**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-KSB**





þ
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





**For
      the fiscal year ended June 30, 2007**





o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**










(Name
      of
      small business issuer in its charter)





**Delaware**


**33-0954381**





(State
      of
      incorporation)


(Employer
      Identification No.)





**590
      Madison Avenue, 13** **th** **Floor, New York, New York 10022**





(Address
      of principal executive offices)


(Zip
      Code)





**(212)
      398-1780**





(Issuer’s
      telephone number, including area code)





Securities
      Registered Pursuant to Section 12(b) of the Act: None.





Securities
      Registered Pursuant to Section 12(g) of the Act: Common stock, $0.001 par value
      per share





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act.  ̈





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. þ Yes  ̈ No





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB.  ̃





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  ̈ Yes þ No





Issuer’s
      revenues for the year ended June 30, 2007 were approximately $10.1
      million.





The
      aggregate market value of the registrant’s voting common stock held by
      non-affiliates of the registrant on September 21, 2007 (based upon the per
      share
      closing sale price of $5.74 on such date) was approximately $115. 5 million.





The
      number of shares outstanding of the issuer’s common stock, $0.001 par value, as
      of the latest practicable date: 25,885,451 shares as of September 21,
      2007.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Part
      III
      of this Annual Report on Form 10-KSB incorporates by reference portions of
      the
      registrant’s definitive proxy statement for its 2007 Annual Meeting of
      Stockholders to be filed with the Securities and Exchange Commission within
      120
      days after the close of the registrant’s fiscal year.




Transitional
      Small Business Disclosure Format (Check one):  ̈ Yes þ No











**TABLE
      OF CONTENTS**




**PART
                I**
            PageITEM
                1.
            DESCRIPTION
                OF BUSINESS
            9ITEM
                2.
            DESCRIPTION
                OF PROPERTY
            18ITEM
                3.
            LEGAL
                PROCEEDINGS
            19ITEM
                4.
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            19**PART
                II**ITEM
                5.
            MARKET
                FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
                ISSUER PURCHASES OF EQUITY SECURITIES
            20ITEM
                6.
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
            21ITEM
                7.
            FINANCIAL
                STATEMENTS
            26ITEM
                8.
            CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE
            26ITEM
                8A.
            CONTROLS
                AND PROCEDURES
            26ITEM
                8B.
            OTHER
                INFORMATION
            26**PART
                III**ITEM
                9.
            DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
            27ITEM
                10.
            EXECUTIVE
                COMPENSATION
            27ITEM
                11.
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            27ITEM
                12
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
                INDEPENDENCE
            27ITEM
                13
            EXHIBITS
            28ITEM
                14
            PRINCIPAL
                ACCOUNTANT FEES AND SERVICES
            29EXHIBIT
                INDEX
            31FINANCIAL
                STATEMENTS
            F-1










**SPECIAL
      NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS**




Except
      for historical information contained herein, this annual report on Form 10-KSB
      contains forward-looking statements within the meaning of Section 27A of the
      Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934,
      and
      the Private Securities Litigation Reform Act of 1995. This annual report on
      Form
      10-KSB includes statements regarding our plans, goals, strategies, intent,
      beliefs or current expectations. These statements are expressed in good faith
      and based upon a reasonable basis when made, but there can be no assurance
      that
      these expectations will be achieved or accomplished. Sentences in this document
      containing verbs such as “believe,” “plan,” “intend,” “anticipate,” “target,”
“estimate,” “expect,” and the like, and/or future-tense or conditional
      constructions (“will,” “may,” “could,” “should,” etc.) constitute
      forward-looking statements that involve risks and uncertainties. Items
      contemplating or making assumptions about, actual or potential future sales,
      market size, collaborations, and trends or operating results also constitute
      such forward-looking statements.




Although
      forward-looking statements in this annual report on Form 10-KSB reflect the
      good
      faith judgment of management, such statements can only be based on facts and
      factors currently known by management. Consequently, forward-looking statements
      are inherently subject to risks and uncertainties, and actual results and
      outcomes may differ materially from the results and outcomes discussed in,
      or
      anticipated by, the forward-looking statements. Readers are urged not to place
      undue reliance on these forward-looking statements, which speak only as of
      the
      date of this annual report on Form 10-KSB. We undertake no obligation to revise
      or update any forward-looking statements in order to reflect any event or
      circumstance that may arise after the date of this annual report on Form 10-KSB,
      other than as may be required by applicable law or regulation. Readers are
      urged
      to carefully review and consider the various disclosures made by us in the
      below
      listed risk factors, which attempt to advise interested parties of the risk
      factors that may affect our business, financial condition, results of operations
      and cash flows.




As
      used
      in this annual report, the terms “we,”
“us,”
“our,”
      or “the Company” means MRU Holdings, Inc.




**RISK
      FACTORS**




Investing
      in our common stock involves a high degree of risk. You should carefully
      consider the following risks and uncertainties described below in addition
      to
      the other information contained in this annual report on Form 10-KSB. If any
      of
      the following risks actually occur, our business, financial condition, or
      results of operations prospects and/or financial condition would likely suffer.
      If those events occurred, the trading price of our common stock would be valued
      accordingly.




**We
      have a history of losses and, because we expect our operating expenses to
      increase in the future, we may not be profitable in the near term, if
      ever.**




The
        Company has accumulated net operating loss deficits of $53.6 million through
        June 30, 2007. The fourth quarter of the 2007 fiscal year, in which the Company
        had net income of $0.8 million, was our first profitable quarter due to the
        securitization. There can be no assurance that we will generate net income
        for
        our stockholders on a consistent basis.




**We
      expect to generate a significant portion of our income from gains on the sale
      of
      our student loans to securitizations; our financial results and future growth
      would be adversely affected if we are unable to
      securitize.**





Securitization
      refers to the technique of pooling loans and selling them to a special purpose,
      bankruptcy remote entity, typically a trust, which issues securities backed
      by
      those loans. The Company completed its first securitization in June 2007, in
      which it recognized a gain of $16.2 million from the sale of $137.8 million
      of
      private student loans to a trust established by the Company. It is our intent
      to
      continue to securitize our student loans from time to time as sufficient volumes
      of loans are originated to efficiently execute such transactions. The amount
      of
      gain we will recognize from these securitizations will be affected by the
      timing, size and structure of the securitization transactions, as well as the
      composition of the loan pools to be securitized, the return expectations of
      investors and assumptions we make regarding loan portfolio performance,
      including defaults, recoveries, prepayments and the cost of funds. Because
      we
      expect the gain on sale of student loans to securitizations to comprise a
      significant portion of future income, the size and timing of such transactions
      will greatly affect our quarterly results. Until such time as we originate
      sufficient volume to efficiently securitize loans every quarter, our income
      will
      vary significantly from one quarter to the next depending upon whether a
      securitization is executed in a given quarter or not.





2


A
      number
      of factors could make securitization more difficult, more expensive or
      unavailable, including, but not limited to, financial results and losses,
      changes within our organization, specific events that have an adverse impact
      on
      our reputation, changes in the activities of our business partners, disruptions
      in the capital markets, specific events that have an adverse impact on the
      financial services industry, counter-party availability, changes affecting
      our
      assets, our corporate and regulatory structure, interest rate fluctuations,
      ratings agencies’ actions, general economic conditions and the legal,
      regulatory, accounting and tax environments governing our funding transactions.
      We are dependent on the securitization markets for the long-term financing
      of
      our student loans. If this market were to experience difficulties or if our
      asset quality were to deteriorate, we may be unable to securitize our student
      loans or to do so on favorable terms, including pricing. If we were unable
      to
      securitize our student loans on favorable terms, we would seek alternative
      funding sources to fund increases in student loans and meet our other liquidity
      needs. These may include selling the loans to other financial institutions
      or
      holding the loans on warehouse lines to term. If we were unable to find
      cost-effective and stable funding alternatives, our funding capabilities and
      liquidity would be negatively impacted and our cost of funds could increase,
      adversely affecting our results of operations, and our ability to grow would
      be
      limited.





**In
      connection with our recognition of revenue from securitization transactions,
      if
      the estimates we make, or the assumptions on which we rely, in preparing our
      financial statements prove inaccurate, our actual results may vary
      materially from those reflected in our financial statements** ***.***




In
        our
        current securitization, we have the right to receive any excess cash flow
        generated by the trust that is not needed to pay the trust’s liabilities. This
        right to future cash flow is referred to as a residual interest. We have
        recorded the residual as a receivable on our balance sheet at our estimate
        of
        its fair value. Because there are no quoted market prices for our residual
        receivable, accounting rules require that we use discounted cash flow
        modeling techniques and certain assumptions to estimate fair value. We have
        estimated the fair value initially and will estimate the fair value in each
        subsequent quarter and reflect the change in our estimate of fair value in
        the
        other comprehensive income component of stockholders’ equity for that period.
        Our key assumptions to estimate the fair value include prepayment and discount
        rates, interest rates and the expected defaults from the underlying securitized
        loan portfolio and the recoveries thereon. If the actual performance of the
        securitization trust varies from the key assumptions we use, the actual
        residuals that we receive from the trust could be significantly less than
        reflected in our current financial statements, and we may incur a material
        negative adjustment to our earnings in the period in which our assumptions
        change. In addition, our securitization yields, or our residuals from a new
        securitization transaction expressed as a percentage of the total principal
        and
        accrued interest securitized, realized on future securitized transactions
        could
        decrease if the actual performance of the securitization trust varies from
        the
        key assumptions we have used. In particular, economic, regulatory, competitive
        and other factors affecting prepayment, default and recovery rates on the
        underlying securitized loan portfolio, including full or partial prepayments
        and
        prepayments as a result of loan consolidation activity, could cause or
        contribute to differences between the actual performance of the securitization
        trusts and our key assumptions.
  Our
        residual in our securitization is subordinate to securities issued to investors
        by the trust and may fail to generate any cash flow for us if the
        securitized assets only generate enough cash flow to pay the debt
        holders.





**Our
      risk control and eligibility scoring system may have defects or turn out to
      be
      ineffective, which could materially and adversely affect our prospects,
      business, and results of operations.**




The
      proprietary system we use to score our students in determining their eligibility
      for and/or cost of financing and to control risk is based on our existing
      knowledge and available actuarial data and may be incomplete and/or inaccurate.
      If this system turns out to be ineffective, our prospects, business, financial
      condition, and results of operations could be materially and adversely
      affected.




**Our
      business could be adversely affected if our student loan servicers fail to
      provide adequate or timely services or if our relationship with a servicer
      terminates.**





All
      of
      our student loans are serviced by third-parties. This arrangement allows us
      to
      increase the volume of loans without incurring the overhead investment in
      servicing operations. Our reliance on external service providers for loan
      servicing subjects us to risks associated with inadequate or untimely services,
      such as inadequate notice of developments in prepayments, delinquencies and
      defaults. A substantial increase in these rates could adversely affect our
      ability to access profitably the securitization market and the value of our
      residual receivables. In addition, if our relationship with any third-party
      servicer terminates, we would need to transfer servicing to another third-party
      servicer of student loans, which could be time consuming and costly. In such
      event, our business could be adversely affected.





3


**Demand
      for our products may decrease.**




Demand
      for higher education financing may decrease. This may be as a result of a
      decrease in demand for higher education or increased affordability for higher
      education. This increased affordability may be the result of universities
      reducing costs, families having more funds available to pay for higher
      education, increases in the amount of availability of free financing such as
      scholarships or grants, or other factors unknown to us. Additionally, further
      government support of higher education through increased funding for students
      and tax or other incentives related to higher education may reduce the costs,
      increase the affordability and decrease the demand for our private student
      loan
      products.




**Our
      direct marketing initiative may not prove to be
      effective.**




Our
      primary marketing strategy is to target parents and students directly. We
      accomplish this principally through our website, www.MyRichUncle.com ,
      which
      provides an interactive forum for parents and students to learn about our
      products and services and to apply for them from us. There can be no assurance
      that the Internet will be an effective means of reaching our prospective
      customers, or that we will be able to effectively utilize any alternative means
      that may become available, or that our marketing plans will succeed in
      attracting customers.




Public
      relations are an important part of our marketing program and our effort to
      build
      our reputation and brand identity. As our products and services become better
      known, they may become less newsworthy, and we may receive less media coverage,
      or we may have to increase our public relations efforts and expenditures to
      maintain or increase the amount of media coverage we receive. We cannot assure
      you that media coverage will be accurate and/or positive. Inaccurate and/or
      negative representations of the Company in the media may have a material adverse
      effect on our financial condition and results of operations.




**Other
      sources of higher education financing may be preferred by
      borrowers.**




We
      compete with other options that students and families may have available to
      them
      to finance the costs of post-secondary education. Families and students may
      simply prefer other options. These options include, among others: home equity
      loans, prepaid tuition plans, 529 plans, education IRAs, and credit cards.
      There
      is no assurance that we will be able to compete successfully against other
      providers of funds, including but not limited to traditional and established
      student loan providers, credit card or mortgage lenders or any new forms of
      competition. If we are unable to compete effectively with these sources of
      funding, our business, financial condition, and results of operations will
      suffer and may require us to revise or abandon our business plan or seek to
      sell, curtail, or discontinue our business.




**We
      must be able to compete effectively with other providers of higher education
      financing products and services in order to succeed.**




The
      market for higher education finance is highly competitive, and if we are not
      able to compete effectively, our revenue and results of operations may be
      adversely affected. The loan origination market has a large number of
      competitors and is dominated by a number of large institutions, including Sallie
      Mae, Wells Fargo, Bank of America, JP Morgan Chase and Citibank. Most of our
      competitors have, among other competitive advantages, greater financial,
      technical and marketing resources, larger customer bases, greater name
      recognition and more established relationships than we have. Larger competitors
      with greater financial resources may be better able to respond to the need
      for
      technological changes, compete for skilled professionals, build upon
      efficiencies based on a larger volume of transactions, procure capital at a
      lower cost, fund internal growth and compete for market share generally. As
      to
      our alternative financing products and services where we hope to establish
      a
      niche, third parties may enter these markets and compete against us. If third
      parties choose to provide the range of services that we provide, pricing for
      our
      services may become more competitive, which could lower our profitability or
      eliminate profitability altogether.




**If
      we do not comply with applicable governmental regulations, our business may
      suffer.**




Our
      business operations and product offerings may be subject to various governmental
      regulations. We are in the process of ascertaining the applicability of various
      laws to us and our operations. If we become subject to additional government
      regulation, our compliance costs could increase significantly. Regulatory
      compliance activities could also divert our human and other resources from
      revenue-generating activities.




4


**Changes
      in the regulatory regime could impair our business** .




We
      operate in a heavily regulated industry and new laws and changes in existing
      laws could affect our business. The federal government and state governments
      regulate extensively the financial institutions and other entities that offer
      consumer finance products. The applicable laws and regulations are subject
      to
      change and generally are intended to benefit and protect borrowers rather than
      our stockholders or us. Failure to comply with government regulations could
      subject us to civil and criminal penalties and affect the value of our assets.
      We could also be required to indemnify our employees in connection with any
      expenses or liabilities that they may incur individually in connection with
      regulatory action against them. As a result, there could be a material adverse
      effect on our prospects, business, financial condition and our results of
      operations.





**If
      we violate applicable privacy laws our business could be materially adversely
      affected** .




The
      federal government and state governments have enacted fraud and abuse laws
      and
      laws to protect borrowers' privacy. Violations of these laws or regulations
      governing our operations or our third party business partners and our and their
      clients could result in the imposition of civil or criminal penalties, the
      cancellation of our contracts to provide services or exclusion from
      participating in education finance programs. These penalties or exclusions,
      were
      they to occur, would negatively impair our ability to operate our business.
      In
      some cases, such violations may also render the loan assets unenforceable.
      We
      could also have liability to consumers if we do not maintain their privacy,
      or
      if we do not abide by our own privacy policy and any such violations could
      damage our reputation and the value and goodwill of our brand name. Violations
      of these regulations could have a material adverse effect on our financial
      condition, business and results of operations.




**We
      may be unable to meet our capital requirements in the
      future** .




We
      may
      need additional capital in the future, which may not be available to us on
      reasonable terms or at all. The raising of additional capital may dilute your
      ownership in us. We may need to raise additional funds through public or private
      debt or equity financings in order to meet various objectives. Any additional
      capital raised through the sale of equity may dilute your ownership percentage
      in us. This could also result in a decrease in the fair market value of our
      equity securities because our assets would be owned by a larger pool of
      outstanding equity. The terms of securities we issue in future capital
      transactions may be more favorable to our new investors, and may include
      preferences, security interests in specific assets, superior voting rights
      and
      the issuance of warrants or other derivative securities, which may have a
      further dilutive effect. Furthermore, any additional debt or equity financing
      we
      may need may not be available on terms favorable to us, or at all. If we are
      unable to obtain required additional capital, we may be forced to curtail our
      growth plans or cut back our existing business and, further, we may not be
      able
      to continue operating if we do not generate sufficient revenues from operations
      we need to stay in business. We may incur substantial costs in pursuing future
      capital financing, including investment banking fees, legal fees, accounting
      fees, securities law compliance fees, printing and distribution expenses and
      other costs. We may also be required to recognize non-cash expenses in
      connection with certain securities we may issue, such as convertible notes
      and
      warrants, which will impact our financial statements.




**There
        are market, credit and liquidity risks associated with our business which
        could
        have a material adverse effect on us.**
 
 We
        believe that, due to recent disruptions in the credit markets precipitated
        by
        the subprime mortgage crisis, the cost of our credit facilities will likely
        increase upon any future renewal to reflect current market conditions. Although
        we hope to renew our credit facilities on terms consistent with those we
        have
        enjoyed up to present time, there can be no assurance that we will renew
        such
        credit facilities on equivalent terms, if at all.
 
 Over
        the
        past nine months, as the economy has demonstrated signs of softening, banks
        have
        grown significantly more conservative in their lending practices. Given the
        dramatic change in the overall credit environment and economy, we are not
        able
        to predict the terms, if any, under which our existing lenders would renew
        our
        credit facilities. In anticipation of this outcome, we have begun discussions
        with a number of other banks to broaden our warehouse funding channels and
        to
        ensure competitive economic terms. However, no assurance can be given that
        our
        efforts to secure additional credit facilities on the same or more favorable
        terms will prove successful.
 
 The
        uncertainty and volatility of the credit markets may have a significant impact
        on the revenues derived from our securitization transactions. The securitization
        of our loan portfolios rely heavily on key assumptions, such as interest
        rates
        and expected defaults. If interest rates continue to rise and the defaults
        of
        borrowers under our existing loan portfolios increase, the revenues generated
        by
        our loan portfolios may be significantly reduced, and accordingly, we may
        be
        unable to continue to recover the same level of residual interest from our
        securitization trusts which we achieved in the past under more favorable
        market
        conditions.


5




**Our
      business may suffer if we experience technical problems** .




If
      our
      technology does not function properly, is breached or interrupted, or contains
      errors that we have not corrected, we may not achieve the performance we expect.
      Any interruption in or breach of our information systems may result in lost
      business. For instance, our technology may contain "bugs" or become infected
      by
      computer viruses or worms that may interfere with the functionality of our
      technology or negatively impact our proprietary databases. We may not
      immediately detect and fix these problems, which may increase damage to our
      business. These problems may result in, among other consequences, our
      over-estimating cash flows from borrowers or underestimating default rates.
      Third parties who have relied on our financial models or projections may have
      recourse against us in the event of inaccuracies caused by technical or other
      problems. Individually or cumulatively, these types of problems may have a
      material adverse effect on our business, financial condition and results of
      operations.




**We
      rely heavily on our technology and our technology could become ineffective
      or
      obsolete** .




We
      rely
      on technology to interact with consumers to originate our products and to
      perform some servicing functions pertaining to our financing products. It is
      possible that our technology may not be effective, or that consumers will not
      perceive it to be effective. We will be required to continually enhance and
      update our technology to maintain its efficacy and to avoid obsolescence. The
      costs of doing so may be substantial, and may be higher than the costs that
      we
      anticipate for technology maintenance and development. If we are unable to
      maintain the efficacy of our technology, we may lose market share. Further,
      even
      if we are able to maintain technical effectiveness, our technology may not
      be
      the most efficient means of reaching our objectives, in which case we may incur
      higher operating costs than we would were our technology more efficient. The
      impact of technical shortcomings could have a material adverse effect on our
      business, financial condition and results of operation.





**If
      our systems are unable to accommodate a high volume of traffic on our web site,
      the growth of our revenue could be reduced or limited.**





If
      existing or future customers’ use of our web site infrastructure increases
      beyond our capacity, customers may experience delays and interruptions in
      service. As a result, they may seek the products of our competitors and our
      revenue growth could be limited or reduced. Because we seek to generate a high
      volume of traffic and accommodate a large number of customers on our web site,
      the satisfactory performance, reliability, and availability of our web site,
      processing systems, and network infrastructure are critical to our reputation
      and our ability to serve customers. If use of our web site continues to
      increase, we will need to expand and upgrade our technology, processing systems,
      and network infrastructure. Currently, customer response times have not had
      a
      material detrimental effect on our results of operations to date, our online
      services may in the future experience slower response times due to increased
      traffic if this risk is not effectively addressed.





**Our
      reliance on technology, including the Internet, as a means of offering and
      servicing our products and services may result in damages** .




We
      offer
      and sell our products and services to borrowers using technology. Although
      the
      use of the Internet has become commonplace, people may approach the entering
      of
      private information, as well as conducting transactions through the Internet,
      hesitantly. We have implemented security measures within our systems, but
      skilled computer-users could potentially circumvent some of these precautions.
      While we are dedicated to maintaining a high level of security, it is impossible
      to guarantee total and absolute security. Any security breach could cause us
      to
      be in violation of regulations regarding information privacy and as such cause
      us to pay fines or to lose our ability to provide our products. Consumers may
      also be hesitant or unwilling to use our products if they are or become aware
      of
      a security problem or potential security problem. We could also be liable to
      consumers or other third parties if we do not maintain the confidentiality
      of
      our data and the personal information of our consumers.




Monitoring
      unauthorized use of the systems and processes that we developed is difficult,
      and we cannot be certain that the steps that we have taken will prevent
      unauthorized use of our technology. Furthermore, others may independently
      develop substantially equivalent proprietary information and techniques or
      otherwise gain access to our proprietary information. If we are unable to
      protect the confidentiality of our proprietary information and know-how, the
      value of our technology and services will be adversely affected. This may have
      a
      material adverse effect on our financial condition and results of
      operation.




6


**Legal
      protection we seek for our intellectual property assets may not prove to be
      available or effective** .




We
      have
      filed a patent for protecting our intellectual property assets and continue
      to
      patent new innovations. These patents provide an important competitive advantage
      to us, and our prospects, business, financial condition and results of
      operations may be materially adversely affected if these patents are not granted
      or upheld. In addition to seeking patent protection, we rely on copyright,
      trademark and trade secret protection for our intellectual property. These
      methods may not be adequate to deter third parties from misappropriating our
      intellectual property or to prevent the disclosure of confidential information
      or breaches of non-competition agreements between us and our employees or
      consultants, and may not provide us with adequate remedies for misappropriation.
      Our technology could also be designed around, replicated or reverse-engineered
      by competitors, and we may not have the ability to pursue legal remedies against
      them. For example, competitors could replicate data or acquire data comparable
      to that which we have assembled in our proprietary databases, which could erode
      our competitive advantage. We also may fail to detect infringement of our
      intellectual property rights and may thereby lose those rights. In addition,
      obtaining, monitoring and enforcing our intellectual property rights will likely
      be costly, and may distract our management and employees from pursuing their
      other objectives, which could impair our performance. If we are unable to
      protect our intellectual property, our business may be materially adversely
      affected.




**We
      may be subject to litigation for infringing the intellectual property rights
      of
      others** .




Should
      we
      infringe (or be accused of infringing) an existing patent, copyright, trademark,
      trade secret or other proprietary rights of third parties, we may be subject
      to
      litigation. Such litigation will be costly. If we settle or are found culpable
      in such litigation, we may be required to pay damages, including punitive
      damages (such as treble damages) if we are found to have willfully infringed,
      and we may also be required to pay license fees or cease to use that
      intellectual property which is found to have been infringed by us. The amount
      of
      damages we are required to pay may be substantial, and may require us to obtain
      additional sources of revenue or additional capital to continue operating.
      We
      also may be precluded from offering products or services that rely on
      intellectual property that is found to have been infringed by us. Further,
      we
      may also be required to cease offering the affected products or services while
      a
      determination as to infringement is considered by a court. If we are not able
      to
      offer products or services, our business, financial condition and results from
      operations may be materially adversely affected.




**We
      may be unable to attract and retain key employees** .




Failure
      to attract and retain necessary technical personnel and skilled management
      could
      adversely affect our business. Our success depends to a significant degree
      upon
      our ability to attract, retain and motivate highly skilled and qualified
      personnel. If we fail to attract, train and retain sufficient numbers of these
      highly qualified people, our business, financial condition and results of
      operations will be materially and adversely affected. We may issue stock options
      or other equity-based compensation to attract and retain employees. The issuance
      of these securities could be dilutive to the holders of our other equity
      securities.




**Senior
      management may be difficult to replace if they leave.**




The
      loss
      of the services of one or more members of our senior management team or the
      inability to attract, retain and maintain additional senior management personnel
      could harm our business, financial condition, results of operations and future
      prospects. Our operations and prospects depend in large part on the performance
      of our senior management team, including in particular Messrs. Raza Khan and
      Vishal Garg. We do not maintain key man insurance policies on any of our
      officers or key employees. We may not be able to find qualified replacements
      for
      any of these individuals if their services are no longer available.




**Insiders
      have substantial control over us and could limit your ability to influence
      the
      outcome of key transactions, including a change of
      control.**





Our
      directors and executive officers, and entities affiliated with them,
      beneficially own approximately 20% of the outstanding shares of our common
      stock. As a result, these stockholders, if acting together, could substantially
      influence matters requiring approval by our stockholders, including the election
      of directors and the approval of mergers or other extraordinary transactions.
      They may also have interests that differ from yours and may vote in a way with
      which you disagree and which may be adverse to your interests. The concentration
      of ownership may have the effect of delaying, preventing or deterring a change
      of control of our company, could deprive our stockholders of an opportunity
      to
      receive a premium for their common stock as part of a sale of our company and
      might ultimately affect the market price of our common stock.





7


**The
      rights of our Series B preferred stockholders may adversely affect the holders
      of our common stock.**





Our
      charter documents provide our board of directors with the authority to issue
      series of preferred stock without a vote or action by our stockholders. Our
      board of directors also has the authority to determine the terms of our
      preferred stock, including designations, powers, preferences and voting rights.
      The rights granted to the holders of our outstanding Series B preferred stock
      may adversely affect the rights of holders of our common stock. For example,
      the
      holders of our Series B preferred stock are entitled to receive a liquidation
      preference over all other equity securities that are junior to the Series B
      preferred stock. In addition, subject to certain conditions, our charter
      documents provide protective provisions to the holders of our Series B preferred
      stock requiring us to first obtain the written consent of the majority of the
      holders of our Series B preferred stock prior to undertaking certain actions,
      including, without limitation, the sale of substantially all of our assets
      or
      our liquidation and winding up, amending our charter documents in a manner
      adverse to the Series B preferred stockholders, the issuance of additional
      shares of our stock or any options or convertible securities, and paying
      dividends to our stockholders. Furthermore, our charter documents provide that,
      subject to certain conditions, the Series B preferred stockholders have a right
      of first offer to purchase any new securities offered by us which are junior
      to
      the Series B preferred stock. As a result, the rights granted to the holders
      of
      our Series B preferred stock may significantly impair our ability to raise
      equity capital if the majority of the holders of our Series B preferred stock
      do
      not consent to the offer, sale and issuance of the new securities or we are
      unable to obtain a waiver of each of our Series B preferred stockholder’s right
      of first offer.





**We
      may not be able to effectively manage our growth.**




Our
      strategy requires growing our business. If we fail to effectively manage our
      growth, our financial results could be adversely affected. Growth may place
      a
      strain on our management systems and resources. We must continue to refine
      and
      expand our business development capabilities, our systems and processes and
      our
      access to financing sources. As we grow, we must continue to hire, train,
      supervise and manage new employees. If we are unable to manage our growth and
      our operations our financial results could be adversely affected.




**Our
      business is subject to seasonal fluctuations, which may cause volatility in
      our
      quarterly operating results.**





We
      experience, and expect to continue to experience, seasonal fluctuations in
      our
      revenue because the markets in which we operate are subject to seasonal
      fluctuations based on the typical school year. We typically originate the
      largest proportion of our student loan receivables volume in our first quarter.
      These fluctuations could result in volatility or adversely affect our stock
      price.





**The
      price of our common stock may be volatile.**





The
      trading price of our common stock may fluctuate substantially, depending on
      many
      factors, some of which are beyond our control and may not be related to our
      operating performance. These fluctuations could cause you to lose part or all
      of
      your investment in our shares of common stock. Those factors that could cause
      fluctuations include, but are not limited to, the following: actual or
      anticipated changes in our earnings or fluctuations in our operating results
      or
      in the expectations of securities analysts; difficulties we may encounter in
      securitizing our loans; any variance between the actual performance of the
      securitization trust and the key assumptions that we have used to estimate
      the
      fair value of our residual receivable; changes in the key assumptions we use
      to
      estimate the fair value of our residual receivables, including discount, default
      and prepayment rates; announcement by us, our competitors or our potential
      competitors of acquisitions, new products or services, significant contracts,
      commercial relationships or capital commitments; price and volume fluctuations
      in the overall stock market from time to time; significant volatility in the
      market price and trading volume of financial services companies; general
      economic conditions and trends; negative publicity about the student loan market
      generally or us specifically; legislative initiatives effecting federal or
      private student loans; major catastrophic events; loss of a significant client
      or clients; purchases or sales of large blocks of our stock; or departures
      of
      key personnel.




8


The
      following discussion should be read along with the Consolidated Financial
      Statements and Notes thereto attached hereto.




**PART
      I**


**Item
      1. Description of Business**





**COMPANY
      HISTORY**





We
      were
      incorporated under the laws of the State of Delaware on March 2, 2000. MRU
      Holdings, Inc. is a specialty finance company which profiles and provides
      students with funds for higher education using a blend of current market credit
      practices as well as our own proprietary analytic models and decision tools.
      We
      have a prominent brand name “MyRichUncleTM” and highly scalable loan origination
      infrastructure. We entered into the student lending market as an originator
      and
      holder of private student loans. We entered the market as a lender, originator,
      and holder for Federal Family Education Loan Program (FFELP) loans in June
      2006.




On
      July
      8, 2004, we completed a share exchange (“Share Exchange”) with the stockholders
      of Iempower, Inc., a Delaware corporation doing business as MyRichUncleTM
(“Iempower”), pursuant to which we acquired 100% of the outstanding capital
      stock of Iempower in exchange for 6,863,433 shares of our common stock, par
      value $.001 per share (the “Common Stock”) and 2,136,567 Common Stock purchase
      warrants issued to Iempower’s warrant holders (each warrant is exercisable to
      purchase one share of Common Stock with a weighed average exercise price of
      $0.45 per share) (the “Share Exchange”). In conjunction with the Share Exchange,
      we changed our name to MRU Holdings, Inc. Although we acquired Iempower as
      a
      result of the Share Exchange, the stockholders of Iempower hold a majority
      of
      our voting interests. Additionally, the Share Exchange resulted in Iempower’s
      management and Board of Directors assuming operational control of the
      Company.




On
      February 4, 2005, MRU Lending, Inc. (“MRU Lending” or “MRUL”), a wholly-owned
      subsidiary of the Company, entered into a credit agreement (the “Credit
      Agreement”) with Nomura Credit & Capital, Inc. (“Nomura”) which provided for
      a $165 million secured revolving credit facility for the origination and
      warehousing of private student loans (the “Student Loan Credit Facility”). The
      loans under the Credit Agreement were secured by, among other things, a
      lien on all of the student loans financed under the Credit Agreement and any
      other student loans owned by MRU Lending and not otherwise released, together
      with a pledge of 100% of the capital stock of MRU Lending. The Student Loan
      Credit Facility had a term of three years. Upon execution of the Credit
      Agreement, Nomura received warrants to purchase 7,999,449 shares of our Common
      Stock (the “Nomura Warrants”), equal to 27.5% beneficial ownership of the
      Company on a diluted basis, with an initial exercise price of $3.50 per share
      and which are subject to standard weighted average anti-dilution protection
      for
      issuances of securities below the initial exercise price. 82% of the Nomura
      Warrants vested on February 4, 2005 and the remaining 18% vested on the second
      anniversary of the closing date of the Credit Agreement. Contemporaneously
      with
      and as a condition to the execution of the Credit Agreement, the Company sold
      in
      a private placement offering (the “Private Placement Offering”) to accredited
      investors 3,250,006 shares of its Series A Convertible Preferred Stock at a
      price of $3.50 per share. In connection with the completion of the Private
      Placement Offering, the Company issued to its placement agents warrants to
      purchase 227,500 shares of Common Stock at an exercise price of $3.50 per share.
      As of June 30, 2007, the credit facility was paid in full and the warrants
      had
      been exercised.




On
      May 5,
      2005, MRU Lending entered into a Loan Program agreement and a Loan Sale
      agreement with Webbank, a Utah state chartered financial institution. The
      agreements provide for Webbank’s origination of private student loans to
      qualified applicants participating in MRU Lending’s private student loan
      program, the marketing of such program and solicitation and qualification of
      such applicants by MRUL and the sale by Webbank and purchase by MRUL of such
      student loans. The Agreements have thirty-six (36) month terms and each
      automatically renew for up to two (2) successive terms of twelve (12) months.
      MRUL and Webbank mutually agreed to terminate both the Loan Program agreement
      and the Loan Sale agreement effective November 30, 2005.




On
      July
      25, 2005, MRU Lending and Doral Bank NY, FSB, a federally chartered savings
      bank
      in the business of originating various types of consumer loans, including
      student loans (the “Bank”), entered into a definitive agreement providing for
      the Bank’s origination of private student loans to qualified applicants
      participating in MRU Lending’s private student loan program, the marketing of
      such program and solicitation and qualification of such applicants by MRU
      Lending and the sale by the Bank and purchase by MRU Lending of such student
      loans. The Doral-MRU Lending loan program is secured by a $1 million (or such
      higher amount as required by loan volume) seven-day certificate of deposit
      held
      by MRU Lending at Doral Bank, with assignment rights to Doral Bank.




9


On
      December 30, 2005, the controlling Series A Convertible Preferred Stock holders
      approved an amendment and restatement of the Company’s Certificate of
      Incorporation, to be effective on or about February 13, 2006, creating
      12,000,000 shares of Series B Convertible Preferred Stock with a $0.001 par
      value and a $3.80 purchase price. The power, preferences, and rights of the
      Series B Convertible Preferred Stock set forth in the Amended and Restated
      Certificate of Incorporation include voting rights, dividends, liquidation
      preference, conversion rights, protective provisions, redemption, election
      of
      board of directors, and right of first refusal in any offerings of Series A
      Convertible Preferred Stock or Common Stock. On January 5, 2006, the Company
      issued 6,578,948 shares of the Series B Convertible Preferred Stock at $3.80
      per
      share to various funds of Battery Ventures and Merrill Lynch Institutional
      Management Equity Partners. The transaction closed on February 13, 2006.
      Proceeds of the financing were used to advance the Company’s growth in the
      private student loan market. On January 20, 2006, the Company received $5
      million in proceeds from bridge promissory notes due to various funds of Battery
      Ventures and Merrill Lynch Institutional Management Equity Partners, bearing
      interest at six (6%) percent per annum based on a 365 day year. The outstanding
      balance of these notes, together with accrued and unpaid interest thereon,
      was
      payable no later than the earlier of (a) April 15, 2006 or (b) the closing
      date
      of the private placement of Series B Convertible Preferred Stock to which the
      Company received gross proceeds of at least $25 million. These notes were
      retired with accrued interest on February 13, 2006. On May 8, 2006, the Company
      issued an additional 1,052,632 shares of the Series B Convertible Preferred
      Stock at $3.80 per share to LBI Group, Inc. and Keane Capital V, LLC. Proceeds
      of the financing were used to continue the Company’s growth in the private
      student loan market. All Series B Convertible Preferred Stock certificates
      were
      issued as of May 8, 2006. As of June 30, 2007, the Series B Convertible
      Preferred Stock issued has been registered with the Securities and Exchange
      Commission.




On
      January 10, 2006, MRU Originations, Inc. (“MRUO”) and MRU Funding SPV, Inc.
      (“MRUF”), wholly-owned subsidiaries of the Company, entered into definitive
      agreements with the Bank. The agreement provides for the Bank’s origination of
      private student loans to qualified applicants participating in MRUO’s private
      student loan program, the marketing of such program and solicitation and
      qualification of such applicants by MRUO and the sale by the Bank and purchase
      by MRUF of such student loans. The agreement between MRUO and the Bank is
      evidenced by a Loan Program Agreement dated January 10, 2006. The agreement
      between MRUF and the Bank is evidenced by a Loan Sale Agreement dated January
      10, 2006. The Agreements each have thirty-six (36) month terms and are
      automatically renewable for up to two (2) successive terms of twelve (12)
      months.




On
      January 23, 2006, the Company’s private student lending subsidiary, MRUF entered
      into a definitive agreement with Merrill Lynch Bank USA (“MLBU”)
      pursuant to
      which MLBU will provide MRUF with a $175 million revolving credit facility
      for
      the origination and warehousing of private student loans. The facility had
      a one
      year term. As a result of this transaction, MLBU was granted a warrant, subject
      to certain terms and conditions, to purchase up to 4.9% of the Company’s Common
      Stock. This transaction closed in January 2006.




On
      April
      18, 2006, the Company entered into a definitive agreement with a consortium
      of
      European financial institutions with significant experience in consumer lending
      and specialty financial products to support the launch and origination of
      PreprimeTM student loans. These private student loans will address the market of
      post-secondary school borrowers who are currently unable to meet traditional
      private student loan underwriting criteria (e.g., thin or no credit history,
      insufficient earnings history, etc.) MRU Holdings, Inc. will be both the
      managing member (through its Education Empowerment Funding, LLC affiliate (f/k/a
      Achiever Funding, LLC )) and a minority investor in the Education Empowerment
      Fund I, LLC (f/k/a Achiever Fund I LLC). As of June 30, 2007, the Company’s
      investment percentage in these affiliates is less than five (5%)
      percent.




On
      June
      15, 2006, the Company received a Department of Education (DoE) Lender
      Identification Number for the Company’s MRUF subsidiary, which is necessary to
      provide students with Federal Family Education Loan Program (FFELP) loans.
      MRUF
      has executed agreements with Deutsche Bank Trust Company America to act as
      our
      Trustee Lender and with American Education Services/Pennsylvania Higher
      Education Assistance Agency (AES/PHEAA) to act as our federal guarantor,
      disbursement agent, and FFELP servicer.




On
      October 12, 2006, the NASDAQ Stock Market approved the Company’s application to
      list its Common Stock on the NASDAQ Capital Market under the symbol
“UNCL”.





10


On
      October 31, 2006, Nomura Holdings, a major warrant stakeholder in the Company
      entered into a definitive securities agreement to sell 700,000 warrants in
      the
      Company to Lehman Brothers and Sunova for an undisclosed consideration. The
      exercise of the warrants generated $2.5 million of net proceeds to the
      Company.





On
      December 4, 2006, the Company decided that it would restate its quarterly and
      annual SEC filings from the period ended March 31, 2005 through September 30,
      2006 for the impact of EITF 98-5, Accounting For Convertible Securities with
      Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,
      for
      the issuance of dividends related to its Series A and B Convertible Preferred
      Stock. Based upon an informal review with the SEC, the Company learned that
      its
      past accounting for these equity issuances did not properly account for the
      difference between the issued price per share and the market price of the
      Company’s Common Stock on the commitment dates for these issuances. The
      restatement resulted in a non-cash increase in the preferred stock dividends
      for
      the effects of the beneficial conversion feature contained in the Company’s
      Series A and B Convertible Preferred Stock. This change increased the Company’s
      loss available to common shareholders and the resulting loss per share reported.
      As a result, the equity sections of the balance sheets for the dates indicated
      above were restated to create additional paid-in capital accounts for the
      beneficial conversion features of the Series A and B Convertible Preferred
      Stock
      and to increase the Company’s accumulated deficits as of these dates. The
      restatement had no effect on total shareholders’ equity.





On
      February 16, 2007, the Company’s Embark subsidiary, which is wholly owned by the
      Company’s GoToCollege Holdings subsidiary, entered into a definitive Asset
      Purchase Agreement with The Princeton Review to purchase proprietary technology,
      trademarks, and customer contracts. The total consideration for the transaction
      was $8.9 million, of which $6.3 million was in cash.





Concurrently
      with the Embark acquisition, the Company entered into an exclusive joint
      marketing agreement with The Princeton Review, the leading provider of test
      preparation and educational support services. Under this five-year agreement,
      the Company obtained exclusive right to The Princeton Review’s database of
      customers to which it can now market its student loan products. Additionally,
      The Princeton Review will co-brand certain marketing materials used by the
      Company to market its student loans and will grant the Company exclusive right
      to advertise in The Princeton Review’s publications and websites. Pursuant to
      the agreement, the Company will pay marketing fees to The Princeton
      Review.




On
        February 28, 2007, Nomura Holdings entered into a definitive securities
        agreement to convert and sell 4.8 million warrants to CRT Capital Group and
        Perry Capital for an undisclosed total consideration. The exercise of the
        warrants generated $16.8 million of net proceeds to the Company.
 
 On
        March
        8, 2007, Nomura Holdings entered into a definitive securities agreement to
        sell
        its remaining 1.5 million warrants in the Company to institutional investors
        for
        an undisclosed total consideration. The exercise of the warrants generated
        $5.1
        million of net proceeds to the Company.
 
 On
        April
        27, 2007, Education Empowerment Fund I, LLC, which is managed by the Company’s
        wholly-owned subsidiary, Education Empowerment Funding, LLC, entered into
        a $100
        million revolving line of credit with an asset-backed commercial paper conduit
        managed by DZ Bank AG to finance the fund’s PrePrime TM student
        loans. The revolving line of credit has a five-year term. The line of credit
        expands the capacity of the fund to acquire PrePrime TM student
        loans originated by the Company. The line of credit is solely an obligation
        of
        the fund. There is no recourse to the Company.


On
        June
        14, 2007, MRUL entered into an agreement with Nomura to terminate its credit
        line seven days after the close of the Company’s securitization of private
        student loans. In connection with the early termination of the credit agreement,
        Nomura waived its rights to be paid all amounts that would otherwise become
        due
        and payable to Nomura upon the early termination of the credit agreement
        with
        respect to collateral securing the loans under the credit agreement as well
        as
        waived all past, present and future fees due (or that may become due) and
        payable under the credit agreement. Pursuant to this early termination
        agreement, the credit agreement was terminated on July 5, 2007. Pursuant
        to the
        terms of the credit line that was terminated, for the $18 million of private
        student loans that were funded on the line, Nomura would have had the right
        to
        receive a fee equal to 1% of the balance of all financed student loans upon
        the
        securitization of the assets, 50% of the origination fees charged by the
        Company
        which were approximately 3.5% of the balance of the loans, and 50% of the
        residual interest in any securitization which would have had a fair value
        of
        approximately 8% of the balance loans. The Company estimates that it saved
        approximately $1.2 million as a result of this agreement.


11


On
      June
      28, 2007, the Company completed its first securitization of private student
      loans. In the securitization, the Company established a trust which issued
      $200
      million of asset backed notes, the proceeds of which were used to fund a reserve
      fund for the credit enhancement of the notes and to fund the acquisition of
      private student loans from the Company. On June 28, 2007, the Company sold
      $137.8 million of private student loans to the trust. The Company sold another
      $32.9 million of private student loans to the trust on September 25,
      2007.





On
      July
      16, 2007, The NASDAQ Stock Market approved the Company’s application to list its
      securities on The NASDAQ Global Market, where the Company’s Common Stock trades
      under the symbol “UNCL”.





On
      September 28, 2007, the Company restated the consolidated balance sheet as
      at
      June 30, 2006, and June 30, 2005 and the consolidated statements of operations,
      cash flows, and changes in stockholders equity for the years ended June 30,
      2006
      and the six months ended June 30, 2005. As noted above, on February 4,
      2005, MRUL entered into a credit agreement with Nomura under which Nomura
      agreed to provide MRUL with a $165 million secured revolving credit facility
      for
      the origination and warehousing of private student loans. Related to this
      transaction, Nomura was granted a warrant, subject to certain terms and
      conditions, to purchase Common Stock of the Company equal to, at that point
      in
      time, an approximately 27.5% ownership interest in the Company on a diluted
      basis. Financial Accounting Standards no. 123R - Share Based Payments, requires,
      with respect to share based transactions with other than employees, that the
      consideration received for the issuance of equity instruments shall be accounted
      for based on the fair value of the consideration received or the fair value
      of
      the equity instruments issued, whichever is more reliably measurable. As a
      result of a review by management of the data considered in deriving the value
      of
      the warrants issued to Nomura, management has determined that a restatement
      is
      required to attribute appropriate value to the warrants.





**THE
      BUSINESS**




We
      are a
      specialty finance company that facilitates and provides students with funds
      for
      higher education. Equipped with proprietary analytical models and decision
      tools, we are able to profile and provide customized financial products to
      students in a more competitive and customer friendly manner. We are a leading
      originator and holder of Federal and private student loans.





We
      generate revenues from: interest accrued and origination fees on our student
      loan portfolio, origination and management fees paid to us by the Education
      Empowerment Fund for the generation and management of PrePrime TM loans,
      subscription and service revenues from our online college application business,
      and gains from the sale or securitizations of portfolios of our student loans.
      The expenses we incur in operating our business include: bank fees charged
      for
      the origination of our student loans, referral marketing fees paid to our
      private label origination partners, interest and fee expense on the lines of
      credit with which we finance our student loans, servicing and custodial costs
      for our student loan portfolio, cost associated with hosting and developing
      our
      online college application business, the cost of marketing to our customers
      through direct-to-consumer channels such as direct mail, print and radio, and
      general corporate and administrative expenses, such as salaries and facilities
      expense.




In
      originating our private student loans, we use a unique and proprietary
      underwriting model which we believe provides us with a compelling competitive
      advantage. By combining traditional credit scoring methods with our proprietary
      underwriting matrix, which considers the loan applicant’s academic data, prior
      work experience, and the educational institution which they are attending,
      we
      generate our own credit and repayment capability index which we believe is
      more
      insightful and predictive in determining an applicant’s future repayment
      capabilities. Our approach may offer students who would otherwise be
      disqualified under traditional credit scoring methods an opportunity to obtain
      funding for their education. In addition, we may be able to competitively price
      loans for students that would be viewed as undifferentiated under traditional
      methods. We believe that no other educational finance company currently uses
      a
      similar approach to evaluate loan applicants or determining loan pricing. Our
      underwriting process adds another layer of analytical precision to traditional
      evaluation tools and helps us make more informed lending
      decisions.




In
        addition to our unique underwriting methodology, we take a highly focused
        approach to our marketing while maintaining one of the most diverse sourcing
        channels in the industry. Of the approximately 6,400 accredited institutions
        of
        higher education in the United States, we focus on a targeted subset of
        undergraduate and professional graduate institutions. The professional graduate
        disciplines that we target include law, business administration, engineering
        and
        medicine. These criteria define our lending and marketing methods. We believe
        that this targeted approach will consistently yield the optimal mix of
        attractive pricing, acceptable credit risk and a sufficiently deep base of
        potential customers. We use a highly diverse approach to sourcing potential
        customers which we believe will create more sustainable distribution channels
        than our competitors. We are one of the few companies in this sector to market
        directly to students. Our direct marketing channels include Internet marketing
        campaigns, print advertising campaigns, direct mail campaigns, and our branded
        MyRichUncleTM web site ( www.MyRichUncle.com ).
        In
        addition, we have developed indirect origination sources including referrals
        from third party referral companies for whom we may provide a private labeled
        set of student loan products. Equipped with our unique credit model, our
        focused
        marketing and diverse distribution channels, we are well positioned to grow
        in
        the market for higher educational products and services.




12


**INDUSTRY
      BACKGROUND**





Over
      the
      last decade, the increasing cost of higher education and decreasing government
      support for higher education has generated a substantial gap between viable
      sources of education funding and increasing tuition costs which results in
      a
      mismatch between what the government expects families to be able to contribute
      and what families can actually afford or are willing to pay. This, coupled
      with
      increases in enrollment, has led to substantial growth in the overall demand
      for
      financing for higher education, with the gap in funding estimated at
      approximately $100 billion per annum.





In
      addition, as a result of very specific eligibility requirements and/or limits
      available on grants and loans, the amount of funds made available to students
      may be insufficient to cover the total cost of higher education. This gap,
      sometimes called the “unmet need,” occurs when the sum of the expected family
      contribution (“EFC”) and total available financial aid is less than the cost of
      attendance. In order to bridge this unmet need students are forced to finance
      education through private loans or other debt.





Consequently,
      students increasingly rely on private loans (not guaranteed by the government)
      and credit cards to fund their education expenses. Through June 30, 2007, the
      loan limits for government-guaranteed FFELP loans are $23,500 over 4 years
      for
      undergraduates and $18,500 per year for graduate students while the average
      private university tuition alone, that is, excluding cost of boarding, meals
      and
      books, is more than $30,000 per year. All of these factors have created a demand
      for private student loans that has increased at a rate of over 30% per annum
      over the past 5 years and is expected to grow at a rate of 25% per annum over
      the next 10 years ( *Source:* National
      Center of Education Statistics & College Board, Trends in Student Aid
      2005).





*Federal
      Loans*  **-** The
      federal education loan programs offer lower interest rates and more flexible
      repayment plans than most consumer loans, making them an attractive way to
      finance education. Students may be able to deduct up to $2,500 in student loan
      interest each year.




These
      federal loans are offered through two programs with different delivery systems:
      the William D. Ford Federal Direct Loan Program (“Direct Loans”) and the FFELP.
      Although the borrower’s eligibility is the same under either program, the
      procedures for each are different because funds for Direct Loans are provided
      directly to the school by the federal government, while loan funds under FFELP
      are usually provided by a private lender and are guaranteed by a state guaranty
      agency and reinsured by the federal government.





The
      federal guaranty on the FFELP loans replaces the security (the collateral)
      usually required for long-term loans from banks and credit unions. Although
      the
      guaranty agency’s procedures and policies must conform to the FFELP
      requirements, individual guaranty agencies may have additional procedures and
      policies. Several thousand financial institutions participate in the FFELP
      program. In addition, some schools have opted to become lenders in the FFELP
      program.





The
      following types of loans are available through the Direct Loan and FFELP
      programs:





§
            Subsidized
                Stafford Loans: awarded to students who demonstrate financial need.
                Because the DoE subsidizes the interest, borrowers are not charged
                interest while they are enrolled in school at least half time or
                during
                grace and deferment periods.§
            Unsubsidized
                Stafford Loans: awarded to students regardless of financial need.
                Borrowers are responsible for paying the interest as it accrues or
                have
                the option to allow interest to accrue and be capitalized when repayment
                begins. Independent students and students whose parents are not eligible
                for a PLUS Loan (see below) have higher unsubsidized loan
                limits.§
            PLUS
                (Parental Loans for Undergraduate Student) Loans: allow parents to
                borrow
                on behalf of their dependent undergraduate children who are enrolled
                at
                least half time. As with unsubsidized Stafford Loans, borrowers are
                responsible for the interest that accrues on PLUS Loans throughout
                the
                life of the loan. Repayment begins sixty (60) days after
                disbursement.




13


§
            GradPLUS
                Loans: Introduced by the Federal Government in response to requests
                from
                graduate and professional school students for increased loan limits
                to pay
                for their education. Eligibility for GradPLUS loans is determined
                by a
                simple credit check. There is no specified dollar limit to GradPLUS
                loans;
                students may borrow up to the full cost of education less any financial
                aid received, including Stafford loans.§
            Consolidation
                Loans: Under the Higher Education Act, Consolidation Loans allow
                a
                borrower to combine one or more federal education loans into a single
                loan
                to facilitate repayment. Because the repayment period is longer,
                Consolidation Loans may be a way to reduce the borrower’s monthly
                payments; however, the total interest repaid over the life of the
                loan is
                usually higher. The consolidation process usually does not directly
                involve the school because generally the consolidating lender purchases
                qualifying student loans from other lenders. By law, there is no
                cost to
                the borrower to consolidate their loans, but they are only allowed
                to
                consolidate their loans one time. To qualify for a Consolidation
                Loan, the
                borrower must be out of school or attending school less than half
                time and
                have at least one eligible government loan. Parent borrowers may
                also
                consolidate fully disbursed loans regardless of the child’s enrollment
                status.





FFELP
      loans are presently offered by a large number of financial institutions. Sallie
      Mae, Citibank, JP Morgan Chase, Wells Fargo, Bank of America, and Key Bank
      are a
      few of the many providers of FFELP loans.





Starting
      on July 1, 2007, Stafford Loans allow dependent undergraduates to borrow up
      to
      $3,500 their freshman year (up from $2,625), $4,500 their sophomore year (up
      from $3,500) and $5,500 for each remaining year (independent students and
      students whose parents have been turned down for a PLUS loan can borrow an
      additional unsubsidized $4,000 the first two years and $5,000 the remaining
      years). Graduate students can borrow $20,500 per year (up from $18,500),
      although only $8,500 of that is subsidized. There are also cumulative limits
      of
      $23,000 for an undergraduate education and a $65,500 combined limit for
      undergraduate and graduate. (For independent students and for students whose
      parents were denied a PLUS loan the cumulative limits are $46,000 and $138,500,
      respectively. Some medical school students may be able to borrow up to $40,500
      a
      year (up from $38,500) and $189,125 total).





Many
      students combine subsidized loans with unsubsidized loans to borrow the maximum
      amount permitted each year.




Stafford
      Loans have a fixed interest rate of 6.8% for loans with a first disbursement
      after July 1, 2006. (Previously, Stafford Loans had variable interest rates
      (based on 91-day T-bill rate + 1.7% during school with an additional 0.6%
      increase upon graduation, capped at 8.25% or less, depending on yearly
      adjustments). Almost all lenders offer the same rate for the Stafford Loan,
      although some give discounts for on-time and electronic payment. The Company
      is
      one of the few lenders that offer upfront discounts on its federal loan
      products.




On
      September 27, 2007, the Higher Education Access Act of 2007 (“HEAA”) was signed
      into law. The HEAA reduction contains the following provisions:




·
            the
                interest rate paid by the borrower on Stafford Loans is reduced from
                6.8%
                to 3.4% over five years,




·
            the
                special allowance payments that for-profit holders of federal loans
                receive is reduced by 0.50% for Stafford Loans and consolidation
                loans and
                0.80% for PLUS loans,




·
            the
                loan fee charged to FFELP loan lenders is increased from 0.5% to
                1% and
                the fee is prohibited from being collected from the borrower,




·
            the
                federal guarantee of FFELP loans is reduced from 98% to 97% of the
                balance
                of the loan,




·
            the
                annual aggregate loan payment amounts made by low-income borrowers
                are
                capped at 15% of their adjusted gross
                income,




·
            allows
                borrowers in public service professions to have a portion of the
                loan
                forgiven after having made payments for 10
                years,




·
            the
                maximum amount of Pell grants are increased,
                and




·
            a
                pilot program for the auctioning of PLUS loans originations will
                be
                established.




14


The
      overall impact of the HEAA is to reduce the potential profitability of FFELP
      loans.





*Private
      Loans —* Private
      loans, also known as alternative loans or supplemental loans, help bridge the
      gap between the actual cost of education and the limited amount the government
      allows students to borrow through its programs. Private loans are offered by
      private lenders without federal forms to complete.





Private
      loans are used for many reasons: to fill the gap between a student’s financial
      aid package and the actual cost of attendance, to help cover the EFC calculated
      under financial aid formulas, or to pay for additional expenses not normally
      covered by other forms of aid. In many cases, the EFC may be unaffordable as
      it
      does not factor in non-collateralized loans such as credit card debt. Parents
      may also prefer that students be responsible for the financing of their
      education.





With
      the
      growing gap between the amount students and families are willing or able to
      pay
      for college and actual college costs after governmental and institutional aid
      are considered - often referred to as “unmet financial need” - private loans are
      becoming increasingly important as a mechanism for financing postsecondary
      education. Some families turn to private loans when the federal loans do not
      provide enough money or when they need more flexible repayment options. For
      example, a parent might want to defer repayment until the student graduates,
      an
      option that is not available to parents in various federal loan programs such
      as
      PLUS.





JP
      Morgan
      Chase, Citibank, KeyBank, Wachovia, Bank of America, AccessGroup, Nelnet, and
      First Marblehead are a few of the key players providing different types of
      private loans products and services depending on the student’s level of study.
      The interest rates on private loans tend to be higher than on the loans offered
      by the federal government.





**MRU
      PRODUCT OFFERINGS**





We
      created a suite of products to appeal to and satisfy the needs of students,
      their families, and participating financial institutions and to address the
      overall inefficiencies within the student loan market. We aim to be a one-stop
      shop that provides a full range of financial products to help cover the cost
      of
      education. These products include:





§
            *Private
                Student Loans*-
                Private student loans supplement financing for qualified students
                beyond
                what they can obtain through the federal government and are not guaranteed
                by the government. To facilitate this product, we established student
                loan
                credit facilities with Nomura Credit and Capital Inc.(terminated
                on July
                5, 2007), and Merrill Lynch Bank USA, which we believe have the necessary
                capital to finance our loan programs. We originate loans through
                partnerships with selected commercial banks, purchase the originated
                loans
                after a holding period, and then hold these in various subsidiaries
                via
                financing arrangements with our credit facility providers. Ultimately,
                we
                either sell or securitize these loans once we have originated a sufficient
                volume to execute such a transaction efficiently; the Company completed
                its first securitization of its private student loans in June 2007.
                We
                expect to derive cash receipts from origination fees generated upon
                funding of the loan and residual cash flows generated through the
                securitization or sale of the loans. Revenues from the sale of loans
                can
                either be paid upon the sale of the loan or paid over time in the
                form of
                a residual. Securitizations can provide us with residual cash flows
                that
                are paid over time. However, if we receive residuals that are paid
                over
                the life of the loan, current accounting rules allow us to book the
                fair
                value of the residuals in the period that the sale or securitization
                occurred.





§
            *Loan
                Guaranties*-
                Through our subsidiary MRU Universal Guarantee Agency, Inc. (“MRUG”),
                we can
                guarantee loans provided by third-party lenders. Through MRUG, we
                can
                enable students, with or without co-signors, to have their loans
                guaranteed if they meet our credit underwriting requirements. It
                is
                anticipated that students would pay fees to us for this service,
                which
                includes an upfront guaranty fee and an annual interest surcharge
                over the
                life of the loan. We would support MRUG with $50 million in equity
                raised
                by the sale of MRUG preferred stock to Universal Finanz Holding AG.
                Subject to the execution of definitive documentation, Universal Finanz
                Holding AG has committed to invest up to $50 million into MRUG to
                serve as
                the equity reserve against which MRUG will guaranty loans. Revenues
                generated from the guaranty fees and surcharges will be divided between
                Universal Finanz Holding AG and MRUG with Universal Finanz Holding
                AG
                receiving 65% and MRUG receiving the remainder. Universal Finanz
                Holding
                AG will hold preferred stock in MRUG currently equal to 65% of the
                ownership interest in MRUG on a diluted basis. As of June 30, 2007,
                we
                have not guaranteed any loans through MRUG, but we may in the future
                if economics and demand for such guaranteed loan products make it
                attractive to do so.


§
              PrePrimeTM
                    Student Loans - The Company’s affiliate, Education Empowerment Fund I, LLC
                    (f/k/a Achiever Fund I, LLC) (“EEF1”),
                    addresses
                    the market of post-secondary school borrowers who otherwise would
                    be
                    unable to meet traditional private student loan underwriting
                    criteria
                    through no fault of their own, e.g. thin or no credit history,
                    insufficient earnings history, etc. EEF1 began originating and
                    holding
                    PrePrimeTM student loans in June,
                    2006.
 §
                *Federal
                      Loans*-
                      We originate FFELP loans that we finance via our relationships
                      with our
                      credit facility providers and through our own funds. We expect
                      to
                      securitize these loans upon building a portfolio of loans to
                      make such a
                      securitization efficient. In the interim, we recognize revenues
                      from the
                      interest payments made by borrowers who receive our Federal
                      loans. We
                      follow the government’s guidelines for originating and servicing federal
                      loans.


15


**Private
      Loans**


We
      originate private student loans, through our bank partners, using a blend of
      established credit market practices as well as our own proprietary underwriting
      criteria, analytical models and decision tools. We established a $165 million
      student loan credit facility with Nomura and a $175 million student loan credit
      facility with Merrill Lynch Bank USA. These facilities have been used to finance
      our private student loan products. The loans eligible under the facilities
      will
      be loans originated by our bank partners and purchased and held by us. The
      term
      of the student loan credit facility with Nomura was three years and an agreement
      to terminate the facility was entered into on June 14, 2007. The term of the
      student loan credit facility with Merrill Lynch is one year.




**FFELP
      Loans**


To
      provide a “one-stop shop” for higher education finance, we provide students with
      FFELP loans. We are one of the few lenders to offer FFELP loans at a discount
      to
      maximum rates specified by law. Our discounting strategy builds awareness of
      our
      brand and helps generate additional private student loan originations. With
      respect to FFELP loans, we are required to meet federal requirements for the
      eligibility of borrowers.





We
      originate federal loans and will either sell the loans we originate to secondary
      market purchasers or bundle our portfolio of loans and securitize them. The
      sale
      of loans to secondary market purchasers requires us to use our balance sheet
      to
      originate loans as well as handle the origination process. Premiums are computed
      based on the nature of the loan and purchasers specific pricing grid. We have
      an
      agreement with Deutsche Bank to act as our Trustee Lender. We originally had
      an
      agreement with the American Education Services/Pennsylvania Higher Education
      Assistance Agency (“AES/PHEAA”)
      to be our
      government guarantor willing to guaranty the loans, and in June 2007 entered
      into a new agreement with ACS to be our originator and servicer of private
      loans
      going forward; the federal loans that AES/PHEAA originated for us continue
      to be
      serviced by AES/PHEAA. We have applied for and received a Lender Identification
      Number (“LID”) from the DoE.




We
      outsourced origination, disbursement, and servicing to AES/PHEAA and later
      ACS
      to leverage these companies’ experience and expertise in the origination and
      servicing of FFELP loans. AES/PHEAA and ACS will handle any borrower inquiries,
      electronic signatures, recordkeeping requirements, and procedures for the
      assignment, sale or transfer of loans. In addition, the AES/PHEAA and ACS will
      perform all reporting functions including informing the credit bureaus and
      the
      National Student Loan Data System (“NSLDS”).





**COMPANY
      OPERATIONS**





**Marketing**


We
      originate loans in a variety of ways. We market directly to students via our
      flagship brand www.MyRichUncle.com .
      We use
      a variety of direct marketing strategies to originate substantial volumes from
      direct interaction with students and further build a substantial customer
      database of individuals seeking out financing for higher education. In addition,
      this approach provides MRU with greater control of its distribution channels
      relative to its competitors who may ultimately compete with their current
      distribution partners. Our website is currently the primary means by which
      we
      convey information about our products and interacting with students. In various
      sections of the website, parents, students, and the general public can learn
      about our products, read press pieces, and submit questions. Students can apply
      online or over the phone.





We
      have
      formed referral relationships with third-parties who wish to provide private
      loan products to their customer base. We believe many of these third-parties
      have a proven track-record of referring their customers to other parties for
      their financing need and are interested in working with us, due to our ability
      to provide competitive rates, broader criteria, underwriting and high quality
      customer service to students and their parents.




16


**Credit
      Model**


Current
      traditional consumer credit scoring takes into account only an individual’s
      history, not his or her future payment capacity. Corporate credit markets take
      into account not only a borrowing company’s payment history, but also the
      expectations of a borrowing company’s future net cash flows as well to determine
      both credit worthiness and credit limits. Similarly, we take a more holistic
      approach to consumer credit applied to alternative private student lending
      by
      assessing not only an individual’s credit score, but also his or her expected
      future repayment capability. We developed a proprietary data system that
      analyzes a wider range of data to compute an individual’s estimated future
      repayment capability. This estimate can be used in a variety of ways, including
      determining an individual’s ability to service debt. This innovation enables us
      to more intelligently profile consumers and provide them with customized
      financial products. We believe that over time, our data set will become more
      robust and our competitive advantage in product development and pricing will
      enable us to more successfully maneuver through changes in the market and
      economic cycles.




**Customer
      Service**


We
      employ
      a staff of customer service and technical support personnel who provide support
      to all our customers. Our staff provides support via email and telephone. To
      support this function, we have agreements with call-center companies who provide
      us with de di c ated
      staff. The responsibilities of our customer service and technical support
      personnel include:





§responding
                to consumers’ questions about how to use our
                website§following
                up with consumers on the status of their loan
                applications§providing
                support to technical and systems
                questions





Additionally,
      our on-line origination platform offers students the opportunity to obtain
      the
      loan products and other services we provide. Our website is the primary means
      by
      which students request funds. Students access the website and receive
      information about our loan products. Students download applications or apply
      directly online. Prior to submission of the student’s application, each student
      verifies that the information provided in his or her student financing
      application is true and correct to the best of his or her knowledge and belief
      and is made in good faith. The student applicant is notified of the Company’s
      privacy policy and consents to electronic communication (e-mail). Those students
      that do not consent to electronic communication have their loans processed
      by us
      through the regular mail. The student also authorizes us, or a servicing agent,
      to investigate their creditworthiness and their application data and to furnish
      information concerning the application to consumer reporting agencies and other
      persons who may legally receive such information.




**Servicing
      and Collections**


At
      this
      time we are acting purely as a loan originator and are not actively servicing
      our loan portfolio, as we have no license to perform this function. We have
      outsourced the servicing function to third parties, who remit funds collected
      to
      us along with monthly activity reports.





**PRIVACY
      POLICY**





We
      believe that issues relating to privacy and use of personal information of
      Internet users are becoming increasingly important as the Internet and its
      commercial use grow. As a result, we have adopted a detailed privacy policy
      that
      outlines how we use consumer information and the extent to which lenders and
      other third parties may access this information. This policy is prominently
      noted on our website.





Generally,
      the privacy provisions of the Gramm-Leach-Bliley Act include the
      following:





§
            
            prohibit
                financial institutions from disclosing to unaffiliated third parties
                nonpublic personal information collected from consumers, subject
                to
                several exceptions;§
            
            require
                financial institutions to develop and disclose consumer privacy
                policies;§
            
            empower
                federal regulators with the authority to regulate information sharing
                and
                enforce the provisions of the law; and§
            
            allow
                states to pass stricter financial privacy
                laws.




Compliance
      with the Gramm-Leach-Bliley Act became mandatory on July 1, 2001.





17


**INTELLECTUAL
      PROPERTY**





We
      regard
      our intellectual property as important to our success. We rely on a combination
      of patent, trademark, copyright law, and trade secret protection to protect
      our
      proprietary rights. We have applied for a U.S. patent and filed a Patent
      Cooperation Treaty international patent application on our online loan market
      process. We are also pursuing the protection of our intellectual property
      through trademark and copyright registrations. We have filed an application
      to
      register MyRichUncleTM as a trademark in the United States. We consider the
      protection of our trademarks to be important for maintenance of our brand
      identity and reputation. We cannot assure you that any of these registrations
      or
      applications will not be successfully challenged by others or invalidated
      through administrative process or litigation. Further, if our trademark
      applications are not approved or granted due to the prior issuance of trademarks
      to third parties or for other reasons, there can be no assurance that we would
      be able to enter into arrangements with such third parties on commercially
      reasonable terms allowing us to continue to use such trademarks. It is possible
      that our patent applications will be denied or granted in a very limited manner
      such that they offer little or no basis for us to deter competitors from
      employing similar technology or processes or allow us to defend ourselves
      against third-party claims of patent infringement. In addition, we seek to
      protect our proprietary rights through the use of confidentiality agreements
      and
      other contractual arrangements with our employees, affiliates, clients,
      licensees, and others.





**EMPLOYEES**





As
      of
      June 30, 2007, we had 95 full time employees. Our employees are not represented
      under any collective bargaining agreements. We consider our relations with
      our
      employees to be good.




**COMPETITION**





We
      operate an online and over the phone loan origination platform. The primary
      competitive factors for our origination platform model are:


§
              
              Brand
                  awareness: To be competitive, we must have the ability to attract
                  consumer
                  demand in high volumes. We will need to make significant investments
                  to
                  build and maintain a compelling brand that will compete against
                  current
                  lenders, such as Bank of America, JP Morgan Chase, Citibank, First
                  Marblehead, Nelnet, and Sallie Mae; and§
              
              High
                  Quality Product Offering: We must provide our consumers with ease
                  of use
                  and convenience by providing the most competitive product offerings
                  based
                  on pricing, ease of use, and high quality customer
                  service.


Our
      success depends upon capturing and maintaining a significant share of students
      who obtain loans. In order to do this, we must grow brand awareness among
      customers. Many of our current competitors, however, have longer operating
      histories, larger customer bases, and significantly greater financial,
      technical, and marketing resources than we do. In addition, participants in
      other areas of the financial services industry may enter the student loan
      marketplace without significant barriers to entry.





We
      believe that our primary competitors are traditional lending institutions.
      The
      student loan market has a large number of competitors and is dominated by a
      number of large institutions including Bank of America, JP Morgan Chase,
      Citibank, First Marblehead Corp. (through its facilitation services for leading
      originators of private loans), and Sallie Mae.





**Item
      2. Description of Property.**





The
      Company’s executive offices are located at 590 Madison Avenue, New York, New
      York. On April 20, 2007, the Company entered into a sublease agreement with
      International Business Machines Corporation for the entire 13 th Floor of
      590 Madison. The sublease expires on August 30, 2014. The base rent due under
      the agreement is $142,375 per month for the first three years of the agreement
      and is $150,750 per month for the remainder of the agreement.





The
      Company also leases additional office space at 600 Lexington Avenue, New York,
      New York. The Company has a sub-sublease for this property that expires
      September 30, 2007. Rental payments under the sublease amount to $139,425 per
      annum. The Company plans to move all of its personnel and operations located
      at
      600 Lexington to its 590 Madison location prior to the termination of the
      sublease.





18


The
      Company still leases the offices it previously occupied at 1114 Avenue of the
      Americas, New York, New York. The Company has a sub-lease for this property
      that
      expires in May of 2009, unless sooner terminated or canceled pursuant to the
      terms of the sub-lease. Rental payments under the sublease amount to $353,510
      per annum. The obligations of the Company under the sublease are guaranteed
      by
      Edwin McGuinn, the Company’s Chief Executive Officer, in accordance with a
      Guaranty dated April 26, 2005 executed by Mr. McGuinn in favor of the
      sub-landlord. The Company is currently searching for a tenant to sublease the
      property.




**Item
      3. Legal Proceedings.**  ****





From
      time
      to time, the Company may be involved in litigation relating to claims arising
      out of its operations in the normal course of business. Other than the
      CollegeNET litigation described below, we currently are not a party to any
      legal
      proceedings, the adverse outcome of which, in management’s opinion, individually
      or in the aggregate, would have a material adverse effect on our results of
      operations or financial position.


Related
        to the Company’s transaction with The Princeton Review (“TPR”) as described more
        fully in Part I Item 1 Description of Business: Company History hereof, the
        Company assumed all costs, expenses, and judgments arising out of the CollegeNET
        litigation that relate to the operation of the purchased assets on or after
        February 16, 2007.


On
      September 10, 2003, CollegeNET, Inc. (“CollegeNET”) filed suit in Federal
      District Court in Oregon, alleging that TPR infringed a patent owned by
      CollegeNET (U.S. Patent No. 6,460,042 - the ‘042 Patent), related to the
      processing of on-line applications. CollegeNET never served TPR and no discovery
      was ever conducted. However, apparently based on adverse rulings in related
      lawsuits concerning the ‘042 Patent, CollegeNET dismissed the 2003 case against
      TPR without prejudice on January 9, 2004.




On
      August
      2, 2005, the Court of Appeals for the Federal Circuit issued an opinion
      favorable to CollegeNET in its appeal from the adverse rulings in the related
      lawsuits.




On August
      3, 2005, CollegeNET again filed suit against TPR alleging infringement of the
      same ‘042 Patent that was the subject of the earlier action. On November 21,
      2005, CollegeNET filed an amended complaint, which added a second patent (U.S.
      Patent No. 6,910,045 - the ‘045 Patent) to the lawsuit. TPR was served with the
      amended complaint on November 22, 2005, and filed its answer and counterclaims
      on January 13, 2006, which was later amended on February 24, 2006. On March
      20,
      2006, CollegeNET filed its reply to TPR’s counterclaims. CollegeNET seeks
      injunctive relief and unspecified monetary damages.




TPR
      filed
      a request with the United States Patent and Trademark Office (PTO) for ex parte
      reexamination of CollegeNET’s ‘042 Patent on September 1, 2005. TPR filed
      another request with the PTO for ex parte reexamination of CollegeNET’s ‘045
      Patent on December 12, 2005. The PTO granted TPR’s requests and ordered
      reexamination of all claims of the CollegeNET ‘042 patent on October 31, 2005
      and ordered reexamination of all claims of the CollegeNET ‘045 Patent on January
      27, 2006.




On
      March
      29, 2006, the court granted TPR’s motion to stay all proceedings in the lawsuit
      pending completion of the PTO’s reexaminations of the CollegeNET patents. On
      November 9, 2006, the PTO issued a Non-Final Office Action rejecting all 44
      claims of the ‘042 Patent. On January 9, 2007, CollegeNET filed a response to
      the Non-Final office Action with the PTO. TPR could not predict the likely
      outcome of these proceedings but believed that it had meritorious defenses
      to
      the CollegeNET claims and intended to vigorously defend. Although the Company
      has not been named as a party to the litigation, CollegeNet could add us as
      a
      defendant following our acquisition of the allegedly infringing intellectual
      property. Likewise, the Company believes that it also has meritorious defenses
      to the CollegeNET claims and intends to vigorously defend.




**Item
      4. Submission of Matters to a Vote of Security Holders.**





None.




19


**PART
      II**




**Item
      5. Market for Common Equity and Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities.**





Our
      Common Stock has been quoted on The NASDAQ Stock Market under the symbol “UNCL”
since October 12, 2006. Prior to that time, our Common Stock has been quoted
      on
      the OTC Bulletin Board under the symbol “MHOI.OB” since July 21, 2004. Prior to
      that, our Common Stock was not actively traded in the public market and was
      quoted on the OTC Bulletin Board under the symbol “PCFT.OB,” representing
      Pacific Technology, Inc. The following table sets forth, for the periods
      indicated, the high and low bid price information for the Common Stock as
      reported on the NASDAQ Stock Market and the OTC Bulletin Board, for the related
      periods. With respect to prices reported on the OTC Bulletin Board, the
      quotations reflect inter-dealer prices, without retail mark-up, mark-down or
      commission, and may not represent actual transactions.




**High**
            
            
            **Low****Fiscal
                year 2007**Quarter
                ended June 30, 2007
            
            $
            7.28
            
            $
            6.12Quarter
                ended March 31, 2007
            
            $
            7.75
            
            $
            5.79Quarter
                ended December 31, 2006
            
            $
            7.00
            
            $
            4.75Quarter
                ended September 30, 2006
            
            $
            5.90
            
            $
            4.60**Fiscal
                year 2006**Quarter
                ended June 30, 2006
            
            $
            6.18
            
            $
            4.73Quarter
                ended March 31, 2006
            
            $
            5.40
            
            $
            3.83Quarter
                ended December 31, 2005
            
            $
            4.50
            
            $
            3.19Quarter
                ended September 30, 2005
            
            $
            3.50
            
            $
            2.60





As
      of
      September 21, 2007, there were approximately forty-two (42) holders of record
      of
      our Common Stock.




It
      is our
      present policy not to pay cash dividends and to retain future earnings to
      support our growth. We do not anticipate paying any cash dividends in the
      foreseeable future.





**EQUITY
      COMPENSATION PLAN INFORMATION**





The
      following table provides information about the securities authorized for
      issuance under the Company’s equity compensation plans as of June 30,
      2007:





(a)
              Number
                of securities to be
              issued
                on exercise of
              outstanding
                options,
              warrants
                and rights
            
            (b)
              Weighted
                average exercise
              price
                of outstanding
              options,
                warrants and
              rights
            
            (c)
              Number
                of securities
              remaining
                available for
              future
                issuance under
              equity
                compensation
              plans
                (excluding
              securities
                reflected in
              column(a))Equity
                compensation plans
              approved
                by security holders
            
            5,525,870
            
            $3.28
            
            2,190,845Equity
                compensation plans not
              approved
                by security holders
            
            --
            
            --
            
            --Totals
            
            5,525,870
            
            $3.28
            
            2,190,845




20




**Item
      6. Management’s Discussion and Analysis or Plan of
      Operation.**





*You
      should read the following discussion and analysis of our financial condition
      and
      results of operations together with our consolidated financial statements and
      accompanying notes attached as an appendix to this annual report. In addition
      to
      the historical information, the discussion contains certain forward-looking
      statements that involve risks and uncertainties. Our actual results could differ
      materially from those expressed or implied by the forward-looking statements
      due
      to applications of our critical accounting policies and factors including,
      but
      not limited to, those set forth under the caption “Risk Factors” at the
      beginning of this annual report on Form 10-KSB.*





**OVERVIEW**


We
      are a
      specialty finance company that facilitates and provides students with funds
      for
      higher education. Equipped with proprietary analytical models and decision
      tools, we are able to identify and provide customized financial products to
      students in a more competitive and customer friendly manner. We entered the
      student lending market as an originator and holder of private student loans
      and
      now also originate, lend, and hold FFELP loans.





In
      originating our private student loans, we use a unique and proprietary
      underwriting model which we believe provides us with a compelling competitive
      advantage. By combining traditional credit scoring methods with our proprietary
      underwriting matrix, which considers the loan applicant’s academic data, prior
      work experience, course of study, the educational institution which they are
      attending ***,*** and
      the
      amount being borrowed, we generate our own credit and repayment capability
      index
      which we believe is more insightful and predictive in determining an applicant’s
      future repayment capabilities. Our approach may offer students who would
      otherwise be disqualified under traditional credit scoring methods an
      opportunity to obtain funding for their education. In addition, we may be able
      to competitively price loans for students that would be viewed as
      undifferentiated under traditional methods employed by other student loan
      companies. We believe that no other educational finance company currently uses
      a
      similar approach to evaluating loan applicants or determining loan pricing.
      Our
      underwriting process adds another layer of analytical precision to traditional
      evaluation tools and helps us make more informed lending decisions.





In
      addition to our unique underwriting methodology, we take a highly focused
      approach to our marketing while maintaining one of the most diverse sourcing
      channels in the industry. Of the approximately **** 6,500
      accredited institutions of higher education in the United States, we focus
      on a targeted subset
      of
      undergraduate and professional graduate institutions. The professional graduate
      disciplines that we target include law, business administration, engineering
      and
      medicine. These criteria define our lending and marketing methods. We believe
      that this targeted approach will consistently yield the optimal mix of
      attractive pricing, acceptable credit risk and a sufficiently deep base of
      potential customers. We use a highly diverse approach to sourcing potential
      customers which we believe will create more sustainable distribution channels
      than our competitors. We are one of the few companies in this sector to market
      directly to students. Our direct marketing channels include print advertising
      campaigns, direct mail campaigns, radio campaigns, Internet marketing campaigns
      and our branded MyRichUncleTM web site: www.MyRichUncle.com .
      In
      addition, we have developed indirect origination sources including referrals
      from third party referral companies for whom we may provide a private labeled
      set of student loan products. Equipped with our unique credit model, our focused
      marketing and diverse distribution channels, we believe we are well positioned
      to grow in the market for higher education products and services.





We
      generate revenues from: interest accrued and origination fees on our student
      loan portfolio, origination and management fees paid to us by the Education
      Empowerment Fund for the generation and management of PrePrime TM loans,
      subscription and service revenues from our online college application business,
      and gains from the sale or securitizations of portfolios of our student
      loans.





The
      Company’s earnings and growth in earnings are directly affected by the size of
      its portfolio of student loans, the interest rate characteristics of our student
      loan portfolios, and the costs associated with originating, financing, and
      managing our student loan portfolios. The Company’s income is primarily
      generated by securitization income and interest income, or net interest earned
      on its student loan portfolios. Our quarterly revenue, operating results and
      profitability vary and may continue to vary on a quarterly basis primarily
      because of the timing, size and structure of any securitizations we may
      execute.





In
      June
      2007, the Company completed its first securitization of private student loans.
      Securitization refers to the technique of pooling loans and selling them to
      a
      special purpose, bankruptcy remote entity, typically a trust, which issues
      securities to investors backed by those loans. The debt instruments that the
      trust issues to finance the purchase of these student loans are obligations
      of
      the trust, and not obligations of the Company. On a going forward basis, the
      Company plans to either sell or securitize student loan portfolios, which will
      generate a gain on sale for the Company for this asset. The timing of such
      an
      event is dependent on several factors, including but not limited to the
      following: the size of the Company’s student loan portfolios, the financial
      ability of the Company to hold this asset, the market at the time of the
      transaction for this asset class, and the ability of the Company to support
      the
      requirements for a sale or securitization transaction. The Company believes
      that
      it is likely to have one or two securitization transactions before the
      conclusion of its fiscal year on June 30, 2008.





21


The
      gain
      that the Company books when it securitizes is driven by the ability of the
      Company to book the expected future residual cash flow, the excess of the
      securitized portfolios collections and releases from transaction reserve funds
      over the amount required to service the securitization debt, as an asset on
      its
      balance sheet post the sale of loans to the securitization trust. Because there
      are no readily available prices for such residual assets, GAAP accounting allows
      the Company to compute the fair value by discounting projected residual cash
      flows, which are determined based upon assumptions regarding collateral
      performance and discount rates that the Company believes are reasonable. If
      actual performance were to deviate negatively from these assumptions, the
      Company would be required to write-down its residual interest to its new fair
      value assumption resulting in a loss. The Company is required to re-evaluate
      its
      valuation of the residual interest in its securitization on a quarterly
      basis.





Interest
      income is primarily impacted by the size of the portfolio and the Company’s
      management of its portfolio for defaults and delinquencies. Since the Company’s
      private student loan portfolio floats with LIBOR either monthly or quarterly,
      the Company feels it has very limited interest rate exposure on this asset.
      Post-origination, the private student loan portfolio is most affected by rates
      of default, delinquencies, recoveries, and prepayments. The Company originated
      its first private student loan in June 2005, so our portfolio is not highly
      seasoned.





In
      determining the adequacy of the allowance for the loan losses on our private
      student loan portfolio, the Company considers several factors, including loans
      in repayment vs. those in deferred status, delinquency or default status, and
      recoveries.





The
      expenses we incur in operating our business include: bank fees charged for
      the
      origination of our student loans, referral marketing fees paid to our private
      label origination partners, interest and fee expense on the lines of credit
      with
      which we finance our student loans, servicing and custodial costs for our
      student loan portfolio, cost associated with hosting and developing our online
      college application business, the cost of marketing to our customers through
      direct-to-consumer channels such as direct mail, print and radio, and general
      corporate and administrative expenses, such as salaries and facilities expense.
      Operating expenses also include the depreciation of capital assets and
      amortization of intangible assets.





The
      Company does not believe inflation has a significant effect on its
      operations.





**RESULTS
      OF OPERATIONS FOR THE FISCAL YEAR ENDED JUNE 30, 2007, COMPARED TO THE FISCAL
      YEAR ENDED JUNE 30, 2006**





**REVENUE** For the
      fiscal year ended June 30, 2007, the Company generated $10,142,388 in operating
      revenue compared to $1,244,492 last year. The significant increase over last
      year is primarily attributable to interest
      income on the Company’s growing student loan portfolio, which was $7,790,303 in
      fiscal 2007 compared to $1,206,160 in fiscal 2006. Origination processing fees
      generated by the Company’s origination of PrePrime TM loans
      for Education Empowerment Fund I, LLC also contributed $458,127 to revenue
      in
      fiscal 2007. The
      Company originated $154.4 million in private student loans during the fiscal
      year ended June 30, 2007 compared to $38.9 million during the fiscal year ended
      June 30, 2006, an increase of 297%. Subscription and service revenue increased
      to $1,661,383 in fiscal 2007 compared to $26,423 in fiscal 2006, due to revenue
      generated by the Company's Embark subsidiary, which was acquired during the
      quarter ended March 31, 2007.





**COST
      OF REVENUES** For the
      fiscal year ended June 30, 2007, the Company incurred $10,994,203 in costs
      compared to $2,401,355 in fiscal 2006. The increase is primarily due to the
      growth in student loan origination volume that lead to higher credit facility
      interest expense and origination bank costs and private student loan referral
      costs, which were $6,195,281 and $991,149, respectively, for fiscal 2007,
      compared to $1,078,202 and $348,822, respectively, in fiscal 2006. For fiscal
      2007, the Company increased its valuation reserve for private student loans
      by
      $2,783,045 based on its analysis of its rapidly growing private student loan
      portfolio; the valuation reserve was reduced by $312,906 due to charge-offs
      and
      a reversal of $2,469,853 due to the sale of loans into a securitization.
      Servicing and custodial costs for fiscal 2007 were $337,592 compared to $82,625
      in fiscal 2006, the increase again attributable to growth in originations.
      The
      Company’s Embark subsidiary incurred $396,356 in expenses in fiscal year 2007
      for the cost of its subscription and service revenue (see footnote 14 for more
      information on Embark).





22


**OPERATING
      LOSS**  The
      operating loss in fiscal 2007 was $43,388,379 compared to an operating loss
      of
      $27,451,007 in fiscal 2006. In fiscal
      year 2007, operating expenses were $42,536,564 compared to $26,294,144 in fiscal
      2006. Excluding
      the non-cash stock compensation expense associated with FAS 123R "Accounting
      for
      Stock Based Compensation" of $5,625,117 recorded in fiscal 2007, and $7,814,692
      in fiscal 2006, operating expenses increased $18,431,995 to support the growth
      of the business as the volume of loans the Company originated increased. The
      increases in operating expenses were primarily in the areas of corporate general
      and administrative expenses, sales and marketing, operations expense and
      technology development. Depreciation and amortization expense was $5,880,233
      in
      fiscal 2007 compared to $3,996,385 in fiscal 2006, primarily because of the
      amortization of deferred financing fees related to the Merrill Lynch and Nomura
      credit facilities.




**OTHER
      INCOME** In
      fiscal 2007, the Company’s net other income was $16,859,741 compared to $435,568
      in fiscal 2006. The increase was driven by securitization income of $16,205,324
      generated by the Company’s first securitization of its private student loan
      portfolio in June 2007 (see footnote 15 for more information on the
      securitization).





**NET
      LOSS** In
      fiscal
      2007, the Company incurred a net loss after preferred stock dividends of
      $29,422,684, or $1.42 per share compared to $38,622,122, or $2.56 per share
      in
      fiscal 2006. The weighted average number of shares outstanding for fiscal 2007
      was 20,720,628 shares compared to 15,100,652 shares for fiscal 2006.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Due
      to
      recent disruptions in the credit markets precipitated by the subprime mortgage
      crisis, the Company’s cost of its current credit facilities have
      increased for the short term while these market disruptions are in
      effect to reflect current market interest and advance rates. In
      anticipation of this potential outcome, the Company began conversations with
      a
      number of other banks to broaden its warehouse funding channels and to ensure
      competitive economic terms.


On
        September 26, 2007, the Company signed a term sheet with a major European
        bank
        for a 5 year, $200 million credit facility for the funding of its private
        student loan portfolio which the Company expects to close, subject to final
        documentation and diligence, in the first half of October.
 
 The
        Company’s originations have grown over 100% in the prior year. As such in
        addition to the credit facility mentioned above, the Company has received
        and is
        expecting additional term sheets from a number of investment and commercial
        banks for a complementary credit facility and has received terms from them
        for
        an additional facility in the size of $150 million. The Company expects to
        close
        an additional warehouse line with at least one or more of these counterparties
        over the next 60 days.
 
 The
        Company currently expects to extend its credit facility with Merrill Lynch
        Bank
        USA (“MLBU”) which is up for renewal on December 24, 2007. The Company’s current
        agreement with MLBU provides Merrill Lynch with the right of first offer
        on
        financing the Company’s private student loan portfolio for a period of 3 years
        and up to $500 million in loan volume. In addition, Merrill Lynch owns a
        combined total of 1.9 million warrants of the Company’s stock at an average
        conversion price of $3.50 to $3.80, of which approximately 50% have not yet
        vested and will vest upon renewal.
 
 The
        Company believes that the expected increased cost of warehouse financing
        for its
        collateral prior to securitization would only have a minor impact on the
        overall
        income it expects to generate on the loans. For example, assuming that the
        Company had to bear an increase of 50 basis points in financing costs for
        its
        warehouse facility in the prior fiscal year, the Company estimates that its
        facility interest expense would have increased by approximately $450,000
        in the
        prior fiscal year, and the yield on the private student loans securitized
        in
        June 2007 by the Company, which was 13% of the balance of the loans securitized,
        would have been reduced by 0.3%.


23


**CASH
      AND CASH EQUIVALENTS AND ACCOUNTS RECEIVABLE** As
      of
      June 30, 2007, the Company had unrestricted cash and cash equivalents of
      $11,605,531, restricted cash of $3,153,840, and accounts receivable of
      $1,979,058 compared to unrestricted cash of $17,899,504, restricted cash of
      $2,975,430, and accounts receivable of $4,167 as of June 30, 2006. $2.1 million
      of the June 30, 2007 balance of restricted cash is security for the Company’s
      subsidiaries’ loan purchase and sale agreements with Doral Bank which fluctuates
      with the volume of the loans originated. Accounts receivable are related to
      business activity generated by our Embark subsidiary.





The
      Company maintains cash and cash equivalent balances at financial institutions
      that are insured by the Federal Deposit Insurance Corporation up to $100,000.
      The Company’s uninsured cash balances were approximately $13,506,587 and
      $19,782,730, respectively for the years ended June 30, 2007 and June 30,
      2006.





**STUDENT
      LOAN RECEIVABLES** As of
      June 30, 2007 the Company had a balance of private student loan receivables
      (net
      of reserves) of $5,441,174 compared to $38,749,736 as of June 30, 2006. The
      amount on the Company’s balance sheet decreased as a result of the Company’s
      securitization of $137.8 million private student loans in June 2007. During
      the
      fiscal year the Company originated private student loans which were subsequently
      securitized, thereby removing them from the Company’s balance sheet. At June 30,
      2007 the Company also had $11,191,957 in securitization accounts receivable
      (see
      footnote 15 for more information on the securitization).





At
      June
      30, 2007, the Company had a balance of $7,394,702 of federal student loan
      receivables compared to zero at June 30, 2006. The Company launched its federal
      student loan program in fiscal 2007.





**FIXED
      ASSETS** At June
      30, 2007 the Company had $1,552,886 of net fixed assets compared to $537,131
      at
      June 30, 2006. The increase is due to continued investment in the Company’s
      technology platform for student loan originations.





**OTHER
      ASSETS** At June
      30, 2007, the Company had $10,779,075 in other assets compared to $5,388,730
      at
      June 30, 2006. The increase is primarily associated with the Company’s
      acquisition of Embark resulting in an investment asset of $2,824,480 and
      goodwill of $5,874,944 (see footnote 14 for more information on Embark).
      Security deposits were $955,019 at June 30, 2007 associated with the Company’s
      leases for office space and loan servicing contracts.




**LIABILITIES** Total
      liabilities were $21,458,959 at June 30, 2007 compared to $41,172,324 at June
      30, 2006. In June 2007 the Company paid in full the Nomura facility by
      transferring the private student loans on the Nomura line to the MLBU facility.
      Then the Company substantially paid down the MLBU facility $129.6 million when
      it sold $137.8 million private student loans into its securitization on June
      28,
      2007. Client deposits and deferred contract revenues were $3,174,861 related
      to
      prepaid annual school contracts and application fees collected on behalf of
      client schools generated by our Embark subsidiary. As of June 30, 2007, the
      Company had $3,835,193 in accounts payable and $457,578 in accrued expenses,
      compared to $1,410,865 and $870,571, respectively as of June 30, 2006.


24





**CONTRACTUAL
      OBLIGATIONS AND COMMERCIAL COMMITMENTS**


**Contractual
      Obligations**





Total
            Current
            1-3
                years
            3-5
                yearsLong
                Term Debt
            $0
            $0
            $0
            $0Capital
                Lease Obligations
            $0
            $0
            $0
            $0Operating
                Leases
            $9.7
                million
            $1.1
                million
            $4.4
                million
            $4.2
                millionUnconditional
                Purchase Obligations
            $0
            $0
            $0
            $0Other
                Long-Term Obligations
            $0
            $0
            $0
            $0Total
                Contractual Cash Obligations
            $9.7
                million
            $1.1
                million
            $4.4
                million
            $4.2
                million





The
      Company leases office equipment and corporate space under leases with terms
      between one and seven years. Monthly payments under the current leases range
      from $200 to $142,375; the monthly rent on the Company’s headquarters increases
      to $150,750 after the first three years. The Company is required to pay its
      pro
      rata share of costs related to certain of the leased facilities.





**Commercial
      Commitments**





Total
            Current
            1-3
                years
            3-5yearsLines
                of Credit
            $11.7
                million
            $11.7
                million
            $0
            $0Standby
                Letters of Credit
            $0
            $0
            $0
            $0Guarantees
            $0
            $0
            $0
            $0Standby
                Repurchase Obligations
            $0
            $0
            $0
            $0Other
                Commercial Commitments
            $1.4
                million
            $1.4
                million
            $0
            $0Total
                Commercial Commitments
            $13.1
                million
            $13.1
                million
            $0
            $0





The
      Company has a renewable $175 million credit facility with Merrill Lynch, terms
      of which are described in the Notes to the Consolidated Financial Statements
      filed with this annual report on Form 10-KSB. The Company had an outstanding
      balance of $11,711,393 on its credit facility with Merrill Lynch at June 30,
      2007 and $17,863,560 at June 30, 2006. The Company had an outstanding balance
      on
      its credit facility with Nomura of $18,732,264 at June 30, 2006. During fiscal
      2007 the Company paid off the Nomura credit facility. The Company’s subsidiaries
      have loan purchase and sale agreements with Doral Bank and at June 30, 2007,
      the
      Company had total commitments to Doral Bank of $1,398,529 compared to $806,182
      at June 30, 2006.





**OUR
      PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS**


In
      the
      near term, we intend to use our cash on hand and existing credit facilities
      to
      support the ongoing operating and financing requirements of implementing our
      business plan. We believe that our current liquidity should be sufficient to
      meet our cash needs for working capital through the next twelve months. However,
      if cash generated from operations, cash on hand, and existing credit facilities
      are insufficient to satisfy liquidity requirements, we will seek additional
      debt
      or equity financing. Additional funding may not be available when needed or
      not
      available at terms acceptable to the Company. If the Company is required to
      raise additional financing and if adequate funds are not available or not
      available at acceptable terms, the ability to fund growth, develop and/or
      enhance products and services, or otherwise respond to competitive pressures
      may
      be severely limited. Such a limitation could have a material adverse effect
      on
      our business, financial conditions, results of operations, and cash
      flow.





Our
      long-term liquidity will depend on the Company’s ability to execute on our
      business plan and to commercialize our financial products and
      services.





The
      Company is focused on generating FFELP and private student loan volume from
      its
      two primary loan volume channels: direct-to-consumer and third-party referral
      marketing partners. In the direct-to-consumer channel, the Company is actively
      focusing on leveraging its marketing message to reach customers with a
      competitively priced, easy to understand and use product offering. In the
      third-party referral marketing partner channel, the Company is working with
      existing referral marketing partners to train partner staffs on the Company’s
      products and implement processes and systems to enable referral marketing
      partners’ customers to easily apply for and be decisioned for the Company’s
      products.





25


Operationally,
      the Company is seeking continuous improvement in its internal processes and
      systems to shorten the time frame from when a customer initiates a credit
      request to when the Company disburses the approved loan, and continues to make
      progress in this area. The Company continues to attempt to better understand
      the
      customer service experience so that prospective and current borrowers can more
      easily understand the terms and conditions of the Company’s product offerings
      versus the Company’s competitors and more easily comply with the Company’s
      information requests required to underwrite the credit requested.





**OFF-BALANCE
      SHEET ARRANGEMENTS/TRANSACTIONS**




None.





**CRITICAL
      ACCOUNTING POLICY AND ESTIMATES**


The
      Company’s Management and Discussion and Analysis of Financial Condition and
      Results of Operations section discusses our consolidated financial statements,
      which have been prepared in accordance with accounting principles generally
      accepted in the United States of America. The preparation of these financial
      statements requires management to make estimates and assumptions that affect
      the
      reported amounts of assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the reported
      period. On an ongoing basis, management evaluates its estimates and judgments,
      including but not limited to those related to revenue recognition, accrued
      expenses, financing operations, contingencies, and litigation. Management bases
      its estimates and judgments on historical experience and on various other
      factors that are believed to be reasonable under the circumstances, the results
      of which form the basis for making judgments about the carrying value of assets
      and liabilities that are not readily apparent from other sources. Such estimates
      may be the most significant accounting estimates inherent in the preparation
      of
      our financial statements. Actual results may differ from these estimates under
      different assumptions or conditions. These accounting policies are described
      and
      disclosed in relevant sections in this discussion and analysis and in the notes
      to the consolidated financial statements included in this Annual
      Report.




**Item
      7. Financial Statements.**





The
      financial statements and related financial statement schedule are included
      herein and filed as a part of this report. See Index on page 31.




**Item
      8. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





None.




**Item
      8A. Controls and Procedures.**





**(A)
      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES**





The
      term
“disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e)
      of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
      term refers to the controls and procedures of a company that are designed to
      ensure that information required to be disclosed by a company in the reports
      that it files under the Exchange Act is recorded, processed, summarized, and
      reported within the required time periods. Our Chief Executive Officer and
      our
      Chief Financial Officer have evaluated the effectiveness of our disclosure
      controls and procedures as of the end of the period covered by this annual
      report. They have concluded that, as of that date, our disclosure controls
      and
      procedures were effective at ensuring that required information will be
      disclosed on a timely basis in our reports filed under the Exchange
      Act.




**(B)
      CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING**





No
      change
      in our internal control over financial reporting (as defined in Rules 13a-15(f)
      and 15d-15(f) under the Exchange Act) occurred during the period covered by
      this
      report that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.




**Item
      8B. Other Information.**





On
      July
      19, 2007, our board of directors approved an increase in the annual cash
      retainer paid to non-employee directors to $15,000 from $10,000.




On
      September 28, 2007, the Company and Merrill Lynch amended the Company’s
      warehouse line, effective October 15, 2007, to increase the cost of the
      warehouse line to market rates and to change the renewal amount to $145 million,
      which the Company believes will increase the Company’s interest costs between
      the amendment date and the renewal date by approximately
      $100,000.




26


**PART
      III**




**Item
      9. Directors, Executive Officers, Promoters, Control Persons and Corporate
      Governance; Compliance with Section 16(a) of the Exchange
      Act.**





The
      information required by Item 9 of this annual report on Form 10-KSB is
      incorporated herein by reference to the Company’s definitive proxy statement,
      which is to be filed with the Securities and Exchange Commission within 120
      days
      after the end of the Company’s fiscal year ended June 30, 2007 and distributed
      in connection with the Company’s 2007 Annual Meeting of
      Stockholders.




**Item
      10. Executive Compensation.**




The
      information required by Item 10 of this annual report on Form 10-KSB is
      incorporated herein by reference to the Company’s definitive proxy statement,
      which is to be filed with the Securities and Exchange Commission within 120
      days
      after the end of the Company’s fiscal year ended June 30, 2007 and distributed
      in connection with the Company’s 2007 Annual Meeting of
      Stockholders.




**Item
      11. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.**





The
      information required by Item 11 of this annual report on Form 10-KSB is
      incorporated herein by reference to the Company’s definitive proxy statement,
      which is to be filed with the Securities and Exchange Commission within 120
      days
      after the end of the Company’s fiscal year ended June 30, 2007 and distributed
      in connection with the Company’s 2007 Annual Meeting of
      Stockholders.




**Item
      12. Certain Relationships and Related Transactions, and Director
      Independence.**





The
      information required by Item 12 of this annual report on Form 10-KSB is
      incorporated herein by reference to the Company’s definitive proxy statement,
      which is to be filed with the Securities and Exchange Commission within 120
      days
      after the end of the Company’s fiscal year ended June 30, 2007 and distributed
      in connection with the Company’s 2007 Annual Meeting of
      Stockholders.




27


**Item
      13. Exhibits.**





(a)
        The following exhibits are to be filed as part of this report:





**Exhibit
                No.**
            **Description**
            **Incorporated
                by Reference to Filings Indicated**3.1
            Amended
                and Restated Certificate of Incorporation.*3.2
            Amended
                and Restated By-laws.
            Exhibit
                3.1 to Company's Current Report on Form 8-K, filed with the
                SEC on September 28, 2007, File No. 000-334874.1
            Amended
                and Restated 2004 Omnibus Incentive Plan.
            Appendix
                C to the Definitive Proxy Statement on Form 14A, filed with the SEC
                on
                September 7, 2005, File No. 000-33487.4.2
            2005
                Consultant Incentive Plan.
            Appendix
                B to the Definitive Proxy Statement on Form 14A, filed with the SEC
                on
                September 7, 2005, File No. 000-33487.4.3
            Form
                of ISO Award Agreement under Amended and Restated 2004 Incentive
                Plan.*4.4
            Form
                of NQO Award Agreement under Amended and Restated 2004 Incentive
                Plan.*4.5
            Form
                of Restricted Stock Award Agreement under Amended and Restated 2004
                Incentive Plan.*10.2
            Loan
                Program Agreement dated July 25, 2005 between MRU Lending, Inc. and
                Doral
                Bank NY, FSB.
            Exhibit
                10.1 to Company’s Current Report on Form 8-K, filed with the SEC on July
                29, 2005, File No. 000-33487.10.3
            Loan
                Sale Agreement dated July 25, 2005 between MRU Lending, Inc. and
                Doral
                Bank NY, FSB.
            Exhibit
                10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on
                July 29, 2005, File No. 000-33487.10.4
            Sublease
                dated April 26, 2005 between ISID Finance of America, Inc. and the
                Company.
            Exhibit
                10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
                May 18, 2005, File No. 000-33487.10.5
            Guaranty
                of Edwin J. McGuinn, Jr. in favor of ISID Finance of America, Inc.
                dated
                April 26, 2005.
            Exhibit
                10.2 to Company’s Current Report on Form 8-K, filed with the SEC on May
                18, 2005, File No. 000-33487.10.6
            Securities
                Purchase Agreement by and among the Company and the purchasers of
                Series B
                Convertible Preferred Stock.
            Exhibit
                10.1 to Company’s Current Report on Form 8-K, filed with the SEC on
                January 6, 2006, File No. 000-33487.10.7
            Amended
                Employment Agreement dated September 27, 2007 between the Company
                and
                Edwin J.McGuinn, Jr.
            Exhibit
                10.1 to Company's Current Report on Form 8-K, filed with
                the SEC on September 28, 2007, File No. 000-3348710.8
            Employment
                Agreement of Raza Khan.*10.9
            Employment
                Agreement of Vishal Garg.*10.10
            Office
                Lease for 590 Madison Avenue.*14
            Code
                of Ethics.
            Exhibit
                14 to Company’s Annual Report on Form 10-KSB, filed with the SEC on March
                22, 2005, File No. 000-33487.21
            Subsidiaries
                of the Company.*23
            Consent
                of Bagell, Josephs, Levine & Company, LLC.*31.1
            Certification
                of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a),
                as adopted pursuant to Section 302 of the Sarbanes Oxley Act of
                2002.*31.2
            Certification
                of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a),
                as adopted 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.*


________________


*
      filed
      herewith


28


**Item
      14. Principal Accountant Fees and Services**





The
      information required by Item 14 of this annual report on Form 10-KSB is
      incorporated herein by reference to the Company’s definitive proxy statement,
      which is to be filed with the Securities and Exchange Commission within 120
      days
      after the end of the Company’s fiscal year ended June 30, 2007 and distributed
      in connection with the Company’s 2007 Annual Meeting of
      Stockholders.







29


**SIGNATURES**




In
      accordance with the requirements of Section 13 or 15(d) of the Securities
      Exchange Act of 1934, as amended, the Company caused this report to be signed
      on
      its behalf by the undersigned, thereby duly authorized.








Date:
                September 28, 2007
            MRU
                HOLDINGS, INC./s/
                Edwin J. McGuinn,
                Jr.By:
                Edwin J. McGuinn, Jr.Its:
                Chief Executive Officer






In
      accordance with the Securities Exchange Act of 1934, as amended, this report
      has
      been signed by the following persons on behalf of the Company and in the
      capacities and on the dates indicated.






Date:
                September 28, 2007
            /s/
                Edwin J. McGuinn,
                Jr.By:
                Edwin J. McGuinn, Jr.Its:
                Chief Executive Officer and Director(Principal
                Executive Officer)Date:
                September 28, 2007
            /s/
                Vishal
                GargBy:
                Vishal GargIts:
                Chief Financial Officer and Director
              (Principal
                Financial and Accounting Officer)Date:
                September 28, 2007
            /s/
                Raza
                KhanBy:
                Raza KhanIts:
                President and Director




Date:
                September 28, 2007
            /s/
                Richmond T.
                FisherBy:
                Richmond T. FisherIts:
                Director




Date:
                September 28, 2007
            /s/
                David
                BushleyBy:
                David BushleyIts:
                Director




Date:
                September 28, 2007
            /s/
                Michael M.
                BrownBy:
                Michael M. BrownIts:
                DirectorDate:
                September 28, 2007
            /s/
                Sunil
                DhaliwalBy:
                Sunil DhaliwalIts:
                Director




Date:
                September 28, 2007
            /s/
                Andrew
                MathiesonBy:
                Andrew MathiesonIts:
                Director




30





**EXHIBIT
      INDEX**




**Exhibit
                  No.**
              **Description**
              **Incorporated
                  by Reference to Filings Indicated**3.1
              Amended
                  and Restated Certificate of Incorporation.*3.2
              Amended
                  and Restated By-laws.
              Exhibit
                  3.1 to Company's Current Report on Form 8-K, filed with the
                  SEC on September 28, 2007, File No. 000-334874.1
              Amended
                  and Restated 2004 Omnibus Incentive Plan.
              Appendix
                  C to the Definitive Proxy Statement on Form 14A, filed with the
                  SEC on
                  September 7, 2005, File No. 000-33487.4.2
              2005
                  Consultant Incentive Plan.
              Appendix
                  B to the Definitive Proxy Statement on Form 14A, filed with the
                  SEC on
                  September 7, 2005, File No. 000-33487.4.3
              Form
                  of ISO Award Agreement under Amended and Restated 2004 Incentive
                  Plan.*4.4
              Form
                  of NQO Award Agreement under Amended and Restated 2004 Incentive
                  Plan.*4.5
              Form
                  of Restricted Stock Award Agreement under Amended and Restated
                  2004
                  Incentive Plan.*10.2
              Loan
                  Program Agreement dated July 25, 2005 between MRU Lending, Inc.
                  and Doral
                  Bank NY, FSB.
              Exhibit
                  10.1 to Company’s Current Report on Form 8-K, filed with the SEC on July
                  29, 2005, File No. 000-33487.10.3
              Loan
                  Sale Agreement dated July 25, 2005 between MRU Lending, Inc. and
                  Doral
                  Bank NY, FSB.
              Exhibit
                  10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on
                  July 29, 2005, File No. 000-33487.10.4
              Sublease
                  dated April 26, 2005 between ISID Finance of America, Inc. and
                  the
                  Company.
              Exhibit
                  10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on
                  May 18, 2005, File No. 000-33487.10.5
              Guaranty
                  of Edwin J. McGuinn, Jr. in favor of ISID Finance of America, Inc.
                  dated
                  April 26, 2005.
              Exhibit
                  10.2 to Company’s Current Report on Form 8-K, filed with the SEC on May
                  18, 2005, File No. 000-33487.10.6
              Securities
                  Purchase Agreement by and among the Company and the purchasers
                  of Series B
                  Convertible Preferred Stock.
              Exhibit
                  10.1 to Company’s Current Report on Form 8-K, filed with the SEC on
                  January 6, 2006, File No. 000-33487.10.7
              Amended
                  Employment Agreement dated September 27, 2007 between the Company
                  and
                  Edwin J.McGuinn, Jr.
              Exhibit
                  10.1 to Company's Current Report on Form 8-K, filed with
                  the SEC on September 28, 2007, File No. 000-3348710.8
              Employment
                  Agreement of Raza Khan.*10.9
              Employment
                  Agreement of Vishal Garg.*10.10
              Office
                  Lease for 590 Madison Avenue.*14
              Code
                  of Ethics.
              Exhibit
                  14 to Company’s Annual Report on Form 10-KSB, filed with the SEC on March
                  22, 2005, File No. 000-33487.21
              Subsidiaries
                  of the Company.*23
              Consent
                  of Bagell, Josephs, Levine & Company, LLC.*31.1
              Certification
                  of the Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a),
                  as adopted pursuant to Section 302 of the Sarbanes Oxley Act of
                  2002.*31.2
              Certification
                  of the Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a),
                  as adopted 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.*
 ________________
 *
        filed
        herewith


31


**BAGELL,
          JOSEPHS & COMPANY, L.L.C.**
 Certified
          Public Accountants
 
 High
          Ridge Commons
 Suites
          400-403
 200
          Haddonfield Berlin Road
 Gibbsboro,
          New Jersey 08026
 (856)
          346-2828 Fax (856) 346-2882
 
 **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  To
          the
          Board of Directors
 MRU
          Holdings, Inc.
 New
          York,
          New York
  We
          have
          audited the accompanying consolidated balance sheets of MRU Holdings, Inc.
          and
          Subsidiaries (the “Company”) as of June 30, 2007 and 2006, and the related
          consolidated statements of operations, changes in stockholders’ equity, and cash
          flows for the years then ended. These consolidated financial statements
          are the
          responsibility of the Company’s management. Our responsibility is to express an
          opinion on these consolidated financial statements based on our audits.
  We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          consolidated financial statements are free of material misstatement. The
          Company
          is not required to have, nor were we engaged to perform, an audit of its
          internal control over financial reporting. Our audits included consideration
          of
          internal control over financial reporting as a basis for designing audit
          procedures that are appropriate in the circumstances, but not for the purpose
          of
          expressing an opinion on the effectiveness of the Company’s internal control
          over financial reporting. Accordingly, we express no such opinion. An audit
          also
          includes examining, on a test basis, evidence supporting the amounts and
          disclosures in the consolidated financial statements, assessing the accounting
          principles used and significant estimates made by management, as well as
          evaluating the overall financial statement presentation. We believe that
          our
          audits provide a reasonable basis for our opinion.
  In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of MRU Holdings, Inc.
          and
          Subsidiaries as of June 30, 2007 and 2006 and the consolidated results of
          their operations and their cash flows for the years then ended in conformity
          with accounting principles generally accepted in the United States of America.
  As
          discussed in note 16 to the financial statements, the accompanying June
          30, 2006
          consolidated financial statements have been restated.
  **/s/BAGELL,
          JOSEPHS, LEVINE & COMPANY, L.L.C.**
 BAGELL,
          JOSEPHS, LEVINE & COMPANY, L.L.C.
 Certified
          Public Accountants
 Gibbsboro,
          New Jersey
 September
          28, 2007
 
 F-1




**MRU
      HOLDINGS, INC. AND SUBSIDIARIES**


**CONSOLIDATED
        BALANCE SHEETS**
 **JUNE
        30, 2007 AND 2006**
  **ASSETS****(Restated)****2007**
              
              **2006****ASSETS:**Cash and cash equivalents
              
              $
              11,605,531
              
              $
              17,899,504Restricted cash
              
              
              3,153,840
              
              
              2,975,430Accounts receivable
              
              
              1,979,058
              
              
              4,167Private student loans receivable, held for sale, lower of cost
                  or
                  market
              
              
              6,256,092
              
              
              39,564,367Valuation Reserve for private student loans receivable
              
              
              (814,918
              )
              
              (814,631
              )Federally insured student loans receivable, held for sale, lower
                  of cost
                  or market
              
              
              7,394,702
              
              
              0Accounts receivable from securitizations
              
              
              11,191,957
              
              
              0Fixed assets, net of depreciation
              
              
              1,552,886
              
              
              537,131Security deposits
              
              
              955,019
              
              
              30,248Intangible assets, net of amortization
              
              
              2,824,480
              
              
              98,960Goodwill
              
              
              5,874,944
              
              
              0Investment in Education Empowerment Fund I, LLC
              
              
              322,071
              
              
              120,000Due from affiliates
              
              
              802,561
              
              
              0Deferred financing fees, net of amortization
              
              
              0
              
              
              5,139,522Prepaid expenses and other assets
              
              
              1,093,991
              
              
              388,477**TOTAL
                  ASSETS**
              
              **$**
              **54,192,214**
              
              **$**
              **65,943,175****LIABILITIES
                  AND STOCKHOLDERS' EQUITY****LIABILITIES:**Accounts payable
              
              $
              3,835,193
              
              $
              1,410,865Accrued expenses
              
              
              457,578
              
              
              870,571Accrued payroll
              
              
              592,215
              
              
              161,609Client deposits
              
              
              898,729
              
              
              0Deferred contract revenue
              
              
              2,276,132
              
              
              0Notes payable - Doral Bank FSB NY
              
              
              1,398,529
              
              
              806,182Notes payable - Merrill Lynch
              
              
              11,711,393
              
              
              17,863,560Notes payable - Nomura Credit & Capital
              
              
              0
              
              
              18,732,264Deferred origination fee revenue
              
              
              226,318
              
              
              1,327,273Other liabilities
              
              
              62,872
              
              
              0**Total
                  Liabilities**
              
              
              **21,458,959**
              
              
              **41,172,324****STOCKHOLDERS'
                  EQUITY**Preferred
                  Stock, Series B, $.001 par value; 25,000,000 shares
                  authorized8,237,264
                  and
                  7,631,580 shares issued and outstanding as of June 30, 2007 and
                  June 30,
                  2006
              
              
              8,237
              
              
              7,632Common
                  Stock, $.001 par value; 200,000,000 shares authorized, 25,714,393
                  and
              
              
              
              
              
              017,593,565
                  issued
                  and outstanding as of June 30, 2007 and June 30, 2006
              
              
              25,714
              
              
              17,593Additional
                  paid-in capital
              
              
              68,788,404
              
              
              42,109,712Additional
                  paid-in capital - options
              
              
              13,038,261
              
              
              7,518,079Additional
                  paid-in capital - Series B beneficial conversion feature
              
              
              14,263,768
              
              
              10,847,759Additional
                  paid-in capital - warrants
              
              
              15,453,701
              
              
              16,449,131Accumulated
                  other comprehensive income
              
              
              2,756,908
              
              
              0Accumulated
                  deficit
              
              
              (81,601,738
              )
              
              (52,179,055
              )**Total
                  Stockholders'
                  Equity**
              
              
              **32,733,255**
              
              
              **24,770,851****TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              **$**
              **54,192,214**
              
              **$**
              **65,943,175**
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-2
 
 
 **MRU
                HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
                STATEMENTS OF OPERATIONS**
 **FOR
                THE YEARS ENDED JUNE 30, 2007 AND 2006**
 **(Restated)****Year
                          Ended**
                      
                      
                      **Year
                          Ended****June
                          30, 2007**
                      
                      
                      **June
                          30,****2006****OPERATING
                          REVENUE:**Referral income - consolidation student loans
                      
                      $
                      -
                      
                      $
                      -Referral income - private student loans
                      
                      
                      63
                      
                      
                      1,889Loan portfolio interest income - private student loans
                      
                      
                      7,790,303
                      
                      
                      1,206,160Loan portfolio interest income - federal student loans
                      
                      
                      119,212
                      
                      
                      0Origination fee revenue - private loans
                      
                      
                      110,401
                      
                      
                      9,526Origination processing fees
                      
                      
                      458,127
                      
                      
                      0Late payment fee revenue
                      
                      
                      2,898
                      
                      
                      494Subscription and service revenue
                      
                      
                      1,661,383
                      
                      
                      26,423**Total
                          Operating
                          Revenue**
                      
                      
                      **10,142,388**
                      
                      
                      **1,244,492****COST
                          OF REVENUES**Referral marketing costs - consolidation student loans
                      
                      
                      0
                      
                      
                      23,300Referral marketing costs - private student loans
                      
                      
                      991,149
                      
                      
                      348,822Facility interest and origination bank costs
                      
                      
                      6,195,281
                      
                      
                      1,078,202Valuation reserve provision - private student loans
                      
                      
                      2,921,241
                      
                      
                      814,631Consulting and hosting
                      
                      
                      152,583
                      
                      
                      53,775Cost of subscription and service revenue
                      
                      
                      396,356
                      
                      
                      0Servicing and custodial costs
                      
                      
                      337,592
                      
                      
                      82,625**T****otal
                          Cost of Revenues**
                      
                      
                      **10,994,203**
                      
                      
                      **2,401,355****GROSS
                          PROFIT/(LOSS)**
                      
                      
                      (851,815
                      )
                      
                      (1,156,863
                      )**OPERATING
                          EXPENSES**Corporate
                          general and administrative expenses
                      
                      
                      12,283,549
                      
                      
                      9,609,122Sales and marketing expenses
                      
                      
                      13,944,598
                      
                      
                      7,447,426Operations expenses
                      
                      
                      5,178,003
                      
                      
                      2,522,738Technology development
                      
                      
                      3,296,223
                      
                      
                      1,466,705Legal expenses
                      
                      
                      973,873
                      
                      
                      590,513Other operating expenses
                      
                      
                      980,084
                      
                      
                      661,255Depreciation and amortization
                      
                      
                      5,880,233
                      
                      
                      3,996,385**Total
                          Operating
                          Expenses**
                      
                      
                      **42,536,564**
                      
                      
                      **26,294,144****OPERATING
                          (LOSS)**
                      
                      
                      (43,388,379
                      )
                      
                      (27,451,007
                      )**OTHER
                          INCOME/(EXPENSE)**Securitization Income
                      
                      
                      16,205,324
                      
                      
                      0Interest income
                      
                      
                      472,222
                      
                      
                      428,201Interest expense
                      
                      
                      (7,421
                      )
                      
                      (23,501
                      )Other non-operating income
                      
                      
                      189,617
                      
                      
                      30,868**Total
                          Other
                          Income/(Expense)**
                      
                      
                      **16,859,741**
                      
                      
                      **435,568****(LOSS)
                          BEFORE PROVISION FOR INCOME TAXES**
                      
                      
                      (26,528,638
                      )
                      
                      (27,015,439
                      )Provision for income taxes
                      
                      
                      0
                      
                      
                      0**NET
                          (LOSS)**
                      
                      $
                      (26,528,638
                      )
                      $
                      (27,015,439
                      )LESS
                          PREFERRED STOCK DIVIDEND
                      
                      
                      (2,894,047
                      )
                      
                      (11,606,683
                      )**NET
                          (LOSS) APPLICABLE TO COMMON SHARES**
                      
                      $
                      (29,422,684
                      )
                      $
                      (38,622,122
                      )**NET
                          (LOSS) PER BASIC AND DILUTED SHARES**
                      
                      $
                      (1.42
                      )
                      $
                      (2.56
                      )WEIGHTED
                          AVERAGE NUMBER OF COMMONSHARES OUTSTANDING
                      
                      
                      20,720,628
                      
                      
                      15,100,652
 The
                  accompanying notes are an integral part of these
                  consolidated financial statements.
 F-3
 **MRU
          HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **FOR
          THE YEARS ENDED JUNE 30, 2007 AND 2006**
   **(Restated)****2007**
                  
                  **2006****CASH
                      FLOWS FROM OPERATING ACTIVITIES**Net (loss)
                  
                  $
                  (26,528,638
                  )
                  $
                  (27,015,439
                  )**Adjustments to reconcile net loss to net
                      cash****used
                      in operating
                      activities:**Depreciation
                      and
                      amortization
                  
                  
                  5,880,233
                  
                  
                  3,996,385Increase
                      in stock
                      options outstanding - options expense
                  
                  
                  5,625,117
                  
                  
                  7,814,692(Decrease)
                      in stock
                      options outstanding - options exercise
                  
                  
                  (104,934
                  )
                  
                  (296,613
                  )(Increase)
                      in tax
                      provision valuation stock options outstanding
                  
                  
                  (1,912,540
                  )
                  
                  (2,656,995
                  )Increase
                      in
                      valuation reserve - private student loans
                  
                  
                  313,192
                  
                  
                  814,631(Decrease)
                      in
                      valuation reserve - private student loans charged-off
                  
                  
                  (312,906
                  )
                  
                  00**Changes in assets and liabilities**
                  
                  
                  
                  
                  
                  0Decrease/(Increase)
                      in accounts receivable
                  
                  
                  (1,974,891
                  )
                  
                  16,079(Increase)
                      in
                      restricted cash
                  
                  
                  (178,410
                  )
                  
                  (2,975,430
                  )Decrease
                      in
                      collateral deposit - student loans
                  
                  
                  0
                  
                  
                  250,000(Increase)
                      in
                      prepaid expenses and other current assets
                  
                  
                  (734,519
                  )
                  
                  (254,937
                  )(Increase)
                      in due
                      from affiliates
                  
                  
                  (714,684
                  )
                  
                  0Decrease/(Increase)
                      in security deposits
                  
                  
                  (924,771
                  )
                  
                  362,715(Increase)
                      in
                      private student loans receivable, held for sale
                  
                  
                  (104,429,023
                  )
                  
                  (39,405,888
                  )(Increase)
                      in
                      federal student loans receivable, held for sale
                  
                  
                  (7,394,702
                  )
                  
                  0Increase
                      in
                      accounts payable and accrued expenses
                  
                  
                  2,455,076
                  
                  
                  1,039,898Increase/(Decrease)
                      in accrued payroll
                  
                  
                  430,606
                  
                  
                  (64,035
                  )Increase
                      in
                      deferred contract revenue
                  
                  
                  37,737
                  
                  
                  0Increase
                      in client
                      deposits
                  
                  
                  898,729
                  
                  
                  0(Decrease)/Increase
                      in deferred origination fee revenue
                  
                  
                  (1,100,955
                  )
                  
                  1,319,885Total
                      adjustments
                  
                  
                  (104,141,646
                  )
                  
                  (30,039,614
                  )**Net
                      cash (used in)
                      operating activities**
                  
                  
                  (130,670,284
                  )
                  
                  (57,055,053
                  )**CASH
                      FLOWS FROM INVESTING ACTIVITIES**Acquisition
                      of
                      fixed assets
                  
                  
                  (1,403,970
                  )
                  
                  (573,977
                  )Acquisition
                      of
                      intangible assets
                  
                  
                  (6,320,143
                  )
                  
                  0Increase
                      in
                      receivables from securitizations
                  
                  
                  (8,435,049
                  )
                  
                  0(Increase)
                      in
                      Education Empowerment Fund I, LLC
                  
                  
                  (202,071
                  )
                  
                  (120,000
                  )**Net
                      cash (used in)
                      investing activities**
                  
                  
                  (16,361,233
                  )
                  
                  (693,977
                  )**CASH
                      FLOWS FROM FINANCING ACTIVITES**Increase
                      in
                      advances - originating loan program agreements
                  
                  
                  102,885,451
                  
                  
                  37,624,454(Decrease)
                      due to
                      repayments - originating loan program agreements
                  
                  
                  (102,292,304
                  )
                  
                  (36,818,272
                  )Increase
                      in advances - Nomura Credit and Capital credit facility
                  
                  
                  730,923
                  
                  
                  19,286,667(Decrease)
                      due to
                      repayments - Nomura Credit and Capital credit facility
                  
                  
                  (19,463,187
                  )
                  
                  (554,403
                  )Increase
                      in advances - Merrill Lynch credit facility
                  
                  
                  128,475,796
                  
                  
                  17,920,204(Decrease)
                      due to
                      repayments - Merrill Lynch credit facility
                  
                  
                  (134,627,964
                  )
                  
                  (56,644
                  )Sale
                      of private
                      student loans receivable into securitization
                  
                  
                  137,737,298
                  
                  
                  0Proceeds
                      from
                      conversion of warrants and options
                  
                  
                  26,182,531
                  
                  
                  1,052,856Increase
                      in
                      deferred tax due to stock options outstanding
                  
                  
                  1,912,540
                  
                  
                  2,656,995Gross
                      proceeds from
                      sale of Series B convertible preferred issuance
                  
                  
                  0
                  
                  
                  29,000,000Costs
                      associated
                      with Series B convertible preferred subscriptions
                  
                  
                  0
                  
                  
                  (832,845
                  )(Increase)
                      in
                      deferred financing fees
                  
                  
                  (803,542
                  )
                  
                  (525,000
                  )**Net
                      cash provided
                      by financing activities**
                  
                  
                  **140,737,543**
                  
                  
                  **68,754,012****NET
                      INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS**
                  
                  
                  (6,293,973
                  )
                  
                  **11,004,982****CASH
                      AND CASH EQUIVALENTS - BEGINNING OF YEAR**
                  
                  
                  **17,899,504**
                  
                  
                  **6,894,522****CASH
                      AND CASH EQUIVALENTS - END OF YEAR**
                  
                  ****$****
                  **11,605,531**
                  
                  **$**
                  **17,899,504****SUPPLEMENTAL
                      DISCLOSURE OF CASH FLOW INFORMATION:****CASH
                      PAID DURING THE YEARS FOR:**Interest
                      expense
                  
                  $
                  6,202,703
                  
                  $
                  1,101,703Income
                      taxes
                  
                  
                  0
                  
                  $
                  0**SUPPLEMENTAL
                      DISCLOSURE OF NON-CASH ACTIVITIES:**Issuance
                      of
                      preferred stock in conversion of dividends payable
                  
                  $
                  2,301,596
                  
                  $
                  522,381Accrued
                      Series B
                      stock dividends
                  
                  $
                  77,182
                  
                  $
                  599,750Preferred
                      stock
                      converted into common shares
                  
                  
                  0
                  
                  $
                  3,448Cashless
                      exercise
                      of warrants
                  
                  $
                  500,283
                  
                  $
                  0Issuance
                      of warrants
                  
                  
                  0
                  
                  $
                  2,987,481The
                      Company purchased certain assets and assumed certain liabilities per
                      the AssetPurchase
                      Agreement with The Princeton Review as follows:Fair
                      Value of Intangible Assets Acquired
                  
                  $
                  3,000,000
                  
                  $
                  0Goodwill
                  
                  $
                  5,874,944
                  
                  $
                  0Cash
                      paid
                  
                  $
                  (6,320,143
                  )
                  $
                  0Liabilites
                      Assumed
                  
                  $
                  2,554,801
                  
                  $
                  0
  The
            accompanying notes are an integral part of these
            consolidated financial statements.
 F-4
 **MRU
        HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
            STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND**
 **ACCUMULATED
            OTHER COMPRESHENSIVE INCOME**
 **FOR
            THE YEARS ENDED JUNE 30, 2007 AND 2006**
 **Additional****Additional**
                
                
                **Additional**
                
                
                **Paid-In**
                
                
                **Accumulated****Series
                    A**
                
                
                **Series
                    B**
                
                
                
                
                
                **Additional**
                
                
                **Paid-In**
                
                
                **Paid-In**
                
                
                **Capital**
                
                
                **Other****Preferred****Stock**
                
                
                **Preferred
                    Stock**
                
                
                **Common
                    Stock**
                
                
                **Paid-In**
                
                
                **Capital
                      -**
                
                
                **Capital
                    -**
                
                
                **-
                    Series B**
                
                
                **Comprehensive**
                
                
                **Accumulated****Shares**
                
                
                **Amount**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Shares**
                
                
                **Amount**
                
                
                **Capital**
                
                
                **Options**
                
                
                **Warrants**
                
                
                **Ben
                      Conv**
                
                
                **Income**
                
                
                **(Deficit)**
                
                
                **Total****Balance,
                    June 30, 2005 , as restated**
                
                
                3,250,006
                
                $
                3,250
                
                
                0
                
                $
                0
                
                
                13,664,502
                
                $
                13,664
                
                $
                12,601,066
                
                $
                0
                
                $
                13,461,650
                
                $
                0
                
                $
                0
                
                $
                (13,525,076
                )
                $
                12,554,552Exercise
                    of warrants
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                339,790
                
                
                340
                
                
                406,016
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                406,356Exercise
                    of options
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                141,250
                
                
                141
                
                
                646,359
                
                
                (296,613
                )
                
                
                
                
                
                
                
                
                
                
                
                
                $
                349,887Issuance
                    of Series A preferred stock dividend
                
                
                198,017
                
                
                198
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                296,747
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (191,029
                )
                $
                105,916Conversion
                    of Series A preferred stock, January 2006
                
                
                (3,448,023
                )
                
                (3,448
                )
                
                
                
                
                
                
                
                3,448,023
                
                
                3,448
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                0Issuance
                    of Series B preferred stock, net of expenses, May 2006
                
                
                
                
                
                
                
                
                7,631,580
                
                
                7,632
                
                
                
                
                
                
                
                
                28,159,524
                
                
                
                
                
                
                
                
                10,516,318
                
                
                
                
                
                (10,516,318
                )
                $
                28,167,156Accrue
                    Series B preferred stock dividend
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                331,441
                
                
                
                
                
                (931,193
                )
                $
                (599,752
                )Accrue
                    warrants issued to Merrill Lynch
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,987,482
                
                
                
                
                
                
                
                
                
                
                $
                2,987,482Accrue
                    FAS123R stock option expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                7,814,692
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                7,814,692Net
                    (loss) for the yearended
                    June 30, 2006
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (27,015,439
                )
                $
                (27,015,439
                )**Balance,
                    June 30, 2006, as restated**
                
                
                0
                
                $
                0
                
                
                7,631,580
                
                $
                7,632
                
                
                17,593,565
                
                $
                17,593
                
                $
                42,109,712
                
                $
                7,518,079
                
                $
                16,449,131
                
                $
                10,847,759
                
                $
                0
                
                $
                (52,179,055
                )
                $
                24,770,852Exercise
                    of warrants
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                7,953,248
                
                
                7,953
                
                
                26,123,243
                
                
                
                
                
                (500,283
                )
                
                
                
                
                
                
                
                
                
                $
                25,630,913Exercise
                    of options
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                167,580
                
                
                168
                
                
                555,449
                
                
                (104,934
                )
                
                
                
                
                
                
                
                
                
                
                
                
                $
                450,683Accrue
                    Series B preferred stock dividend
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,115,018
                
                
                
                
                
                (2,894,044
                )
                $
                (1,779,026
                )Issuance
                    of Series B preferred stock dividend, June 2006
                
                
                
                
                
                
                
                
                605,684
                
                
                605
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,300,991
                
                
                
                
                
                
                
                $
                2,301,595Revaluation
                    of warrants issued to Merrill Lynch
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (495,148
                )
                
                
                
                
                
                
                
                
                
                $
                (495,148
                )Accrue
                    FAS123R stock option expense
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,625,117
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                5,625,117Revaluation
                    of residual securitization interest
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,756,908
                
                
                
                
                $
                2,756,908Net
                    (loss) for the year ended June 30, 2007
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (26,528,638
                )
                $
                (26,528,638
                )**Balance,
                    June 30, 2007**
                
                
                0
                
                $
                0
                
                
                8,237,264
                
                $
                8,237
                
                
                25,714,393
                
                $
                25,714
                
                $
                68,788,404
                
                $
                13,038,261
                
                $
                15,453,700
                
                $
                14,263,768
                
                $
                2,756,908
                
                $
                (81,601,737
                )
                $
                32,733,256
  The
          accompanying notes are an integral part of these
          consolidated financial statements.
  F-5


**MRU
      HOLDINGS, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2007 AND JUNE 30, 2006** ****





**NOTE 1
                  -**
              **ORGANIZATION
                  AND BASIS OF
                  PRESENTATION**
  The
        Company was incorporated in Delaware on March 2, 2000. On July 6, 2004 the
        Company changed its name to MRU Holdings, Inc. On May 20, 2005 the Board
        of
        Directors of the Company approved a change in the Company’s year end from
        December 31stto June
        30th.


On
      November 14, 2006, the 2006 Annual Meeting of Stockholders was held at the
      New
      York, NY offices of McGuireWoods LLP, the Company’s principal outside counsel.
      At the Annual Meeting the Company’s stockholders voted on, and approved by
      requisite stockholder vote, the election of eight directors to the Company’s
      Board of Directors.




**NOTE
                2 -**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES******





**Principles
      of Consolidation**





The
      consolidated financial statements include the accounts of the Company and all
      its wholly owned subsidiaries. All intercompany accounts and transactions were
      eliminated in consolidation.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosures of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those estimates.





**Revenue
      Recognition**





The
      Company records its revenue on an accrual basis, whereby revenue is recognized
      when earned and expenses recognized when incurred.





The
      Company recognizes referral income from referring consolidation and private
      student loan requests to other lenders when payments are received from referral
      partners, since referral partners only remit payments for those borrowers after
      the referred borrowers have completed the loan process. As of June 30, 2007,
      the
      Company has terminated all referral agreements to consolidation and private
      lenders and will only be paid in the future for referral income from previously
      referred borrowers funded by other lenders.





Interest
      income on student loans receivable is recognized in accordance with SFAS 91,
      Accounting for Nonrefundable Fees and Costs Associated with Originating or
      Acquiring Loans and Initial Direct Costs of Leases.





The
      Company follows SFAS 91 for the revenue recognition of origination fee revenue,
      whereby loan origination fees are deferred and recognized over the life of
      the
      loan as an adjustment of yield (interest income).





The
      Company recognizes revenues from license/subscription fees for web-based
      services over the life of the contract, which is typically one to three years.
      The Company recognizes revenue from transaction processing fees, such as
      web-based school applications, as the transactions are completed.





F-6


**Costs
      of Revenues**





The
      Company includes as costs of revenues all direct costs related to the production
      of the various revenue streams of the Company’s business.





For
      the
      fiscal year ended June 30, 2007, the Company incurred $6,195,281 in credit
      facility interest costs related to the collateralization of its student loan
      receivables portfolios and originating bank costs, $991,149 in referral
      marketing costs related to the generation of the Company’s private student
      loans, $337,592 in student loan servicing and custodial costs, $152,583 in
      consulting and hosting costs for the scholarship search and college application
      products and $396,356 in cost of subscription and service revenue related to
      college application products.





For
      the
      fiscal year ended June 30, 2006, the Company incurred $1,078,202 in credit
      facility interest costs related to the collateralization of its private student
      loan portfolios and originating bank costs, $348,822 in referral marketing
      costs
      related to the generation of the Company’s private student loans, $82,625 in
      student loan servicing and custodial costs, and $53,775 in consulting and
      hosting costs for the scholarship search product and $23,300 in referral
      marketing costs related to referring consolidation loan borrowers to other
      lenders.





**Valuation
      Reserve - Student Loan Receivables**





The
      Company’s private and federally insured student loans receivable portfolios are
      both held for sale, valued at the lower of cost or market. The valuation reserve
      represents management’s estimate of expected losses on these student loans
      receivable portfolios. This evaluation process is subject to numerous estimates
      and judgments. The Company evaluates the adequacy of the valuation reserve
      on
      its federally insured loans receivable portfolio separately from its private
      student loans receivable portfolio.





In
      determining the adequacy of the valuation reserve for the private student loans
      receivable portfolio, the Company considers several factors including: 2003
      United States Department of Education’s cohort default rates for Title IV
      post-secondary educational institutions (adjusted for particular characteristics
      of individual borrowers including the university attended, program of study,
      academic progress in the current or prior program of study, and current or
      prior
      employment history), portfolio loan performance of those loans in repayment
      versus those in nonpayment status, and portfolio delinquency and default
      performance. Should any of these factors change, the estimates made by
      management would also change, which in turn would impact the level of the
      Company’s future valuation reserve.





The
      valuation reserve is maintained at a level management believes is adequate
      to
      provide for estimated possible credit losses inherent in the student loans
      receivable portfolio. This evaluation is inherently subjective because it
      requires estimates that may be susceptible to significant changes.




For
        the
        fiscal year ended June 30, 2007, the Company recorded $814,918 as a valuation
        reserve for its private student loans receivable, representing an additional
        provision of $2,783,045 and reductions of $312,906 due to charge-offs and
        a
        reversal of $2,469,853 due to the sale of loans into a securitization compared
        to the fiscal year ended June 30, 2006. For the fiscal year ended June 30,
        2006,
        the Company recorded $814,631 as a valuation reserve for its private loans
        receivable.


The
      Company places a private student loan receivable on nonaccrual status and
      charges off the loan when the collection of principal and/or interest is 180
      days past due or if the Company learns of an event or circumstance, which in
      the
      Company’s judgment causes the loan to have a high probability of nonpayment,
      even before the collection of principal and/or interest is 180 days past due.
      The Company’s third party servicer works with borrowers who have temporarily
      ceased making full payments due to hardship or other factors, according to
      a
      schedule approved by the Company and accepted by the third party servicer that
      is consistent with established loan program servicing procedures and policies.
      Loan granted deferment or forbearance will move off principal and/or interest
      repayment, although these loans will continue to accrue interest. The Company
      works with the servicer in identifying borrowers who may be delinquent on their
      loans due to misinformation (students frequently change addresses) or availing
      the student borrower deferment or forbearance. The Company actively manages
      its
      servicing and collection process to optimize the performance of our student
      loans receivable portfolios. For the period ended June 30, 2007, the Company
      recorded charge-offs and placed on non-accrual loans totaling
      $312,906.





F-7


An
      analysis of the Company’s valuation reserve is presented in the following table
      for the fiscal  year s ended
      June 30, 2007 and
      2006 :





Fiscal
                Year Ended
              June
                30, 2006
            
            Fiscal
                Year Ended
              June
                30, 2007Balance
                at beginning of period
            
            $
            0
            
            $
            814,631Valuation
                reserve increase/(decrease)Federally
                insured
                loans
            
            
            0
            
            
            0Private
                student
                loans
            
            
            814,631
            
            
            2,783,045Total
                valuation reserve change
            
            
            814,631
            
            
            2,783,045Charge-offs
                net of recoveriesFederally
                insured
                loans
            
            
            0
            
            
            0Private
                student
                loans
            
            
            0
            
            
            (312,906
            )Net
                Charge-offs
            
            
            0
            
            
            (312,906
            )Loans
                sold into securitization
            
            
            0
            
            
            (2,469,853
            )Balance
                at end of period
            
            $
            814,631
            
            $
            814,918Private
                student loan valuation reserve as a percentageof
              the private
              student loansreceivable portfolio
            
            
            2.06%
            
            
            13.0%




For
      the
      fiscal year ended June 30, 2007, the Company originated approximately $8.1
      million in loans under the U.S. Department of Education’s Federal Family
      Education Loan Program (FFELP) provisions. The amount of valuation reserve
      for
      this portfolio is zero as the risk of loss is deminimus.





**Cash
      and Cash Equivalents/Restricted Cash**





The
      Company considers all highly liquid debt instruments and other short-term
      investments with an initial maturity of three months or less to be cash
      equivalents. The Company maintains cash and cash equivalent balances at
      financial institutions that are insured by the Federal Deposit Insurance
      Corporation up to $100,000. At June 30, 2007 and 2006, the Company’s uninsured
      cash balances total $13,506,587 and $19,782,730, respectively.





Included
      in cash and cash equivalents are restricted cash deposits that are not readily
      available to the Company for working capital purposes. At June 30, 2007 and
      2006, the Company’s restricted cash balances were $3,153,840 and $2,975,430,
      respectively.





**Security
      Deposits**





As
      of
      June 30, 2007 and 2006, the Company had $955,019 and $30,248 respectively in
      security deposits held and controlled by other parties to secure lease
      agreements the Company has for office space and facilities in New York City,
      on
      deposit with the Securities and Exchange Commission (SEC) for future SEC filings
      and on deposit related to servicing agreements.





F-8


**Fixed
      Assets**





Fixed
      assets are stated at cost. Depreciation is computed primarily using the
      straight-line method over the estimated useful life of the assets.





Computer
                network equipment
            3
                YearsLeasehold
                improvements
            3
                YearsFurniture
                and fixtures
            3
                Years




**Investment
      in Education Empowerment Fund I, LLC (f/k/a Achiever Fund I, LLC)**





On
      April
      18, 2006, the Company entered into a definitive agreement with a consortium
      of
      European financial institutions with significant experience in consumer lending
      and specialty financial products to support the launch and origination of
      PreprimeTM student loans. These private student loans address the market of
      post-secondary school borrowers who are currently unable to meet traditional
      private student loan underwriting criteria, e.g. thin or no credit history,
      insufficient earnings history, etc. The Company is both the managing member
      (through its Education Empowerment Funding I, LLC (f/k/a Achiever Funding LLC
      affiliate) and a minority investor in the Education Empowerment Fund I, LLC
      (f/k/a Achiever Fund I LLC). As of June 30, 2007, the Company’s investment
      percentage in these affiliates was less than five (5%) percent.





On
      April
      27, 2007, Education Empowerment SPV LLC, a wholly-owned, special purpose
      subsidiary of Education Empowerment Fund I, LLC, entered into a $100 million
      revolving credit facility for the origination and funding of
      Preprime TM student
      loans with an asset backed commercial paper conduit managed by DZ Bank AG.
      The
      facility has a five year term. The proceeds from the initial draw down on the
      facility were used to return a significant portion of invested capital to
      Education Empowerment Fund I, LLC’s members. The line
      of credit expands the capacity of the fund to acquire PrePrime TM student
      loans originated by the Company. The line of credit is solely an obligation
      of
      the fund. There is no recourse to the Company.





The
      Company has not consolidated these affiliates within its financial statements
      per FASB Interpretation 46, *Consolidation
      of Variable Interest Entities* (FIN
      46). FIN 46 requires consolidation by business entities of variable interest
      entities, which have one or more of the following characteristics (the Company’s
      application of the facts of the agreement to FIN 46 requirements are noted
      after
      each):





1.
            The
                equity investment at risk is not sufficient to permit the entity
                to
                finance its activities without additional subordinated financial
                support
                provided by any parties, including the equity holders. (The agreement
                anticipated the need for more than the initial funding for each member
                up
                to a limit of $26M. The Company is limited to $1M in potential equity
                investment in this agreement. This agreement was amended to a funding
                limit of $40M, with the Company limit amended to
                $1.5M.)





2.
            The
                equity investors lack one or more of the following essential
                characteristics of a controlling financial
                interest:





a.
            The
                direct or indirect ability to make decisions about the entity’s activities
                through voting rights or similar rights. (Education Empowerment Fund
                I,
                LLC is controlled by a board of directors with voting rights held
                by the
                equity investors).


b.
            The
                obligation to absorb the expected losses of the entity (Gains and
                losses
                are allocated to members based on their respective
                investments).


c.
            The
                right to receive the expected residual return of the entity (Residual
                interests are returned to the members in a pro rata distribution
                based on
                their respective percentage
                interests)





3.
            The
                equity investors have voting rights that are not proportionate to
                their
                economic interests, and the activities of the entity involve or are
                conducted on behalf of an investor with a disproportionately small
                voting
                interest. (Voting
                Rights:
                The agreement requires the unanimous vote of the members;
                under Delaware law, managers who are also members have the same
                rights and powers of other members unless the operating agreement
                provides
                otherwise.Entity
                Activities:
                Education Empowerment Fund I, LLC provides student loans to unrelated
                third parties and thereby generates profits which are allocated
                to the members in proportion to their respective percentage
                interests.)





F-9


The
      Company accounts for this investment at the lower of cost or fair value, which
      is the Company’s investment basis (cost), per EITF 03-16, *Accounting
      for Investments in Limited Liability Companies* .





**Securitization
      Accounting**





To
      meet
      the sale criteria of SFAS No. 140, the Company’s securitization uses a two-step
      structure with a Qualified Special Purpose Entity (“QSPE”) that legally isolates
      the transferred assets from the Company, even in the event of bankruptcy. The
      transactions are also structured, in order to meet sale treatment, to ensure
      that the holders of the beneficial interests issued by the QSPE are not
      constrained from pledging or exchanging their interests, and that the Company
      does not maintain effective control over the transferred assets.





The
      Company assessed the financial structure of the securitization to determine
      whether the trust or other securitization vehicle meets the sale criteria as
      defined in SFAS No. 140 and accounts for the transaction accordingly. To be
      a
      QSPE, the trust must meet all of the following conditions:


•
It
      is
      demonstrably distinct from the Company and cannot be unilaterally dissolved
      by
      the Company and at least 10 percent of the fair value of its interests is held
      by independent third parties.


•
The
      permitted activities in which the trust can participate are significantly
      limited. These activities are entirely specified up-front in the legal documents
      creating the QSPE.


•
There
      are limits to the assets the QSPE can hold; specifically, it can hold only
      financial assets transferred to it that are passive in nature, passive
      derivative instruments pertaining to the beneficial interests held by
      independent third parties, servicing rights, temporary investments pending
      distribution to security holders and cash.


•
It
      can
      only dispose of its assets in automatic response to the occurrence of an event
      specified in the applicable legal documents and must be outside the control
      of
      the Company.





**Retained
      Interests in Securitizations**





The
      Company securitizes its student loan assets and for transactions qualifying
      as
      sales retains Residual Interests, all of which are referred to as the Company’s
      Accounts Receivable from Securitizations. The Residual Interest is the right
      to
      receive cash flows from the student loans and reserve accounts in excess of
      the
      amounts needed to pay servicing, derivative costs (if any), other fees, and
      the
      principal and interest on the bonds backed by the student loans. The investors
      of the securitization trusts have no recourse to the Company’s other assets
      should there be a failure of the student loans to pay when due.





The
      Company recognizes the resulting gain on student loan securitizations in the
      consolidated statements of operations. This gain is based upon the difference
      between the allocated cost basis of the assets sold and the relative fair value
      of the assets received. The component in determining the fair value of the
      assets received that involves the most judgment is the Residual Interest. The
      Company estimates the fair value of the Residual Interest, both initially and
      each subsequent quarter, based on the present value of future expected cash
      flows using management’s best estimates of the following key assumptions —
defaults, recoveries, prepayment speeds, interest rates on the asset backed
      bonds, the forward interest rate curve and discount rates commensurate with
      the
      risks involved. Quoted market prices are not available for the Residual
      Interest. The Company accounts for its Residual Interests as available-for-sale
      securities. Accordingly, Residual Interests are reflected at market value with
      temporary changes in market value reflected as a component of accumulated other
      comprehensive income in stockholders’ equity.





The
      Company records interest income and periodically evaluates its Residual
      Interests for other than temporary impairment in accordance with the Emerging
      Issues Task Force (“EITF”) Issue No. 99-20 “Recognition of Interest Income and
      Impairment on Purchased and Retained Beneficial Interests in Securitized
      Financial Assets.” Under this guidance, each quarter, the Company estimates the
      cash flows to be received from its Residual Interests which are used
      prospectively to calculate a yield for income recognition. In cases where the
      Company’s estimate of future cash flows results in a decrease in the yield used
      to recognize interest income compared to the prior quarter, the Residual
      Interest is written down to fair value, first to the extent of any unrealized
      gain in accumulated other comprehensive income, then through earnings as an
      other than temporary impairment.





F-10


**Income
      Taxes**





The
      income tax benefit is computed on the pretax income (loss) based on the current
      tax law. Deferred income taxes are recognized for the tax consequences in future
      years of differences between the tax basis of assets and liabilities and their
      financial reporting amounts at each year-end based on enacted tax laws and
      statutory tax rates.





**Sales
      and Marketing**





The
      Company expenses the costs associated with sales and marketing as incurred.
      Sales and marketing expenses, included in the statements of operations for
      the
      years ended June 30, 2007 and 2006 were $13,944,598 and $7,447,426,
      respectively.





**(Loss)
      Per Share of Common Stock**





Historical
      net (loss) per common share is computed using the weighted average number of
      common shares outstanding. Diluted earnings per share (EPS) include additional
      dilution from common stock equivalents, such as stock issuable pursuant to
      the
      exercise of stock options and warrants.





The
      following is a reconciliation of the computation for basic and diluted EPS
      for
      the years ended June 30, 2007 and June 30, 2006:





June
                30, 2007
            
            June
                30, 2006(Restated)Net
                (loss) applicable to common shares
            
            $
            (29,422,684
            )
            $
            (38,622,122
            )Weighted-average
                common stockOutstanding
                (Basic)
            
            
            20,720,628
            
            
            15,100,652Weighted-average
                common stockequivalents:Stock
                options
            
            
            -
            
            
            -Warrants
            
            
            -
            
            
            -Weighted-average
                common stockoutstanding
                (Diluted)
            
            
            20,720,628
            
            
            15,100,652




For
      June
      30, 2007 and 2006, warrants (6,833,929 and 15,604,968) were not included in
      the
      computation of diluted EPS because inclusion would have been antidilutive.
      For
      June 30, 2007 and 2006, options (5,737,807 and 4,320,485) were not included
      in
      the computation of diluted EPS because inclusion would have been antidilutive.


F-11


**Financial
      Instruments Disclosures of Fair Value**





Statement
      of Financial Accounting Standard 107, *Disclosures
      about Fair Value of Financial Instruments* ,
      (FAS
      107), requires entities to disclose the fair value of all (recognized and
      unrecognized) financial instruments that is practicable to estimate, including
      liabilities. The estimates of fair value of financial instruments are summarized
      as follows:





Carrying
      amounts approximate fair value





June
                30, 2007
            
            June
                30, 2006
              (Restated)Cash
            
            $
            11,605,531
            
            $
            17,899,504Restricted
                cash
            
            
            3,153,840
            
            
            2,975,430Accounts
                Receivable
            
            
            1,979,058
            
            
            4,167Federal
                student loans, held for sale
            
            
            7,394,702
            
            
            0Accounts
                Payable
            
            
            3,835,193
            
            
            1,410,865Notes
                Payable - Doral Bank
            
            
            1,398,529
            
            
            806,182Notes
                Payable - Merrill Lynch
            
            
            11,711,393
            
            
            17,863,560Notes
                Payable - Nomura
            
            
            0
            
            
            18,732,264Accounts
                Receivable from Securitizations
            
            
            11,191,957
            
            
            0




The
        fair
        value of the Accounts Receivable from Securitizations is internally calculated
        by discounting the projected cash flows to be received over the life of the
        trust. In projecting the cash flows to be received, the primary assumptions
        the
        Company makes relate to prepayment speeds, default and recovery rates, and
        cost
        of funds. These assumptions are developed internally. See Note 15 -
        Securitization, for further discussions regarding these assumptions. Carrying
        values approximate fair value for the other listed assets and liabilities
        because of their short time to realization.


Assets
      with fair values exceeding carrying amounts





June
                30, 2007Carrying
                Value
            
            Fair
                ValuePrivate
                student loans receivable, held for sale, net of valuation
                reserve
            
            $
            5,441,174
            
            $
            6,023,110Investment
                in Education Empowerment Fund I, LLC
            
            $
            332,071
            
            $
            341,546June
                30, 2006 (restated)Carrying
                Value
            
            
            Fair
                ValuePrivate
                student loan receivable, held for sale, net of valuation
                reserve
            
            $
            38,749,736
            
            $
            42,869,602







The
      Company determined the fair value of its student loans receivable through a
      net
      present value analysis on an individual loan basis. This analysis considered
      the
      2004 United States Department of Education’s cohort default rates for Title IV
      post-secondary educational institutions, an individual loan basis of valuation,
      and estimated prepayment assumptions. As of June 30, 2007, the approximate
      10.7%
      increase in fair value over the carrying value, which is the Company’s cost,
      results from this net present value modeling of future cash flows from the
      borrowers servicing these loans tempered by all of the above
      factors.





The
      fair
      value of the Investment in Education Empowerment Fund I, LLC was determined
      from
      the June, 2007 net asset value report provided to the investors in this
      entity.





F-12


**Stock
      Based Compensation**





At
      June
      30, 2007, the Company had two stock-based compensation plans, the revised 2004
      Omnibus Incentive Plan and the 2005 Consultant Incentive Plan, both of which
      were registered with the Securities and Exchange Commission in November, 2005.
      During the quarter ended December 31, 2005, the Company adopted the Financial
      Accounting Standards Board (“FASB”) Statement 123(R), *Share-Based
      Payments* (FAS123R). FAS 123R requires compensation expense, measured as the fair value
      at
      the grant date, related to share-based payment transactions to employees to
      be
      recognized in the financial statements over the period that an employee provides
      service in exchange for the award.





The
      Company recognized $5,625,117 in stock based compensation expense for the year
      ended June 30, 2007.





The
      Company recognized $7,814,692 in stock based compensation expense for the year
      ended June 30, 2006.





**Recent
      Accounting Pronouncements**





In
      February 2006, the FASB issued SFAS 155, *Accounting
      for Certain Hybrid Financial Instruments* ,
      an
      amendment of FASB Statement 133 *Accounting
      for Derivative Instruments and Hedging Activities* and FASB
      Statement 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* (SFAS
      155). SFAS 155 was effective for the Company beginning in the first quarter
      of
      fiscal 2007. SFAS 155 permits interests in hybrid financial instruments that
      contain an embedded derivative, which would otherwise require bifurcation,
      to be
      accounted for as a single financial instrument at fair value, with changes
      in
      fair value to be recognized in earnings. This election is permitted on an
      instrument-by-instrument basis for all hybrid financial instruments held,
      obtained, or issued as of the adoption date. The adoption of SFAS 155 did not
      have any material impact on the Company’s consolidated financial condition or
      results of operations.





In
      March
      2006, the FASB issued SFAS 156, *Accounting
      for the Servicing of Financial Assets* ,
      an
      amendment of FASB Statement 140, *Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities* (SFAS
      156). SFAS 140 required that all separately recognized servicing assets and
      liabilities be initially measured at fair value, if practicable, and required
      entities to elect either fair value measurement with changes in fair value
      reflected in earnings or the amortization and impairment requirements of SFAS
      140 for subsequent measurement. SFAS 156 was effective for the Company beginning
      in the first quarter of fiscal 2007. The adoption of SFAS 156 did not have
      any
      material impact on the Company’s consolidated financial condition or results of
      operations.




In
      July
      2006, the FASB issued FASB Interpretation 48, *Accounting
      for Uncertainty in Income Taxes -* an
      interpretation of FASB Statement 109 (FIN 48). FIN 48 clarifies the accounting
      for uncertainty in income taxes recognized in an entity’s financial statements
      in accordance with SFAS 109, *Accounting
      for Income Taxes* .
      FIN 48
      prescribes a recognition threshold and measurement attribute for financial
      statement disclosure of tax positions taken or expected to be taken on a tax
      return. This interpretation is effective for fiscal years beginning after
      December 15, 2006. Consistent with the requirements of FIN 48, the Company
      will
      adopt this pronouncement on July 1, 2007. The Company is currently evaluating
      the provisions of FIN 48 and has not yet determined the impact, if any, on
      the
      Company’s consolidated financial statements.





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, *Fair
      Value Measurement* (SFAS
      157). This standard provides guidance for using fair value to measure assets
      and
      liabilities. SFAS 157 applies whenever other standards require (or permit)
      assets or liabilities to be measured at fair value but does not expand the
      use
      of fair value in any new circumstances. Prior to SFAS 157, the methods for
      measuring fair value were diverse and inconsistent, especially for items that
      are not actively traded. The standard clarifies that for items that are not
      actively traded, such as certain kinds of derivatives, fair value should reflect
      the price in a transaction with a market participant, including an adjustment
      for risk, not just the Company’s mark-to-model value. SFAS 157 also requires
      expanded disclosure of the effect on earnings for items measured using
      unobservable data. SFAS 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007, and interim periods within
      those
      fiscal years. The Company is currently evaluating the impact of this statement
      on its financial statements.





F-13


The
      FASB
      also issued in September 2006 Statement of Financial Accounting Standards No.
      158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans* (FAS
      158) an amendment of FASB Statements 87, 88, 106 and 132(R). This Standard
      requires recognition of the funded status of a benefit plan in the statement
      of
      financial position. The Standard also requires recognition in other
      comprehensive income certain gains and losses that arise during the period
      but
      are deferred under pension accounting rules, as well as modifies the timing
      of
      reporting and adds certain disclosures. FAS158 provides recognition and
      disclosure elements to be effective as of the end of the fiscal year after
      December 15, 2006 and measurement elements to be effective for fiscal years
      ending after December 15, 2008. The Company has not yet analyzed the impact
      FAS158 will have on its financial condition, results of operations, cash flows
      or disclosures but notes that the Company does not currently have in place
      a
      defined benefit pension plan.





In
      February 2007, FASB issued Statement of Financial Accounting Standard No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      amendment of FASB Statement No. 115* (SFAS
      159). SFAS 159 permits entities to elect to measure many financial instruments
      and certain other items at fair value. Unrealized gains and losses on items
      for
      which the fair value option has been elected will be recognized in earnings
      at
      each subsequent reporting date. SFAS 159 is effective for fiscal years beginning
      after November 15, 2007. The Company is currently assessing the impact of SFAS
      159 on its consolidated financial statements.





In
      June
      2007, the FASB ratified EITF Issue No. 06-11 "Accounting for Income Tax Benefits
      of Dividends on Share-Based Payment Awards" (EITF 06-11), which requires
      entities to record tax benefits on dividends or dividend equivalents that are
      charged to retained earnings for certain share-based awards to additional
      paid-in capital. In a share-based payment arrangement, employees may receive
      dividends or dividend equivalents on awards of nonvested equity shares,
      nonvested equity share units during the vesting period and share options until
      the exercise date. Generally, the payment of such dividends can be treated
      as deductible compensation for tax purposes. The amount of tax benefits
      recognized in additional paid-in-capital should be included in the pool of
      excess tax benefits available to absorb tax deficiencies on share-based payment
      awards. EITF 06-11 is effective for fiscal years beginning after December 15,
      2007 and interim periods within those years. Management is currently evaluating
      the effect of this guidance on MRU Holding's financial condition and results
      of
      operations.





**Reclassification**





Certain
      amounts in the June 30, 2006 financial statements have been reclassified to
      conform to the June 30, 2007 presentation. There was no effect on net loss
      for
      the periods.


**NOTE 3
                  -**
              **STUDENT
                  LOAN RECEIVABLES, HELD FOR
                  SALE**





Student
      loan receivables are private student loans made to post-secondary and/or
      graduate students pursuing degree programs from selective colleges and
      universities in the United States of America and abroad.  Private student
      loans are not guaranteed by any governmental entity and are unsecured consumer
      debt.  Interest accrues on these loans from date of advance, with the
      interest rate dependent on the student borrower’s choice of repayment option
      (deferred, interest payment only, and principal and interest payment). 
Once these loans begin to service, borrower payments are applied to interest
      and
      principal consistent with the effective interest rate method per SFAS 91, *Accounting
      for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans
      and Initial Direct Costs of Leases* .
      Origination fee revenue is recognized, if applicable, over the principal
      servicing life of the loan, also per SFAS 91.




The
      Company values its student loan receivables at the lower of cost or market
      on an
      individual loan basis. The Company determines the fair market value of its
      student loans receivable through a net present value analysis of its student
      loan portfolios. This process is described in Note 2, Financial Instruments
      Disclosures of Fair Value for private student loans receivable. The Company
      intends to sell or securitize student loans receivable at a time indefinite,
      such action is largely dependent on the Company’s ability to originate and/or
      hold similar student loans receivable to bundle for sale or
      securitization.





F-14


MRU
      Lending, Inc. (MRUL) and MRU Funding SPV, Inc. (MRUF) have loan purchase
      agreements with Doral Bank Federal Savings Bank New York (Doral Bank), an
      affiliate of the Doral Financial Corporation. Through November 30, 2005, MRUL
      had a loan purchase agreement with Webbank, a Utah state chartered financial
      institution and a wholly owned subsidiary of WebFinancial
      Corporation.




The
      Doral
      Bank-MRUL loan program is secured by a $1 million seven-day certificate of
      deposit held at Doral Bank, with assignment rights to Doral Bank. The Doral
      Bank-MRUF loan program is secured by a $2 million seven-day certificate of
      deposit held at Doral Bank, with assignment rights to Doral Bank.





Through
      June 30, 2007, the Company purchased the following private student loan volumes
      through its various subsidiary loan programs. All loans purchased through these
      loans programs are purchased at par, i.e. no discount, and without recourse
      or
      redemption features available to the originating bank.





○
            The
                Doral Bank-MRU Lending loan program purchased approximately $18.5
                million
                in private student loans.





○
            The
                Doral Bank-MRU Funding SPV loan program purchased approximately $121.1
                million in private student loans.




○
            The
                Webbank-MRU Lending loan program purchased approximately $1.5 million
                in
                private student loans.





The
      Company has retained servicing rights on the loans purchased under its various
      subsidiary loan programs and has outsourced the servicing function to a third
      party, who remits funds collected to us along with monthly activity
      reports.


**NOTE 4
                    -**
                **FIXED
                    ASSETS**


Fixed
      assets consist of the following at June 30, 2007 and 2006:





2007
            
            2006(Restated)Computer
                network equipment
            
            $
            2,081,701
            
            $
            691,872Furniture
                and fixtures
            
            
            71,033
            
            
            57,912Leasehold
                improvements
            
            
            6,906
            
            
            5,8842,159,640
            
            
            755,668Less:
                accumulated depreciation
            
            
            (606,754
            )
            
            (218,537
            )Total
                fixed assets
            
            $
            1,552,886
            
            $
            537,131




Depreciation
      expense for the years ended June 30, 2007 and 2006 was $388,217 and $160,930,
      respectively.


**NOTE 5
                      -**
                  **INTANGIBLE
                      ASSETS**





The
      Company acquired a scholarship resource database in July, 2005. After
      identification of tangible assets in this asset purchase, the Company paid
      and
      assigned a valuation of $148,440 to this intangible asset. The Company is
      amortizing this asset over a three year useful life.





F-15


The
      Company obtained a group of customer contracts, trademarks and technology,
      and a
      non-compete agreement related to a transaction with The Princeton Review (TPR)
      detailed in Note 14 -
      Acquisition. The transaction valued the group of customer contracts at
      $1,500,000, the trademarks and technology at $1,000,000 and a non-compete with
      TPR at $500,000. The group of customer contracts is amortized over a four year
      useful life. The trademarks and technology are amortized over a five year useful
      life. The non-compete is amortized over the agreement’s five year term.





As
      of
      June 30, 2007, the book value and accumulated amortization of the Company’s
      intangible assets follows.




AccumulatedIntangible
                Asset
            Book
                Value
            AmortizationCustomer
                Contracts
            $1,375,000
            $125,000Trademarks
                & Technology
            933,333
            66,667Non-compete
                Agreement
            466,667
            33,333Scholarship
                Resource data
            49,480
            98,960TOTAL
            $2,824,480
            $323,960





As
      of
      June 30, 2006, the book value and accumulated amortization of the Company’s
      intangible assets follows.




AccumulatedIntangible
                Asset
            Book
                Value
            AmortizationScholarship
                Resource data
            $98,960
            $49,480TOTAL
            $98,960
            $49,480




**NOTE 6
                        -**
                    **PROVISION
                        FOR INCOME
                        TAXES**
  Income
          taxes are provided for the tax effects of transactions reported in the
          financial
          statements and consist of taxes currently due. Deferred taxes related to
          differences between the basis of assets and liabilities for financial and
          income
          tax reporting will either be taxable or deductible when the assets or
          liabilities are recovered or settled. The difference between the basis
          of assets
          and liabilities for financial and income tax reporting are not material
          therefore, the provision for income taxes from operations consist of income
          taxes currently payable.
 
 The
          nature of the timing difference generating the deferred tax asset are the
          accumulated net operating loss carry forwards that can be applied towards
          mitigating future tax liabilities of the Company. The Company has established
          a
          valuation account at the full value of the tax deferred asset.
 
 There
          were no provisions for income taxes for the fiscal years ended June 30,
          2007 and
          June 30, 2006.
 
 Deferred
          income taxes are determined using the liability method for the temporary
          differences between the financial reporting basis and income tax basis
          of the
          Company’s assets and liabilities. Deferred income taxes will be measured based
          on the tax rates expected to be in effect when the temporary differences
          are
          included in the Company’s consolidated tax return. Deferred tax assets and
          liabilities are recognized based on anticipated future tax consequences
          attributable to differences between financial statements carrying amounts
          of
          assets and liabilities and their respective tax bases.
 
 The
          Company’s deferred tax asset, which the Company has set aside a valuation
          allowance at an equal amount, is due primarily to the expected tax benefit
          of
          the Company’s net operating losses. To-date, the Company’s operations have not
          generated any federal, state, or local taxes beyond the minimum filing
          requirements, which can not and have not been mitigated by operating loss
          carry
          forwards. The Company does not have an effective tax rate due to the Company’s
          lack of taxable profits to-date.
 
 F-16
 
 2007
                
                2006(Restated)Deferred
                    tax assets
                
                $
                18,760,000
                
                $
                8,680,000Less:
                    valuation allowance
                
                
                (18,760,000
                )
                
                (8,680,000
                )Totals
                
                $
                -
                
                $
                -
  At
          June
          30, 2007 and 2006, the Company had accumulated net operating loss deficits
          of
          $53.6 million and $24.8 million, respectively, available to offset future
          taxable income through 2026. The Company established valuation allowances
          equal
          to the full amount of the deferred tax assets due to the uncertainty of
          the
          operating losses in future periods. Note that the Company’s beneficial
          conversion features for the Series B Convertible Preferred Stock increase
          the
          Company’s accumulated deficit but does not contribute to net operating losses
          that can be used to offset future taxable income.
 **NOTE 7
                              -**
                          **STOCKHOLDERS’
                              EQUITY**
 
 **Common
          Stock**
 
 There
          were 200,000,000 shares of common stock authorized, with 25,714,393 and
          17,593,565 shares issued and outstanding at June 30, 2007 and 2006,
          respectively. The par value for the common stock is $.001 per
          share.
 
 The
          following details the common stock transactions for the year ended June
          30,
          2007:
 
 ○
              7,000
                  warrants were exercised at a price of
                  $3.80/warrant ○
              7,089,445
                  warrants were exercised at a price of
                  $3.50/warrant ○
              284,362
                  warrants were exercised at a price of
                  $2.00/warrant ○
              109,000
                  warrants were exercised at a price of
                  $1.60/warrant ○
              557,450
                  warrants were exercised at a price of
                  $0.99/warrant ○
              1,667
                  options were exercised at a price of
                  $5.90/option ○
              16,668
                  options were exercised at a price of
                  $4.80/option ○
              16,667
                  options were exercised at a price of
                  $3.73/option ○
              3,336
                  options were exercised at a price of
                  $3.50/option ○
              4,165
                  options were exercised at a price of
                  $3.45/option ○
              33,333
                  options were exercised at a price of
                  $3.22/option ○
              1,000
                  options were exercised at a price of
                  $3.15/option ○
              2,000
                  options were exercised at a price of
                  $3.00/option ○
              3,750
                  options were exercises at a price of
                  $2.85/option ○
              24,999
                  options were exercised at a price of
                  $2.00/option ○
              60,000
                  options were exercised at a price of
                  $1.60/option 
 There
          were a total number of 7,953,248 warrants exercised for the year ended
          June 30,
          2007 at a weighted average price of $3.29.
 
 F-17
 There
          were a total number of 167,585 options exercised for the year ended June
          30,
          2007 at a weighted average price of $2.69.
 
 The
          following details the common stock transactions for the year ended June
          30,
          2006:
 
 ○
              145,709
                  warrants were exercised at a price of
                  $2.00/warrant ○
              46,050
                  warrants were exercised at a price of
                  $1.60/warrant ○
              21,060
                  warrants were exercised at a price of
                  $0.99/warrant ○
              37,021
                  warrants were exercised at a price of
                  $0.50/warrant ○
              89,950
                  warrants were exercised at a price of
                  $0.02/option ○
              16,250
                  employee options were exercised at a price of
                  $3.07/option ○
              50,000
                  employee options were exercised at a price of
                  $3.00/option ○
              75,000
                  employee options were exercised at a price of
                  $2.00/option ○
              765,479
                  and 2,682,544 shares of Preferred Series A were voluntarily and
                  mandatorily converted to common, respectively 
 There
          were a total number of 339,790 warrants exercised for the year ended June
          30,
          2006 at a weighted average price of $1.20.
 
 There
          were a total number of 141,250 options exercised for the year ended June
          30,
          2007 at a weighted average price of $2.48.
 
 A
          total
          of 765,479 and 2,682,544 shares of Preferred Series A were voluntarily
          and
          mandatorily converted to common, respectively.
 
 **Series
          B Convertible Preferred Private Placement**
 
 There
          were 25,000,000 shares of Series B convertible preferred stock authorized,
          with
          8,237,264 and 7,631,580 shares issued and outstanding as of June 30, 2007
          and
          2006, respectively. The par value for this preferred issuance is $0.001
          per
          share.
 
 On
          December 30, 2005, the Controlling Series A Convertible Preferred Stockholders
          approved an amendment and restatement of the Company’s Certificate of
          Incorporation, to be effective on or about February 13, 2006, creating
          12,000,000 shares of Series B Convertible Preferred Stock with a $0.001
          par
          value and a $3.80 purchase price. The power, preferences, and rights of
          the
          Series B Convertible Preferred Stock set forth in the Amended and Restated
          Certificate of Incorporation include voting rights, dividends, liquidation
          preference, conversion rights, protective provisions, redemption, election
          of
          board of directors, and right of first refusal in any offerings of Series
          A
          Convertible Preferred Stock or Common Stock. Holders of Series B Convertible
          Preferred Stock have the right to convert at any time after the date of
          issuance.
 
 On
          January 5, 2006, the Company agreed to issue 6,578,948 shares of the Series
          B
          Convertible Preferred Stock at $3.80 per share to various funds of Battery
          Ventures and Merrill Lynch Institutional Management Equity Partners. The
          transaction closed on February 13, 2006. Proceeds of the financing will
          be used
          to advance the Company’s growth in the private student loan market.
 
 On
          January 20, 2006, the Company received $5 million in proceeds from bridge
          promissory notes due to various funds of Battery Ventures and Merrill Lynch
          Institutional Management Equity Partners, bearing interest at six (6%)
          percent
          per annum based on a 365 day year. The outstanding balance of these notes,
          together with accrued and unpaid interest thereon, shall be due and payable
          no
          later than the earlier of (a) April 15, 2006 or (b) the closing date of
          the
          private placement of Series B Convertible Preferred Stock to which the
          Company
          receives gross proceeds of at least $25 million. These notes were retired
          with
          accrued interest on February 13, 2006.
 
 F-18
 On
          May 8,
          2006, the Company agreed to issue an additional 1,052,632 shares of the
          Series B
          Convertible Preferred Stock at $3.80 per share to Lehman Brothers Group,
          Inc.
          and Keane Capital V, LLC. Proceeds of the financing will be used to continue
          the
          Company’s growth in the private student loan market.
 
 The
          Series B Convertible Preferred Stockholders shall be entitled to receive
          cumulative dividends on the Series B Preferred at a rate equal to six (6%)
          percent of the Series B Original Issue Price annually, payable in arrears
          in
          additional shares of Series B Preferred. The Series B Preferred shares
          paid
          pursuant to the foregoing dividend will be valued at the Series B Original
          Issue
          Price. Dividends on the Series B Preferred shall cease to accrue, and all
          accrued but unpaid dividends shall be paid in kind, by the Third Trading
          Day
          after the first day on which the Market Price (the volume weighted average
          price
          for such date on the Principal Market, as reported by Bloomberg Financial,
          LP)
          of a share of the Company’s Common Stock listed on a Principal Market (the New
          York Stock Exchange or the NASDAQ National Market) is at least three (3)
          times
          the Original Series B Purchase Price for at least five (5) consecutive
          Trading
          Days.
 
 On
          June
          15, 2007, the Company paid dividends to holders of Series B Convertible
          Preferred Stock through the issuance of 605,684 additional shares of Series
          B
          Preferred.
 
 For
          the
          years ended June 30, 2007 and 2006, the balances for the additional paid-in
          capital account for the beneficial conversion feature for the Series B
          Convertible Preferred Stock were $14,263,768 and $10,847,759, respectively.
          The
          Company will continue to record the beneficial conversion feature for the
          Series
          B Convertible Preferred stock for any new issuances or dividends accrued
          on this
          instrument.
 
 The
          Series B Convertible Preferred Stock issued was effectively registered
          with the
          Securities and Exchange Commission on February 22, 2007.
 
 **Stock
          Options**
 
 Under
          the
          amended 2004 Omnibus Incentive Plan (OIP), the Company may grant either
          incentive stock options (ISOs) pursuant to Section 422 of the Internal
          Revenue
          Code, non-qualified stock options (NQOs), restricted common stock, restricted
          common stock units, performance grants, unrestricted common stock, or stock
          appreciation rights grants to its officers, directors, and employees and
          NQOs,
          restricted common stock, restricted common stock units, unrestricted common
          stock, or stock appreciation rights to its consultants or third party service
          providers.
 
 The
          Compensation Committee administers the OIP. The Compensation Committee
          has the
          complete authority and discretion to determine the terms of OIP
          grants.
 
 ISOs
          and
          NQOs are granted at an exercise price not less than its fair value at the
          date
          of the grant. Options granted have a maximum term of ten years. Option-vesting
          periods range from immediate vesting to three years, with approximately
          33% of
          stock option grants vesting ratably over three years. At June 30, 2007
          there
          were 2,190,845 shares available for future grants under the amended 2004
          OIP and
          1,275,513 shares available for future grants under the 2005 Consultant
          NQO
          Plan.
 
 The
          key
          assumptions for the Black-Scholes valuation method include the expected
          term of
          the option, stock price volatility, risk-free interest rate, dividend yield,
          forfeiture rate, and exercise price. Many of these assumptions are judgmental
          and highly sensitive. Following is a table of the key weighted average
          assumptions used in the valuation calculations for the options granted
          in the
          years June 30, 2006 and June 30, 2007, and a discussion of our methodology
          for
          developing each of the assumption used in the valuation model.
 
 Jun-2007
                Jun-2006Expected
                    term
                6.5
                    yrs
                6.5
                    yrsExpected
                    volatility
                57%
                26%Risk-free
                    interest rate
                4.64%
                4.698%Dividend
                    yield
                0%
                0%
  F-19
 Expected
          Term .
          This is
          the period of time over which the options granted are expected to remain
          outstanding. Options granted have a maximum term of ten years. The Company
          lacks
          sufficient historical exercise data that it may rely on to determine expected
          term for the grants issued through June 30, 2007. Therefore the Company
          relied
          on the simplified method for expected term as defined by the SEC Staff
          Accounting Bulletin 107 (SAB 107), where expected term equals the sum of
          the
          vesting term and the original contractual term, which is then divided by
          two.
          The Company has noted that the simplified method for estimating expected
          term is
          only available for option grants through December 31, 2007, when the SEC
          anticipates more detailed information should be available to the Company.
          An
          increase in the expected term will increase share-based compensation
          expense.
 
 Expected
          Volatility .
          Actual
          changes in the market value of our stock are used to calculate the volatility
          assumption. The Company calculated daily market value changes during the
          period
          that the grant was issued to determine volatility, which was then annualized.
          An
          increase in the expected volatility will increase share-based compensation
          expense.
 
 Risk-Free
          Interest Rate .
          This is
          the ten-year US Treasury zero coupon bond interest rate posted at the date
          of
          grant having a term equal to the expected term of the option. An increase
          in the
          risk-free interest rate will increase share-based compensation
          expense
 
 Dividend
          Yield .
          This is
          the annual rate of dividends per share over the exercise price of the option.
          The Company has no history of paying a dividend, so this has been 0%. An
          increase in the dividend yield will increase share-based compensation
          expense.
 
 Forfeiture
          Rate .
          This is
          the estimated percentage of options granted that are expected to be forfeited
          before becoming fully vested, i.e. service-based awards where the full
          award
          does not vest due non-completion of the service by the employee, director,
          or
          consultant. This percentage is derived from historical experience. An increase
          in the forfeiture rate will decrease compensation expense.
 
 The
          following table summarizes the stock option activity for the 2004 OIP for
          the
          years ended June 30, 2007 and 2006:
 
 2007
                
                2006Options
                    outstanding at beginning of period
                
                
                4,083,498
                
                
                1,500,000Options
                    granted
                
                
                2,314,708
                
                
                2,733,498Options
                    exercised
                
                
                (142,580
                )
                
                (141,250
                )Options
                    forfeited, expired or cancelled
                
                
                (729,806
                )
                
                (8,750
                )Options
                    outstanding at year end
                
                
                5,525,820
                
                
                4,083,498Exercisable
                    options at year end
                
                
                3,977,495
                
                
                2,355,845
 
 The
          weighted-average fair value of these grants, calculated using the Black-Scholes
          valuation method under the assumptions indicated above, was $2.39 in 2007
          and
          was $2.34 in 2006.
 
 The
          following table summarizes the stock option activity for the 2005 Consultant
          NQO
          Plan for the years ended June 30, 2007 and 2006:
 
 2007
                
                2006Options
                    outstanding at beginning of period
                
                
                236,987
                
                
                0Options
                    granted
                
                
                0
                
                
                236,987Options
                    exercised
                
                
                (25,000
                )
                
                0Options
                    forfeited, expired or cancelled
                
                
                0
                
                
                0Options
                    outstanding at year end
                
                
                211,987
                
                
                236,987Exercisable
                    options at year end
                
                
                211,987
                
                
                207,820
 
 F-20
 
 The
          following table summarizes information about the stock options outstanding
          for
          the 2004 OIP at June 30, 2007:
  Exercise
                    Price Range
                Number
                    Outstanding
                Remaining
                    Life
                Number
                    Exercisable
                Weighted
                    Average Exercise Price$0.01
                    - $1.00
                798,909
                7.71
                643,564
                $0.93$1.01
                    - $2.00
                492,913
                7.30
                517,913
                $1.64$2.01
                    - $3.00
                387,500
                8.13
                357,550
                $2.95$3.01
                    - $4.00
                1,902,414
                8.26
                1,664,896
                $3.24$4.01
                    - $7.00
                1,944,084
                9.68
                793,572
                $6.47TOTAL
                5,525,870
                8.54
                3,977,495
                $3.28
  The
          following table summarizes information about the stock options outstanding
          for
          the 2005 Consultant NQO Plan at June 30, 2007:
 
 Exercise
                    Price Range
                Number
                    Outstanding
                Remaining
                    Life
                Number
                    Exercisable
                Weighted
                    Average Exercise Price$0.01
                    - $1.00
                0
                0.00
                0
                $0.00$1.01
                    - $2.00
                0
                7.08
                0
                $2.00$2.01
                    - $3.00
                0
                0.00
                0
                $0.00$3.01
                    - $4.00
                108,500
                8.30
                108,500
                $3.58$4.01
                    - $7.00
                103,487
                7.84
                103,487
                $4.68TOTAL
                211,987
                8.08
                211,987
                $4.11
  **Warrants**
 
 The
          following details the warrant exercise transactions for the year ended
          June 30,
          2007:
 ○
              7,000
                  warrants were exercised at a price of
                  $3.80/warrant ○
              7,092,781
                  warrants were exercised at a price of
                  $3.50/warrant ○
              284,362
                  warrants were exercised at a price of
                  $2.00/warrant ○
              109,000
                  warrants were exercised at a price of
                  $1.60/warrant ○
              557,450
                  warrants were exercised at a price of
                  $0.99/warrant 
 There
          were a total number of 8,050,593 warrants exercised for the year ended
          June 30,
          2007 at a weighted average price of $3.25.
 
 The
          following details the warrant exercise transactions for the year ended
          June 30,
          2006:
 ○
              145,709
                  warrants were exercised at a price of
                  $2.00/warrant ○
              46,050
                  warrants were exercised at a price of
                  $1.60/warrant ○
              21,060
                  warrants were exercised at a price of
                  $0.99/warrant ○
              37,021
                  warrants were exercised at a price of
                  $0.50/warrant ○
              89,950
                  warrants were exercised at a price of
                  $0.02/warrant 
 There
          were a total number of 339,800 warrants exercised for the year ended June
          30,
          2006 at a weighted average price of $1.20.
 
 The
          Company had the following warrants outstanding for the purchase of its
          common
          stock at June 30, 2007 and 2006:
 
 F-21
 Exercise
                Expiration
                June
                    30,
                June
                    30,Price
                Date
                2007
                2006$0.99
                September
                    2006
                0
                64,747$0.99
                December
                    2006
                0
                808,539$0.99
                December
                    2007
                505,336
                530,603$0.99
                December
                    2008
                530,607
                530,607$0.99
                April
                    2009
                22,740
                22,740$1.60
                July
                    2007
                100,000
                100,000$1.60
                July
                    2009
                242,850
                361,850$2.00
                July
                    2007
                90,119
                374,481$3.50
                February
                    2007
                0
                7,999,449$3.50
                February
                    2010
                207,500
                227,500$3.50
                February
                    2016
                1,482,751
                1,482,751$3.50
                March
                    2017
                180,004
                0$3.80
                December
                    2010
                152,000
                159,000$3.80
                February
                    2011
                2,480,264
                2,480,264$3.80
                December
                    2016
                412,437
                412,437$4.00
                April
                    2010
                50,000
                50,000TOTAL
                
                6,833,929
                15,604,968Exercisable
                    warrants
                6,421,492
                13,738,086Weighted
                    average exercise price
                $2.84
                $2.83
 **NOTE 8
                                -**
                            **CREDIT
                                LINE WITH NOMURA CREDIT & CAPITAL, INC.**
 On
          February 4, 2005, MRUL, a wholly-owned subsidiary of the Company, entered
          into a
          credit agreement (the “Credit Agreement”), by and among Nomura, as Agent, a
          subsidiary of Nomura Holdings, Inc., and the institutions from time to
          time
          party thereto as lenders, pursuant to which the lenders have agreed to
          provide
          MRUL with a $165 million secured revolving credit facility for the origination
          and warehousing of private student loans. The loans under the Credit Agreement
          are secured by, among other things, a lien on all of the student loans
          financed
          under the Credit Agreement and any other student loans owned by MRUL and
          not
          otherwise released, together with a pledge of 100% of the capital stock
          of MRUL.
          The Credit Agreement contains terms and provisions (including representations,
          covenants and conditions) customary for transactions of this type. The
          Company
          paid $206,500 in deferred financing fees in association with the Credit
          Agreement.
 
 The
          Credit Agreement also provides for customary events of default, including
          failure to pay principal, interest or fees when due, failure to comply
          with
          covenants, breaches of certain representations and warranties, the bankruptcy
          of
          MRUL or MRU Lending Holdco, LLC (MRU Lending’s direct parent and wholly-owned
          subsidiary of the Company), failure to maintain certain net worth ratios,
          a
          material adverse change in MRUL’s ability to originate student loans, and
          failure of the Company to indirectly own 100% of the outstanding capital
          stock
          of MRUL. The facility has a three year term. Related to this transaction,
          Nomura
          was granted a warrant, subject to certain terms and conditions, to purchase
          common stock of the Company equal to an approximately 27.5% ownership interest
          in the Company on a diluted basis. The Company valued the warrants granted
          at
          $6,079,581 and recorded a deferred financing fee in an equivalent amount
          (see
          Note 16 - Restatement).
 
 On
          June
          14, 2007, MRUL entered into an agreement with Nomura to terminate its credit
          line seven business days after the close of the Company’s securitization of
          Private Student Loans. In connection with the early termination of the
          Credit
          Agreement, Nomura agreed to waive its rights to be paid all amounts that
          would
          otherwise become due and payable to Nomura upon the early termination of
          the
          Credit Agreement with respect to collateral securing the loans under the
          Credit
          Agreement as well as waiving all past, present and future fees due (or
          that may
          become due) and payable under the Credit Agreement. Pursuant to this early
          termination agreement, the Credit Agreement was terminated on July 5, 2007.
 
 F-22
 The
          Company recognized amortization expense associated with the financing fees
          of
          $3,317,665 for the fiscal year ended June 30, 2007 and $2,060,943 for the
          fiscal
          year ended June 30, 2006.
 
 As
          of
          June 30, 2007, there were no amounts outstanding on the Nomura line of
          credit.
  **NOTE 9
                                  -**
                              **CREDIT
                                  LINE WITH MERRILL LYNCH BANK USA (MLBU)**
 On
          January 23, 2006, the Company’s private student lending subsidiary, MRU Funding
          SPV, Inc. (MRUF) entered into a definitive agreement with MLBU pursuant
          to which
          MLBU will provide MRUF with a $175 million revolving credit facility for
          the
          origination and warehousing of private student loans. The facility has
          a one
          year term, with periodic renewals at the option of both parties. As a result
          of
          this transaction, MLBU was granted a warrant, subject to certain terms
          and
          conditions, to purchase up to 4.9% of the Company’s Common Stock. Please see
“Note 17 - Subsequent Events” for a discussion of the current status of the
          facility.
 
 The
          Company recognized amortization expense associated with all deferred MLBU
          financing fees of $2,130,260 for the year ended June 30, 2007.
 
 As
          of
          June 30, 2007, the MRUF obtained approximately $11.7 million in financing
          through the MLBU line of credit by collateralization of loans originated
          through
          the Doral Bank FSB New York-MRUF loan program.
 **NOTE 10
                                    -**
                                **LOAN
                                    PROGRAM
                                    AGREEMENTS**
 
 On
          July
          25, 2005, MRU Lending, Inc. (“MRUL”), a wholly-owned subsidiary of the Company
          entered into a definitive agreement with Doral Bank NY, FSB (“the Bank”). The
          agreement provides for the Bank’s origination of private student loans to
          qualified applicants participating in MRUL’s private student loan program, the
          marketing of such program and solicitation and qualification of such applicants
          by MRUL or its affiliates and the sale by the Bank and purchase by MRUL
          of such
          student loans at par, i.e. no discount, and without recourse. The business
          purpose of the Loan Program and Loan Sale Agreements between MRUL and the
          Bank
          allow MRUL to purchase student loans originated by a Federal Savings Bank.
          There
          are legal and regulatory advantages to MRUL for purchasing loans originated
          by a
          Federal Savings Bank that are not otherwise available to MRUL. The agreement
          between MRUL and the Bank is evidenced by a Loan Program Agreement and
          a Loan
          Sale Agreement both dated July 25, 2005. The Agreements have a thirty-six
          (36)
          month term and are automatically renewable for up to two (2) successive
          terms of
          twelve (12) months.
 
 The
          balances due to the Bank for origination of MRUL private student loans
          were $0
          and $44,266 as of June 30, 2007 and 2006.
 
 On
          January 10, 2006, MRU Originations, Inc. (“MRUO”) and MRU Funding SPV, Inc.
          (“MRUF”), wholly-owned subsidiaries of the Company entered into definitive
          agreements with Doral Bank NY, FSB (“the Bank”). The agreement provides for the
          Bank’s origination of private student loans to qualified applicants
          participating in MRUO’s private student loan program, the marketing of such
          program and solicitation and qualification of such applicants by MRUO and
          the
          sale by the Bank and purchase by MRUF of such student loans at par, i.e.
          no
          discount, and without recourse. The business purpose of the Loan Program
          and
          Loan Sale Agreements between, MRUO, MRUF, and the Bank allow MRUF to purchase
          student loans originated by a Federal Savings Bank. There are legal and
          regulatory advantages to MRUF for purchasing loans originated by a Federal
          Savings Bank that are not otherwise available to MRUF. The agreement between
          MRUO and the Bank is evidenced by a Loan Program Agreement dated January
          10,
          2006. The agreement between MRUF and the Bank is evidenced by a Loan Sale
          Agreement dated January 10, 2006. The Agreements have a thirty-six (36)
          month
          term and are automatically renewable for up to two (2) successive terms
          of
          twelve (12) months.
 
 F-23
 The
          balances due to the Bank for origination of MRUO private student loans
          were
          $1,398,529 and $761,916 as of June 30, 2007 and 2006.
 **NOTE 11
                                      -**
                                  **PATENTS**
 The
          Company has a patent pending for a business method. This business method
          enables
          the Company to provide customized financial products to consumers.
 **NOTE 12
                                        -**
                                    **COMMITMENTS
                                        AND
                                        CONTINGENCIES**
 **Earn
          Out Feature of Acquisition**
 
 Related
          to the Company’s transaction with The Princeton Review (TPR), the Company could
          be obligated to pay an earn-out of up to $1.25 million based upon certain
          performance targets of the assets purchased in this transaction. In no
          event,
          will TPR owe the Company any amounts based on the performance of the assets
          the
          Company acquired from TPR.
 
 **Employment
          Agreements**
 
 The
          Company has three employment agreements with key management personnel.
          The
          following table summarizes the terms of the employee agreements the Company
          has
          with key management personnel:
 
 NAME
                TITLE
                EXPIRATION
                    DATEEdwin
                    J. McGuinn, Jr.
                CEO
                November
                    11, 2007Raza
                    Khan
                President
                April
                    1, 2009Vishal
                    Garg
                CFO
                April
                    1, 2009
  Please
          see “Note 17 - Subsequent Events” regarding the extension of Mr. McGuinn’s
          contract.
 
 **Legal
          Matters**
 Related
          to the Company’s transaction with The Princeton Review (TPR), the Company
          assumed all costs, expenses, and judgments arising out of the CollegeNET
          litigation that relate to the operation of the purchased assets on or after
          February 16, 2007.
 
 On
          September 10, 2003, CollegeNET, Inc. filed suit in Federal District Court
          in
          Oregon, alleging that TPR infringed a patent owned by CollegeNET (U.S.
          Patent
          No. 6,460,042 - the ‘042 Patent), related to the processing of on-line
          applications. College NET never served TPR and no discovery was ever conducted.
          However, apparently based on adverse rulings in related lawsuits concerning
          the
‘042 Patent, CollegeNET dismissed the 2003 case against TPR without prejudice
          on
          January 9, 2004.
 
 On
          August
          2, 2005, the Court of Appeals for the Federal Circuit issued an opinion
          favorable to CollegeNET in its appeal from the adverse rulings in the related
          lawsuits.
 
 The
          next
          day, August 3, 2005, CollegeNET again filed suit against TPR alleging
          infringement of the same ‘042 Patent that was the subject of the earlier action.
          On November 21, 2005, CollegeNET filed an amendment complaint, which added
          a
          second patent (U.S. Patent No. 6,910,045 - the ‘045 Patent) to the lawsuit. TPR
          was served with the amended complaint on November 22, 2005, and filed its
          answer
          and counterclaims on January 13, 2006, which was later amended February
          24,
          2006. On March 20, 2006 filed its reply to TPR’s counterclaims. CollegeNET seeks
          injunctive relief and unspecified monetary damages.
 
 TPR
          filed
          a request with the United States Patent and Trademark Office (PTO) for
          ex parte
          reexamination of CollegeNET’s ‘042 Patent on September 1, 2005. TPR filed
          another request with the PTO for ex parte reexamination of CollegeNET’s ‘045
          Patent on December 12, 2005. The PTO granted TPR’s requests and ordered
          reexamination of all claims of the CollegeNET ‘042 patent on October 31, 2005
          and ordered reexamination of all claims of the CollegeNET ‘045 Patent on January
          27, 2006.
 
 F-24
 On
          March
          29, 2006, the court granted TPR’s motion to stay all proceedings in the lawsuit
          pending completion of the PTO’s reexaminations of the CollegeNET patents. On
          November 9, 2006, the PTO issued a Non-Final Office Action rejecting all
          44
          claims of the ‘042 Patent. On January 9, 2007, CollegeNET filed a response to
          the Non-Final office Action with the PTO. TPR could not predict the likely
          outcome of these proceedings but believed that it had meritorious defenses
          to
          the CollegeNET claims and intended to vigorously defend. Although the Company
          has not been named as a party to the litigation, CollegeNet could add us
          as a
          defendant following our acquisition of the allegedly infringing intellectual
          property. Likewise, the Company believes that it also has meritorious defenses
          to the CollegeNET claims and intends to vigorously defend.
 
 Please
          see “Note 17 - Subsequent Events” for a discussion of the current status of the
          CollegeNET litigation.
 
 **Operating
          Leases**
 
 The
          Company leases office equipment and corporate space under leases with terms
          between one and seven years. Monthly payments under the current leases
          range
          between $200 and $142,375. The Company is required to pay its pro-rata
          share of
          costs relating to certain of the leased facilities.
 
 The
          following is a schedule by fiscal years of future minimum rental payments
          required under the operating leases which have an initial or remaining
          non-cancelable lease term in excess of one year as of June 30,
          2007:
 2008
                $
                    1,056,1672009
                $
                    2,365,2242010
                $
                    2,031,5152011
                $
                    2,115,2652012
                $
                    2,115,265
  **NOTE 13
                                        -**
                                    **RELATED
                                        PARTY
                                        TRANSACTIONS**
 The
          obligations of the Company under the ISID Finance of America, Inc. sub-lease
          are
          guaranteed by Edwin J. McGuinn, the Company’s Chief Executive Officer, in
          accordance with a Guaranty dated April 26, 2005 executed by Mr. McGuinn
          in favor
          of the Sub-landlord.
  **NOTE 14
                                          -**
                                      **ACQUISITION**
 
 Effective
          February 16, 2007, the Company’s Embark subsidiary, which is wholly owned by the
          Company’s GoToCollege Holdings subsidiary, entered into a definitive Asset
          Purchase Agreement with The Princeton Review (TPR) to purchase proprietary
          technology, trademarks, and customer contracts. The total purchase price
          was
          $11,928,859 - $6,320,143 cash paid to TPR, $252,630 in related liabilities
          assumed, $5,265,179 in deferred customer contract revenue liability assumed,
          and
          $90,907 in Company legal fees for this transaction.
 
 The
          fair
          value of the assets acquired is summarized as follows:
 
 Customer
                    contracts
                
                $
                1,500,000Trademarks
                    and technology
                
                
                1,000,000Non-compete
                    agreement
                
                
                500,000TOTAL
                
                $
                3,000,000
  F-25
 The
          transaction was accounted for by the purchase method of accounting. Accordingly,
          the purchase price was allocated to the assets acquired based on the estimated
          fair value at the acquisition date. The excess of the purchase price over
          the
          fair value of the assets acquired was attributed to goodwill - $8,928,859.
          During the quarter ended June 30, 2007, the company reduced the purchase
          price
          of the transaction by $3,053,915, reflecting a revaluation in the deferred
          customer contract revenue liability assumed. Goodwill attributed to the
          transaction was correspondingly reduced to $5,874,944. The Company adopted
          SFAS
          142, *Goodwill
          and Other Intangible Assets* ,
          and
          will assess the goodwill and intangible assets purchased in this transaction
          annually in the Company’s fiscal 4 th quarter
          for impairment. In making this assessment, the Company will rely on several
          factors including operating results, business plans, economic projections,
          anticipated future cash flows, and market place data. Goodwill will be
          assessed
          more frequently upon the occurrence of an event or circumstance indicating
          that
          the carrying value is greater than its fair value.
 **NOTE 15
                                            -**
                                        **SECURITIZATION**
 On
          June
          28, 2007, the Company closed its first securitization of its private student
          loan assets. The transaction was accounted for as a sale of the $138 million
          of
          private student loans securitized. In connection with the sale, the Company
          booked a gain of $16.2 million based upon the excess of the proceeds and
          value
          of the Residual Interest received over the carrying value of the assets
          sold.
          The Company values the retained Residual Interest at $11.2 million, all
          of which
          are referred to as the Company’s Accounts Receivable from Securitization. The
          Residual Interest is the right to receive cash flows from the student loans
          and
          reserve accounts in excess of the amounts needed to pay servicing, other
          fees,
          and the principal and interest on the bonds backed by the student loans.
          The
          residual cash flows are expected to be received by the Company over
          approximately 28 years. The investors in the securitization trusts have
          no
          recourse to the Company’s other assets should there be a failure of the student
          loans to pay when due.
 
 The
          following table summarizes the Company’s securitization activity for the years
          ended June 30, 2007 and 2006.
 
 *($’s
                    in Thousands)*
                Years
                    Ended June 30,2007
                
                2006#
                    of Transactions
                Amount
                    of Loans Sold to Securit-izations
                Pre-Tax
                    Gain
                Gain
                    %
                
                #
                    of Transactions
                Amount
                    of Loans Sold to Securit-izations
                Pre-Tax
                    Gain
                Gain
                    %Private
                    Student Loans
                1
                $137,792
                $16,205
                11.8%
                
                0
                $0
                $0
                0.0%Federal
                    Student Loans
                0
                0
                00
                0.0%
                
                0
                0
                0
                0.0%Total
                    Securitizations
                1
                $137,792
                $16,205
                11.8%
                
                0
                $0
                $0
                0.0%
  F-26
 Key
          economic assumptions used in estimating the fair value of the Residual
          Interest
          at the date of securitization were as follows.
 
 Years
                    Ended June 30,2007
                
                2006Private
                    Student Loans
                Federal
                    Student Loan
                
                Private
                    Student Loan
                Federal
                    Student LoansAnnual
                    Prepayment Rate (1)
                7%
                N/A
                
                N/A
                N/ACumulative
                    Default Rate (2)
                4.5%
                N/A
                
                N/A
                N/ADefault
                    Recovery Rate (3)
                20%
                N/A
                
                N/A
                N/AWeighted
                    Average Life
                9.6
                    yrs.
                N/A
                
                N/A
                N/ASpread
                    between LIBOR and
                  Auction
                    Rate Indices (4)
                0.01%
                N/A
                
                N/A
                N/ADiscount
                    Rate (5)
                12%
                N/A
                
                N/A
                N/A
 (1)
              Annual
                  Prepayment Rate is applied after loans enter repayment and is in
                  addition
                  to impact of defaults on collateral average
                  life. (2)
              Cumulative
                  Default Rate is the loan balance of defaulted student loans as
                  a
                  percentage of the aggregate principal balance of student loans
                  upon entry
                  into repayment. (3)
              Default
                  Recovery Rate is the percentage of the defaulted loan balance that
                  is
                  recovered over time. (4)
              The
                  senior tranches of the Company’s securitization are auction rate notes.
                  The interest rate on auction rate notes is reset through an auction
                  process periodically (currently every 28-days). Based upon market
                  conditions at the time of each auction, the spread to LIBOR of
                  the
                  interest rate required by investors could be more or less than
                  the initial
                  spread to LIBOR at which the transaction was
                  priced. (5)
              Discount
                  Rate is the rate of return used to discount the residual cash flows
                  projected given the collateral assumptions and the securitization
                  structure. 
 The
          following table summarizes cash flows received from or paid to the
          securitizations trust during the years ended June 30, 2007 and
          2006.
 
 *($’s
                    in Thousands)*
                
                Years
                    Ended June 30,2007
                
                2006Net
                    proceeds from sales of loans to securitizations
                
                $
                138,095
                
                
                N/ARepurchases
                    of securitized loans due to delinquency
                
                
                0
                
                
                N/ACash
                    distributions from trusts related to Residual Interests
                
                
                0
                
                
                N/A
 
 *Residual
          Interest in Securitized Receivables*
 The
          following tables summarize the fair value of the Company’s Residual Interests
          (and the assumptions used to value such Residual Interests), along with
          the
          underlying off-balance sheet student loans that relate to those securitizations
          as of June 30, 2007 and 2006.
 
 *($’s
                    in Thousands)*
                Years
                    Ended June 30,2007
                
                2006Private
                    Student Loans
                Federal
                    Student Loans
                
                Private
                    Student Loans
                Federal
                    Student LoansFair
                    value of Residual Interests
                $11,192
                N/A
                
                N/A
                N/AUnderlying
                    securitized loan balance
                $137,828
                N/A
                
                N/A
                N/AWeighted
                    average life
                9.6
                    yrs.
                N/A
                
                N/A
                N/AAnnual
                    Prepayment Rate
                7%
                N/A
                
                N/A
                N/ACumulative
                    Default Rate
                4.5%
                N/A
                
                N/A
                N/ADefault
                    Recovery Rate
                20%
                N/A
                
                N/A
                N/ASpread
                    between LIBOR and Auction Rate Indices
                0.01%
                N/A
                
                N/A
                N/ADiscount
                    Rate
                12%
                N/A
                
                N/A
                N/A
 
 F-27
 The
          following table summarizes the sensitivity of the value of the Residual
          Interest
          to variations in the key economic assumptions described above.
 *($’s
                      in Thousands)*
                  Percentage
                      Change in Assumptions
                  Residual
                      Balance
                  Percentage
                      Change in AssumptionsDown
                      20%
                  Down
                      10%
                  Up
                      10%
                  Up
                      20%Annual
                      Prepayment RateResidual
                      Balance
                  $11,682
                  $11,432
                  $11,192
                  $10,960
                  $10,736%
                      Change
                  4.38%
                  2.14%
                  
                  (2.07%)
                  (4.07%)Cumulative
                      Default RateResidual
                      Balance
                  $11,973
                  $11,581
                  $11,192
                  $10,806
                  $10,420%
                      Change
                  6.97%
                  3.48%
                  
                  (3.45%)
                  (6.90%)Default
                      Recovery RateResidual
                      Balance
                  $11,044
                  $11,118
                  $11,192
                  $11,266
                  $11,340%
                      Change
                  (1.32%)
                  (0.66%)
                  
                  0.66%
                  1.32%Discount
                      RateResidual
                      Balance
                  $13,016
                  $12,059
                  $11,192
                  $10,404
                  $9,687%
                      Change
                  16.29%
                  7.75%
                  
                  (7.04%)
                  (13.44%)
  *($’s
                      in Thousands)*
                  Percentage
                      Change in Assumptions
                  Residual
                      Balance
                  Percentage
                      Change in AssumptionsTighten
                      10 basis points
                  Tighten
                      5 basis points
                  Widen
                      5 basis points
                  Widen
                      10 basis pointsSpread
                      between LIBOR and Auction Rate IndicesResidual
                      Balance
                  $11,889
                  $11,540
                  $11,192
                  $10,844
                  $10,495%
                      Change
                  6.23%
                  3.11%
                  
                  (3.11%)
                  (6.23%)
  These
          sensitivities are hypothetical and should be used with caution. The effect
          of
          each change in assumption must be calculated independently, holding all
          other
          assumptions constant. Because the key assumptions may not in fact be
          independent, the net effect of simultaneous adverse changes in key assumptions
          may differ from the sum of the individual effect above.
 
 The
          table
          below shows the Company’s off-balance sheet private student loan delinquency
          trends as of June 30, 2007 and 2006.
 
 *($’s
                    in Thousands)*
                As
                    of June 30,2007
                
                2006Loans
                    in-school /grace/deferment (1)
                $109,778
                
                
                N/ALoans
                    in forbearance (2)
                789
                2.8%
                
                N/A
                N/ALoans
                    in repaymentCurrent
                26,763
                95.4%
                
                N/A
                N/ADelinquent
                    31-60 Days (3)
                409
                1.5%
                
                N/A
                N/ADelinquent
                    61-90 Days
                87
                0.3%
                
                N/A
                N/ADelinquent
                    91 Days or More
                0
                0.0%
                
                N/A
                N/ATotal
                    Loans in repayment and forbearance
                $
                    28,048
                100.0%
                
                N/A
                N/ATotal
                    off-balance sheet private student loans
                $137,828
                
                
                N/A
 
 (1)
              Loans
                  for borrowers who are not required to make payments because they
                  are still
                  in or have returned to school, have recently graduated, or are
                  in other
                  valid non-repayment statuses (e.g., military service, medical /
                  dental
                  residency, etc.). (2)
              Loans
                  for borrowers who have entered repayment but have requested a moratorium
                  on making payments due to economic hardship or other factors, in
                  keeping
                  with established program guidelines. (3)
              Delinquency
                  is the number of days that scheduled payments are contractually
                  past
                  due. **NOTE 16
                                              -**
                                          **RESTATEMENT**
 
 The
          Company is restating the consolidated balance sheet as at June 30, 2006,
          and the
          consolidated statements of operations, cash flows, and changes in stockholders
          equity for the year ended June 30, 2006.
 
 As identified
          in Note 8, on February 4, 2005, MRUL, a wholly-owned subsidiary of the
          Company,
          entered into a Credit Agreement with Nomura under which Nomura agreed to
          provide
          MRUL with a $165 million secured revolving credit facility for the origination
          and warehousing of private student loans. Related to this transaction,
          Nomura
          was granted a warrant, subject to certain terms and conditions, to purchase
          common stock of the Company equal to, at that point in time, 27.5% ownership
          interest in the Company on a diluted basis.
 
 F-28
 Financial
          Accounting Standards no. 123R - *Share
          Based Payments* ,
          requires, with respect to share based transactions with other than employees,
          that the consideration received for the issuance of equity instruments
          shall be
          accounted for based on the fair value of the consideration received or
          the fair
          value of the equity instruments issued, whichever is more reliably
          measurable.
 
 As
          a
          result of a review by management of the data considered in deriving the
          value of
          the warrants issued to Nomura, management has determined that a restatement
          is
          required to attribute appropriate value to the warrants. The impact of
          this
          restatement on the consolidated balance sheet as at June 30, 2006 is an
          increase
          of $3,208,668 in deferred financing fees, net of amortization; an increase
          of
          $6,079,582 in additional paid-in capital - warrants; and an increase of
          $2,870,914 in the accumulated deficit of the Company. The June 30, 2005
          balances
          for additional paid-in capital - warrants and accumulated deficit in the
          Consolidated Statement of Changes in Stockholders’ Equity and Accumulated Other
          Comprehensive Income have increased $6,079,581 and, $844,386, respectively.
          With
          respect to the consolidated statement of income for the year ended June
          30,
          2006, the restatement has the effect of increasing depreciation and amortization
          by $2,026,527, from $1,969,858 to $3,996,385. The Company’s net loss applicable
          to common shares has increased $2,026,527 from $(36,595,595) to $(38,622,122).
          Net Loss per basic and diluted shares has increased $0.14 from $(2.42)
          to
          $(2.56).
 **NOTE 17
                                                -**
                                            **SUBSEQUENT
                                                EVENTS**
  *Warehouse
            Lines*
 Due
              to
              recent disruptions in the credit markets precipitated by the subprime
              mortgage
              crisis, the Company’s cost of its current credit facilities have
              increased for the short term while these market disruptions are in
              effect to reflect current market interest and advance rates. In
              anticipation of this potential outcome, the Company began conversations
              with a
              number of other banks to broaden its warehouse funding channels and
              to ensure
              competitive economic terms.
 On
            September 26, 2007, the Company signed a term sheet with a major European
            bank
            for a 5 year, $200 million credit facility for the funding of its private
            student loan portfolio which the Company expects to close, subject to
            final
            documentation and diligence, in the first half of October.
 
 The
            Company’s originations have grown over 100% in the prior year. As such in
            addition to the credit facility mentioned above, the Company has received
            and is
            expecting additional term sheets from a number of investment and commercial
            banks for a complementary credit facility and has received terms from
            them for
            an additional facility in the size of $150 million. The Company expects
            to close
            an additional warehouse line with at least one or more of these counterparties
            over the next 60 days.
 
 The
            Company currently expects to extend its credit facility with Merrill
            Lynch Bank
            USA (“MLBU”) which is up for renewal on December 24, 2007. The Company’s current
            agreement with MLBU provides Merrill Lynch with the right of first offer
            on
            financing the Company’s private student loan portfolio for a period of 3 years
            and up to $500 million in loan volume.
 
 The
            Company believes that the expected increased cost of warehouse financing
            for its
            collateral prior to securitization would only have a minor impact on
            the overall
            income it expects to generate on the loans.
 F-29
 *College
          Net Litigation*
 On
          July
          20, 2007 the PTO issued a “Notice of Intent to Issue Ex Parte Reexamination
          Certificate” in the reexamination of the ‘042 patent. A reexamination
          certificate is expected to be issued for the ‘042 patent within the next several
          months. Based on the PTO’s July 20th notice, the certificate is expected to
          confirm the validity of claims 1-31 as originally issued, allow new claims
          45-53
          and allow the other claim with certain amendments. The PTO’s July 20th decision
          to allow claims 1-31 of the ‘042 patent as originally issued is in conflict with
          a jury verdict rendered on October 5, 2006 in the case of CollegeNet v.
          XAP
          Corporation (Civil Action No. 03-129-BR), which found that claims 16, 18-22,
          28,
          32, 33, 36 and 38 of the ‘042 patent are invalid. However, as of July 27, 2007,
          a final judgment has not been entered in the CollegeNet v. XAP Corporation
          lawsuit.
 
 The
          Company continues to believe that it has meritorious defenses to the CollegeNET
          claims and intends to vigorously defend itself, if necessary.
 
 *Auction
          Rate Market*
 In
          August
          2007, the rapid deterioration of subprime mortgages and collateralized
          debt
          obligations lead to disruptions in the money markets which in turn impacted
          the
          market for auction rate student loan notes. Since that time, similar to
          the
          experience of other issuers of student loan auction rate notes, the interest
          rate on the Company’s student loan auction rate notes has widened to
          approximately 0.80% over Libor. As discussed above in “Note 16 - Securitization
          - Residual Interest in Securitized Receivables”, an increase in the spread
          between Libor and Auction Rate Indices would reduce the estimated fair
          value of
          the Company’s Residual Interests.
 
 On
          a
          quarterly basis, the Company is required to re-evaluate the fair value
          of its
          Retained Interest in its securitization. As such, the Company will take
          the
          outlook for the interest rates for auction rate securities into account
          when
          next evaluating the fair value of its Retained Interest. Based upon
          conversations with market makers in auction rate securities, the Company
          believes that the higher interest rates in the student loan auction rate
          market
          are a temporary phenomenon. To date the increased rates on the Company’s auction
          rate notes have lead to interest expense in excess of projections of
          approximately $150,000.
 
 *Employment
          Contract Mr. Edwin J. McGuinn, Chairman of the Board and Chief Executive
          Officer*
 On
            September 27, 2007, the Company entered into an amended employment agreement
            (the “Amended Agreement”) with Edwin J. McGuinn, Jr., the Company’s chief
            executive officer. Among other things, the Amended Agreement extends
            the term of
            Mr. McGuinn’s employment as chief executive officer of the Company to October
            31, 2008, subject to automatic renewals for successive one-year periods
            thereafter, and (ii) provides that Mr. McGuinn’s annual salary will increase to
            $250,000, effective January 1, 2008.
 Higher
            Education Access Act of 2007
  On
          September 27, 2007, the Higher Education Access Act of 2007 (“HEAA”) was signed
          into law. The HEAA reduces contains the following provisions:
  ·
              the
                  interest rate paid by the borrower on Stafford Loans is reduced
                  from 6.8%
                  to 3.4% over five years,  ·
              the
                  special allowance payments that for-profit holders of federal loans
                  receive is reduced by 0.50% for Stafford Loans and consolidation
                  loans and
                  0.80% for PLUS loans,  ·
              the
                  loan fee charged to FFELP loan lenders is increased from 0.5% to
                  1% and
                  the fee is prohibited from being collected from the borrower,  ·
              the
                  federal guarantee of FFELP loans is reduced from 98% to 97% of
                  the balance
                  of the loan,  ·
              the
                  annual aggregate loan payment amounts made by low-income borrowers
                  are
                  capped at 15% of their adjusted gross
                  income,  ·
              allows
                  borrowers in public service professions to have a portion of the
                  loan
                  forgiven after having made payments for 10
                  years,  ·
              the
                  maximum amount of Pell grants are increased,
                  and  ·
              a
                  pilot program for the auctioning of PLUS loans originations will
                  be
                  established.  The
          overall impact of the HEAA is to reduce the potential profitability of
          FFELP
          loans.
 F-30