**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.
                Employerincorporation
                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.











**PART
      1 - FINANCIAL INFORMATION**


**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
            
            
            4,170,850Short-term
                investments
            
            
            281,790Accounts
                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
            
            
            923,850Prepaid
                expenses and other current assets
            
            
            154,830
            
            
            411,110Total
                current assets
            
            
            2,092,881
            
            
            5,505,810Property
                and equipment, net
            
            
            1,485,822
            
            
            1,995,504Software
                development costs, net
            
            
            732,771
            
            
            682,060Other
                assets
            
            
            –
            
            
            281,790**Total
                Assets**
            
            
            4,311,474
            
            
            8,465,164**Liabilities
                and Stockholders' Equity****Liabilities**Current
                liabilities:Unearned
                revenue
            
            
            313,502
            
            
            31,536Accounts
                payable
            
            
            817,503
            
            
            735,776Net
                obligations under capital leases, current
            
            
            133,723
            
            
            153,322Accrued
                expenses and other current liabilities
            
            
            325,912
            
            
            814,214Total
                current liabilities
            
            
            1,590,640
            
            
            1,734,848Net
                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
            
            
            137Additional
                paid-in capital
            
            
            41,320,106
            
            
            40,745,085Accumulated
                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.








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


Three Months Ended
            
            Six Months EndedAugust 31, 2008
            
            August 31, 2007
            
            August 31, 2008
            
            August 31, 2007$
            
            $
            
            $
            
            $**Revenue**Narrowcasting
                and other
            
            
            659,333
            
            
            1,143,955
            
            
            1,620,414
            
            
            2,559,115Production
                services
            
            
            –
            
            
            141,902
            
            
            –
            
            
            317,535Total
                revenue
            
            
            659,333
            
            
            1,285,857
            
            
            1,620,414
            
            
            2,876,650**Costs
                and Expenses**Operating
            
            
            774,565
            
            
            1,361,524
            
            
            1,713,112
            
            
            2,587,315Selling,
                general and administrative
            
            
            1,414,529
            
            
            3,449,202
            
            
            3,721,203
            
            
            6,094,826Research
                & development
            
            
            291,161
            
            
            783,298
            
            
            536,590
            
            
            1,582,048Total
                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
            
            
            86,524Interest
                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 EndedAugust 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
            )
            
            633,556Depreciation
                and amortization
            
            
            497,061
            
            
            439,978Loss
                on disposal of property and equipment
            
            
            54,919
            
            
            –Stock-based
                compensation expense
            
            
            575,021
            
            
            1,619,270Interest
                on short-term investment
            
            
            (7,139
            )
            
            –Fair
                value of options and warrants granted to third party
                suppliers
            
            
            –
            
            
            19,625Interest
                on debt issuance
            
            
            –
            
            
            853,200Changes
                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
            
            
            9,512Repayment
                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
            
            
            –
            
            
            10,127,457Payments
                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
            )
            
            9,752,312Effect
                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 EndedAugust 31, 2008
            
            August 31, 2007
            
            Percent$
            
            $
            
            ChangeUnited 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
            
            
            147,520Between
                one and two years
            
            
            70,907Between
                two and three years
            
            
            0Total
                future commitment
            
            
            218,427Less:
                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 2002EXHIBIT 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 2002EXHIBIT 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
                2002EXHIBIT 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 McCourtDated:  October
                14, 2008
            
            David
                McCourtInterim
                Chief Executive OfficerBy:
            /s/
                Lisa VanPattenDated:  October
                14, 2008
            
            Lisa
                VanPattenVanVLisa VPrincipal
                Financial Officer