Prajakta, I think I figured it out finally.
The picture helped. We were doing it almost right but there is one little key which I will add to the directions.
Put the RHN (right hand needle) into the first stitch purl wise, but don't do anything to that first stitch, just go through it. Go into the second stitch in the normal way and knit it to the point where you have pulled up a new stitch loop, but don't take anything off the LHN (left hand needle) yet. Now you have one stitch loop on the RHN (right hand needle) and a strand from going through the first stitch, you also have 2 loops still going over the LHN. Don't take the RHN out of the stitches.
(Here is the new part) Now you want to rotate the RHN so that you can knit the first stitch behind the LHN as I said before in the first response, but
as you rotate the needle be sure you take the RHN tip under
the strand that is the first stitch you went through. You actually need to move the RHN tip under the first stitch loop before you start rotating to get you in position to knit the first stitch through the back loop.
If you are having any problems with the "knit through the back loop" there is a video of that on this site. But to describe it again you rotate the RHN tip around so that you can knit the first stitch loop behind the LHN, you insert the RHN right to left into the part of the loop nearest to the tip of the LHN. It kind of feels like you are doing it as if to purl instead of knit. Then you yarn around and knit it like usual.
Try that out on a sample and see if that doesn't work and look like the picture. Mine did. Be sure on every other row of this pattern stitch that you k1 before beginning the pattern stitch and end with a k1.
*So do this first row of the pattern starting right off with the special pattern stitch. Purl a row. Next row, k1, pattern across to the last stitch, k1. Purl a row. Repeat from the * changing colors as you want.
I think you should be able to get it now. Let me know if you do.