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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For Fiscal Year
    Ended July 31,
    2010o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the Transition Period
    From          to   Commission File
    000-27597
      NaviSite, Inc.
 (Exact name of registrant as
    specified in its charter)
      Delaware

52-2137343(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)400 Minuteman Road
    Andover, Massachusetts(Address of principal
    executive offices)

01810(zip
    code)   Registrants telephone number, including area code
 (978) 682-8300
      Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, $0.01 par value

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act:
 None
      o þ
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company þ   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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##### 





NAVISITE,
    INC.
    2010 ANNUAL REPORT
    ON
    FORM 10-K
    TABLE OF CONTENTS
   
 PageNumberPART IItem 1.

Business


3Item 1A.

Risk Factors


12Item 1B.

Unresolved Staff Comments


20Item 2.

Properties


21Item 3.

Legal Proceedings


21Item 4.

Removed and Reserved


22PART IIItem 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


23Item 6.

Selected Financial Data


24Item 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


25Item 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


36Item 8.

Financial Statements and Supplementary Data


36Item 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


36Item 9A.

Controls and Procedures


36Item 9B.

Other Information


37PART IIIItem 10.

Directors, Executive Officers and Corporate
    Governance


37Item 11.

Executive Compensation


38Item 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


38Item 13.

Certain Relationships and Related Transactions,
    and Director Independence


38Item 14.

Principal Accounting Fees and Services


38PART IVItem 15.

Exhibits, Financial Statement Schedules


38Signatures


39Index to NaviSite, Inc. Consolidated Financial
    Statements


F-1EX-10.6EX-10.7EX-10.8EX-10.9EX-10.60EX-21EX-23EX-31.1EX-31.2EX-32.1EX-32.2   2




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PART I
    SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



This Annual Report on
    Form 10-K
    of NaviSite, Inc. (NaviSite,the
    Company, we, usand our) contains
    forward-looking statements within the meaning of
    Section 21E of the Securities Exchange Act of 1934, as
    amended (the Exchange Act), and
    Section 27A of the Securities Act of 1933, as amended(the Securities Act), that
    involve risks and uncertainties. All statements other than
    statements of historical information provided herein are
    forward-looking statements and may contain information about
    financial results, economic conditions, trends and known
    uncertainties. Our actual results could differ materially from
    those discussed in the forward-looking statements as a result of
    a number of factors, which include those discussed in this
    section and elsewhere in this report and the risks discussed in
    our other filings with the Securities and Exchange Commission(the SEC). Readers are cautioned not
    to place undue reliance on these forward-looking statements,
    which reflect our managements analysis, judgment, belief
    or expectation only as of the date hereof. Investors are warned
    that actual results may differ materially from our expectations.
    We undertake no obligation to publicly reissue or update these
    forward-looking statements to reflect events or circumstances
    that arise after the date hereof. All logos and company and
    product names may be trademarks or registered trademarks of
    their respective owners. Item 1.
    Business  Our
    Business
  IT free-up
  MCS (e-Business e-mail
  NOC
 3




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tm IaaS ISVs SaaS tm
    Our
    Services
    tm tm
      NaviCloud
    Managed Cloud Services
   4




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end-to-end
  month-to-month
    
    security and compliance;
    performance management;
    availability and reliability guarantees;
    control and simplified operation of complete virtual data center;
    integration with existing environments  physical or
    virtual;
    consumption based billing; and
    roles based access control.  Enterprise-Hosting
    Services
    
    Managed Hosting Service Support provided for
    hardware and software located in one of our managed services
    data centers. We also provide bundled offerings packaged as
    content-delivery services. Specific services include:  
    dedicated and virtual servers;
    business continuity and disaster recovery;
    connectivity;
    content distribution;
    database administration and performance tuning;
    help desk support;
    hardware management;
    monitoring;
    network management;
    security;
    server and operating management; and
    storage management.  
    Software-as-a-Service Enablement of SaaS to
    the ISV community. Services include SaaS starter kits and
    services specific to the needs of ISVs that want to offer their
    software in an on-demand or subscription mode. 5




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
    Co-location Physical space offered in a data
    center. In addition to providing the physical space, NaviSite
    offers environmental support, specified power with backup power
    generation and network-connectivity options.  Application
    Management
      
    ERP Application-Management Services Defined
    services provided for specific packaged applications. Services
    include implementation, upgrade assistance, monitoring,
    diagnostics, problem resolution and functional end-user support.
    Applications include:  
    Oracle
    e-Business
    Suite;
    PeopleSoft Enterprise;
    Siebel;
    JD Edwards;
    Hyperion;
    Deltek Costpoint;
    Microsoft Dynamics;
    Microsoft Exchange; and
    Lotus Domino.  
    ERP Professional Services Planning,
    implementation, optimization, enhancement and upgrades for
    supported third-party ERP applications.
    Custom-Development Professional Services Planning, implementation, optimization and
    enhancement for custom applications developed by us or our
    customers.  NaviViewtm Platform
  tm tm tm tm
 6




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Event-Detection System 
  Synthetic-Transaction Monitoring 
  Automated Remediation  tm
  Component-Information Manager 
  Escalation Manager 
  tm tm tm
  Our
    History
  ModusLink
  Acquisitions
    in Fiscal Year 2008
  
    In August 2007 we acquired the assets of Alabanza LLC and
    Hosting Ventures LLC (together, Alabanza) and
    all of the issued and outstanding stock of Jupiter Hosting, Inc.
    (Jupiter). These acquisitions provided
    additional managed-hosting customers, proprietary software for
    provisioning and additional data-center space in the Bay Area
    market.
    In September 2007 we acquired netASPx, Inc.
    (netASPx), based in Minneapolis, Minnesota.
    The acquisition of netASPx added functional expertise in the
    Lawson and Kronos ERP applications and approximately
    18,000 square feet of data-center capacity.
    In October 2007 we acquired the assets of iCommerce, Inc.
    (iCommerce), a re-seller of dedicated hosting
    services.  Asset
    Sales in Fiscal Year 2010
    
    In February 2010, we sold substantially all of the assets of
    netASPx for a gross sale price of $56.0 million and used the net
    proceeds to reduce our outstanding debt obligations. 7




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
    In March 2010, we sold substantially all of the assets of two of
    our co-location data centers for a gross sale price of
    $5.4 million and used the net proceeds to reduce our
    outstanding debt obligations.  Our
    Industry
  e-mail,
    
    increase business-operating efficiencies and reduce costs by
    using
    best-of-breed
    applications;
    build and enhance customer relationships by providing
    Internet-enabled customer service and technical support;
    manage vendor and supplier relationships through
    Internet-enabled technologies, such as online training and
    online sales and marketing;
    communicate and conduct business more rapidly and
    cost-effectively with customers, suppliers and employees
    worldwide; and
    improve service and lower the cost of software ownership by the
    adoption of new Internet-enabled software-delivery models.      
    developments by major hardware and software vendors that
    facilitate outsourcing, such as the production of rack-based
    blade servers designed to be shared by a number of customers;
    advances in virtualization and high-density computing that are
    beyond the skill and cost ability of the typical IT department;
    the need to improve the reliability, availability and overall
    performance of applications as they increase in importance and
    complexity;
    the need to focus on core business operations; 8




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
    challenges and costs of hiring, training and retaining
    application engineers and IT employees with the requisite range
    of IT expertise;
    the increasing complexity of managing the operations of
    applications that need to function in house, with business
    partners and on the public Internet;
    utility-like cloud service offerings that enable
    companies to scale their services based on fluctuating
    requirements; and
    the ability to extend internal infrastructure to less expensive,
    cloud based infrastructure for a wide range of uses.    Our
    Strategy
    Provide Excellent Customer Service. best-of-breed
  Innovate and Leverage Our Technology
    Platform.
  Expand Our Global-Delivery Capabilities.
  Improve Operating Margins Through Operational
    Efficiencies. tm
  Focus Our Service Offerings.
 9




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Our
    Infrastructure
    Network-Operations Centers  state-of-the-art
  Data Centers 
  Virtualization  Cloud Computing
  Internet Connectivity 
  Sales and
    Marketing
  Sales
   10




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Automation and Platform-Based Sales
  Marketing  e-mail,
  Customers
        Competition
      
    the quality of services delivered;
    the ability to consistently measure, track and report
    operational metrics;
    application-hosting, infrastructure and messaging-management
    expertise;
    fast, redundant and reliable Internet connectivity;
    a robust infrastructure providing availability, speed,
    scalability and security;
    comprehensive and diverse service offerings and the timely
    addition of value-add services;
    brand recognition;
    strategic relationships;
    competitive pricing; and
    adequate capital to permit continued investment in
    infrastructure, customer service and support and sales and
    marketing.  tm
    
    cloud, hosting and related services providers, including
    Terremark, Inc., Rackspace Hosting, Inc., Savvis, Inc., IBM,
    AT&T, and other local and regional hosting providers; 11




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
    application-services providers, such as IBM, AT&T,
    CedarCrestone, Inc., Oracle On Demand and Computer Sciences
    Corporation;
    co-location providers, including Savvis, Equinix, Inc. and
    Terremark; and
    messaging providers, including Apptix, USA.Net, Inc. and
    Intermedia.  Intellectual
    Property
    Employees
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K http://www.navisite.com. Form 10-K
  Item 1A.
    Risk
    Factors    We have a history of losses and may never achieve or
    sustain profitability.
  Our financing agreement with a syndicated group of lenders
    includes various covenants and restrictions that may negatively
    affect our liquidity and our ability to operate and manage our
    business.
  
    restricts our ability to create, incur, assume or permit to
    exist any additional indebtedness, excluding limited exemptions; 12




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
    restricts our ability to create, incur, assume or permit to
    exist any lien on any of our assets, excluding limited
    exemptions;
    restricts our ability to make investments, with limited
    exemptions;
    requires that we meet financial covenants for leverage, fixed
    charges, minimum EBITDA, minimum liquidity and capital
    expenditures;
    restricts our ability to enter into any transaction of merger or
    consolidation, excluding limited exemptions;
    restricts our ability to sell assets or purchase or otherwise
    acquire the property of any person, excluding limited exceptions;
    restricts our ability to authorize, declare or pay dividends,
    excluding limited exemptions;
    restricts our ability to enter into any transaction with any
    affiliate except on terms and conditions that are at least as
    favorable to us as those that could reasonably be obtained in a
    comparable arms-length transaction with a person who is
    not an affiliate; and
    restricts our ability to amend our organizational documents.  ABR LIBOR
    Year

Percentage of Term Loan1


1.0
%2


1.0
%3


1.0
%4


1.0
%5


1.0
%6


95.0
%
       We may need to obtain additional debt or equity financing
    in order to satisfy any mandatory redemption of our preferred
    stock. Preferred Stock
 13




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Disruption in financial and currency markets could have a
    negative effect on our business.
  Atlantic Investors, LLC, Unicorn Worldwide Holdings
    Limited and Madison Technology LLC may have interests that
    conflict with the interests of our other stockholders and have
    significant influence over corporate
    decisions. Atlantic
  Members of our board of directors have significant
    interests in Atlantic Investors, LLC, that may create conflicts
    of interest.
  Our common stockholders may suffer dilution in the future
    upon exercise of outstanding convertible securities or the
    issuance of additional securities in potential future
    acquisitions or financings.
   14




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A failure to meet customer specifications or expectations
    could result in lost revenues, increased expenses, negative
    publicity, claims for damages and harm to our reputation and
    cause demand for our services to decline.
  
    delayed or lost revenue;
    requirements to provide additional services to a customer at
    reduced charges or no charge;
    negative publicity about us, which could adversely affect our
    ability to attract or retain customers; and
    claims by customers for substantial damages against us,
    regardless of our responsibility for the failure, which claims
    may neither be covered by insurance policies nor limited by the
    contractual terms of our engagement.  Our ability to successfully market our services could be
    substantially impaired if we are unable to deploy new
    infrastructure systems and applications or if we do deploy them
    but they prove unreliable, defective or
    incompatible.
  Any interruption in, or degradation of, our
    private-transit Internet connections could result in the loss of
    customers or hinder our ability to attract new
    customers. telecommunications-network
  If we are unable to maintain existing, and develop
    additional, relationships with software vendors, the sales and
    marketing of our service offerings may be
    unsuccessful.
 15




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Our network infrastructure could fail, which failure would
    impair our ability to provide guaranteed levels of service and
    could result in significant operating
    losses.
  
    require us to spend substantial amounts of money to replace
    equipment or facilities;
    entitle customers to claim service credits or seek damages for
    losses under our service-level guarantees;
    cause customers to seek alternate providers; or
    impede our ability to attract new customers, retain current
    customers or enter into additional strategic relationships.  Our dependence on third parties increases the risk that we
    will not be able to meet our customers needs for software,
    systems and services on a timely or cost-effective basis, which
    inability could result in the loss of
    customers.
  We could be subject to increased operating costs, as well
    as claims, litigation or other potential liability, in
    connection with risks associated with Internet security and the
    security of our systems. e-commerce
  Third-party infringement claims against our technology
    suppliers, customers or us could result in disruptions in
    service, the loss of customers or costly and time-consuming
    litigation.
 16




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We may be subject to legal claims in connection with the
    information disseminated through our network, and these claims
    could divert managements attention and require us to
    expend significant financial resources. e-mails
  Concerns relating to privacy and protection of customer
    and job-seeker data on our Americas Job Exchange website
    could damage our reputation and deter current and potential
    customers and job seekers from using our products and
    services.
    If we fail to attract or retain key officers, management
    and technical personnel, our ability to successfully execute our
    business strategy, to continue to provide services and technical
    support to our customers or to attract new ones could be
    adversely affected.
 17




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The unpredictability of our quarterly results may cause
    the trading price of our common stock to fluctuate or
    decline.
  
    a reduction of market demand or acceptance of our services;
    our ability to develop, market and introduce new services on a
    timely basis;
    the length of the sales cycle for our services;
    the timing and level of sales of our services, both of which
    depend on the budgets of our customers;
    downward price adjustments by our competitors;
    changes in the mix of services provided by our competitors;
    technical difficulties or system downtime affecting the Internet
    or our hosting operations;
    our ability to meet any increased technological demands of our
    customers; and
    the amount and timing of costs related to our marketing efforts
    and service introductions.  quarter-to-quarter period-to-period
  If we are unsuccessful in pending and potential litigation
    matters, our financial condition may be adversely
    affected. class-action
  If the markets for outsourced IT infrastructure and
    applications, Internet commerce and communication decline, there
    may be insufficient demand for our services and, as a result,
    our business strategy and objectives may
    fail.
  If we do not respond to rapid changes in the technology
    sector, we will lose customers.
  The market in which we operate is highly competitive and
    is likely to consolidate, and we may lack the financial and
    other resources, expertise or capability necessary to capture
    increased market share or maintain our market
    share.
 18




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
    develop and expand their network infrastructure and service
    offerings more rapidly;
    adapt to new or emerging technologies and changes in customer
    requirements more quickly;
    take advantage of acquisitions and other opportunities more
    readily; or
    devote greater resources to the marketing and sale of their
    services and adopt more aggressive pricing policies than we can.    Difficulties presented by international economic,
    political, legal, accounting and business factors could harm our
    business in international markets.
  
    unexpected changes in regulatory, tax and political environments;
    longer payment cycles and problems collecting accounts
    receivable;
    geopolitical risks, such as political and economic instability,
    hostilities among countries or terrorism;
    reduced protection of intellectual-property rights;
    fluctuations in currency-exchange rates or impositions of
    restrictive currency controls;
    our ability to secure and maintain the necessary physical and
    telecommunications infrastructure;
    challenges in staffing and managing foreign operations;
    employment laws and practices in foreign countries;
    laws and regulations on content distributed over the Internet
    that are more restrictive than those currently in place in the
    United States; and
    significant changes in immigration policies or difficulties in
    obtaining required immigration approvals.    We may become subject to burdensome government regulation
    and legal uncertainties that could substantially harm our
    business or expose us to unanticipated
    liabilities.
 19




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The price of our common stock has been volatile and may
    continue to experience wide
    fluctuations.
  Anti-takeover provisions in our corporate documents may
    discourage or prevent a takeover.
  
    authorize the board to issue preferred stock without stockholder
    approval;
    prohibit cumulative voting in the election of directors;
    limit the persons who may call special meetings of
    stockholders; and
    establish advance-notice requirements for nominations for the
    election of directors or for proposing matters that can be acted
    on by stockholders at stockholder meetings.  Our ability to use U.S. net-operating-loss
    carryforwards might be limited.
  Item 1B.
    Unresolved
    Staff Comments   20




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Item 2.
    Properties  Facilities
    Square FootageLeasedLocation

Type

(Approximate)

Lease ExpirationSan Jose, CA

Data center and office


66,350


November 2016Atlanta, GA

Office


4,598


September 2012Chicago, IL

Data center


13,600


November 2012Chicago, IL

Office


2,212


April 2012Oak Brook, IL

Data center


17,659


September 2019Andover, MA

Office


25,896


January 2018Andover, MA

Data center and office


86,931


January 2018Syracuse, NY

Data center


21,374


November 2020Syracuse, NY

Office


1,933


November 2010New York, NY

Office


1,500


December 2015New York, NY

Data center


33,286


May 2018Dallas, TX

Data center


27,370


March 2020Houston, TX

Data center and office


12,956


January 2019Herndon, VA(1)(2)

Office


5,515


June 2011Gurgaon, Haryana, India

Office


12,706


August 2011Watford, England

Data center


11,160


January 2015London, England(3)

Data center


4,017


March 2010     (1)
    
    We have idle office space at this facility from which we derive
    no economic benefit.(2)
    
    We have subtenants for all of this space.(3)
    
    Our lease expired in March 2010. We are currently negotiating
    with the landlord on a new lease agreement. We are still in this
    location.    Item 3.
    Legal
    Proceedings  IPO
    Securities Litigation
  Court IPO Securities
    Litigation class-action Class-Action
    Litigation NaviSite
    Defendants successor-in-interest successor-in-interest
 21




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Rule 10b-5 and/or Class-Action Global Settlement Class-Action Class-Action
  Court of Appeals
  Class-Action District Court
    Item 4.
    Removed and Reserved 22




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PART II   Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Price
    Range of Common Stock
   High


LowFiscal Year Ended July 31, 2010May 1, 2010, through July 31, 2010

$
2.98


$
1.81February 1, 2010, through April 30, 2010

$
3.31


$
2.47November 1, 2009, through January 31, 2010

$
3.04


$
1.76August 1, 2009, through October 31, 2009

$
2.76


$
1.32Fiscal Year Ended July 31, 2009May 1, 2009, through July 31, 2009

$
1.96


$
0.37February 1, 2009, through April 30, 2009

$
0.52


$
0.22November 1, 2008, through January 31, 2009

$
0.88


$
0.15August 1, 2008, through October 31, 2008

$
3.92


$
0.50           Recent
    Issuances of Unregistered Securities
  payment-in-kind PIK
       23




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Item 6.
    Selected
    Financial Data  The following selected consolidated financial data should be
    read in conjunction with our consolidated financial statements
    and related notes and   included elsewhere in this annual report on
    Form 10-K.
    Historical results are not necessarily indicative of results of
    any future period.
  Year Ended July 31,2010


2009


2008


2007


2006(In thousands, except per share data)Revenue, net

$
125,844


$
125,033


$
131,762


$
122,886


$
105,836Revenue, related parties


303



346



372



322



243Total revenue


126,147



125,379



132,134



123,208



106,079Cost of revenue


78,838



81,065



91,628



81,774



71,547Impairment, restructuring and other






209











Total cost of revenue


78,838



81,274



91,628



81,774



71,547Gross profit


47,309



44,105



40,505



41,434



34,532Operating expenses:Selling and marketing


20,569



19,206



19,032



16,924



14,756General and administrative


21,617



22,867



22,411



22,043



21,787Loss on settlement






5,736











Impairment, restructuring and other






180







(231
)


1,373Total operating expenses


42,186



47,989



41,443



38,736



37,916Income (loss) from operations


5,123



(3,884
)


(938
)


2,698



(3,384
)Other income (expense):Interest income


23



43



264



337



283Interest expense


(8,096
)


(9,287
)


(7,760
)


(12,036
)


(9,145
)Loss on debt extinguishment










(1,651
)


(15,712
)


Other income (expense), net


288



690



2,295



864



437Loss from continuing operations before income taxes and
    discontinued operations


(2,662
)


(12,438
)


(7,790
)


(23,849
)


(11,809
)Income taxes


(755
)


(1,241
)


(1,152
)


(1,173
)


(1,173
)Income (loss) from continuing operations


(3,417
)


(13,679
)


(8,942
)


(25,022
)


(12,982
)Income (loss) from discontinued operations, net of income taxes


(3,604
)


(1,432
)


258



(888
)


(949
)Gain on sale of discontinued operations, net of income taxes


20,494















Net income (loss)


13,473



(15,111
)


(8,684
)


(25,910
)


(13,931
)Accretion of preferred-stock dividends


(3,718
)


(3,350
)


(2,656
)






Net income (loss) attributable to common shareholders

$
9,755


$
(18,461
)

$
(11,340
)

$
(25,910
)

$
(13,931
)Basic and diluted net income (loss) per common shareLoss from continuing operations attributable to common
    stockholders

$
(0.19
)

$
(0.48
)

$
(0.33
)

$
(0.82
)

$
(0.46
)Income (loss) from discontinued operations

$
(0.10
)

$
(0.04
)

$



$
(0.03
)

$
(0.03
)Gain on sale of discontinued operations

$
0.56


$



$



$



$
Net income (loss) attributable to common stockholders

$
0.27


$
(0.52
)

$
(0.33
)

$
(0.85
)

$
(0.49
)Basic and diluted weighted average number of common shares
    outstanding


36,354



35,528



34,731



30,512



28,601Balance-Sheet Data:Working capital (deficit)

$
(6,470
)

$
(976
)

$
2,048


$
10,611


$
(9,072
)Total assets

$
117,037


$
163,680


$
175,713


$
116,244


$
102,409Long-term obligations

$
67,977


$
132,280


$
133,736


$
97,072


$
70,817Stockholders deficit

$
(20,820
)

$
(35,103
)

$
(18,772
)

$
(13,864
)

$
(1,976
)  24




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##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  This Annual Report on
    Form 10-K
    contains forward-looking statements, within the meaning of
    Section 21E of the Exchange Act and Section 27A of the
    Securities Act, that involve risks and uncertainties. All
    statements other than statements of historical information
    provided herein are forward-looking statements and may contain
    information about financial results, economic conditions, trends
    and known uncertainties. Our actual results could differ
    materially from those discussed in the forward-looking
    statements as a result of a number of factors, which include
    those discussed in this section and elsewhere in this report
    under Item 1A ( ) and the
    risks discussed in our other filings with the SEC. Readers are
    cautioned not to place undue reliance on these forward-looking
    statements, which reflect managements analysis, judgment,
    belief or expectation only as of the date hereof. We undertake
    no obligation to publicly revise these forward-looking
    statements to reflect events or circumstances that arise after
    the date hereof.
  Overview
          Discontinued Operations
 25




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##### Table of Contents



Results
    of Operations for the Three Years Ended July 31, 2010, 2009
    and 2008
    Year Ended July 31,2010

2009

2008Revenue, net


99.8
%


99.7
%


99.7
%Revenue, related parties


0.2
%


0.3
%


0.3
%Total revenue


100.0
%


100.0
%


100.0
%Cost of revenue, excluding depreciation and amortization and
    restructuring charge


49.4
%


50.9
%


57.2
%Depreciation and amortization


13.1
%


13.7
%


12.1
%Restructuring charge



%


0.2
%



%Total cost of revenue


62.5
%


64.8
%


69.3
%Gross profit


37.5
%


35.2
%


30.7
%Operating expenses:Selling and marketing


16.3
%


15.3
%


14.4
%General and administrative


17.1
%


18.2
%


17.0
%Loss on settlement



%


4.6
%



%Restructuring charge



%


0.2
%



%Total operating expenses


33.4
%


38.3
%


31.4
%Income (loss) from operations


4.1
%


(3.1
)%


(0.7
)%Other income (expense):Interest income


0.0
%


0.0
%


0.2
%Interest expense


(6.4
)%


(7.4
)%


(5.8
)%Loss on debt extinguishment



%



%


(1.3
)%Other income (expense), net


0.2
%


0.6
%


1.7
%Loss from continuing operations before income taxes and
    discontinued operations


(2.1
)%


(9.9
)%


(5.9
)%Income taxes


(0.6
)%


(1.0
)%


(0.9
)%Loss from continuing operations


(2.7
)%


(10.9
)%


(6.8
)%Income (loss) from discontinued operations, net of income taxes


(2.9
)%


(1.1
)%


0.2
%Gain on sale of discontinued operations, net of income taxes


16.3
%



%



%Net income (loss)


10.7
%


(12.0
)%


(6.6
)%Accretion of preferred stock dividends


(3.0
)%


(2.7
)%


(2.0
)%Net income (loss) attributable to common stockholders


7.7
%


(14.7
)%


(8.6
)%  26




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##### Table of Contents



Comparison
    of the Years 2010, 2009 and 2008
  Revenue
    AJE
        Cost of
    Revenue and Gross Profit
       27




---



##### Table of Contents



Operating
    Expenses
  Selling and Marketing
      General and Administrative
 28




---



##### Table of Contents



Loss on settlement.
  Restructuring charge.
  Interest
    Income
      Interest
    Expense
     29




---



##### Table of Contents



Loss on
    Debt Extinguishment
      Other
    Income (Expense), Net
      Income-Tax
    Expense
  NOL
  Loss from
    Discontinued Operations
    Discontinued Operations
   30




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##### Table of Contents



Gain on
    Sale of Discontinued Operations
    Liquidity
    and Capital Resources
    year-over-year year-over-year
   31




---



##### Table of Contents



Off-Balance
    Sheet Financing Arrangements
    Critical
    Accounting Policies
   32




---



##### Table of Contents



Revenue Recognition.
    percentage-of-completion
  ASU 2009-13, ASC Revenue
    Recognition
    Allowance for Doubtful Accounts.
 33




---



##### Table of Contents



Impairment of Long-Lived Assets and Goodwill and Other
    Intangible Assets.
  
    significant underperformance relative to historical or projected
    future operating results;
    significant changes in the manner of our use of the acquired
    assets or the strategy of our overall business;
    significant negative industry or economic trends;
    significant declines in our stock price for a sustained
    period; and
    our market capitalization relative to net book value.    ASC 350-20-35,
  Stock-Based Compensation. Compensation  Stock Compensation, ASC 718
   34




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##### Table of Contents



Black-Scholes
    Model
  Income Taxes. Accounting for Income Taxes, Income
    Taxes FASB ASC 740 asset-and-liability
    Recent
    Accounting Pronouncements
  No. 2009-13, Multiple-Deliverable Revenue Arrangements ASU
    2009-13 Revenue
    Recognition. 2009-13 2009-13 2009-13 2009-13
 35




---



##### Table of Contents



IFRS IASB
  FSP No. 142-3, Determination of the Useful Life of Intangible
    Assets, Intangibles  Goodwill
    and Other FASB ASC 350
  No. 107-1 28-1, Interim Disclosures about Fair Value of Financial
    Instruments, Financial Instruments FASB
    ASC 825
  No. 2009-05, Measuring Liabilities at Fair Value ASU
    2009-05 Fair Value
    Measurements and Disclosures 2009-05
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  page F-2
  Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation of Disclosure Controls and
    Procedures. Rules 13a-15(e) 15d-15(e)
 36




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##### Table of Contents



Changes in Internal Control. Rule 13a-15(f)
  Managements
    Report on Internal Control over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  Internal Control  Integrated
    Framework.
  Form 10-K
  Item 9B.
    Other
    Information   PART III  Form 10-K Proxy
    Statement Form 10-K,
  Item 10.
    Directors,
    Executive Officers and Corporate Governance      Code of Ethics.
 37




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##### Table of Contents



Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Equity
    Compensation Plan Information as of July 31, 2010
    (c)Number of Securities(a)

(b)

Available for FutureNumber of Securities to

Weighted-Average

Issuancebe Issued Upon Exercise

Exercise Price of

Under Equity Compensationof Outstanding Options,

Outstanding Options,

Plans (Excluding SecuritiesPlan Category

Warrants and Rights

Warrants and Rights

Reflected in Column(a))Equity-compensation plans approved by security holders


6,648,494


$
3.15



724,933Equity-compensation plans not approved by security holders










Total


6,648,494







724,933   Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  Financial Statements.
    Financial Statement Schedule.
    Exhibits.
   38




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##### Table of Contents



SIGNATURES    NaviSite, Inc.
   By:
    /s/  R.
    Brooks Borcherding   President and Chief Executive Officer
     Signatures

Title

Date/s/  Andrew
    RuhanAndrew
    Ruhan

Chairman of the Board

October 22, 2010/s/  R.
    Brooks BorcherdingR.
    Brooks Borcherding

President and Chief Executive Officer (Principal Executive
    Officer)

October 22, 2010/s/  James
    W. PluntzeJames
    W. Pluntze

Chief Financial Officer
    (Principal Financial Officer and
    Principal Accounting Officer)

October 22, 2010/s/  Arthur
    P. BeckerArthur
    P. Becker

Director

October 22, 2010/s/  James
    H. DennedyJames
    H. Dennedy

Director

October 22, 2010/s/  Larry
    W. SchwartzLarry
    W. Schwartz

Director

October 19, 2010/s/  Thomas
    R. EvansThomas
    R. Evans

Director

October 22, 2010  39




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##### Table of Contents



INDEX TO
    EXHIBITS
  Exhibit No.

Description of Exhibit2
.1

Asset Purchase Agreement, dated as of August 10, 2007, by
    and among NaviSite, Inc.; Navi Acquisition Corp.; Alabanza, LLC;
    and Hosting Ventures, LLC, is incorporated herein by reference
    to Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on August 16, 2007 (File
    No. 000-27597).2
.2

Stock Purchase Agreement, dated August 10, 2007, by and
    among NaviSite, Inc.; Jupiter Hosting, Inc.; and the
    stockholders of Jupiter Hosting, Inc., is incorporated herein by
    reference to Exhibit 10.2 to the Registrants Current
    Report on
    Form 8-K
    filed on August 16, 2007 (File
    No. 000-27597).2
.3

Agreement and Plan of Merger, dated as of September 12,
    2007, by and among NaviSite, Inc.; NSite Acquisition Corp.;
    netASPx, Inc.; and GTCR Fund VI, L.P., is incorporated
    herein by reference to Exhibit 10.3 to the
    Registrants Current Report on
    Form 8-K
    filed on September 18, 2007 (File
    No. 000-27597).2
.4

Asset Purchase Agreement, dated as of February 19, 2010, by
    and among NaviSite, Inc.; NaviSite Disposition, LLC (f/k/a
    netASPx, LLC); NaviSite Disposition Corp. (f/k/a netASPx
    Acquisition, Inc.); Network Computing Services, Inc.; NCS
    Holding Company; and Velocity Technology Solutions II, Inc., is
    incorporated herein by reference to Exhibit 2.1 to the
    Registrants Current Report on
    Form 8-K
    filed on February 25, 2010 (File
    No. 000-27597),3
.1

Amended and Restated Certificate of Incorporation is
    incorporated herein by reference to Exhibits to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 1999 (File
    No. 000-27597).3
.2

Certificate of Amendment of Amended and Restated Certificate of
    Incorporation, dated as of January 4, 2003, is incorporated
    herein by reference to Exhibits to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2003 (File
    No. 000-27597).3
.3

Certificate of Amendment of Amended and Restated Certificate of
    Incorporation, dated as of January 7, 2003, is incorporated
    herein by reference to Exhibits to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2003 (File
    No. 000-27597).3
.4

Certificate of Designation of Rights, Preferences, Privileges
    and Restrictions of Series A Convertible Preferred Stock,
    dated as of September 12, 2007, is incorporated herein by
    reference to Exhibit 3.1 to the Registrants Current
    Report on
    Form 8-K
    filed on September 18, 2007 (File
    No. 000-27597).3
.5

Waiver of Certificate of Designation of Rights, Preferences,
    Privileges and Restrictions of Series A Convertible
    Preferred Stock by netASPx Holdings, Inc., dated
    September 25, 2007, is incorporated herein by reference to
    Exhibit 3.1 to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2008 (File
    No. 000-27597).3
.6

Amended and Restated By-Laws is incorporated herein by reference
    to Exhibits to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 1999 (File
    No. 000-27597).4
.1

Specimen certificate representing shares of common stock is
    incorporated herein by reference to Exhibits to the
    Registrants Registration Statement on
    Form S-1/A
    (File
    No. 333-83501).4
.2

Specimen Certificate of Series A Convertible Preferred
    Stock of NaviSite, Inc., is incorporated herein by reference to
    Exhibit 4.1 to the Registrants Current Report on
    Form 8-K
    filed on September 18, 2007 (File
    No. 000-27597).10
.1

Lease, dated as of May 14, 1999, by and between 400 River
    Limited Partnership and the Registrant, is incorporated herein
    by reference to Exhibits to the Registrants Registration
    Statement on
    Form S-1
    (File
    No. 333-83501).10
.2

Amendment No. 1 to Lease, by and between 400 River Limited
    Partnership and the Registrant, is incorporated by reference to
    Exhibits to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 2003 (File
    No. 000-27597).10
.3

Amendment No. 2 to Lease, dated December 1, 2003, by
    and between 400 River Limited Partnership and the Registrant, is
    incorporated herein by reference to Exhibits to the
    Registrants Registration Statement on
    Form S-2
    filed January 22, 2004 (File
    No. 333-112087).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.4

Amendment No. 3 to Lease, by and between 400 River Limited
    Partnership and the Registrant, is incorporated herein by
    reference to Exhibit 99.1 to the Registrants Current
    Report on
    Form 8-K
    dated September 21, 2004 (File
    No. 000-27597).10
.5

Amendment No. 5 to Lease, dated as of August 15, 2008,
    by and between 400 Minuteman LLC and the Registrant, is
    incorporated herein by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 2008 (File
    No. 000-27597).10
.6

Amendment No. 6 to Lease, dated as of November 20,
    2008, by and between 400 Minuteman LLC and the Registrant.10
.7

Amendment No. 7 to Lease, dated as of March 11, 2009,
    by and between 400 Minuteman LLC and the Registrant.10
.8

Amendment No. 8 to Lease, dated as of January 19,
    2010, by and between 400 Minuteman LLC and the Registrant.10
.9

Amendment No. 9 to Lease, dated as of January 29,
    2010, by and between 400 Minuteman LLC and the Registrant.10
.10

Lease, made as of April 30, 1999, by and between
    CarrAmerica Realty Corporation and the Registrant, is
    incorporated herein by reference to Exhibits to the
    Registrants Registration Statement on
    Form S-1
    (File
    No. 333-83501).10
.11

First Amendment to Lease, dated as of August 9, 2006, by
    and between the Registrant and Carr NP Properties L.L.C., is
    incorporated herein by reference to Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    dated September 11, 2006 (File
    No. 000-27597).10
.12*

Amended and Restated 1998 Equity Incentive Plan is incorporated
    herein by reference to Exhibits to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 1999 (File
    No. 000-27597).10
.13*

NaviSite, Inc., Amended and Restated 1999 Employee Stock
    Purchase Plan is incorporated herein by reference to
    Appendix I to the Registrants Definitive Proxy
    Statement filed November 13, 2007 (File
    No. 000-27597).10
.14*

Amendment No. 1 to Amended and Restated 1999 Employee Stock
    Purchase Plan is incorporated herein by reference to
    Appendix I to the Registrants Definitive Proxy
    Statement filed October 30, 2009 (File
    No. 000-27597).10
.15*

2000 Stock Option Plan is incorporated herein by reference to
    Exhibits to the Registrants Annual Report on
    Form 10-K/A
    for the fiscal year ended July 31, 2002 (File
    No. 000-27597).10
.16*

Employment Agreement, dated as of February 21, 2003, by and
    between Arthur Becker and the Registrant, is incorporated herein
    by reference to Exhibits to the Registrants Quarterly
    Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2003 (File
    No. 000-27597).10
.17*

Separation Agreement dated as of April 3, 2006, by and
    between the Registrant and Arthur P. Becker, is incorporated
    herein by reference to Exhibit 99.1 to the
    Registrants Current Report on
    Form 8-K
    dated April 6, 2006 (File
    No. 000-27597).10
.18*

Amendment No. 1 to Separation Agreement, dated as of
    December 4, 2008, by and between the Registrant and Arthur
    P. Becker, is incorporated herein by reference to
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on December 9, 2008 (File
    No. 000-27597).10
.19

Warrant Purchase Agreement, dated as of February 13, 2007,
    by and among the Registrant, SPCP Group, LLC, and SPCP Group
    III, LLC, is incorporated herein by reference to
    Exhibit 10.1 of the Registrants Current Report on
    Form 8-K
    filed on February 20, 2007 (File
    No. 000-27597).10
.20

Warrant to Purchase Common Stock, dated February 13, 2007,
    issued by the Registrant to SPCP Group, LLC, is incorporated
    herein by reference to Exhibit 10.2 of the
    Registrants Current Report on
    Form 8-K
    filed on February 20, 2007 (File
    No. 000-27597).10
.21

Warrant to Purchase Common Stock, dated February 13, 2007,
    issued by the Registrant to SPCP Group III, LLC, is incorporated
    herein by reference to Exhibit 10.3 of the
    Registrants Current Report on
    Form 8-K
    filed on February 20, 2007 (File
    No. 000-27597).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.22

Warrant Purchase Agreement, dated as of April 11, 2006, by
    and among the Registrant, SPCP Group, L.L.C. and SPCP
    Group III LLC is incorporated herein by reference to
    Exhibit 10.4 to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2006 (File
    No. 000-27597).10
.23

Warrant, dated as of April 11, 2006, issued by the
    Registrant to SPCP Group, LL. is incorporated herein by
    reference to Exhibit 10.5 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2006 (File
    No. 000-27597).10
.24

Warrant, dated as of April 11, 2006, issued by the
    Registrant to SPCP Group III LLC is incorporated herein by
    reference to Exhibit 10.6 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2006 (File
    No. 000-27597).10
.25

Amendment No. 1 to Warrant, dated as of February 13,
    2007, by and between the Registrant and SPCP Group, LLC, is
    incorporated herein by reference to Exhibit 10.8 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2007 (File
    No. 000-27597).10
.26

Credit Agreement, dated as of June 8, 2007, by and among
    NaviSite, Inc.; certain of its subsidiaries; Canadian Imperial
    Bank of Commerce, through its New York agency, as issuing bank,
    administrative agent for the Lenders and as collateral agent for
    the Secured Parties and the issuing bank; CIBC World Markets
    Corp., as sole lead arranger, documentation agent and
    bookrunner; CIT Lending Services Corporation, as syndication
    agent; and certain affiliated entities, is incorporated herein
    by reference to Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    dated as of June 13, 2007 (File
    No. 000-27597).10
.27

Security Agreement, dated as of June 8, 2007, by and among
    NaviSite, Inc.; certain of its subsidiaries; and Canadian
    Imperial Bank of Commerce, acting through its New York agency,
    as collateral agent, is incorporated herein by reference to
    Exhibit 10.2 to the Registrants Current Report on
    Form 8-K
    dated as of June 13, 2007 (File
    No. 000-27597).10
.28

Form of Term Note, to be made by NaviSite, Inc., is incorporated
    herein by reference to Exhibit 10.3 to the
    Registrants Current Report on
    Form 8-K
    dated as of June 13, 2007 (File
    No. 000-27597).10
.29

Form of Revolving Note to be made by NaviSite, Inc., is
    incorporated herein by reference to Exhibit 10.4 to the
    Registrants Current Report on
    Form 8-K
    dated as of June 13, 2007 (File
    No. 000-27597).10
.30

Amendment, Waiver and Consent Agreement No. 1, dated as of
    August 10, 2007, by and among NaviSite, Inc.; certain of
    its subsidiaries; Canadian Imperial Bank of Commerce, through
    its New York agency, as issuing bank, administrative agent
    for the Lenders and as collateral agent for the Secured Parties
    and the issuing bank; CIBC World Markets Corp., as sole lead
    arranger, documentation agent and bookrunner; CIT Lending
    Services Corporation, as syndication agent; and certain
    affiliated entities, is incorporated herein by reference to
    Exhibit 10.3 to the Registrants Current Report on
    Form 8K dated as of August 16, 2007 (File
    No. 000-27597).10
.31

Amended and Restated Credit Agreement, dated as of
    September 12, 2007, by and among NaviSite, Inc.; certain of
    its subsidiaries; Canadian Imperial Bank of Commerce, through
    its New York agency, as issuing bank, administrative agent
    for the Lenders and as collateral agent for the Secured Parties
    and the issuing bank; CIBC World Markets Corp., as sole lead
    arranger, documentation agent and bookrunner; CIT Lending
    Services Corporation, as syndication agent; and certain
    affiliated entities, is incorporated herein by reference to
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2010 (File
    No. 000-27597).10
.32

Term Note, dated as of September 12, 2007, issued by
    NaviSite, Inc., to CIBC, Inc., is incorporated herein by
    reference to Exhibit 10.2 to the Registrants Current
    Report on
    Form 8-K
    dated as of September 18, 2007 (File
    No. 000-27597).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.33

Waiver No. 2, dated as of November 2, 2007, by and
    among NaviSite, Inc.; certain of its subsidiaries; Canadian
    Imperial Bank of Commerce, through its New York agency, as
    issuing bank, administrative agent for the Lenders and as
    collateral agent for the Secured Parties and the issuing bank;
    CIBC World Markets Corp., as sole lead arranger, documentation
    agent and bookrunner; CIT Lending Services Corporation, as
    syndication agent; and certain affiliated entities, is
    incorporated herein by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 2007 (File
    No. 000-27597).10
.34

Amendment, Waiver and Consent Agreement No. 3, dated as of
    January 31, 2008, by and among NaviSite, Inc.; certain of
    its subsidiaries; Canadian Imperial Bank of Commerce, through
    its New York agency, as issuing bank, administrative agent
    for the Lenders and as collateral agent for the Secured Parties
    and the issuing bank; CIBC World Markets Corp., as sole lead
    arranger, documentation agent and bookrunner; CIT Lending
    Services Corporation, as syndication agent; and certain
    affiliated entities, is incorporated herein by reference to
    Exhibit 10.3 to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 2007 (File
    No. 000-27597).10
.35

Amendment and Consent Agreement No. 4, dated as of
    June 20, 2008, by and among NaviSite, Inc.; certain of its
    subsidiaries; Canadian Imperial Bank of Commerce, through its
    New York agency, as issuing bank, administrative agent for the
    Lenders and as collateral agent for the Secured Parties and the
    issuing bank; CIBC World Markets Corp., as sole lead arranger,
    documentation agent and bookrunner; CIT Lending Services
    Corporation, as syndication agent; and certain affiliated
    entities, is incorporated herein by reference to
    Exhibit 10.5 to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2008 (File
    No. 000-27597).10
.36

Amendment, Waiver and Consent Agreement No. 5, dated as of
    October 30, 2008, by and among NaviSite, Inc.; certain of
    its subsidiaries; Canadian Imperial Bank of Commerce, through
    its New York agency, as issuing bank, administrative agent
    for the Lenders and as collateral agent for the Secured Parties
    and the issuing bank; CIBC World Markets Corp., as sole lead
    arranger, documentation agent and bookrunner; CIT Lending
    Services Corporation, as syndication agent; and certain
    affiliated entities, is incorporated herein by reference to
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    dated as of October 29, 2008 (File
    No. 000-27597).10
.37

Amendment, Waiver and Consent Agreement No. 7, dated as of
    February 19, 2010, by and among NaviSite, Inc.; certain of
    its subsidiaries; Canadian Imperial Bank of Commerce, through
    its New York agency, as issuing bank, administrative agent
    for the Lenders and as collateral agent for the Secured Parties
    and the issuing bank; CIBC World Markets Corp., as sole lead
    arranger, documentation agent and bookrunner; CIT Lending
    Services Corporation, as syndication agent; and certain
    affiliated entities, is incorporated herein by reference to
    Exhibit 10.2 to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2010 (File
    No. 000-27597).10
.38

Amendment and Consent Agreement No. 8, dated as of
    April 30, 2010, by and among NaviSite, Inc.; certain of its
    subsidiaries; Canadian Imperial Bank of Commerce, through its
    New York agency, as issuing bank, administrative agent for the
    Lenders and as collateral agent for the Secured Parties and the
    issuing bank; CIBC World Markets Corp., as sole lead arranger,
    documentation agent and bookrunner; CIT Lending Services
    Corporation, as syndication agent; and certain affiliated
    entities, is incorporated herein by reference to
    Exhibit 10.3 to the Registrants Amendment No. 1
    to Quarterly Report on
    Form 10-Q/A
    for the fiscal quarter ended April 30, 2010 (File
    No. 000-27597).10
.39

Registration Rights Agreement, dated as of September 12,
    2007, by and between NaviSite, Inc., and GTCR Fund VI,
    L.P., is incorporated herein by reference to Exhibit 10.4
    to the Registrants Current Report on
    Form 8-K
    dated September 18, 2007 (File
    No. 000-27597).10
.40

Warrant to Purchase Stock, dated January 30, 2004, issued
    by the Registrant to Silicon Valley Bank, is incorporated herein
    by reference to Exhibit 10.3 to the Registrants
    Current Report on
    Form 8-K
    dated January 30, 2004 (File
    No. 000-27597).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.41*

Form of Indemnification Agreement, as executed by
    Messrs. Andrew Ruhan, Arthur P. Becker, James H. Dennedy,
    Larry W. Schwartz, Thomas R. Evans, James W. Pluntze, R. Brooks
    Borcherding, Mark Clayman, Denis Martin, Sumeet Sabharwal,
    Rathin Sinha and Mark Zingale, is incorporated by reference to
    Exhibits to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2003 (File
    No. 000-27597).10
.42

Lease and Services Agreement, by and between NaviSite Europe
    Limited and Global Switch (London) Limited, is incorporated by
    reference to Exhibits to the Registrants Registration
    Statement on
    Form S-2/A
    filed on March 8, 2004 (File
    No. 333-12087).10
.43*

NaviSite, Inc., Amended and Restated 2003 Stock Incentive Plan
    is incorporated herein by reference to Appendix II to the
    Registrants Definitive Schedule 14C filed
    January 5, 2005 (File
    No. 000-27597).10
.44*

Amendment No. 1 to the NaviSite, Inc., Amended and Restated
    2003 Stock Incentive Plan is incorporated herein by reference to
    Appendix II to the Registrants Definitive
    Schedule 14C filed January 5, 2005 (File
    No. 000-27597).10
.45*

Amendment No. 2 to the Amended and Restated 2003 Stock
    Incentive Plan is incorporated herein by reference to
    Appendix II to the Registrants Definitive
    Schedule 14C filed March 14, 2006 (File
    No. 000-27597).10
.46*

Form of Amendment No. 1 to Restricted Stock Agreement
    Granted Under Amended and Restated 2003 Stock Incentive Plan is
    incorporated herein by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on Form 10Q for the
    fiscal quarter ended January 31, 2009 (File
    No. 000-27597).10
.47*

Form of Director Restricted Stock Agreement Granted Under
    Amended and Restated 2003 Stock Incentive Plan is incorporated
    herein by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2009 (File
    No. 000-27597).10
.48*

Form of Employee Restricted Stock Agreement Granted Under
    Amended and Restated 2003 Stock Incentive Plan is incorporated
    herein by reference to Exhibit 10.3 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2009 (File
    No. 000-27597).10
.49*

Separation Agreement, dated as of July 31, 2007, by and
    between the Registrant and James W. Pluntze, is incorporated
    herein by reference to Exhibit 99.1 to the
    Registrants Current Report on
    Form 8-K
    dated August 2, 2007 (File
    No. 000-27597).10
.50*

Amendment No. 1 to Separation Agreement, dated as of
    December 4, 2008, by and between the Registrant and James
    W. Pluntze, is incorporated herein by reference to
    Exhibit 10.2 to the Registrants Current Report on
    Form 8-K
    filed on December 9, 2008 (File
    No. 000-27597).10
.51*

NaviSite, Inc., Amended and Restated Director Compensation Plan
    is incorporated herein by reference to Exhibit 99.1 to the
    Registrants Current Report on
    Form 8-K
    dated August 16, 2007 (File
    No. 000-27597).10
.52*

Offer of Employment, dated as of May 19, 2004, by and
    between the Registrant and Mark Clayman, is incorporated herein
    by reference to Exhibit 10.1 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2008 (File
    No. 000-27597).10
.53*

Separation Agreement, dated as of April 3, 2006, by and
    between the Registrant and Mark Clayman, is incorporated herein
    by reference to Exhibit 10.2 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2008 (File
    No. 000-27597).10
.54*

Amendment No. 1 to Separation Agreement, dated as of
    December 7, 2008, by and between the Registrant and Mark
    Clayman, is incorporated herein by reference to
    Exhibit 10.3 to the Registrants Current Report on
    Form 8-K
    filed on December 9, 2008 (File
    No. 000-27597).10
.55*

Offer Letter, dated as of March 27, 2009, effective as of
    April 3, 2009, by and between the Registrant and R. Brooks
    Borcherding, is incorporated herein by reference to
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on April 13, 2009 (File
    No. 000-27597).10
.56*

Separation Agreement, dated as of April 13, 2009, by and
    between the Registrant and R. Brooks Borcherding, is
    incorporated herein by reference to Exhibit 10.52 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).10
.57*

Offer Letter, dated as of August 28, 2009, by and between
    the Registrant and Mark Zingale, is incorporated herein by
    reference to Exhibit 10.53 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.58*

Separation Agreement, dated as of August 31, 2009, by and
    between the Registrant and Mark Zingale, is incorporated herein
    by reference to Exhibit 10.54 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).10
.59*

Summary of the Registrants FY 2010 Executive Management
    Bonus Program is incorporated herein by reference to
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    filed on September 23, 2009 (File
    No. 000-27597).10
.60*

Summary of the Registrants FY 2011 Executive Management
    Bonus Program.10
.61*

Offer Letter, dated as of June 22, 2003, by and between the
    Registrant and Denis Martin, is incorporated herein by reference
    to Exhibit 10.56 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).10
.62*

Separation Agreement, dated as of April 6, 2006, by and
    between the Registrant and Denis Martin, is incorporated herein
    by reference to Exhibit 10.57 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).10
.63*

Amendment No. 1 to Separation Agreement, dated as of
    December 8, 2008, by and between the Registrant and Denis
    Martin, is incorporated herein by reference to
    Exhibit 10.58 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).10
.64*

Offer Letter, dated as of September 17, 2004, by and
    between the Registrant and Sumeet Sabharwal, is incorporated
    herein by reference to Exhibit 10.59 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).10
.65*

Separation Agreement, dated as of April 3, 2006, by and
    between the Registrant and Sumeet Sabharwal, is incorporated
    herein by reference to Exhibit 10.60 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).10
.66*

Amendment No. 1 to Separation Agreement, dated as of
    December 7, 2008, by and between the Registrant and Sumeet
    Sabharwal, is incorporated herein by reference to
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 2009 (File
    No. 000-27597).10
.67*

Offer Letter, dated as of May 8, 2007, by and between the
    Registrant and Rathin Sinha, is incorporated herein by reference
    to Exhibit 10.61 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).10
.68*

Amended and Restated Separation Agreement, dated as of
    September 3, 2009, by and between the Registrant and Rathin
    Sinha, is incorporated herein by reference to Exhibit 10.62
    to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2009 (File
    No. 000-27597).21


Subsidiaries of the Registrant.23


Consent of KPMG LLP, Independent Registered Public Accounting
    Firm.31
.1

Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1

Certification of the Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of the Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as Adopted Pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     (*)
    
    Management contract or compensatory plan or arrangement.




---



##### Table of Contents



INDEX TO
    NAVISITE, INC. CONSOLIDATED FINANCIAL STATEMENTS  PageReport of Independent Registered Public
    Accounting Firm


F-2Consolidated Balance Sheets as of July 31,
    2010 and 2009


F-3Consolidated Statements of Operations for the
    Years Ended July 31, 2010, 2009 and 2008


F-4Consolidated Statements of Changes in Convertible
    Preferred Stock and Stockholders Deficit and Comprehensive
    Income (Loss) for the Years Ended July 31, 2010, 2009 and
    2008


F-5Consolidated Statements of Cash Flows for the
    Years Ended July 31, 2010, 2009 and 2008


F-6Notes to Consolidated Financial Statements


F-7Report of Independent Registered Public
    Accounting Firm on Financial Statement Schedule


F-36Financial Statement Schedule 
    Valuation and Qualifying Accounts


F-37  F-1




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM           
    F-2




---



##### Table of Contents



NAVISITE,
    INC.CONSOLIDATED BALANCE SHEETS
  July 31,2010


2009(In thousands, except par value)ASSETSCurrent assets:Cash and cash equivalents

$
4,620


$
10,534Accounts receivable, less allowance for doubtful accounts of
    $1,812 and $1,820 at July 31, 2010 and 2009, respectively


12,532



16,417Unbilled accounts receivable


730



1,361Prepaid expenses and other current assets


11,244



6,336Total current assets


29,126



34,648Property and equipment, net


29,914



32,048Intangible assets, net of accumulated amortization


6,579



22,093Goodwill


46,189



66,566Other assets


4,039



6,769Restricted cash


1,190



1,556Total assets

$
117,037


$
163,680LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Notes payable, current portion

$
4,150


$
10,603Capital lease obligations, current portion


4,830



3,040Accounts payable


7,379



5,375Accrued expenses


12,213



9,822Accrued interest


691



1,837Deferred revenue


5,356



4,285Deferred other income and customer deposits


977



662Total current liabilities


35,596



35,624Capital lease obligations, less current portion


3,505



10,973Deferred tax liabilities


7,393



7,492Other long-term liabilities


8,053



7,661Notes payable, less current portion


49,026



106,154Total liabilities


103,573



167,904Series A Convertible Preferred stock, $0.01 par value;
    designated 5,000 shares; issued and outstanding: 4,087 at
    July 31, 2010; 3,664 shares at July 31, 2009


34,284



30,879Commitments and contingencies (Note 12)Stockholders deficit:Common stock, $0.01 par value; Authorized
    395,000 shares; issued and outstanding: 36,943 and 35,911
    at July 31, 2010 and 2009, respectively


369



359Accumulated other comprehensive loss


(905
)


(1,024
)Additional paid-in capital


485,817



485,136Accumulated deficit


(506,101
)


(519,574
)Total stockholders deficit


(20,820
)


(35,103
)Total liabilities and stockholders deficit

$
117,037


$
163,680    F-3




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##### Table of Contents



NAVISITE,
    INC.
  CONSOLIDATED STATEMENTS OF OPERATIONS
  Years Ended July 31,2010


2009


2008(In thousands, except per share data)Revenue, net

$
125,844


$
125,033


$
131,762Revenue, related parties


303



346



372Total revenue


126,147



125,379



132,134Cost of revenue


62,314



63,854



75,630Depreciation and amortization


16,524



17,211



15,999Restructuring charge






209



Total cost of revenue


78,838



81,274



91,629Gross profit


47,309



44,105



40,505Operating expenses:Selling and marketing


20,569



19,206



19,032General and administrative


21,617



22,867



22,411Loss on settlement






5,736



Restructuring charge






180



Total operating expenses


42,186



47,989



41,443Income (loss) from operations


5,123



(3,884
)


(938
)Other income (expense):Interest income


23



43



264Interest expense


(8,096
)


(9,287
)


(7,760
)Loss on debt extinguishment










(1,651
)Other income, net


288



690



2,295Loss from continuing operations before income taxes and
    discontinued operations


(2,662
)


(12,438
)


(7,790
)Income taxes


(755
)


(1,241
)


(1,152
)Loss from continuing operations


(3,417
)


(13,679
)


(8,942
)Income (loss) from discontinued operations, net of income taxes


(3,604
)


(1,432
)


258Gain on sale of discontinued operations, net of income taxes


20,494







Net income (loss)


13,473



(15,111
)

$
(8,684
)Accretion of preferred stock dividends


(3,718
)


(3,350
)


(2,656
)Net income (loss) attributable to common stockholders

$
9,755


$
(18,461
)

$
(11,340
)Basic and diluted net income (loss) per common share:Loss from continuing operations attributable to common
    stockholders

$
(0.19
)

$
(0.48
)

$
(0.33
)Loss from discontinued operations

$
(0.10
)

$
(0.04
)

$
Gain on sale of discontinued operations

$
0.56


$



$
Net income (loss) attributable to common stockholders

$
0.27


$
(0.52
)

$
(0.33
)Basic and diluted weighted average number of common shares
    outstanding


36,354



35,528



34,731Stock-based compensation expense:Cost of revenue

$
1,023


$
1,274


$
1,794Selling and marketing


682



557



746General and administrative


1,297



1,292



1,830Restructuring charge






19



Total stock-based compensation expense

$
3,002


$
3,142


$
4,370    F-4




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##### Table of Contents



NAVISITE,
    INC.CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE
    PREFERRED STOCK AND
    STOCKHOLDERS DEFICIT AND COMPREHENSIVE INCOME
    (LOSS)
  AccumulatedOther


Additional





StockholdersPreferred Stock



Common Stock


Comprehensive


Paid-in


Accumulated


Equity


ComprehensiveShares


Amount



Shares


Amount


Income (Loss)


Capital


Deficit


(Deficit)


Income (Loss)(In thousands)Balance at July 31, 2007











33,506



335



381



481,199



(495,779
)


(13,864
)Exercise of common stock options and shares issued under
    employee stock purchase plan











664



7







1,947







1,954Issuance of preferred stock


3,125



24,873




















Preferred stock dividend


195



2,656
















(2,656
)






(2,656
)Issuance of common stock related to acquisition











25











226







226Exercise of common stock purchase warrants











1,000



10















10Vesting of restricted stock and stock-based compensation











37











4,370







4,370Net loss



























(8,684
)


(8,684
)


(8,684
)Currency translation adjustment



















(128
)










(128
)


(128
)Total comprehensive loss



































(8,812
)Balance at July 31, 2008


3,320


$
27,529




35,232


$
352


$
253


$
485,086


$
(504,463
)

$
(18,772
)Exercise of common stock options and shares issued under
    employee stock purchase plan











519



5







259







264Preferred stock dividend


344



3,350
















(3,350
)






(3,350
)Vesting of restricted stock and stock-based compensation











160



2







3,141







3,143Net loss



























(15,111
)


(15,111
)


(15,111
)Currency translation adjustment



















(1,277
)










(1,277
)


(1,277
)Total comprehensive loss



































(16,388
)Balance at July 31, 2009


3,664


$
30,879




35,911


$
359


$
(1,024
)

$
485,136


$
(519,574
)

$
(35,103
)Exercise of common stock options and shares issued under
    employee stock purchase plan











760



8







1,086







1,094Preferred stock dividend


460



3,718
















(3,718
)






(3,718
)Conversion of preferred stock to common stock


(37
)


(313
)



37











313







313Vesting of restricted stock and stock-based compensation











235



2







3,000







3,002Net income



























13,473



13,473



13,473Currency translation adjustment



















119











119



119Total comprehensive income



































13,592Balance at July 31, 2010


4,087


$
34,284




36,943


$
369


$
(905
)

$
485,817


$
(506,101
)

$
(20,820
)    F-5




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##### Table of Contents



NAVISITE,
    INC.CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years Ended July 31,2010


2009


2008(In thousands)Cash flows from operating activities:Net income (loss)

$
13,473


$
(15,111
)

$
(8,684
)Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:Depreciation and amortization


21,159



23,638



21,223Gain on the sale of discontinued operations


(20,494
)






Mark to market for interest rate cap


85



73



91Deferred income tax expense


1,530



1,894



1,834Loss (gain) on disposal of assets


86



(14
)


17Gain on settlements










(1,607
)Non-cash stock compensation


3,002



3,142



4,370Provision for bad debts


299



1,908



581Loss on debt extinguishment










1,651Changes in operating assets and liabilities, net of impact of
    acquisitions Accounts receivable


1,325



278



(500
)Unbilled accounts receivable


640



299



(765
)Prepaid expenses and other current assets, net


(2,969
)


5,474



(7,222
)Other assets


3,550



(1,874
)


(87
)Accounts payable


1,783



(1,553
)


2,241Deferred other income and customer deposits


490



(464
)


(132
)Accrued expenses and deferred revenue


849



680



(7,970
)Other long-term liabilities


(217
)


3,204



936Net cash provided by operating activities


24,591



21,574



5,977Cash flows from investing activities:Purchase of property and equipment


(16,986
)


(10,648
)


(11,975
)Capitalized software development costs


(471
)






Proceeds from the sale of discontinued operations


56,329







Cash used for acquisitions, net of cash acquired










(31,373
)Proceeds from the sale of equipment






32



1Changes in restricted cash position


470



45



13,535Net cash provided by (used for) investing activities


39,342



(10,571
)


(29,812
)Cash flows from financing activities:Proceeds from exercise of stock options & employee
    stock purchase plan


1,094



264



1,954Proceeds from exercise of warrants










10Proceeds from notes payable


6,575



10,436



28,881Repayment of notes payable


(71,855
)


(8,997
)


(10,114
)Debt issuance costs


(511
)


(1,184
)


(1,509
)Payments on capital lease obligations


(5,114
)


(4,091
)


(3,827
)Net cash used for financing activities


(69,811
)


(3,572
)


15,395Effect of exchange rate changes on cash and cash equivalents


(36
)


(158
)


Net (decrease) increase in cash and cash equivalents


(5,914
)


7,273



(8,440
)Cash and cash equivalents, beginning of year


10,534



3,261



11,701Cash and cash equivalents, end of year

$
4,620


$
10,534


$
3,261Supplemental disclosure of cash flow information:Cash paid for interest

$
10,224


$
11,950


$
11,397Cash paid for income taxes

$
1,710


$
49


$
38Supplemental disclosure of non-cash transactions:Equipment purchased under capital leases

$
10,684


$
2,514


$
17,652Issuance of Series A Convertible Preferred Stock in
    connection with netASPx acquisition

$



$



$
24,873Accretion of Preferred Stock

$
3,718


$
3,350


$
2,656    F-6




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##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    Description
    of Business  NaviSite, Company, we, us our 10 state-of-the-art
  (2)
    Summary
    of Significant Accounting Policies  (a)
    Basis
    of Presentation and Background  ModusLink CBT
  Alabanza
      (b)
    Principles
    of Consolidation    (c)
    Use of
    Estimates   F-7




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (d)
    Cash
    and Cash Equivalents and Restricted Cash      (e)
    Revenue
    Recognition    percentage-of-completion
  ASU No. 2009-13, Multiple-Deliverable Revenue Arrangements, ASC Revenue
    Recognition 2009-13 2009-13 2009-13
  2009-13, VSOE TPE ESP
   F-8




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2009-13
    2009-13
    2009-13
  (f)
    Allowance
    for Doubtful Accounts    (g)
    Concentration
    of Credit Risk   F-9




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair Value Measures and
    Derivative Instruments
    (h)
    Comprehensive
    Income (Loss)    (i)
    Property
    and Equipment      (j)
    Capitalized
    Software Development Costs    (k)
    Long-Lived
    Assets, Goodwill and Other Intangibles  Property,
    Plant and Equipment ASC 360
 F-10




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Intangibles  Goodwill and
    Other ASC 350
  (l)
    Advertising
    Costs    (m)
    Income
    Taxes  asset-and-liability Income
    Taxes, ASC 740
  (n)
    Derivative
    Financial Instruments    (o)
    Lease
    Expense  Leases 
  (p)
    Stock-Based
    Compensation Plans  Compensation  Stock
    Compensation, ASC 718
 F-11




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (SAB)
  Stock
    Options
    Years Ended July 31,2010


2009


2008(In thousands)Cost of revenue

$
865


$
1,052


$
1,724Selling and marketing


509



457



710General and administrative


545



507



903$
1,919


$
2,016


$
3,337   Black-Scholes Model
  Years Ended July 31,2010


2009


2008Risk-free interest rate


1.51
%


1.67
%


3.40
%Expected volatility


104.92
%


90.91
%


82.65
%Expected life (years)


3.50



2.72



2.50Weighted average fair value of options granted

$
1.57


$
0.70


$
3.21    F-12




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    WeightedAverageWeighted


RemainingNumber


Average


Contractual


Aggregateof


Exercise


Term


IntrinsicShares


Price


(Years)


Value(Thousands)Options outstanding, beginning of year


6,371,203


$
3.58Granted


1,889,145


$
2.26Exercised


(400,280
)

$
1.53Forfeited or Expired


(1,211,574
)

$
4.56Options outstanding, July 31, 2010


6,648,494


$
3.15



6.24


$
3,658Options exercisable, July 31, 2010


4,918,308


$
3.41



5.16


$
2,611       Restricted
    Stock
      Years Ended July 31,2010


2009


2008(In thousands)Cost of revenue

$
30


$
129


$
3Selling and marketing


129



66



2General and administrative


690



773



898$
849


$
968


$
903     Employee
    Stock Purchase Plan
  ESPP)
 F-13




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Years Ended July 31,2010


2009


2008(In thousands)Cost of revenue

$
128


$
93


$
67Selling and marketing


44



34



34General and administrative


62



31



29$
234


$
158


$
130     (q)
    Basic
    and Diluted Net Loss per Common Share      Years Ended July 31,2010


2009


2008Common-stock options


685,389



105,765



1,943,861Common-stock warrants


1,195,184



1,188,783



1,197,992Restricted stock


87,082



134,222



151,604Series A convertible preferred stock


4,155,003



3,724,844



3,356,202ESPP










28,119Total


6,122,658



5,153,614



6,677,778   (r)  Segment
    Reporting
   F-14




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Product
    and Services Data:
    Years Ended July 31,2010


2009


2008(In thousands)Managed-IT services

$
121,449


$
118,559


$
112,341Professional services


2,416



5,288



19,480AJE


2,282



1,532



313Total revenue

$
126,147


$
125,379


$
132,134   Geographic
    Data
      Years Ended July 31,2010


2009


2008(In thousands)United States

$
112,640


$
111,436


$
120,340All other


13,507



13,943



11,794Total revenue

$
126,147


$
125,379


$
132,134     (s)  Recent
    Accounting Pronouncements
  No. 2009-13, Multiple-Deliverable Revenue Arrangements ASU
    2009-13 Revenue
    Recognition 2009-13 2009-13 2009-13 2009-13
   F-15




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  IFRS IASB
  FSP No. 142-3, Determination of the Useful Life of Intangible
    Assets, Intangibles  Goodwill
    and Other FASB ASC 350
  No. 107-1 28-1, Interim Disclosures about Fair Value of Financial
    Instruments, Financial Instruments FASB
    ASC 825
  No. 2009-05, Measuring Liabilities at Fair Value ASU
    2009-05 Fair Value
    Measurements and Disclosures 2009-05
  (t)  Foreign
    Currency
    (3)
    Reclassifications    (4)
    Subsequent
    Event  Subsequent
    Events, Subsequent Events FASB
    ASC 855
 F-16




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (5)
    Discontinued
    Operations  February 2010 Asset Purchase
    Agreement Velocity and/or and/or
    March 2010 Asset Purchase
    Agreement Virtustream
    ASC 205-20, Discontinued Operations
  July 31,


July 31,


July 31,2010


2009


2008Revenue

$
14,334


$
27,293


$
22,745Cost of revenue


12,501



21,223



16,086Gross profit


1,833



6,070



6,659Operating expenses


1,069



1,325



1,446Interest expense


3,427



5,523



4,273Income (loss) from discontinued operations before income taxes


(2,663
)


(778
)


940Income taxes


(941
)


(654
)


(682
)Income (loss) from discontinued operations, as reported

$
(3,604
)

$
(1,432
)

$
258  F-17




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      July 31,2009(In thousands)Current assets

$
3,860Property and equipment, net


3,851Other long term assets


31,636Total assets

$
39,347Current liabilities


2,872Non-current liabilities


1,661Total liabilities

$
4,533Net assets of discontinued operations

$
34,814   (6)
    Property
    and Equipment    July 31,2010


2009(In thousands)Office furniture and equipment

$
4,085


$
4,208Computer equipment


89,969



75,766Software licenses


17,289



15,798Leasehold improvements


14,068



25,838125,411



121,610Less: Accumulated depreciation and amortization


(95,497
)


(89,562
)Property and equipment, net

$
29,914


$
32,048    F-18




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    July 31,2010


2009(In thousands)Computer equipment

$
29,699


$
20,637Leasehold improvements






12,119Total cost

$
29,699


$
32,756Accumulated depreciation and amortization


(16,466
)


(15,324
)$
13,233


$
17,432     10-years 7-years
    (7)
    Intangible
    Assets    July 31, 2010Gross Carrying


Accumulated


Net CarryingAmount


Amortization


Amount(In thousands)Customer lists

$
29,812


$
(24,667
)

$
5,145Customer-contract backlog


3,400



(3,400
)


Developed technology


3,140



(2,046
)


1,094Vendor contracts


700



(700
)


Trademarks


670



(332
)


338Non-compete agreements


206



(204
)


2Intangible assets, net

$
37,928


$
(31,349
)

$
6,579   F-19




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  July 31, 2009Gross Carrying


Accumulated


Net CarryingAmount


Amortization


Amount(In thousands)Customer lists

$
39,392


$
(26,498
)

$
12,894Customer-contract backlog


14,600



(7,619
)


6,981Developed technology


3,140



(1,506
)


1,634Vendor contracts


700



(637
)


63Trademarks


670



(220
)


450Non-compete agreements


206



(135
)


71Intangible assets, net

$
58,708


$
(36,615
)

$
22,093       Year Ending July 31,(In thousands)2011

$
2,5382012

$
2,3932013

$
9032014

$
7262015

$
19   (8)
    Goodwill    2010


2009


2008(In thousands)Goodwill as of August 1

$
66,566


$
66,683


$
43,159Acquired goodwill










23,524Adjustments to goodwill


(20,377
)


(117
)


Goodwill as of July 31

$
46,189


$
66,566


$
66,683    F-20




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (9)
    Accrued
    Expenses    July 31,2010


2009(In thousands)Accrued payroll, benefits and commissions

$
4,359


$
4,086Accrued legal


151



636Accrued accounts payable


4,965



2,408Accrued sales, use, property and miscellaneous taxes


990



421Accrued other


1,748



2,271$
12,213


$
9,822   (10)
    Debt    July 31,


July 31,2010


2009(In thousands)Total term loan

$
49,152


$
106,700Other debt


4,024



10,057Total debt


53,176



116,757Less current portion, term loan, revolver and other debt


4,150



10,603Long-term term loan

$
49,026


$
106,154   (a)  Senior
    Secured Credit Facility
  Credit Agreement Term Loan Revolver
     F-21




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      payment-in-kind
  Amendment
  Amended Credit Agreement ASC 470-50 Debt  Modifications and
    Extinguishments.
  January Amendment
  June
    Amendment
 F-22




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    October Amendment
  Amendment No. 7
  Amendment No. 8
    (b)  Term
    Loans and Revolving Credit Facilities
  Silver
    Point Debt Silver Point
    SP
    Amendment
 F-23




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Warrant Issue Date:April 2006

February 2007Expected life (in years)


10



10Expected volatility


101.21
%


105.96
%Expected dividend rate


0.00
%


0.00
%Risk-free interest rate


4.44
%


4.58
%         (c)  Notes
    Payable to the AppliedTheory Estate
  Estate
    Liability
  (11)
    Fair
    Value Measures and Derivative Instruments   F-24




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Fair value of derivative financial
    instruments.
  Fair Value Measurements,
  Level 1
  Level 2
  Level 3
    Level 1


Level 2


Level 3


TotalInterest-rate derivatives as of July 31, 2010





$
8,000






$
8,000Interest-rate derivatives as of July 31, 2009





$
93,000






$
93,000   Interest-rate derivatives.
  Fair value of non-derivative financial
    instruments. Fair
    Value Measurements and Disclosures.
    2010


2009Carrying Value


Fair Value


Carrying Value


Fair ValueTerm loan  short term

$
126


$
121


$
546


$
368Term loan  long term


49,026



47,065



106,154



71,654Total term loan

$
49,152


$
47,186


$
106,700


$
72,022Revolver

$
4,024


$
3,742


$
10,018


$
6,261  F-25




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (12)
    Commitments
    and Contingencies    Less than














AfterDescription

Total


1 Year


Year 2


Year 3


Year 4


Year 5


Year 5(In thousands)Short/long-term debt

$
53,176


$
4,150


$
505


$
48,521


$



$



$
Interest on debt(a)


13,032



4,562



4,533



3,937











Capital leases


9,194



5,484



3,340



370











Operating leases(b)


9,692



2,046



2,107



2,170



2,235



1,134



Bandwidth commitments


1,135



684



318



122



11







Property leases(b)(c)


60,058



7,802



7,651



7,616



7,611



7,688



21,690$
146,287


$
24,728


$
18,454


$
62,736


$
9,857


$
8,822


$
21,690     (a)
    
    Interest on debt assumes that LIBOR is fixed at 3.15%, as this
    is the minimum interest required under our credit agreement.(b)
    
    Future commitments denominated in foreign currency are fixed at
    the exchange rates as of July 31, 2010.(c)
    
    Amounts exclude certain common area maintenance and other
    property charges that are not included within the lease payment.        (b)  Legal
    Matters
  IPO
    Securities Litigation
  Court IPO Securities
    Litigation class-action Class-Action
    Litigation NaviSite
    Defendants successor-in-interest successor-in-interest Rule 10b-5
 F-26




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  and/or Class-Action Global Settlement Class-Action Class-Action
  Court of Appeals
  Class-Action District Court
   F-27




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (13)
    Income
    Taxes    2010


2009


2008Current


Deferred


Total


Current


Deferred


Total


Current


Deferred


Total(In thousands)Federal

$
(406
)

$
915


$
509


$



$
920


$
920


$



$
912


$
912Foreign


111



(109
)


2



















(78
)


(78
)State


(76
)


320



244







321



321







318



318$
(371
)

$
1,126


$
755


$



$
1,241


$
1,241


$



$
1,152


$
1,152     2010


2009


2008(In thousands)Computed expected tax expense (benefit)

$
(905
)

$
(4,229
)

$
(2,649
)State taxes, net of federal income tax benefit


160



212



210Losses not benefited


1,500



5,258



3,591Total

$
755


$
1,241


$
1,152   gain-on-sale
    2010


2009(In thousands)Deferred tax assets:Accruals and reserves

$
14,014


$
12,960Loss carryforwards


61,072



73,116Depreciation and amortization


12,524



12,021Tax Credits


109



Total deferred tax assets

$
87,719


$
98,097Less: Valuation allowance


(87,610
)


(98,097
)$
109



Deferred tax liabilities:Amortization of tax goodwill

$
(7,391
)

$
(7,492
)Net deferred assets/(liabilities)

$
(7,282
)

$
(7,492
)    F-28




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    built-in-gain
          (14)
    Stockholders
    Equity  Issuance
    of Common Stock
   F-29




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Redeemable
    Preferred Stock
      (15)
    Stock-Option
    Plans and Restricted Stock Awards  (a)  NaviSite
    1998 Equity Incentive Plan
  1998 Plan 2003 Plan
 F-30




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2010

2009

2008Weighted



Weighted



WeightedNumber

Average

Number

Average

Number

Averageof

Exercise

of

Exercise

of

ExerciseShares

Price

Shares

Price

Shares

PriceOptions outstanding, beginning of year


120,000


$
2.55



120,000


$
2.55



120,066


$
2.55Granted





$







$







$
Exercised





$







$







$
Cancelled





$







$




(66
)

$
3.30Options outstanding, end of year


120,000


$
2.55



120,000


$
2.55



120,000


$
2.55Options exercisable, end of year


120,000


$
2.55



120,000


$
2.55



120,000


$
2.55Options available for grant, end of year


















   Options Outstanding

Options ExercisableWeightedAverage

Weighted



WeightedRemaining

Average



AverageNumber

Contractual

Exercise

Number

ExerciseRange of Exercise Prices

Outstanding

Life

Price

Outstanding

Price$0.01 - 2.55


120,000



2.94


$
2.55



120,000


$
2.55120,000











120,000   (b)  NaviSite
    2003 Stock Incentive Plan
         F-31




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2010

2009

2008Weighted



Weighted



WeightedNumber

Average

Number

Average

Number

Averageof

Exercise

of

Exercise

of

ExerciseShares

Price

Shares

Price

Shares

PriceOptions outstanding, beginning of year


6,248,538


$
3.55



6,599,500


$
3.92



6,533,189


$
3.59Granted


1,889,145


$
2.26



867,225


$
1.33



2,002,500


$
6.27Exercised


(400,280
)

$
1.53



(85,701
)

$
1.55



(597,732
)

$
2.91Cancelled


(1,211,241
)

$
4.34



(1,132,486
)

$
4.15



(1,338,457
)

$
6.28Options outstanding, end of year


6,526,162


$
3.15



6,248,538


$
3.55



6,599,500


$
3.92Options exercisable, end of year


4,795,976


$
3.41



4,941,584


$
3.53



4,635,450


$
3.46Options available for grant, end of year


724,933







1,450,862







2,095,412   Options Outstanding

Options ExercisableWeightedAverage

Weighted



WeightedRemaining

Average



AverageNumber

Contractual

Exercise

Number

ExerciseRange of Exercise Prices

Outstanding

Life

Price

Outstanding

Price$0.26 - 1.45


762,846



7.09


$
1.16



539,179


$
1.24$1.46 - 1.48


108,625



5.52


$
1.48



108,625


$
1.48$1.49 - 1.58


866,006



4.71


$
1.58



860,838


$
1.58$1.59 - 2.38


679,665



8.31


$
2.01



304,329


$
2.04$2.39 - 2.44


89,000



4.97


$
2.44



80,000


$
2.44$2.44 - 2.48


674,500



9.87


$
2.48






$
0$2.49 - 2.85


723,812



4.92


$
2.59



547,206


$
2.56$2.86 - 4.00


785,088



7.13


$
3.61



584,463


$
3.71$4.01 - 5.28


418,769



5.42


$
4.41



400,532


$
4.42$5.29 - 10.81


1,417,851



4.85


$
5.89



1,370,804


$
5.856,526,162











4,795,976  F-32




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Restricted
    Stock Issued under the 2003 Plan
    Weighted AverageNumber

Grant Dateof Shares

Fair ValueRestricted stock outstanding, beginning of year


1,122,110


$
3.27Granted


63,000


$
1.97Vested


(233,986
)

$
3.00Forfeited


(11,630
)

$
3.73Restricted stock outstanding, July 31, 2010


939,494


$
3.24   12-month
         F-33




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (c)  Other
    Stock-Option Grants
    (d)  1999
    Employee Stock Purchase Plan
        (16)
    Restructuring
    Charge      (In thousands)Restructuring accrual balance at July 31, 2008

$
Restructuring and other related charges


476Cash payments and other settlements


(389
)Other adjustments


(87
)Restructuring accrual balance at July 31, 2009

$
    F-34




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (17)
    Related-Party
    Transactions      10-year 10-years 7-years
   F-35




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     Form 10-K. Form 10-K.
    KPMG
    LLP
    F-36




---



##### Table of Contents



NAVISITE,
    INC.
  VALUATION
    AND QUALIFYING ACCOUNTS
  Years Ended July 31, 2010, 2009 and 2008Balance at

Additions

Deductions

Balance atBeginning of

Charged to

from

End ofYear

Expense

Reserve

Year(In thousands)Year ended July 31, 2008:Allowance for doubtful accounts

$
781


$
581


$
(465
)

$
897Year ended July 31, 2009:Allowance for doubtful accounts

$
897


$
1,908


$
(985
)

$
1,820Year ended July 31, 2010:Allowance for doubtful accounts

$
1,820


$
299


$
(307
)

$
1,812    F-37