##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, 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,
    2007o

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

(I.R.S. Employerof incorporation or
    organization)

Identification No.)400 Minuteman Road

01810Andover, Massachusetts

(zip code)(Address of principal executive
    offices)   Registrants telephone number, including area code
 (978) 682-8300
    Securities registered pursuant to Section 12(b) of the
    Act:
  Name of Each ExchangeTitle of Each Class

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-K Form 10-K Form 10-K. o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



NAVISITE,
    INC.
    2007 ANNUAL REPORT
    ON
    FORM 10-K
    TABLE OF CONTENTS
  PageNumberPART IItem 1.


Business


3Item 1A.


Risk Factors


13Item 1B.


Unresolved Staff Comments


21Item 2.


Properties


21Item 3.


Legal Proceedings


22Item 4.


Submission of Matters to a Vote of Security
    Holders


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


33Item 8.


Financial Statements and Supplementary Data


33Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


33Item 9A.


Controls and Procedures


33Item 9B.


Other Information


33PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


34Item 11.


Executive Compensation


34Item 12.


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


34Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


34Item 14.


Principal Accounting Fees and Services


34PART IVItem 15.


Exhibits, Financial Statement Schedules


35Signatures


36Index to NaviSite, Inc. Consolidated Financial
    Statements


F-1EX-21 Subsidiaries of the Registrant.EX-23 Consent of KPMG LLPEX-31.1 Certification of Chief Executive Officer pursuant to Section 302EX-31.2 Certification of Chief Financial Officer pursuant to Section 302EX-32.1 Certification of the Chief Executive Officer pursuant to Section 906EX-32.2 Certification of the Chief Financial Officer pursuant to Section 906   2




---



##### Table of Contents



PART I
    SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
  This Annual Report on
    Form 10-K
    contains forward-looking statements within the meaning of
    Section 21E of the Securities Exchange Act of 1934, as
    amended, and Section 27A of the Securities Act of 1933, as
    amended, 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.
    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. Investors are warned that actual results may differ
    materially from managements 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.
  Item 1.
    Business  Our
    Business
    e-Business
        ERP
    Application Management
  
    ERP Application management services  Customer defined
    services for specific packaged applications.
    Applications include:  
    Oracle
    e-Business
    Suite
    PeopleSoft Enterprise
    Siebel 3




---



##### Table of Contents




    JD Edwards
    Oracle Fusion
    Lawson M3 and S3
    Kronos
    Microsoft Dynamics    Hosting
    Services
  
    Managed Hosting Services  Hardware and software
    support delivered from one of our 16 data centers. Services
    include dedicated and virtualized hosting, business continuity
    and disaster recovery, connectivity, content distribution,
    database administration and performance tuning, hardware
    management, monitoring, network management, security management,
    server and operating system management and storage management.
    Software as a Service (SaaS)  Enablement
    of Software as a Service to the ISV community. Services include
    SaaS starter kits and services specific to the needs of ISVs who
    offer their software in an on-demand or subscription mode.
    Content Delivery  The delivery of software
    electronically using NaviSites accelerated content
    distribution technology.
    Co-location  Physical space offered in a data center.
    In addition to providing the physical space, NaviSite offers
    environmental support, specified power with
    back-up
    power generation and network connectivity options.  Professional
    Services
  
    ERP Services  Planning, implementation, optimization,
    enhancement and upgrade support for third party ERP applications
    we support.
    Custom Development Services  Planning,
    implementation, optimization and enhancement for custom
    applications that we or our customers have developed.    tm tm tm
    tm tm
 4




---



##### Table of Contents



tm
        
    In December 2002, we acquired all of the issued and outstanding
    stock of ClearBlue Technologies Management, Inc., or CBTM, a
    subsidiary of CBT, which previously had acquired assets from the
    bankrupt estate of AppliedTheory Corporation related to
    application management and application hosting services. This
    acquisition added application management and development
    capabilities to our managed application services.
    In February 2003, we acquired Avasta, Inc., a provider of
    application management services, adding automated application
    and device monitoring software capabilities to our managed
    application services.
    In April 2003, we acquired Conxion Corporation, a provider of
    application hosting, content and electronic software
    distribution and security services. This acquisition added
    proprietary content delivery software and related network
    agreements to our managed application services and managed
    infrastructure services.
    In May 2003, we acquired assets of Interliant, Inc. related to
    managed messaging, application hosting and application
    development services. This acquisition added messaging-specific
    services and capabilities and IBM Lotus Domino expertise, and
    formed the core of our managed messaging services.
    In August 2003, we acquired assets of CBT related to
    co-location, bandwidth, security and disaster recovery services,
    enhancing our managed infrastructure services and adding
    physical plant assets. Specifically, we acquired all of the
    outstanding shares of six wholly-owned subsidiaries of CBT with
    data centers located in Chicago, Illinois, Las Vegas, Nevada,
    Los Angeles, California, Milwaukee, Wisconsin, Oakbrook,
    Illinois, and Vienna, Virginia and assumed the revenue and
    expenses of four additional wholly-owned subsidiaries of CBT
    with data centers located in Dallas, Texas, New York, New York,
    San Francisco, California, and Santa Clara,
    California, which four entities we later acquired.
    In June 2004, we completed the acquisition of substantially all
    of the assets and liabilities of Surebridge, Inc., a privately
    held provider of managed application services for mid-market
    companies. This acquisition broadened our managed application
    services, particularly in the areas of financial management,
    supply chain management, human resources management and customer
    relationship management. 5




---



##### Table of Contents




    In August 2007, we acquired the assets of Alabanza LLC and
    Hosting Ventures LLC and all of the issued and outstanding stock
    of Jupiter Hosting, Inc.. 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. Based in
    Minneapolis, Minnesota, the acquisition of netASPx, Inc. added
    functional expertise in the Lawson and Kronos ERP applications
    and 18,000 square feet of data center capacity.  Our
    Industry
      
    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;
    Advances in virtualization and high density computing that is
    beyond the skill and cost ability of the typical mid-market
    enterprise;
    The need to improve the reliability, availability and overall
    performance of applications as they increase in importance and
    complexity; 6




---



##### Table of Contents




    The need to focus on core business operations;
    Challenges and costs of hiring, training and retaining
    application engineers and information technology employees with
    the requisite range of information technology expertise; and
    The increasing complexity of managing the operations of
    Internet-enabled applications.    Our
    Strategy
    Provide Excellent Customer Service.
  Innovate and Leverage our Technology
    Platform.
  Expand Our Global Delivery Capabilities.
  Improve Operating Margins Through
    Efficiencies. tm
  Grow Through Disciplined Acquisitions.
  Continue to Broaden Our Service Offerings.
  Our
    Services
   7




---



##### Table of Contents



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
    Oracle Fusion
    Lawson M3 and S3
    Kronos
    Microsoft Dynamics
    Microsoft Exchange
    Lotus Domino  Hosting
    Services
    
    Managed Hosting Services  Support provided for
    hardware and software located in one of our 16 data centers. We
    also provide bundled offerings packaged as content delivery
    services. Specific services include:  
    Dedicated and Virtualized Servers
    Business Continuity and Disaster Recovery
    Connectivity
    Content Distribution
    Database Administration and Performance Tuning
    Desktop Support
    Hardware Management
    Monitoring 8




---



##### Table of Contents




    Network Management
    Security
    Server and Operating Management
    Storage Management  
    Software as a Service  Enablement of Software as a
    Service to the ISV community. Services include SaaS starter kits
    and services specific to the needs of ISVs wanting to offer
    their software in an on-demand or subscription mode.
    Content Delivery  Includes the delivery of software
    electronically using NaviSite technology accelerated content
    distribution.
    Colocation  Physical space offered in a data center.
    In addition to providing the physical space, NaviSite offers
    environmental support, specified power with
    back-up
    power generation and network connectivity options.  Professional
    Services
  
    ERP Services  Planning, implementation, optimization,
    enhancement and upgrades for the supported third party ERP
    application.
    Custom Development Services  Planning,
    implementation, optimization and enhancement for custom
    applications that we or our customers have developed.  tm
  NaviViewtm Platform
  tm tm tm tm
  Event Detection System
  Synthetic Transaction Monitoring
  Automated Remediation tm
  Component Information Manager
  Escalation Manager
 9




---



##### Table of Contents



Our
    Infrastructure
    Network Operations Centers
  Data Centers
  Virtualization
  Internet Connectivity
  Sales and
    Marketing
  Direct Sales
  Channel Relationships
  Marketing
 10




---



##### Table of Contents



Customers
          Competition
      
    quality of services delivered;
    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 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
    
    hosting and related services providers, including Terremark,
    Inc., Globix Corp., SAVVIS (which acquired the Cable &
    Wireless business including the Exodus and Digital Island
    businesses), IBM, AT&T and other local and regional hosting
    providers;
    application services providers, such as IBM, Infocrossing, Inc.,
    Electronic Data Systems Corp. and Computer Sciences Corporation; 11




---



##### Table of Contents




    content and electronic software distribution providers, such as
    Akamai, Inc., Limelight Networks Inc., Digital River, Inc. and
    Intraware, Inc.;
    co-location providers, including SAVVIS, Equinix and
    Switch & Data Facilities Company, Inc.;
    messaging providers, including Mi8, Internoded, Inc. and
    professional services providers, including Oracle Consulting
    Services, Accenture, Ciber, CSC, CedarCrestone, Deloitte
    Consulting, IBM and Rapidigm.  Intellectual
    Property
      Government
    Regulation
    Employees
   12




---



##### Table of Contents



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 (the
    Credit Agreement) 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 certain limited
    exemptions;
    restricts our ability to create, incur, assume or permit to
    exist any lien on any of our assets, excluding certain limited
    exemptions;
    restricts our ability to make investments, with certain limited
    exemptions;
    requires that we meet financial covenants for leverage, fixed
    charges and capital expenditures;
    restricts our ability to enter into any transaction of merger or
    consolidation, excluding certain limited exemptions;
    restricts our ability to sell assets or purchase or otherwise
    acquire the property of any person, excluding certain limited
    exemptions;
    restricts our ability to authorize, declare or pay dividends,
    excluding certain limited exemptions;
    restricts our ability to enter into any transaction with any
    affiliate (as defined in the Credit Agreement) 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.   13




---



##### Table of Contents



Year

Percentage of Term Loan1


1.0
%2


1.0
%3


1.0
%4


1.0
%5


1.0
%6


95.0
%     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.
  Members of our management group also have significant
    interests in Atlantic Investors, LLC, which 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




---



##### Table of Contents



Acquisitions may result in disruptions to our business or
    distractions of our management due to difficulties in
    integrating acquired personnel and operations, and these
    integrations may not proceed as
    planned.
  
    difficulty integrating acquired technologies, products,
    services, operations and personnel with the existing businesses;
    difficulty maintaining relationships with important third
    parties, including those relating to marketing alliances and
    providing preferred partner status and favorable pricing;
    diversion of managements attention in connection with both
    negotiating the acquisitions and integrating the businesses;
    strain on managerial and operational resources as management
    tries to oversee larger operations;
    inability to retain and motivate management and other key
    personnel of the acquired businesses;
    exposure to unforeseen liabilities of acquired companies;
    potential costly and time-consuming litigation, including
    stockholder lawsuits;
    potential issuance of securities in connection with an
    acquisition with rights that are superior to the rights of
    holders of our Common Stock, or which may have a dilutive effect
    on our common stockholders;
    the need to incur additional debt or use cash; and
    the requirement to record potentially significant additional
    future operating costs for the amortization of intangible assets.    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 may not
    be covered by insurance policies and which may not be limited by
    contractual terms of our engagement. 15




---



##### Table of Contents



Our ability to successfully market our services could be
    substantially impaired if we are unable to deploy new
    infrastructure systems and applications or if new infrastructure
    systems and applications deployed by us prove to be unreliable,
    defective or incompatible.
  Any interruptions in, or degradation of, our private
    transit Internet connections could result in the loss of
    customers or hinder our ability to attract new
    customers.
  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.
  Our network infrastructure could fail, which 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. 16




---



##### Table of Contents



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
    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.
  We may be subject to legal claims in connection with the
    information disseminated through our network, which 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.
 17




---



##### Table of Contents



and/or
    If we fail to attract or retain key officers, management
    and technical personnel, our ability to successfully execute our
    business strategy or to continue to provide services and
    technical support to our customers could be adversely affected
    and we may not be successful in attracting new
    customers. reductions-in-force
  The unpredictability of our quarterly results may cause
    the trading price of our Common Stock to fluctuate or
    decline.
  
    a reduction of market demand
    and/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 size of sales of our services, which depends 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.   18




---



##### Table of Contents



If we are unsuccessful in pending and potential litigation
    matters, our financial condition may be adversely
    affected.
  If the markets for outsourced information technology
    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.
    
    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.
 19




---



##### Table of Contents




    unexpected changes in regulatory, tax and political environments;
    longer payment cycles and problems collecting accounts
    receivable;
    geopolitical risks such as political and economic instability
    and the possibility of hostilities among countries or terrorism;
    reduced protection of intellectual property rights;
    fluctuations in currency exchange rates or imposition 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.
  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. 20




---



##### Table of Contents



Item 1B.  Unresolved
    Staff Comments
    Item 2.
    Properties  Facilities
    Square FootageLeasedLocation

Type

(Approximate)


Lease ExpirationSan Jose, CA (1)

Data Center and Office


66,350


November 2016Los Angeles, CA

Data Center


34,711


February 2009San Francisco, CA

Data Center


20,576


January 2010Santa Clara, CA (1)

Office


3,500


June 2009Atlanta, GA

Office


4,598


June 2009Chicago, IL (1)

Office


4,453


June 2009Chicago, IL

Data Center


6,800


January 2009Oak Brook, IL

Data Center


16,780


September 2019Andover, MA

Office


25,817


January 2018Andover, MA

Data Center and Office


86,931


January 2018Baltimore, MD

Data Center and Office


3,000


November 2007Minneapolis, MN (1)

Data Center and Office


54,474


June 2010Syracuse, NY

Data Center


21,246


November 2008Syracuse, NY(1)

Office


44,002


December 2007Syracuse, NY(1)

Office


5,016


May 2009New York, NY

Office


1,500


May 2008New York, NY

Data Center


33,286


May 2018Las Vegas, NV (2)

Data Center


28,560


February 2010Dallas, TX

Data Center


27,370


January 2010Houston, TX (1)

Data Center and Office


29,545


October 2008Herndon, VA (1)

Office


5,515


June 2011Vienna, VA

Data Center and Office


23,715


December 2009Milwaukee, WI

Data Center


5,200


March 2010Gurgaon, Haryana, India

Office


12,706


July 2008London, England

Data Center


4,022


March 2010     (1)
    
    We have idle office space at this facility from which we derive
    no economic benefit.(2)
    
    We have entered into a sublease with a third party for this
    facility, however we retain the use of approximately
    2,000 square feet.   21




---



##### Table of Contents



Item 3.
    Legal
    Proceedings  IPO
    Securities Litigation
  successor-in-interest successor-in-interest Rule 10b-5 and/or
        Item 4.
    Submission
    of Matters to a Vote of Security Holders.   22




---



##### Table of Contents



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, 2007May 1, 2007 through July 31, 2007

$
9.36


$
6.06February 1, 2007 through April 30, 2007

$
7.08


$
5.25November 1, 2006 through January 31, 2007

$
7.22


$
3.44August 1, 2006 through October 31, 2006

$
4.30


$
3.33Fiscal Year Ended July 31, 2006May 1, 2006 through July 31, 2006

$
5.59


$
3.24February 1, 2006 through April 30, 2006

$
5.00


$
1.35November 1, 2005 through January 31, 2006

$
1.83


$
1.01August 1, 2005 through October 31, 2005

$
1.90


$
1.07                  23




---



##### Table of Contents



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 Managements Discussion and
    Analysis of Financial Condition and Results of Operations
    included elsewhere in this report. Historical results are not
    necessarily indicative of results of any future period.
  Year Ended July 31,2007


2006


2005


2004


2003(In thousands, except per share data)Revenue, net

$
125,860


$
108,844


$
109,731


$
91,126


$
75,281Revenue, related parties


322



243



132



46



1,310Total revenue


126,182



109,087



109,863



91,172



76,591Cost of revenue


85,196



75,064



80,227



68,379



70,781Impairment, restructuring and other, net










383



917



Total cost of revenue


85,196



75,064



80,610



69,296



70,781Gross profit


40,986



34,023



29,253



21,876



5,810Operating expenses:Selling and marketing


16,924



14,756



12,993



10,642



6,910General and administrative


22,043



21,787



23,600



24,714



20,207Impairment. restructuring and other, net


(231
)


1,373



2,662



5,286



8,882Total operating expenses


38,736



37,916



39,255



40,642



35,999Income (loss) from operations


2,250



(3,893
)


(10,002
)


(18,766
)


(30,189
)Other income (expense):Interest income


337



283



61



126



851Interest expense


(12,476
)


(9,585
)


(7,590
)


(3,181
)


(43,403
)Loss on debt extinguishment


(15,712
)














Other income (expense), net


864



437



2,785



468



(733
)Loss before income tax expense


(24,737
)


(12,758
)


(14,746
)


(21,355
)


(73,474
)Income tax expense


(1,173
)


(1,173
)


(1,338
)


(1
)


(153
)Net loss

$
(25,910
)

$
(13,931
)

$
(16,084
)

$
(21,354
)

$
(73,627
)Per common share:Basic and diluted:Net loss

$
(0.85
)

$
(0.49
)

$
(0.57
)

$
(0.85
)

$
(6.32
)Basic and diluted weighted average number of common shares
    outstanding


30,512



28,601



28,202



25,160



11,654BALANCE SHEET DATA:Working capital (deficit)

$
10,611


$
(9,072
)

$
(77,560
)

$
(36,711
)

$
(16,301
)Total assets

$
116,244


$
102,409


$
101,177


$
123,864


$
69,371Long-term obligations

$
97,072


$
70,817


$
5,515


$
50,224


$
13,577Stockholders equity (deficit)

$
(13,864
)

$
(1,976
)

$
(2,672
)

$
11,082


$
16,879  24




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operation  This Annual Report on
    Form 10-K
    contains forward-looking statements within the meaning of
    Section 21E of the Securities Exchange Act of 1934, as
    amended, and Section 27A of the Securities Act of 1933, as
    amended, 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.
    Risk Factors and the risks discussed in our other
    filings with the Securities and Exchange Commission. 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
         25




---



##### Table of Contents



Results
    of Operations for the Three Years Ended July 31, 2007, 2006
    and 2005
    Year Ended July 31,2007


2006


2005Revenue, net


99.7
%


99.8
%


99.9
%Revenue, related parties


0.3
%


0.2
%


0.1
%Total revenue


100.0
%


100.0
%


100.0
%Cost of revenue


67.5
%


68.8
%


73.0
%Impairment, restructuring and other, net


0.0
%


0.0
%


0.4
%Total cost of revenue


67.5
%


68.8
%


73.4
%Gross profit


32.5
%


31.2
%


26.6
%Operating expenses:Selling and marketing


13.4
%


13.5
%


11.8
%General and administrative


17.5
%


20.0
%


21.5
%Impairment, restructuring and other, net


(0.2
)%


1.3
%


2.4
%Total operating expenses


30.7
%


34.8
%


35.7
%Income (loss) from operations


1.8
%


(3.6
)%


(9.1
)%Other income (expense):Interest income


0.3
%


0.3
%


0.1
%Interest expense


(9.9
)%


(8.8
)%


(6.9
)%Loss on debt extinguishment


(12.5
)%






Other income (expense), net


0.7
%


0.4
%


2.5
%Loss before income tax expense


(19.6
)%


(11.7
)%


(13.4
)%Income tax expense


(0.9
)%


(1.1
)%


(1.2
)%Net loss


(20.5
)%


(12.8
)%


(14.6
)%   Comparison
    of the Years 2007, 2006 and 2005
  Revenue
       26




---



##### Table of Contents



Gross
    Profit
        Operating
    Expenses
  Selling and Marketing.
     27




---



##### Table of Contents



General and Administrative.
      Operating
    Expenses  Impairment, Restructuring and Other,
    Net
        Interest
    Income
     28




---



##### Table of Contents



Interest
    Expense
      Loss on
    Debt Extinguishment
    Other
    Income (Expense), Net
      Income
    Tax Expense
    Liquidity
    and Capital Resources
     29




---



##### Table of Contents



Contractual
    Obligations and Commercial Commitments
    Less than








AfterDescription

Total


1 Year


2-3 Years


4-5 Years


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

$
96,163



7,063



1,800



1,800



85,500Interest on debt (a)


46,798



8,680



15,847



15,525



6,746Capital leases


3,229



2,083



1,064



82



Bandwidth commitments


2,432



1,712



720







Property leases (b)(c)


62,541



10,179



15,280



9,935



27,147Total


211,163



29,717



34,711



27,342



119,393     (a)
    
    Interest on debt assumes Libor is fixed at 5.36%(b)
    
    Amounts exclude certain common area maintenance and other
    property charges that are not included within the lease payment.(c)
    
    On February 9, 2005, the Company entered into an Assignment
    and Assumption Agreement with a Las Vegas-based company, whereby
    this company purchased from us the right to use
    29,000 square feet in our Las Vegas data center, along with
    the infrastructure and equipment associated with this space. In
    exchange, we received an initial payment of $600,000 and were to
    receive $55,682 per month over two years. On May 31, 2006,
    we received full payment for the remaining unpaid balance. This
    agreement shifts the responsibility for management of the data
    center and its employees, along with the maintenance of the
    facilitys infrastructure, to this Las Vegas-based company.
    Pursuant to this agreement, we have subleased back
    2,000 square feet of space, allowing us to continue
    servicing our existing customer base in this market. Commitments
    related to property leases include an amount related to the
    2,000 square feet sublease.  Off-Balance
    Sheet Financing Arrangements
    Critical
    Accounting Policies
   30




---



##### Table of Contents



Revenue Recognition.
    Allowance for Doubtful Accounts.
  Impairment of Long-lived Assets.
  
    significant underperformance relative to expected 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.   31




---



##### Table of Contents



Recent
    Accounting Pronouncements
        EITF 06-3, EITF 06-3 EITF 06-3 EITF 06-3
     32




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data  page F-1
  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)
    Changes in Internal Control Over Financial
    Reporting. Rule 13a-15(f)
  Item 9B.
    Other
    Information   33




---



##### Table of Contents



PART III
  Form 10-K Form 10-K,
  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Code of Ethics.
  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, 2007
    Number of SecuritiesAvailable 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


6,655,920


$
3.62



3,192,845Equity compensation plans not approved by security holders










Total


6,655,920







3,192,845   Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accounting Fees and Services   34




---



##### Table of Contents



PART IV
  Item 15.
    Exhibits,
    Financial Statement Schedules  1.
    Financial Statements.    2.
    Financial Statement Schedule.    3.
    Exhibits.   35




---



##### Table of Contents



SIGNATURES
    Navisite, Inc.
  By:
    /s/  Arthur
    P. Becker   Chief Executive Officer
    Signatures

Title

Date/s/  Andrew
    RuhanAndrew
    Ruhan

Chairman of the Board

November 9, 2007/s/  Arthur
    P. BeckerArthur
    P. Becker

President, Chief Executive
    Officer and Director
    (Principal Executive Officer)

November 9, 2007/s/  James
    W. PluntzeJames
    W. Pluntze

Chief Financial Officer
    (Principal Financial and
    Principal Accounting Officer)

November 9, 2007/s/  James
    H. DennedyJames
    H. Dennedy

Director

November 9, 2007/s/  Larry
    W. SchwartzLarry
    W. Schwartz

Director

November 9, 2007/s/  Thomas
    R. EvansThomas
    R. Evans

Director

November 9, 2007  36




---



##### Table of Contents



INDEX
    TO EXHIBITS
  Exhibit No.

Description of Exhibit2
.1

Stock Purchase Agreement, dated as of December 31, 2002, by
    and between ClearBlue Technologies, Inc. and the Registrant, is
    incorporated herein by reference to Exhibits to the
    Registrants Current Report on
    Form 8-K
    dated December 31, 2002 (File
    No. 000-27597).2
.2

Agreement and Plan of Merger and Reorganization, dated as of
    January 29, 2003, among Avasta Acquisition Corp., Avasta,
    Inc. 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).2
.3

Agreement and Plan of Merger, dated as of March 26, 2003,
    by and between the Registrant and Conxion Corporation and Union
    Acquisition, Corp., a wholly-owned subsidiary of the Registrant,
    is incorporated herein by reference to Exhibits to the
    Registrants Current Report on
    Form 8-K
    dated April 2, 2003 (File
    No. 000-27597).2
.4

Sale Order pursuant to 11 U.S.C. Sections 105, 363,
    and 1146(c) and Bankruptcy Rules 2002, 6004 and 6006
    approving (i) Asset Purchase Agreement, (ii) Sale of
    Substantially All of Debtors Assets Free and Clear of All
    Liens, Claims, Encumbrances and Interests, (iii) Waiver of
    Stay Provisions under Bankruptcy Rule Section 6004 and
    6006 and (iv) Granting Related Relief entered by the
    Bankruptcy Court for the Southern District of New York (White
    Plains) on May 15, 2003; together with the Asset Purchase
    Agreement, dated as of May 15, 2003, by and among
    Interliant, Inc. and certain of its subsidiaries, and Intrepid
    Acquisition Corp., a Delaware corporation and wholly-owned
    subsidiary of the Registrant, annexed thereto, is incorporated
    herein by reference to Exhibits to the Registrants Current
    Report on
    Form 8-K
    dated May 16, 2003 (File
    No. 000-27597).2
.5

Stock and Asset Acquisition Agreement, dated as of
    August 8, 2003, by and between the Registrant and ClearBlue
    Technologies, Inc., is incorporated herein by reference to the
    Registrants Current Report on
    Form 8-K
    dated August 8, 2003 (File
    No. 000-27597).2
.6

Amendment to Stock and Asset Acquisition Agreement dated as of
    February 6, 2004 by and among the Registrant, ClearBlue
    Technologies, Inc., ClearBlue Technologies/New York, Inc.,
    ClearBlue Technologies/ Santa Clara, Inc., ClearBlue
    Technologies/ Dallas, Inc. and ClearBlue Technologies/
    San Francisco, Inc. is incorporated herein by reference to
    Exhibit 2.1 to the Registrants Current Report on
    Form 8-K
    dated February 6, 2004 (File
    No. 000-27597).2
.7

Asset Purchase Agreement, dated as of May 6, 2004, by and
    among the Registrant, Lexington Acquisition Corp. and
    Surebridge, Inc., is incorporated herein by reference to
    Exhibit 2.1 to the Registrants Current Report on
    Form 8-K
    dated May 6, 2004 (File
    No. 000-27597).2
.8

First Amendment to Asset Purchase Agreement, dated as of
    June 10, 2004, by and among the Registrant, Lexington
    Acquisition Corp. and Surebridge, Inc. is incorporated herein by
    reference to Exhibit 2.2 to the Registrants Current
    Report on
    Form 8-K
    dated June 10, 2004 (File
    No. 000-27597).2
.9

Asset Purchase Agreement, dated as of July 29, 2005, by and
    among the Registrant, Lexington Acquisition Corp. and Navint
    Consulting, LLC. is incorporated herein by reference to
    Exhibit 99.1 of the Registrants Current Report on
    Form 8-K
    filed on August 3, 2005 (File
    No. 000-27597).2
.10

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
.11

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
.12

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).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).




---



##### Table of Contents



Exhibit No.

Description of Exhibit3
.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

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).3
.5

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).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).10
.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

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
.6

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
.7*

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
.8*

1999 Employee Stock Purchase 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
.9

Letter Agreement, dated October 10, 2002, between ClearBlue
    Technologies, Inc. and the Registrant, is incorporated herein by
    reference to Exhibits to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2002 (File
    No. 000-27597).10
.10*

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
.11

Assignment Agreement dated October 11, 2002 by and between
    the Registrant and Fir Tree Recovery Master Fund, LP and Fir
    Tree Value Partners, LDC is incorporated herein by reference to
    Exhibit 4 to the Schedule 13D filed by the Registrant
    on November 12, 2002 (File
    No. 005-56549).10
.12

Renunciation Letter dated October 11, 2002 from the
    Registrant to Interliant, Inc. is incorporated by reference to
    Exhibit 4 to the Schedule 13D filed by the Registrant
    on November 12, 2002 (File
    No. 005-56549).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.13

Statement of Work, dated as of January 1, 2003, describing
    the services to be provided to ClearBlue Technologies, Inc. by
    the Registrant under the Outsourcing Agreement, dated as of
    January 1, 2003, by and between ClearBlue Technologies,
    Inc. 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
.14

Loan and Security Agreement, dated as of January 3, 2003,
    by and between ClearBlue Technologies, Inc. as Lender and the
    Registrant as Borrower, is incorporated herein by reference to
    Exhibits to the Registrants Quarterly Report of
    Form 10-Q
    for the fiscal quarter ended January 31, 2003 (File
    No. 000-27597).10
.15

Loan and Security Agreement, dated as of January 3, 2003,
    by and between ClearBlue Technologies, Inc. as Borrower and the
    Registrant as Lender, is incorporated herein by reference to
    Exhibits to the Registrants Quarterly Report of
    Form 10-Q
    for the fiscal quarter ended January 31, 2003 (File
    No. 000-27597).10
.16

First Amendment to Loan and Security Agreement, dated
    June 2, 2003, by and between ClearBlue Technologies, Inc.
    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 April 30, 2003 (File
    No. 000-27597).10
.17*

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 of
    Form 10-Q
    for the fiscal quarter ended January 31, 2003 (File
    No. 000-27597).10
.18*

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
.19

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
.20

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
.21

Warrant, dated as of April 11, 2006, issued by the
    Registrant to SPCP Group, L.L.C. 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
.22

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
.23

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
.24

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).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).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.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 8-K
    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 Current Report on
    Form 8-K
    dated as of September 18, 2007 (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)10
.33

Registration Rights Agreement, dated May 27, 2003, by and
    between the Registrant and Silicon Valley Bank, is incorporated
    herein by reference to Exhibits to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended April 30, 2003 (File
    No. 000-27597).10
.34

Registration Rights Agreement, dated as of January 30,
    2004, by and between the Registrant and Silicon Valley Bank is
    incorporated herein by reference to Exhibit 10.2 to the
    Registrants Current Report on
    Form 8-K
    dated January 30, 2004 (File
    No. 000-27597).10
.35

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
.36

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).10
.37

Letter Agreement, dated December 11, 2002, between
    ClearBlue Technologies, Inc. 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, 2002 (File
    No. 000-27597).10
.38

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
    and Monique Cormier 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
.39

Professional Services Agreement between the New York State
    Department of Labor and AppliedTheory Corporation dated
    November 2, 2000, is incorporated herein by reference to
    Exhibit 10.56 of AppliedTheorys Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2000 (File
    No. 000-25759).10
.40

Amendment No. 1 to Professional Services Agreement, dated
    as of May 2, 2001, by and between the New York State
    Department of Labor and AppliedTheory Corporation is
    incorporated by reference to Exhibits to the Registrants
    Registration Statement on
    Form S-2
    filed on January 22, 2004 (File
    No. 333-112087).10
.41

Amendment No. 2 to Professional Services Agreement, dated
    as of October 5, 2001, by and between the New York State
    Department of Labor and AppliedTheory Corporation is
    incorporated by reference to Exhibits to the Registrants
    Registration Statement on
    Form S-2
    filed on January 22, 2004 (File
    No. 333-112087).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.42

Amendment No. 3 to Professional Services Agreement, dated
    as of July 24, 2002, by and between the New York State
    Department of Labor and AppliedTheory Corporation is
    incorporated by reference to Exhibits to the Registrants
    Registration Statement on
    Form S-2
    filed on January 22, 2004 (File
    No. 333-112087).10
.43

Amendment No. 4 to Professional Services Agreement, dated
    as of November 12, 2002, by and between the New York State
    Department of Labor and ClearBlue Technologies Management, Inc.
    (as assignee of AppliedTheory Corporation) is incorporated by
    reference to Exhibits to the Registrants Registration
    Statement on
    Form S-2
    filed on January 22, 2004 (File
    No. 333-112087).10
.44

Amendment No. 5 to Professional Services Agreement, dated
    as of March 25, 2003, by and between the New York State
    Department of Labor and ClearBlue Technologies Management, Inc.
    (as assignee of AppliedTheory Corporation) is incorporated by
    reference to Exhibits to the Registrants Registration
    Statement on
    Form S-2
    filed on January 22, 2004 (File
    No. 333-112087).10
.45

Amendment No. 6 to Professional Services Agreement, dated
    as of September 24, 2003, by and between the New York State
    Department of Labor and ClearBlue Technologies Management, Inc.
    (as assignee of AppliedTheory Corporation) 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
.46

Amendment No. 7 to Professional Services Agreement, dated
    as of January 5, 2004, by and between the New York State
    Department of Labor and ClearBlue Technologies Management, Inc.
    (as assignee of AppliedTheory Corporation) is incorporated by
    reference to Exhibit 10.6 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2004 (File
    No. 000-27597).10
.47

Amendment No. 8 to Professional Services Agreement, dated
    as of July 1, 2005, by and between the New York State
    Department of Labor and ClearBlue Technologies Management, Inc.
    (as assignee of AppliedTheory Corporation) is incorporated by
    reference to Exhibit 10.1 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended January 31, 2005 (File
    No. 000-27597).10
.48

Professional Services Agreement, dated as of August 16,
    2005, by and between the New York State Department of Labor and
    ClearBlue Technologies Management, Inc. is incorporated herein
    by reference to Exhibit 99.1 of the Registrants
    Current Report on
    Form 8-K
    filed on August 18, 2005 (File
    No. 000-27597).10
.49

Negotiable Promissory Note dated December 1, 2003 issued by
    the Registrant to U.S. Managers Realty, Inc. is incorporated by
    reference to Exhibits to the Registrants Registration
    Statement on
    Form S-2
    filed on January 22, 2004 (File
    No. 333-112087).10
.50

Negotiable Promissory Note dated December 23, 2003 issued
    by the Registrant to U.S. Managers Realty, Inc. is incorporated
    by reference to Exhibits to the Registrants Registration
    Statement on
    Form S-2
    filed on January 22, 2004 (File
    No. 333-112087).10
.51

Promissory Note dated June 13, 2002 issued by ClearBlue
    Technologies Management, Inc. to AppliedTheory Corporation is
    incorporated by reference to Exhibits to the Registrants
    Registration Statement on
    Form S-2
    filed on January 22, 2004 (File
    No. 333-112087).10
.52

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
.53

Registration Rights Agreement, dated June 10, 2004, by and
    between the Registrant and Surebridge, Inc. is incorporated
    herein by reference to Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    dated June 10, 2004 (File
    No. 000-27597).10
.54

First Amendment to the Registration Rights Agreement, dated June
    2006, by and between the Registrant and Waythere, Inc. is
    incorporated by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended October 31, 2006 (File
    No. 000-27597).10
.55

Settlement Agreement and Mutual General Release, dated as of
    January 13, 2005, by and among the Registrant, Atlantic
    Investors, LLC, Arthur P. Becker, Andrew Ruhan, Gabriel Ruhan
    and Convergence Associates, Inc., as agent for substantially all
    of the former Avasta shareholders, is incorporated herein by
    reference to Exhibit 10.1 to the Registrants Current
    Report on
    Form 8-K
    filed on February 10, 2005 (File
    No. 000-27597).10
.56*

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).




---



##### Table of Contents



Exhibit No.

Description of Exhibit10
.57*

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
.58*

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
.59

Agreement and Acknowledgement, dated October 19, 2005, by
    and among the Registrant, Waythere, Inc., ClearBlue Technologies
    Management, Inc., Avasta, Inc., Conxion Corporation, Intrepid
    Acquisition Corp. and Lexington Acquisition Corp. is
    incorporated herein by reference to Exhibit 10.63 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended July 31, 2005 (File
    No. 000-27597).10
.60*

Employment Offer Letter, dated August 12, 2005, between the
    Registrant and Monique Cormier is incorporated herein by
    reference to Exhibit 10.64 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended July 31, 2005 (File
    No. 000-27597).10
.61*

Separation Agreement, dated as of April 3, 2006, by and
    between the Registrant and Monique Cormier is incorporated
    herein by reference to Exhibit 99.3 to the
    Registrants Current Report on
    Form 8-K
    dated April 6, 2006 (File
    No. 000-27597).10
.62*

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
.63*

Summary Regarding Director Compensation 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, 2005 (File
    No. 000-27597).10
.64*

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
.65*

2007 Bonus Letter, dated October 24, 2006, by and between
    the Registrant and Arthur Becker is incorporated herein by
    reference to Exhibit 10.71 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended July 31, 2006 (File
    No. 000-27597).10
.66*

2007 Bonus Letter, dated October 24, 2006, by and between
    the Registrant and Monique Cormier is incorporated herein by
    reference to Exhibit 10.73 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended July 31, 2006 (File
    No. 000-27597).14


Code of Business Conduct and Ethics is incorporated herein by
    reference to Exhibit 14 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended July 31, 2005 (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 required
    to be filed as an Exhibit to this Annual Report on
    Form 10-K.




---



##### 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,
    2007 and 2006


F-3Consolidated Statements of Operations for the
    years ended July 31, 2007, 2006 and 2005


F-4Consolidated Statements of Changes in
    Stockholders Equity (Deficit) for the years ended
    July 31, 2007, 2006 and 2005


F-5Consolidated Statements of Cash Flows for the
    years ended July 31, 2007, 2006 and 2005


F-6Notes to Consolidated Financial Statements


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


F-36Financial Statement Schedule II 
    Valuation and Qualifying Accounts


F-37  F-1




---



##### Table of Contents



REPORT
    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                  F-2




---



##### Table of Contents



NAVISITE,
    INC.
  CONSOLIDATED BALANCE SHEETS
  July 31,2007


2006(In thousands, except par value)ASSETSCurrent assets:Cash and cash equivalents

$
11,701


$
3,360Accounts receivable, less allowance for doubtful accounts of
    $781 and $1,944 at July 31, 2007 and 2006, respectively


15,051



11,872Due from related party






30Unbilled accounts receivable


920



430Prepaid expenses and other current assets


15,975



8,804Total current assets


43,647



24,496Property and equipment, net


15,841



14,914Customer lists, net of accumulated amortization


7,755



11,687Goodwill


43,159



43,159Other assets


4,158



7,214Restricted cash


1,684



939Total assets

$
116,244


$
102,409LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Notes payable to the AppliedTheory Estate

$
6,000


$
6,000Notes payable, current portion


1,063



2,115Capital lease obligations, current portion


1,829



2,081Accounts payable


3,913



5,338Accrued expenses


12,933



11,459Accrued interest


1,698



913Accrued lease abandonment costs, current portion


863



1,360Deferred revenue


3,720



2,632Deferred other income and customer deposits


1,017



1,670Total current liabilities


33,036



33,568Capital lease obligations, less current portion


1,030



741Accrued lease abandonment costs, less current portion


645



1,628Deferred tax liabilities


3,685



2,512Other long-term liabilities


2,612



3,258Note payable to related party






3,000Notes payable, less current portion


89,100



59,678Total liabilities


130,108



104,385Commitments and contingencies (Note 13)Stockholders equity (deficit):Preferred stock, $0.01 par value; Authorized
    5,000 shares; Issued and outstanding: no shares at
    July 31, 2007 and 2006






Common stock, $0.01 par value; Authorized
    395,000 shares; Issued and outstanding: 33,506 and 28,959
    at July 31, 2007 and 2006, respectively


335



290Accumulated other comprehensive income


381



203Additional paid-in capital


481,199



467,400Accumulated deficit


(495,779
)


(469,869
)Total stockholders equity (deficit)


(13,864
)


(1,976
)Total liabilities and stockholders equity (deficit)

$
116,244


$
102,409    F-3




---



##### Table of Contents



NAVISITE,
    INC.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Years Ended July 31,2007


2006


2005(In thousands, except per share data)Revenue, net

$
125,860


$
108,844


$
109,731Revenue, related parties


322



243



132Total revenue


126,182



109,087



109,863Cost of revenue (includes stock-based compensation expense under
    SFAS 123R of $1,342, $1,024, $0 for fiscal years ended
    July 31, 2007, 2006 and 2005, respectively)


85,196



75,064



80,227Impairment, restructuring and other, net










383Total cost of revenue


85,196



75,064



80,610Gross profit


40,986



34,023



29,253Operating expenses:Selling and marketing (includes stock-based compensation expense
    under SFAS 123R of $570, $346, $0 for fiscal years ended
    July 31, 2007, 2006 and 2005, respectively)


16,924



14,756



12,993General and administrative (includes stock-based compensation
    expense under SFAS 123R of $1,784, $2,988, $0 for fiscal
    years ended July 31, 2007, 2006 and 2005, respectively)


22,043



21,787



23,600Impairment, restructuring and other, net


(231
)


1,373



2,662Total operating expenses


38,736



37,916



39,255Income (loss) from operations


2,250



(3,893
)


(10,002
)Other income (expense):Interest income


337



283



61Interest expense


(12,476
)


(9,585
)


(7,590
)Loss on debt extinguishment


(15,712
)






Other income, net


864



437



2,785Loss before income tax expense


(24,737
)


(12,758
)


(14,746
)Income tax expense


(1,173
)


(1,173
)


(1,338
)Net loss

$
(25,910
)

$
(13,931
)

$
(16,084
)Basic and diluted net loss per common share

$
(0.85
)

$
(0.49
)

$
(0.57
)Basic and diluted weighted average number of common shares
    outstanding


30,512



28,601



28,202    F-4




---



##### Table of Contents



NAVISITE,
    INC.
  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
    (DEFICIT)
  AccumulatedOther


Additional





StockholdersCommon Stock


Deferred


Comprehensive


Paid-in


Accumulated


EquityShares


Amount


Compensation


Income


Capital


Deficit


(Deficit)(In thousands)Balance at July 31, 2004


27,924


$
279


$
(1,514
)

$
15


$
452,156


$
(439,854
)

$
11,082Exercise of common stock options


35



1











88







89Issuance of common stock related to Avasta arbitration settlement


522



5











1,325







1,330Issuance of restricted stock


7















6







6Forfeiture of restricted stock


(1
)






















Forfeiture of deferred stock-based compensation










122







(122
)






Stock compensation and amortization of deferred stock-based
    compensation










759







5







764Currency translation adjustment














141











141Net loss






















(16,084
)


(16,084
)Balance at July 31, 2005


28,487



285



(633
)


156



453,458



(455,938
)


(2,672
)Exercise of common stock options


472



5











1,116







1,121Issuance of stock warrants to Silver Point Finance


















9,101







9,101Stock compensation and amortization of deferred stock-based
    compensation










633







3,725







4,358Currency translation adjustment














47











47Net loss






















(13,931
)


(13,931
)Balance at July 31, 2006


28,959



290



0



203



467,400



(469,869
)


(1,976
)Exercise of common stock options


1,442



14











4,034







4,048Exercise of common stock purchase warrants


1,730



17



















17Conversion of note payable


1,375



14











3,850







3,864Issuance of common stock purchase warrants


















2,219







2,219Stock compensation and amortization of deferred stock-based
    compensation


















3,696







3,696Currency translation adjustment














178











178Net loss






















(25,910
)


(25,910
)Balance at July 31, 2007


33,506


$
335


$
0


$
381


$
481,199


$
(495,779
)

$
(13,864
)    F-5




---



##### Table of Contents



NAVISITE,
    INC.
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  Years Ended July 31,2007


2006


2005(Restated)(In thousands)Cash flows from operating activities:Net loss

$
(25,910
)

$
(13,931
)

$
(16,084
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Depreciation and amortization


13,684



12,791



14,684Mark to market for interest rate cap


106



110



Deferred income tax expense


1,173



1,174



1,338Impairment of long-lived assets










1,820(Gain) loss on disposal of assets


(11
)


(17
)


(17
)Avasta settlement in common stock










490Gain on settlements






(38
)


(65
)Gain on sale of MBS practice










(2,499
)Impairment costs (recoveries) associated with abandoned leases


(231
)


1,373



1,226Amortization of warrants


1,907



657



107Non-cash stock compensation


3,696



4,358



769Provision for bad debts


36



51



2,288Loss on debt extinguishment


15,712







Changes in operating assets and liabilities, net of impact of
    acquisitionsAccounts receivable


(3,215
)


(1,235
)


3,364Due from related parties


30



71



Unbilled accounts receivable


(490
)


(67
)


1,491Prepaid expenses and other current assets


(608
)


902



1,404Other assets


1,365



945



369Accounts payable


(1,710
)


(1,949
)


1,399Deferred other income and customer deposits


(653
)


956



42Other long-term liabilities


(165
)


1,795



(45
)Accrued expenses and deferred revenue


2,198



(6,526
)


(5,477
)Net cash provided by operating activities


6,914



1,420



6,604Cash flows from investing activities:Purchase of property and equipment


(7,934
)


(5,772
)


(4,790
)Proceeds from the sale of equipment


11



17



434Proceeds from the sale of MBS practice










3,449Release of (transfer to) restricted cash


(7,986
)


(6,335
)


607Net cash used for investing activities


(15,909
)


(12,090
)


(300
)Cash flows from financing activities:Proceeds from exercise of stock options


4,048



1,121



89Proceeds from exercise of warrants


17







Proceeds from notes payable


95,517



70,436



1,003Repayment of notes payable


(78,074
)


(2,340
)


(1,614
)Repayment of modified accounts receivable line






(20,400
)


Payment under note payable to Waythere, Inc. (formerly
    Surebridge)






(34,611
)


(800
)Payments on capital lease obligations


(2,631
)


(2,127
)


(1,361
)Debt issuance costs


(1,541
)


(4,865
)


Net cash provided by (used for) financing activities


17,336



7,214



(2,683
)Net increase (decrease) in cash


8,341



(3,456
)


3,621Cash and cash equivalents, beginning of year


3,360



6,816



3,195Cash and cash equivalents, end of year

$
11,701


$
3,360


$
6,816Supplemental disclosure of cash flow information:Cash paid for interest

$
7,709


$
11,540


$
3,020Supplemental disclosure of non-cash transactionsEquipment purchased under capital leases


2,668



1,868



296Conversion of long-term debt to common stock

$
3,864


$



$
    F-6




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  (1)
    Description
    of Business    (2)
    Restatement  Form 10-K,
  As OriginallyStatement of Cash Flows Caption

Reported


Adjustment


As Restated(in thousands)Cash flows from operating activitiesPrepaid expenses and other current assets

$
(2,026
)

$
2,928


$
902Other assets


(957
)


1,902



945Net cash provided by (used for) operating activities


(3,410
)


4,830



1,420Cash flows from investing activities:Release of (transfer to) restricted cash






(6,335
)


(6,335
)Net cash used for investing activities


(5,755
)


(6,335
)


(12,090
)Cash flows from financing activities:Release of  (transfer to) restricted cash


(6,370
)


6,370



Debt issuance costs






(4,865
)


(4,865
)Net cash provided by financing activities


5,709



1,505



7,214Net decrease in cash


(3,456
)






(3,456
)Cash and cash equivalents, end of year

$
3,360


$



$
3,360  F-7




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     As OriginallyStatement of Cash Flows Caption

Reported


Adjustment


As Restated(in thousands)Cash flows from operating activities:Prepaid expenses and other current assets

$
(2,222
)

$
2,906


$
684Long term assets


(873
)


1,845



972Net cash provided by (used for) operating activities


(7,713
)


4,751



(2,962
)Cash flows from investing activities:Release of (transfer to) restricted cash






(6,365
)


(6,365
)Net cash used for investing activities


(4,327
)


(6,365
)


(10,692
)Cash flows from financing activities:Restricted cash


(6,400
)


6,400



Debt issuance costs






(4,786
)


(4,786
)Net cash provided by financing activities


5,956



1,614



7,570Net decrease in cash


(6,084
)






(6,084
)Cash and cash equivalents, end of period

$
732


$



$
732          F-8




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (3)
    Summary
    of Significant Accounting Policies  (a)
    Basis
    of Presentation and Background    
    In December 2002, we acquired all of the issued and outstanding
    stock of ClearBlue Technologies Management, Inc., or CBTM, a
    subsidiary of CBT, which previously had acquired assets from the
    bankrupt estate of AppliedTheory Corporation related to
    application management and application hosting services. This
    acquisition added application management and development
    capabilities to our managed application services.
    In February 2003, we acquired Avasta, Inc., a provider of
    application management services, adding automated application
    and device monitoring software capabilities to our managed
    application services.
    In April 2003, we acquired Conxion Corporation, a provider of
    application hosting, content and electronic software
    distribution and security services. This acquisition added
    proprietary content delivery software and related network
    agreements to our managed application services and managed
    infrastructure services.
    In May 2003, we acquired assets of Interliant, Inc. related to
    managed messaging, application hosting and application
    development services. This acquisition added messaging-specific
    services and capabilities and IBM Lotus Domino expertise, and
    formed the core of our managed messaging services.
    In August 2003, we acquired assets of CBT related to
    co-location, bandwidth, security and disaster recovery services,
    enhancing our managed infrastructure services and adding
    physical plant assets. Specifically, we acquired all of the
    outstanding shares of six wholly-owned subsidiaries of CBT with
    data centers located in Chicago, Illinois; Las Vegas, Nevada;
    Los Angeles, California; Milwaukee, Wisconsin; Oakbrook,
    Illinois; and Vienna, Virginia and assumed the revenue and
    expenses of four additional wholly-owned subsidiaries of CBT
    with data centers located in Dallas, Texas; New York, New York;
    San Francisco, California; and Santa Clara,
    California, which four entities we later acquired.
    In June 2004, we completed the acquisition of substantially all
    of the assets and liabilities of Surebridge, Inc., a privately
    held provider of managed application services for mid-market
    companies. This acquisition broadened our managed application
    services, particularly in the areas of financial management,
    supply chain management, human resources management and customer
    relationship management.  (b)
    Principles
    of Consolidation    (c)
    Use of
    Estimates   F-9




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (d)
    Cash
    and Cash Equivalents and Restricted Cash      (e)
    Revenue
    Recognition      (f)
    Concentration
    of Credit Risk    (g)
    Comprehensive
    Income (Loss)   F-10




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (h)
    Property
    and Equipment      (i)
    Long-lived
    Assets, Goodwill and Other Intangibles  Accounting for the Impairment or Disposal of Long-Lived
    Assets
  Goodwill and Other Intangible
    Assets
  (j)
    Income
    Taxes  Accounting for Income Taxes
  (k)
    Derivative
    Financial Instruments   F-11




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (l)
    Lease
    Expense  Accounting
    for Leases
  (m)
    Stock-Based
    Compensation Plans  Share-Based Payment, an
    amendment of FASB Statements Nos. 123 and 95,
      Fiscal 2005(In thousands, exceptper share data)Net Loss, as reported

$
(16,084
)Add: Stock-based employee compensation expense included in
    reported net loss

$
769Deduct: Total stock-based compensation expense determined under
    fair value based method

$
(5,651
)Net Loss, as adjusted

$
(20,966
)Net Loss per common share:Basic and diluted, as reported

$
(0.57
)Basic and diluted, as adjusted

$
(0.74
)  F-12




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fiscal 2005Risk-free interest rate


3.19
%Expected volatility


124.95
%Expected life (years)


2.12Weighted average fair value of options granted during the period

$
1.78     lock-up
        Fiscal


Fiscal2007


2006Risk-free interest rate


4.62
%


4.55
%Expected volatility


99.03
%


107.04
%Expected life (years)


3.00



2.51Weighted average fair value of options granted

$
3.19


$
1.27  F-13




---



##### Table of Contents



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


AverageNumber


Average


Remaining


Aggregateof


Exercise


Contractual


IntrinsicShares


Price


Term


Value(In thousands)Options outstanding, beginning of year


6,590,793


$
2.82







Granted


2,335,210


$
5.19







Exercised


(1,441,551
)

$
2.81






$
5,358Forfeited or Expired


(828,532
)

$
3.08







Options Outstanding, July 31, 2007


6,655,920


$
3.62



8.01


$
32,218Options Exercisable, July 31, 2007


3,919,071


$
3.13



7.29


$
21,033     WeightedWeighted


AverageNumber


Average


Remaining


Aggregateof


Exercise


Contractual


IntrinsicShares


Price


Term


Value(In thousands)Options outstanding, beginning of year


6,086,655


$
3.26







Granted


2,185,825


$
1.93







Exercised


(471,342
)

$
2.38






$
859Forfeited or Expired


(1,210,345
)

$
3.62







Options Outstanding, July 31, 2006


6,590,793


$
2.82



8.36


$
9,608Options Exercisable, July 31, 2006


3,464,160


$
3.33



7.81


$
4,002     (n)
    Historical
    and Unaudited Pro Forma Basic and Diluted Net Loss Per Common
    Share      (o)
    Segment
    Reporting   F-14




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (p)
    Recent
    Accounting Pronouncements  The Fair Value Option for Financial Assets and
    Liabilities
    Fair Value Measurements
  EITF 06-3, How Taxes Collected from Customers and Remitted to
    Governmental Authorities Should Be Presented in the Income
    Statement EITF 06-3 EITF 06-3 EITF 06-3
  Accounting for Uncertainty in Income Taxes
  Accounting for Certain Hybrid Financial
    Instruments  an amendment of FASB Statements
    No. 133 and 140 special-purpose
 F-15




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (q)
    Foreign
    Currency    (r)
    Reclassifications    (4)
    Impairment
    of Long-Lived Assets         F-16




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (5)
    Property
    and Equipment    July 31,2007


2006(In thousands)Office furniture and equipment

$
3,416


$
3,303Computer equipment


53,393



45,075Software licenses


12,868



11,216Leasehold improvements


10,824



9,95880,501



69,552Less: Accumulated depreciation and amortization


(64,660
)


(54,638
)Property and equipment, net

$
15,841


$
14,914       July 31,2007


2006(In thousands)Cost

$
11,173


$
8,505Accumulated depreciation and amortization


(8,458
)


(7,082
)$
2,715


$
1,423   (6)
    Intangible
    Assets    July 31,2007


2006(In thousands)Gross carrying amount

$
29,791


$
29,791Less: Accumulated amortization


(22,036
)


(18,104
)Customer lists, net

$
7,755


$
11,687      F-17




---



##### Table of Contents



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

(In thousands)2008

$
3,0442009

$
1,8682010

$
1,0052011

$
9882012

$
850   (7)
    Goodwill    2007


2006


2005(In thousands)Goodwill as of August 1

$
43,159


$
43,159


$
45,920Goodwill acquired










Adjustments to purchase price allocation










(2,761
)Goodwill as of July 31

$
43,159


$
43,159


$
43,159     (8)
    Acquisition    (9)
    Investment
    in Debt Securities     F-18




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (10)
    Accrued
    Expenses    July 31,2007


2006(In thousands)Accrued payroll, benefits and commissions

$
6,311


$
4,331Accrued legal


220



412Accrued accounts payable


3,633



2,905Accrued contract termination fees






634Accrued sales/use, property and miscellaneous taxes


889



1,070Accrued other


1,880



2,107$
12,933


$
11,459   (11)
    Debt    July 31,


July 31,2007


2006(In thousands)The Term Loan, net

$
90,000


$
61,345Notes payable to the AppliedTheory Estate


6,000



6,000Notes payable to the Atlantic Investors






3,000Notes payable to landlord






319Other notes payable


163



129Total


96,163



70,793Less current portion


7,063



8,115Long-term debt

$
89,100


$
62,678   (a)
    Senior
    Secured Credit Facility     F-19




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
               F-20




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (b)
    Term
    Loans and Revolving Credit Facilities           F-21




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (c)
    Note
    Payable to Atlantic Investors, LLC        (d)
    Revolving
    Credit Facility with Atlantic Investors, LLC      (e)
    Notes
    Payable to the AppliedTheory Estate   F-22




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (f)
    Notes
    Payable to Landlord      (12)
    Derivative
    Instruments      (13)
    Commitments
    and Contingencies  (a)
    Leases  Abandoned Leased Facilities.
 F-23




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                 F-24




---



##### Table of Contents



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


Payments, LessLease Abandonment

Balance at





and Other


Accretion of


Balance atCosts for:

July 31, 2006


Expense


Adjustments


Interest


July 31, 2007Andover, MA

$
587


$



$



$
(181
)

$
406Chicago, IL


786



(249
)






(128
)


409Houston, TX


880











(399
)


481Syracuse, NY


418



56







(308
)


166Syracuse, NY


75











(29
)


46San Jose, CA


211



(38
)






(173
)


Atlanta, GA


31







(18
)


(13
)


$
2,988


$
(231
)

$
(18
)

$
(1,231
)

$
1,508     Less than














AfterDescription

Total


1 Year


Year 2


Year 3


Year 4


Year 5


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

$
96,163


$
7,063


$
900


$
900


$
900


$
900


$
85,500Interest on debt (d)


46,798



8,680



7,964



7,883



7,803



7,722



6,746Capital leases


3,229



2,083



826



238



51



31



Bandwidth commitments


2,432



1,712



461



259











Property leases (e)(f)


62,541



10,179



8,876



6,404



4,901



5,034



27,147$
211,163


$
29,717


$
19,027


$
15,684


$
13,655


$
13,687


$
119,393     (d)
    
    Interest on debt assumes Libor is fixed at 5.36%.(e)
    
    Amounts exclude certain common area maintenance and other
    property charges that are not included within the lease payment.(f)
    
    On February 9, 2005, the Company entered into an Assignment
    and Assumption Agreement with a Las Vegas-based company, whereby
    this company purchased from us the right to use
    29,000 square feet in our Las Vegas data center, along with
    the infrastructure and equipment associated with this space. In
    exchange, we received an initial payment of $600,000 and were to
    receive $55,682 per month over two years. On May 31, 2006,
    we received full payment for the remaining unpaid balance. This
    agreement shifts the responsibility for F-25




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  management of the data center and its employees, along with the
    maintenance of the facilitys infrastructure, to this Las
    Vegas-based company. Pursuant to this agreement, we have
    subleased back 2,000 square feet of space, allowing us to
    continue servicing our existing customer base in this market.
    Commitments related to property leases include an amount related
    to the 2,000 square feet sublease.      (b)
    Legal
    Matters  IPO
    Securities Litigation
  successor-in-interest successor-in-interest Rule 10b-5 and/or
     F-26




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (14)
    Income
    Taxes    July 31, 2007


July 31, 2006


July 31, 2005Current


Deferred


Total


Current


Deferred


Total


Current


Deferred


Total(In thousands)Federal

$



$
868


$
868


$



$
868


$
868


$




991



991Foreign


































State






305



305







305



305







347



347$



$
1,173


$
1,173


$



$
1,173


$
1,173


$



$
1,338



1,338     July 31,


July 31,


July 31,2007


2006


2005(In thousands)Computed expected tax expense (benefit)

$
(8,411
)

$
(4,338
)

$
(5,014
)State taxes, net of federal income tax benefit


201



201



229Losses not benefited


9,383



5,310



6,123Total

$
1,173


$
1,173


$
1,338  F-27




---



##### Table of Contents



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


July 31,2007


2006(In thousands)Deferred tax assets:Accruals and reserves

$
8,604


$
7,745Loss carryforwards


53,186



44,732Depreciation and amortization


23,491



24,327Total deferred tax assets

$
85,281


$
76,804Less: Valuation allowance


(85,281
)


(76,804
)Deferred tax liabilities:Amortization of tax goodwill

$
(3,685
)

$
(2,512
)Net deferred assets/(liabilities)

$
(3,685
)

$
(2,512
)              F-28




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (15)
    Stockholders
    Equity  Issuance
    of Common Stock
  paid-in-capital
         F-29




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          (16)
    Stock
    Option Plans  (a)
    NaviSite
    1998 Equity Incentive Plan   F-30




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Weighted





Weighted





WeightedNumber


Average


Number


Average


Number


Averageof


Exercise


of


Exercise


of


ExerciseShares


Price


Shares


Price


Shares


PriceOptions outstanding, beginning of year


134,998


$
2.69



201,158


$
5.76



232,053


$
52.59Granted





$















$
Exercised


(13,670
)

$
3.83



(8,167
)


3.80






$
Cancelled


(1,262
)

$
3.88



(57,993
)

$
13.17



(30,895
)

$
357.49Options outstanding, end of year


120,066


$
2.55



134,998


$
2.69



201,158


$
5.76Options exercisable, end of year


120,066


$
2.55



134,919


$
2.69



200,720


$
5.76Options available for grant, end of year


















   Options OutstandingWeighted





Options ExercisableAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Life (Years)


Price


Outstanding


Price$ 0.01 - 2.55


120,000



5.94


$
2.55



120,000


$
2.552.56 - 3.30


66



0.07


$
3.30



66


$
3.30120,066











120,066   (b)
    1999
    Employee Stock Purchase Plan      (c)
    NaviSite
    2000 Stock Option Plan   F-31




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Weighted





Weighted





WeightedAverage


Number


Average


Number


Average


NumberExercise


of


Exercise


of


Exercise


ofPrice


Shares


Price


Shares


Price


SharesOptions outstanding, beginning of year









$
128.44



2,562


$
128.44



3,708Granted






















Exercised






















Cancelled










128.44



(2,562
)


128.44



(1,146
)Options outstanding, end of year






















2,562Options exercisable, end of year






















2,562Options available for grant, end of year






















   (d)
    NaviSite
    2003 Stock Incentive Plan         F-32




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006


2005Weighted





Weighted





WeightedAverage





Average





AverageExercise


Number of


Exercise


Number of


Exercise


Number ofPrice


Shares


Price


Shares


Price


SharesOptions outstanding, beginning of year

$
2.77



6,453,130


$
3.06



5,880,270


$
3.85



3,492,287Granted

$
5.19



2,335,210


$
1.93



2,185,825


$
2.70



4,898,275Exercised

$
2.80



(1,427,881
)

$
2.35



(463,175
)

$
2.55



(34,831
)Cancelled

$
3.08



(827,270
)

$
2.86



(1,149,790
)

$
3.47



(2,475,461
)Options outstanding, end of year

$
3.59



6,533,189


$
2.77



6,453,130


$
3.06



5,880,270Options exercisable, end of year

$
3.05



3,796,340


$
3.25



3,326,576


$
3.68



2,379,088Options available for grant, end of year






3,192,845







4,700,785







736,820   Options OutstandingWeighted





Options ExercisableAverage


Weighted





WeightedRemaining


Average





AverageNumber


Contractual


Exercise


Number


ExerciseRange of Exercise Prices

Outstanding


Life (Years)


Price


Outstanding


Price$0.01 - 1.45


656,488



8.37


$
1.38



476,986


$
1.391.46 - 1.55


196,689



8.42


$
1.50



156,436


$
1.491.56 - 1.58


985,418



7.69


$
1.58



714,068


$
1.581.59 - 2.55


1,184,247



6.92


$
2.25



942,380


$
2.342.56 - 4.00


892,336



8.91


$
3.73



296,113


$
3.634.01 - 5.28


561,361



8.01


$
4.43



352,296


$
4.455.29 - 5.41


800,000



6.50


$
5.41



800,000


$
5.415.42 - 6.37


700,000



9.52


$
5.74



29,374


$
5.806.38 - 8.60


540,650



9.61


$
6.87



28,687


$
7.918.61 - 8.80


16,000



9.98


$
8.80



6,533,189











3,796,340   (e)
    Other
    Stock Option Grants    (17)
    Related
    Party Transactions   F-33




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        (18)
    Subsequent
    Events (Unaudited)        payment-in-kind
   F-34




---



##### Table of Contents



NAVISITE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    EITF 96-19
  (19)
    Selected
    Quarterly Financial Data (Unaudited)    Fiscal Year Ended July 31, 2007Q1


Q2


Q3


Q4(In thousands)Revenue

$
28,540


$
30,197


$
32,748


$
34,697Gross profit


9,297



9,651



10,834



11,204Net loss


(2,643
)


(3,816
)


(2,359
)


(17,092
)Net loss per common share (a)

$
(0.09
)

$
(0.13
)

$
(0.08
)

$
(0.85
)   Fiscal Year Ended July 31, 2006Q1


Q2


Q3


Q4(In thousands)Revenue

$
25,440


$
26,305


$
27,923


$
29,419Gross profit


7,763



7,612



8,798



9,850Net loss


(3,470
)


(3,968
)


(3,448
)


(3,045
)Net loss per common share (a)

$
(0.12
)

$
(0.14
)

$
(0.12
)

$
(0.11
)   Fiscal Year Ended July 31, 2005Q1


Q2


Q3


Q4(In thousands)Revenue

$
28,894


$
28,381


$
26,796


$
25,792Gross profit


6,074



7,713



7,534



7,932Net loss


(6,576
)


(4,632
)


(3,033
)


(1,843
)Net loss per common share (a)

$
(0.24
)

$
(0.17
)

$
(0.11
)

$
(0.06
)     (a)
    
    Net loss per common share is computed independently for each of
    the quarters based on the weighted average number of shares
    outstanding during the quarter. Therefore, the aggregate per
    share amount for the quarters may not equal the amount
    calculated for the full year. F-35




---



##### Table of Contents



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




---



##### Table of Contents



NAVISITE,
    INC. FINANCIAL STATEMENT SCHEDULE II 
    VALUATION AND QUALIFYING ACCOUNTS
  Years Ended July 31, 2007, 2006, and 2005Balance at


Additions





Deductions


Balance atBeginning


Charged to





from


End ofof Year


Expense


Other


Reserve


Year(In thousands)Year ended July 31, 2005:Allowance for doubtful accounts

$
2,498


$
2,288


$



$
(1,899
)

$
2,887Year ended July 31, 2006:Allowance for doubtful accounts

$
2,887


$
51


$



$
(994
)

$
1,944Year ended July 31, 2007:Allowance for doubtful accounts

$
1,944


$
36


$



$
(1,199
)

$
781  F-37