**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C.
      20549




**FORM
      10-QSB**




**|X|
      QUARTERLY REPORTUNDER SECTION 13 OR 15 (d) OF THE SECURITIES**




**EXCHANGE
      ACT OF 1934**




**For
      the quarterly period ended August 31, 2007**




**|_|
      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.




Yes
      |X|
      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: 125,280,977shares 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, 2007
            
            February
                28, 2007(Unaudited)$
            
            $**Assets**Current
                assets:Cash
                and cash equivalents
            
            
            10,170,561
            
            
            466,870Accounts
                receivable, net of allowance for doubtful accounts
            
            
            1,211,993
            
            
            1,403,779of
                $1,574,090 and $940,534, respectivelyPrepaid
                expenses and other current assets
            
            
            420,672
            
            
            332,192Total
                current assets
            
            
            11,803,226
            
            
            2,202,841Property
                and equipment, net
            
            
            2,677,606
            
            
            1,234,557Software
                development costs, net
            
            
            244,574
            
            
            149,080**Total
                Assets**
            
            
            14,725,406
            
            
            3,586,478**Liabilities
                and Stockholders' Equity****Liabilities**Current
                liabilities:Unearned
                revenue
            
            
            191,004
            
            
            384,295Accounts
                payable
            
            
            877,672
            
            
            960,580Net
                obligations under capital leases, current
            
            
            151,058
            
            
            88,110Accrued
                expenses and other current liabilities
            
            
            844,140
            
            
            977,948Total
                current liabilities
            
            
            2,063,874
            
            
            2,410,933Net
                obligations under capital leases, long-term
            
            
            217,355
            
            
            135,470**Total
                Liabilities**
            
            
            2,281,229
            
            
            2,546,403**Commitments
                and Contingencies****Stockholders'
                Equity**Common
                stock, $0.000001 par value 450,000,000 shares authorized,
            
            
            125
            
            
            45125,280,977  issued
                and outstanding at August 31, 2007 and45,348,974  issued
                and outstanding at February 28, 2007Additional
                paid-in capital
            
            
            40,093,676
            
            
            20,543,688Accumulated
                deficit
            
            
            (27,737,934
            )
            
            (19,555,533
            )Accumulated
                other comprehensive income
            
            
            88,310
            
            
            51,875**Total
                Stockholders' Equity**
            
            
            12,444,177
            
            
            1,040,075**Total
                Liabilities and Stockholders' Equity**
            
            
            14,725,406
            
            
            3,586,478See
                Notes to Condensed Consolidated Financial Statements.







2




**NARROWSTEP
                INC. AND
                SUBSIDIARIES****CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS****AND
                COMPREHENSIVE LOSS (Unaudited)**Three
                Months Ended
            
            Six
                Months EndedAugust
                31, 2007
            
            August
                31, 2006
            
            August
                31, 2007
            
            August
                31, 2006$
            
            $
            
            $
            
            $**Revenue**Narrowcasting
                and other
            
            
            1,143,955
            
            
            1,041,980
            
            
            2,559,115
            
            
            1,878,493Production
                services
            
            
            141,902
            
            
            526,387
            
            
            317,535
            
            
            834,397Total
                revenue
            
            
            1,285,857
            
            
            1,568,367
            
            
            2,876,650
            
            
            2,712,890**Costs
                and Expenses**Operating
            
            
            1,361,524
            
            
            711,085
            
            
            2,587,315
            
            
            1,133,303Selling,
                general and administrative
            
            
            3,449,202
            
            
            1,900,687
            
            
            6,094,826
            
            
            3,581,250Research
                & development
            
            
            783,298
            
            
            285,093
            
            
            1,582,048
            
            
            540,150Total
                operating expenses
            
            
            5,594,024
            
            
            2,896,865
            
            
            10,264,189
            
            
            5,254,703**Operating
                Loss**
            
            
            (4,308,167
            )
            
            (1,328,498
            )
            
            (7,387,539
            )
            
            (2,541,813
            )Interest
                income (expense), net
            
            
            (599,280
            )
            
            41,166
            
            
            (778,923
            )
            
            85,265Currency
                exchange income (loss)
            
            
            (14,036
            )
            
            1,745
            
            
            (15,939
            )
            
            1,156**Net
                Loss**
            
            
            (4,921,483
            )
            
            (1,285,587
            )
            
            (8,182,401
            )
            
            (2,455,392
            )Foreign
                currency translation adjustment
            
            
            18,963
            
            
            6,219
            
            
            36,435
            
            
            42,983**Comprehensive
                Loss**
            
            
            (4,902,520
            )
            
            (1,279,368
            )
            
            (8,145,966
            )
            
            (2,412,409
            )**Net
                Loss per Common Share - Basic and Diluted**
            
            
            (0.07
            )
            
            (0.03
            )
            
            (0.14
            )
            
            (0.05
            )**Weighted-Average
                Number of Shares Outstanding, Basic and Diluted**
            
            
            67,858,410
            
            
            45,248,974
            
            
            56,603,692
            
            
            45,192,724See
                Notes to Condensed Consolidated Financial Statements.











3

















**NARROWSTEP
                INC. AND
                SUBSIDIARIES****CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS****(Unaudited)**Six
                Months EndedAugust
                31, 2007
            
            
            August
                31, 2006$
            
            
            $**Cash
                Flows from Operating Activities**Net
                loss
            
            
            (8,182,401
            )
            
            
            (2,455,392
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Allowance
                for doubtful accounts
            
            
            633,556
            
            
            
            53,904Depreciation
                and amortization
            
            
            439,978
            
            
            
            255,126Stock-based
                compensation expense
            
            
            1,619,270
            
            
            
            814,497Interest
                on short-term investment
            
            
            -
            
            
            
            (57,609
            )Fair
                value of options and warrants granted to third party
                suppliers
            
            
            19,625
            
            
            
            -Interest
                on debt issuance
            
            
            853,200
            
            
            
            -Changes
                in net cash attributable to changes in operating assets and
                liabilities:Accounts
                receivable, gross
            
            
            (441,770
            )
            
            
            (970,495
            )Prepaid
                expenses and other current assets
            
            
            (88,480
            )
            
            
            (73,705
            )Unearned
                revenue
            
            
            (193,291
            )
            
            
            214,457Accounts
                payable, accrued expenses and other current liabilities
            
            
            (216,716
            )
            
            
            463,307**Net
                Cash Used in Operating Activities**
            
            
            (5,557,029
            )
            
            
            (1,755,910
            )**Cash
                Flows from Investing Activities**Purchases
                of property and equipment
            
            
            (1,583,660
            )
            
            
            (580,675
            )Payments
                for software development costs
            
            
            (141,588
            )
            
            
            (79,001
            )**Net
                Cash Provided by (Used in) Investing Activities**
            
            
            (1,725,248
            )
            
            
            (659,676
            )**Cash
                Flows from Financing Activities**Net
                proceeds from issuance of common stock
            
            
            10,127,457
            
            
            
            1,379,403Proceeds
                from exercise of stock options and warrants
            
            
            -
            
            
            
            6,250Payments
                on capital leases
            
            
            (42,998
            )
            
            
            (33,537
            )Net
                Proceeds from issuance of debt instrument
            
            
            6,950,130
            
            
            
            -**Net
                Cash Provided by Financing Activities**
            
            
            17,034,589
            
            
            
            1,352,116**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            9,752,312
            
            
            
            (1,063,470
            )Effect
                of exchange rates on change in cash
            
            
            (48,621
            )
            
            
            14,098Cash
                and cash equivalents at the beginning of period
            
            
            466,870
            
            
            
            2,232,854**Cash
                and Cash Equivalents at the End of the Period**
            
            
            10,170,561
            
            
            
            1,183,482See
                Notes to Condensed Consolidated Financial Statements.**Supplemental
                disclosure of non-cash investing activities:**Property
                and equipment under capital leases
            
            
            188,781
            
            
            
            133,875**Supplemental
                disclosure of non-cash financing activities:**Debt
                converted to equity
            
            
            6,950,130
            
            
            
            -Interest
                on debt issuance was paid out with  common
                shares
            
            
            853,200
            
            
            
            -











See
      Notes
      to Condensed Consolidated Financial Statements.





4




**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
      Subsidiaries is referred to as “Narrowstep,” “we” or the “Company.” The
      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 condensed
      consolidated financial statements include all adjustments (consisting only
      of
      normal recurring accruals) 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 28, 2007 filed as
      part
      of Narrowstep Inc. and Subsidiaries (collectively, the “Company”) Form 10-KSB
      for such year.




**Principles
      of Consolidation.** The 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.  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
      3.  CONVERTIBLE NOTES PAYABLE**





On
      March
      2, 2007, the Company entered into a Purchase Agreement (the “Purchase
      Agreement”) with sixteen accredited investors (the “Investors”) for the sale of
      its 12% Mandatorily Convertible Notes (the “Notes”) and Warrants (the
“Warrants”) for a total purchase price of $7,110,000.  The Notes,
      which mature on March 2, 2009, bear interest at 12% per annum, payable at
      maturity.  The Notes will mandatorily convert at a 10% discount into
      the securities issued by the Company in any subsequent private placement that
      results in gross proceeds to the Company of at least $3,000,000 or, in the
      event
      of a sale of the Company prior thereto, shares of common stock valued at a
      discount of 10% to the per share price to be paid in the Company
      sale.  The Warrants are exercisable at any time on or prior to March
      2, 2012 for an aggregate of 3,555,000 shares of common stock at an exercise
      price of $0.60 per share, subject to adjustment.  The Company has the
      right to force the cash exercise of the Warrants if the common stock trades
      at
      or above $1.80 per share for at least 20 consecutive trading
      days.  Both the Notes and the Warrants contain customary anti-dilution
      provisions in the event of any stock split, reverse stock split,
      reclassification or recapitalization of the Company.  In connection
      with the August 8, 2007 financing, the Company’s $7,110,000 in outstanding
      mandatorily 12% convertible notes were automatically converted into an aggregate
      of 35,392,003 shares of common stock at a conversion price of $0.225 per
      share.





**NOTE
      4. RELATED PARTY TRANSACTIONS**





**Options
      granted to current officers.**On April 30, 2007, the Company granted
      options to purchase 250,000 shares to Lou Holder, our 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, Narrowstep entered into an employment Agreement with David C. McCourt
      who was granted 1,250,000 shares of restricted stock units which vest monthly
      until November 30, 2007 and 2,500,000 shares of restricted stock which vest
      based on meeting certain performance milestones, to be determined by the
      Company’s Compensation Committee.




5




**NARROWSTEP
      INC. AND SUBSIDIARIES**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      (UNAUDITED)**







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






**Transactions
      with companies in which certain persons hold an
      interest.**Shelly Palmer, a former director of the Company,
      is the owner of a consulting company, SLP Productions Inc. Pursuant to an
      unwritten agreement between the parties, SLP Productions billed the Company
      $38,000 and $36,000 for fiscal year ending February 28, 2007 and February 28,
      2006, respectively for consulting services.  For the six months
      ending, August 31, 2007 no further consulting services were
      performed.




Narrowstep
      Ltd. has developed a channel for LTR Consultancy. John Goedegebuure, a founder
      and shareholder of Narrowstep Inc., is the Managing Director and a shareholder
      of LTR Consultancy.  Total revenue and total receivables from LTR
      Consultancy for fiscal year ending February 28, 2007, was $185,480 and $53,614
      respectively.  Total revenue and total receivables from LTR
      Consultancy for the six months ending August 31, 2007, was $42,236 and $97,807
      respectively.




The
      total
      amount in receivables remained unpaid and was fully reserved for at August
      31,
      2007.




Pursuant
      to an Investor Relations Agreement with the Company, LTR Consultancy earned
      fees
      for investor relations services of $33,705, for fiscal year ended February
      28,
      2007.  Of these fees, $5,892 was unpaid as of August 31,
      2007.




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






Outdoor
      Channel, a Narrowstep customer, began utilizing our services in May
      2007.  The Chief Executive Officer and President of Outdoor Channel is
      Roger L. Werner Jr., a Director of Narrowstep.  We billed Outdoor
      Channel, $33,204 for the six months ended August 31, 2007 and the balance in
      accounts receivable at August 31, 2007 is $2,500.




In
      connection with our 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 other wise transfer any shares of common stock owned by them,
      subject to certain exceptions.




**NOTE
      5. CONCENTRATIONS**






The
      largest four customers in the aggregate accounted for approximately $423,000,
      or
      33% of our revenues for the three months ended August 31, 2007 and approximately
      $924,000, or 32% of our revenues for the six months ended August 31, 2007.
      The
      largest four customers in the aggregate accounted for approximately $521,000,
      or
      34% of our revenues for the three months ended August 31, 2006 and approximately
      $732,000, or 27% of our revenues for the six months ended August 31, 2006.
      The
      accounts receivable balance for the largest four customers was approximately
      $834,000 as of August 31, 2007.






**NOTE
      6. RECLASSIFICATION**




The
      presentation of the August 31, 2006 consolidated statement of operations and
      comprehensive loss has been reclassified to conform to the August 31, 2007
      presentation.




6







**NARROWSTEP
      INC. AND SUBSIDIARIES**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      (UNAUDITED)**




**NOTE
      7. SUBSEQUENT EVENTS**




On
      July
      20, 2007 the company entered into a six year building lease with Princeton
      202
      Associates Limited Partnership located in New Jersey.  The initial
      monthly payment is approximately $28,170 with escalations every two
      years.  On October 3, 2007 the company entered into a four year
      building lease with Philips and Feeley located in London.  The initial
      monthly payment is approximately $8,540 with escalations every
      year.





On
      October 7, 2007, Rajan Chopra resigned as a member of the Board of Directors
      of
      Narrowstep Inc.




**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 production and distribution
      services and equipment. You should read this discussion in conjunction with
      the
      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 28,
      2007.




**Consolidated
      revenues** for the three months ended August 31, 2007 decreased by
      $282,510, or 18%, to $1,285,857 as compared to $1,568,367 for the three months
      ended August 31, 2006. Consolidated revenues for the six months ended August
      31,
      2007 increased by $163,760, or 6%, to $2,876,650 as compared to $2,712,890
      for
      the six months ended August 31, 2006 as follows:




**Narrowcasting
      and other revenues**for the three months ended August 31, 2007 increased
      by $101,975, or 10%, to $1,143,955 as compared to $1,041,980 for the three
      months ended August 31, 2006.  Narrowcasting revenues for the six
      months ended August 31, 2007 increased by $680,622, or 36%, to $2,559,115 as
      compared to $1,878,493 for the six months ended August 31, 2006.  The
      increase in narrowcasting revenues resulted primarily from a net increase in
      customers, partially offset by sales allowances and adjustments given in the
      quarter.  Although narrowcasting revenues increased quarter to
      quarter, the rate of growth was less than in prior quarters as a result of
      smaller content providers churning for non-payment.  Many of these
      content providers are simply undercapitalized.  The Company is in the
      process of refocusing its sales and marketing efforts on larger, more profitable
      customers to whom the Company can sell a range of products and services and
      away
      from smaller content providers who have traditionally had lower margins and
      higher payment default rates.  Management expects that this shift in
      strategic focus will accelerate the Company’s revenue growth.





**Production
      services revenues** for the three months ended August 31, 2007 decreased
      by $384,485, or 73%, to $141,902 as compared to $526,387 for the three months
      ended August 31, 2006.  Production services revenues for the six
      months ended August 31, 2007 decreased by $516,862, or 62%, to $317,535 as
      compared to $834,397 for the six months ended August 31, 2006.  As
      previously disclosed, our strategic plan is to focus our resources on
      narrowscasting and to deemphasize production services as a revenue source of
      our
      business.  Consistent with this plan, revenues from this segment
      continue to decline as we continue to fulfill current obligations and execute
      on
      our plan to exit this business segment.





**Geographical
      distribution of consolidated revenues:**




Six
                Months EndedAugust
              31,
            
            August
              31,2007
            
            2006
            
            Percent$
            
            $
            
            ChangeUnited
                States
            
            431,647
            
            
            320,645
            
            
            35%Europe,
                Middle-East and Africa
            
            2,388,230
            
            
            2,313,928
            
            
            3%Asia
                Pacific
            
            38,559
            
            
            59,866
            
            
            -36%Internet
                Sales
            
            18,214
            
            
            18,451
            
            
            -1%Total
            
            2,876,650
            
            
            2,712,890
            
            
            6%








**Consolidated
      costs and expenses** for the three months ended August 31, 2007 increased
      by $2,697,159, or 93%, to $5,594,024 as compared to $2,896,865 for the three
      months ended August 31, 2006.  Consolidated expenses for the six
      months ended August 31, 2007 increased by $5,009,486, or 95%, to $10,264,189
      as
      compared to $5,254,703 for the six months ended August 31, 2006 as
      follows:





**Operating
      expenses** includes the cost of bandwidth, direct labor, sub-contracted
      labor, consulting fees and depreciation.  For the three months ended
      August 31, 2007 these costs were $1,361,524, a 91%, increase over the $711,085
      reported in the three months ended August 31, 2006. Operating expenses for
      the
      six months ended August 31, 2007 were $2,587,315, a 128% increase over the
      $1,133,303 reported in




7




**NARROWSTEP
      INC. AND SUBSIDIARIES**




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





the
      six
      months ended August 31, 2006.  The increase resulted primarily from
      increased headcount to meet customer support needs in our narrowcasting business
      and to begin building out our internal Content Delivery Network (CDN)
      system.  This increase was offset in part by a reduction in production
      expenses.  We expect that operating expenses will continue at these
      higher levels for the near term as we anticipate that our CDN system will not
      be
      complete until approximately the fourth quarter of this fiscal
      year.  However, we expect that these expenses will begin to decrease
      as a percentage of total revenues as we achieve more efficiency in delivering
      and supporting our service offerings.




**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, 2007 these costs were $3,449,202, a 81% increase over the
      $1,900,687 reported for the three months ended August 31,
      2006.  SG&A for the six months ended August 31, 2007 costs were
      $6,094,826, a 70% increase over the $3,581,250 reported for the six months
      ended
      August 31, 2006.  The increase is primarily due to increased
      headcount, primarily in direct sales, as we continue to build infrastructure
      to
      support a higher level of sales.  The increase also resulted from
      higher stock compensation expense attributable to the employment agreement
      entered into with our interim CEO, under which he is paid only in restricted
      stock and performance units.




**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, 2007 these costs were $783,298, a 175% increase over the $285,093 reported
      for the three months ended August 31, 2006.  R&D expenses for the
      six months ended August 31, 2007 were $1,582,048, a 193% increase over the
      $540,150 reported for the six months ended August 31, 2006. The increase in
      research and development expenses resulted primarily from increased headcount
      and increased third party expenses relating to the further development and
      enhancement of our TelvOS system.  The increase also resulted from
      increased headcount to maintain the Company’s existing systems and to provide
      customized support for our growing customer base.  However, we expect
      that these expenses will begin to decrease as a percentage of total revenues
      as
      we refocus our strategic direction on larger customers where customization
      expenses can be spread over a higher revenue base.




**Liquidity
      and Capital Resources**




**Net
      cash used in operating activities** was $5,557,029 for the six months
      ended August 31, 2007, compared to $1,755,910 for the six months ended August
      31, 2006. The increase in cash used in operations was due primarily to an
      increase in our net loss.  Our net loss for the period increased
      significantly for the reasons described above.




**Net
      cash used in investing activities** was $1,725,248 for the six months
      ended August 31, 2007, compared to $659,676 for the six months ended August
      31,
      2006. This increase resulted primarily from additional capital expenditures
      needed to build out our CDN network.




**Net
      cash provided by financing activities** was $17,034,589 for the six
      months ended August 31, 2007, compared to $1,352,116 for the six months ended
      August 31, 2006.  The increase resulted from the sale of common stock
      on August 8, 2007 and the issuance of the Company’s 12% mandatorily convertible
      notes issued March 2, 2007 as described below.




We
      had
      $10,170,561 in cash and cash equivalents available at August 31, 2007 and
      available bank overdraft facilities of $60,411.




We
      have
      financed our operations from inception primarily through private sales of our
      equity and convertible debt securities. From inception through August 31, 2007,
      we issued an aggregate of 125,280,977 shares of our common stock for gross
      proceeds of approximately $31.8 million.  In addition, we have issued
      warrants in connection with certain of our fundraising activities and have
      granted options and issued shares in lieu of cash in payment to third parties
      for services rendered and in connection with the acquisition of Sportshows
      Television, Ltd. To a lesser extent, we have also used capital leases to fund
      some of our equipment acquisitions.  We have incurred significant
      losses since our inception and, at August 31, 2007, had an accumulated deficit
      of approximately $27.7 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, 2007 and February 28, 2007, the overdraft facilities
      consisted of $20,137 and $19,600, respectively, with Barclays Bank PLC and
      $40,274 and $39,000, respectively, with National Westminster Bank PLC (NatWest).
      Neither facility was utilized on August 31, 2007 or February 28, 2007. The
      interest rate on the Barclays facility is 5.75% above Barclays' variable base
      rate (which base rate was 5.25% per annum as of August 31, 2007). The interest
      rate on the NatWest facility is 5.75% above NatWest's variable base rate (which
      base rate was 5.25% per annum as of August 31, 2007). The Barclays overdraft
      facility was renewed on February 17, 2007.  The NatWest overdraft
      facility was renewed on May 31, 2007.




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, 2007,
      our
      current ratio was 5.7, compared to 0.9 at February 28, 2007. Our current ratio
      fluctuates primarily as we use cash to develop our business and raise additional
      funds from private financing from time to time.





8





**NARROWSTEP
      INC. AND SUBSIDIARIES**




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





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 sixteen accredited investors (the “Investors”) for the sale of
      its 12% Mandatorily Convertible Notes (the “Notes”) and Warrants (the
“Warrants”) for a total purchase price of $7,110,000.  The Notes,
      which mature on March 2, 2009, bear interest at 12% per annum, payable at
      maturity.  The Notes will mandatorily convert
      at a 10% discount into the securities issued by the Company in any subsequent
      private placement that results in gross proceeds to the Company of at least
      $3,000,000 or, in the event of a sale of the Company prior thereto, shares
      of
      common stock valued at a discount of 10% to the per share price to be paid
      in
      the Company sale.  The Warrants are exercisable at any time on or
      prior to March 2, 2012 for an aggregate of
      3,555,000 shares of common stock at an exercise price of $0.60 per share,
      subject to adjustment.  The Company has the right to force the cash
      exercise of the Warrants if the common stock trades at or above $1.80 per share
      for at least 20 consecutive trading days.  Both the Notes and the
      Warrants contain customary anti-dilution provisions in the event of any stock
      split, reverse stock split, reclassification or recapitalization of the
      Company.  In connection with the August 8, 2007 financing, the
      Company’s $7,110,000 in outstanding mandatorily 12% convertible notes were
      automatically converted into an aggregate of 35,392,003 shares of common stock
      at a conversion price of $0.225 per share.





With
      the
      completion of the August financing we believe that we have sufficient working
      capital to fund our operations for the next twelve months.  Management
      will continue to pursue various financing options in order to fully fund our
      longer term cash requirements.  We also are making efforts to improve
      our financial position by reducing ongoing operating expenses and continuing
      to
      focus on increasing sales.





As
      of
      August 31, 2007, our principal capital commitments consisted of obligations
      outstanding under capital leases as shown in the table below:








Six
                Months EndedAugust
                31, 2007$Amounts
                payable:Within
                12 months
            
            
            180,021Between
                one and two years
            
            
            160,143Between
                two and three years
            
            
            75,400Total
                future commitment
            
            
            415,564Less:
                finance charges allocated to future periods
            
            
            (47,151
            )Present
                Value
            
            
            368,413







**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.





9




**NARROWSTEP
      INC. AND SUBSIDIARIES**





**ITEM
      3. CONTROLS AND PROCEDURES**




As
      of the
      end of the period covered by this report, the Company's management, with the
      participation of the Company's chief executive officer and chief financial
      officer, evaluated the effectiveness of the Company's disclosure controls and
      procedures (as such term is defined in Rule 13a-15(e) under the Securities
      Exchange Act of 1934, as amended (the "Exchange Act")). Based on such
      evaluation, our chief executive officer and chief financial officer have
      concluded that our disclosure controls and procedures were effective as of
      August 31, 2007 to ensure that the information required to be disclosed by
      us in
      the reports that we file or submit under the Exchange Act is recorded,
      processed, summarized and reported, within the time periods specified in the
      Commission's rules and forms.




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





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





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





The
      significant deficiencies were as follows:





·
            We
                did not record a sufficient allowance for bad debts related to a
                customer’s accounts receivable balance that was in
                question.·
            We
                were recording invoices billed to certain customers in such a manner
                that
                the result was to recognize revenues on a cash basis, which is not
                in
                accordance with accounting principals generally accepted in the United
                States.





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




In
      response to the deficiencies in our internal controls identified by Rothstein,
      Kass & Company, P.C. we restated our results for the fiscal third quarter
      ended November 30, 2006 and for the fiscal year ended February 28,
      2007.  We have taken appropriate steps to correct these deficiencies
      in our internal controls identified by Rothstein, Kass & Company,
      P.C.




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




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




10




**NARROWSTEP
      INC. AND SUBSIDIARIES**




**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 Registration Statement on Form SB-2
      and 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**





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




Reference
      is hereby made to the Company’s Current Report on Form 8-K filed on August 10,
      2007 for certain information relating to the sale of common stock and warrants
      for a total purchase price of $10,510,000 and the related conversion of the
      Company’s previously issued mandatorily convertible notes.





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




Annual
      Meeting of Shareholders





(a)
            The
                annual meeting of the shareholders of Narrowstep Inc. was held on
                September 28, 2007, in Princeton, New Jersey.  Shareholders
                representing 100,517,139, 80% of the common shares outstanding as
                of the
                August 10, 2007 record date, were present in person or represented
                by
                proxies at the meeting.(b)
            Election
                of Directors:





VOTESNominee
            For
            
            
            Withheld*David
                McCourt
            
            95,426,769
            
            
            
            5,090,370Iolo
                Jones
            
            90,833,045
            
            
            
            9,684,094Rajan
                Chopra
            
            95,597,629
            
            
            
            4,919,510





11








*Includes
      shares represented at the meeting by proxy where the shareholders withheld
      authority to vote for the indicated Director or Directors, as well as shares
      present at the meeting that were not voted for such Director or
      Directors.





(c)
            In
                addition to the Directors elected above, Jack Whyte, and Roger Werner
                continue as Directors.(d)
            Holders
                of common shares voted at this meeting on the following matters,
                which
                were set forth in our proxy
                statement:





VOTESFor
            
            
            For
                %
            
            
            Against
            
            
            Against
                %
            
            
            Abstain
            
            
            Non-voteAmend
                Certificate of Incorporation to clarify certain provisions relating
                to the
                terms of office of directors
            
            
            95,590,119
            
            
            
            76.3%
            
            
            
            3,661,181
            
            
            
            2.9%
            
            
            
            1,265,839
            
            
            
            24,763,838





Percentages
      are based on the total number of Common shares outstanding as of the record
      date
      of the meeting.





12










**NARROWSTEP
      INC. AND
      SUBSIDIARIES**












**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 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








13







**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
              15, 2007
            
            
            David
              McCourtInterim
              Chief Executive OfficerBy:
            /s/
              Lisa VanPattenDated:  October
              15, 2007
            
            
            Lisa
              VanPattenChief
              Financial Officer








14