

     5.   There are not adequate resources to ensure a timely and accurate
          financial statement closing, preparation and reporting process.

We have taken and will continue to take steps to correct the identified material
weaknesses and significant deficiencies in our internal controls. We have taken
or will take the following actions in respect of each material weakness:

     1.   We will introduce procedures and controls to ensure that contracts are
          signed in a timely manner by all parties concerned and that customers
          acknowledge when services are delivered. We will be conducting a
          review of billings each quarter, only recognizing revenues which meet
          the criteria for recognition under United States Generally Accepted
          Accounting Principles

     2.   Since May 2005, the Chief Financial Officer performs a detailed review
          of the financial statements to identify any unrecorded accruals for
          goods and services received but not invoiced, and ensures

<PAGE>

          appropriate adjustments are made. We plan to introduce a purchase
          order system and controls to ensure that appropriate accruals are made
          for unmatched purchase orders as at the end of every period.

     3.   All control accounts are reconciled on a monthly basis and errors
          corrected as they are detected.

     4.   We are in the process of introducing daily time recording of
          activities to support the capitalization of software development and
          to segregate projects into major enhancements and improvements. The
          Chief Financial Officer ensures that the amount capitalized agrees to
          the underlying records.

     5.   In January 2005, we hired a full time Chief Financial Officer and in
          October 2005 a Certified Public Accountant as Controller, both based
          in the United States. We plan to restructure the finance function and
          relocate corporate accounting to the United States by the end of the
          calendar year. We also engaged a temporary Controller, based in the
          UK, to support this transition.

In addition to remedying the identified material weaknesses and significant
deficiencies discussed above, 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 28, 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 and a report by our independent
registered public accounting firm 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 be assured that we will not in the future identify further 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 are 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.

<PAGE>

PART II. OTHER INFORMATION


                            ITEM 1 LEGAL PROCEEDINGS

On or about November 25, 2004, a lawsuit was filed against our subsidiary
Narrowstep Ltd. in Northampton County Court by Mobestar Ltd seeking damages in
the amount of $50,935. Paul Robinson, our former Sales Director and a former
member of the Narrowstep board of directors until his resignation on March 10,
2005, is a founder, 10% shareholder and member of the board of directors of
Mobestar. The complaint in this action asserted that Narrowstep Ltd. had failed
to perform certain work for Mobestar for which it had previously been paid.
Narrowstep settled this lawsuit by paying the full amount claimed in
installments ending on July 31, 2005.

On March 10, 2005, Narrowstep Ltd. sought collection of a debt of $62,325 from a
former customer by serving a Statutory Demand for payment. On March 29, 2005 the
former customer responded with a claim for damages arising out of alleged
non-performance by Narrowstep Ltd. in the sum of $81,527. The Company views this
claim as a device to avoid payment of a debt that is due and completely without
merit. The debt of $62,325 and the associated revenue is excluded from the
Statement of Operations at August 31, 2005 and no revenue will be recognized
until payment is received. The Company does not believe that any provision for
the customer's claim should be made. Narrowstep Ltd. is considering the next
steps to be taken to recover this debt and the customer has not initiated any
legal proceeding in respect of its claim.

ITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended August 31, 2005, Narrowstep sold a total of
1,394,389 shares of its common stock without registering them under the
Securities Act of 1933, for an aggregate purchase price of $1,673,266. These
sales were made in reliance upon Regulation S to non-U.S. persons in offshore
transactions with no directed selling efforts in the United States. In
accordance with Regulation S, the certificates evidencing such issuances bore
restrictive legends. The Narrowstep bylaws contain a provision requiring refusal
of transfers not made in accordance with the provisions of Regulation S,
pursuant to registration under the Securities Act, or pursuant to an available
exemption from registration.

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 CHIEF FINANCIAL OFFICER FURNISHED PURSUANT
                    TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
                    906 OF THE SARBANES-OXLEY ACT OF 2002

<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.


                                   By: /s/ Iolo Jones
                                      ------------------------------------------
Dated:  October 12, 2005              Iolo Jones, President and Chief Executive
                                        Officer


                                   By: /s/ Steven Crowther
                                      ------------------------------------------
Dated:  October 12, 2005              Steven Crowther, Senior Vice President,
                                        Chief Financial Officer, Secretary,
                                        Treasurer and Director (Principal
                                        Financial and Accounting Officer)