**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, 2006**





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.)





**1114
      Avenue of the Americas, 30** **th** **Floor, New York, New York**


**10036**





(Address
      of principal executive offices)


(Zip
      Code)





**(212)
      754-0774**





(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. þ





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, 2006 were approximately $1.2M.





The
      aggregate market value of the voting stock held by non-affiliates of the
      registrant, based on the average bid and asked prices on NASD’s OTC Bulletin
      Board on August 17, 2006 was approximately $82M.





The
      number of shares outstanding of the issuer’s common stock, $0.001 par value, as
      of the latest practicable date: 17,617,150 shares as of August 17,
      2006.








DOCUMENTS
      INCORPORATED BY REFERENCE





None.




Transitional
      Small Business Disclosure Format (Check one):


 ̈ Yes  þ No








**TABLE
      OF CONTENTS**





**PART
                  I******
              ****ITEM
                  1.
              DESCRIPTION
                  OF BUSINESS
              1ITEM
                  2.
              DESCRIPTION
                  OF PROPERTY
              10ITEM
                  3.
              LEGAL
                  PROCEEDINGS
              10ITEM
                  4.
              SUBMISSION
                  OF MATTERS TO A VOTE OF SECURITY HOLDERS
              10**PART
                  II**ITEM
                  5.
              MARKET
                  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
              10ITEM
                  6.
              MANAGEMENT’S
                  DISCUSSION AND ANALYSIS
              11ITEM
                  7.
              FINANCIAL
                  STATEMENTS
              16ITEM
                  8.
              CHANGES
                  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                  DISCLOSURE
              16ITEM
                  8A.
              CONTROLS
                  AND PROCEDURES
              16ITEM
                  8B.
              OTHER
                  INFORMATION
              16**PART
                  III**ITEM
                  9.
              DIRECTORS
                  AND EXECUTIVE OFFICERS
              16ITEM
                  10.
              EXECUTIVE
                  COMPENSATION
              23ITEM
                  11.
              SECURITY
                  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
              24ITEM
                  12
              CERTAIN
                  RELATIONSHIPS AND RELATED TRANSACTIONS
              26ITEM
                  13
              EXHIBITS
              26ITEM
                  14
              PRINCIPAL
                  ACCOUNTANT AND FEES AND SERVICES
              27EXHIBIT
                  INDEX
              29FINANCIAL
                  STATEMENTS
              F-1










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




This
      Form
      10-KSB annual report 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 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 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. 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, 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.




**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. If any of the following
      risks actually occur, our business, financial condition, or results of
      operations 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 deficits of $32.1M through June 30, 2006. We have not
      had a profitable quarter since the reverse merger that created the present
      form
      of the Company in July 2004. There can be no assurance that we will ever
      generate net income for our stockholders.




**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.




**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
      products.







**Our
      Direct Marketing Initiative May Not Prove To Be Effective**




One
      of
      our marketing strategies 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
      then
      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.




**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, 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.




**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.









**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.




**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.




**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.




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 who 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 and entered the market as a lender, originator,
      and holder for Federal Family Education Loan Program (FFELP) loans as a
      subsequent event to this annual report.





On
      June
      30, 2004, we entered into a sub-sublease with OneSource Information Services,
      Inc. (OneSource) providing for the lease of a portion of the third
      (3 rd )
      floor
      of the building at 600 Lexington Avenue, New York, NY 10022. The term of the
      sub-sublease ends on September 28, 2007, unless sooner terminated or cancelled
      pursuant to the terms of the Sub-Sublease. Rental payments under the
      sub-sublease amount to $139,425 per annum through May, 2006 and $148,720 per
      annum through the remaining term of the sub-sublease. Subsequent to this
      agreement, the sub-sublease has been assigned from OneSource to InfoUSA. On
      March 30, 2006, the Company secured the sub-sublease with a $65,000 letter
      of
      credit collateralized by a certificate of deposit in the same amount held by
      the
      Company at JP Morgan Chase, for the benefit of InfoUSA.





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.





1


On
      February 4, 2005, MRU Lending, Inc. (“MRU Lending”), a wholly-owned subsidiary
      of the Company, entered into a credit agreement (the “Credit Agreement”) with
      Nomura Credit & Capital, Inc. (“Nomura”) which provides 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 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 MRU
      Lending and not otherwise released, together with a pledge of 100% of the
      capital stock of MRU Lending. The Student Loan Credit Facility has 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% will vest 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.






On
      May 5,
      2005, MRU Lending, Inc. (“MRUL”), a wholly-owned subsidiary of the C ompany
      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
      May
      12, 2005, the Company entered into a Sublease dated April 26, 2005 with ISID
      Finance of America, Inc. (the “Sub-landlord”) providing for the sublease of
      7,685 square feet of additional office space located at 1114 Avenue of the
      Americas, New York, New York. The term of the Sublease ends on May 30, 2009,
      unless sooner terminated or canceled pursuant to the terms of the Sublease.
      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. On July 20, 2005,
      the
      Company secured the sub-sublease with a $360,000 letter of credit collateralized
      by a certificate of deposit in the same amount held by the Company at JP Morgan
      Chase, for the benefit of Sub-landlord. Sub-landlord returned to the Company
      $360,000, which was held by the Sub-landlord in lieu of a letter of
      credit.





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 ninety-day certificate
      of deposit held by MRU Lending at Doral Bank, with assignment rights to Doral
      Bank.




On
      September 20, 2005, the 2005 Annual Meeting of Stockholders was held at the
      principal offices of the Company. At the Annual Meeting the Company’s
      stockholders voted on, and approved by requisite stockholder vote, the following
      matters: 1) the election of six directors to the Company’s Board of Directors,
      2) Adoption of the 2005 Consultant Incentive Plan, 3) Adoption of an Amendment
      and Restatement to the 2004 Omnibus Incentive Plan, and 4) Approval of an
      Amendment to the Company’s Certificate of Incorporation to increase the number
      of authorized shares of common stock from 50,000,000 shares to 200,000,000
      shares and the number of authorized shares of preferred stock from 5,000,000
      shares to 25,000,000.




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
      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,
      was 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. 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 LBI 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. All Series B Convertible Preferred Stock
      certificates were issued as of May 8, 2006. As of June 30, 2006, the Series
      B
      Convertible Preferred Stock issued has not been registered with the Securities
      and Exchange Commission.




2




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. 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, MRU Funding
      SPV, Inc. (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 has 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 February
      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
      Preprime TM 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 Achiever Funding, LLC affiliate) and a minority investor
      in
      the Achiever Fund I LLC. As of June 30, 2006, 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 MRU Funding SPV, Inc. subsidiary (MRUF),
      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. As of June 30, 2006, the Company has
      neither originated nor held any FFELP loans.




**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 have entered
      into the student lending market as an originator and holder of Federal and
      private student loans. We have immediate plans to originate, lend, and hold
      Federal Family Education Loan Program (FFELP) loans.





We
      generate revenues from: interest accrued on our private alternative student
      loan
      portfolio, origination fee revenue on our student loan portfolio, and residual
      cash flows from the sale or securitizations of portfolios of our student
      loans.





3


In
      originating our alternative 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 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 6,400 accredited institutions
      of
      higher education in the United States, we focus on a confined 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.




**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 over $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 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, 2006, 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 $40,000 + 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.





4


These
      federal loans are offered through two programs with different delivery systems:
      the William D. Ford Federal Direct Loan Program (“Direct Loans”) and the Federal
      Family Education Loan Program (“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 interest capitalize until 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.
                Loans disbursed after July 1, 1987 have variable interest rates based
                on
                the 91-day T-bill rate.


·
            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, Zions Bank, JP Morgan Chase, Educaid, PNC, 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.





5


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.) All lenders offer the same rate for the Stafford Loan, although
      some give discounts for on-time and electronic payment.





*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 only available to parents in particular circumstances who request
      deferral.





JP
      Morgan
      Chase, CitiBank, Key Bank, 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., 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. It is anticipated that these loans will then
                be either
                sold or securitized. 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 net present 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
                intend to guarantee loans provided by third-party lenders. We plan
                to
                enable students, with or without co-signors, to have their loans
                guaranteed if they meet our credit underwriting requirements. It
                is
                anticipated that students will 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 plan to 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.




6





**·**
            PrePrimeTM
                Student Loans - The Company’s affiliate, Achiever Fund I, LLC (AF1),
                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. AF1 began originating and holding
                PrePrimeTM alternative 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 will
                follow the government’s guidelines for originating and servicing federal
                loans.





**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 will be used to finance
      our alternative student loan products. The loans eligible under the facilities
      will be loans originated by our bank partners and purchased and held by us.
      Eligible loans can remain under the facilities for no more than 15 months at
      which time these loans will either be sold to a third party, repurchased by
      us
      or be securitized. The term of the student loan credit facility with Nomura
      is
      three years. The term of the student loan credit facility with Merrill Lynch
      is
      one year.





**Loan
      Guarantees**


We
      plan
      to make available to students a loan guaranty product by having our guaranty
      agency guarantee on behalf of students enabling them to procure private student
      loans through our potential bank partners. In exchange for this guaranty
      service, students will pay a guaranty fee and an annual interest surcharge
      over
      the life of the loan. Guaranty funds would be provided through a credit support
      facility with Universal Finanz Holding AG.





In
      October 2004, we announced that Universal Finanz Holding AG “Universal”
committed to provide up to $50 million of credit support for MRUG, our guaranty
      subsidiary, to serve as the equity reserve against which MRUG will guaranty
      loans. Under the terms of the financing, Universal will have the right to
      purchase up to a 65% ownership interest in MRUG and pay the purchase price
      for
      such ownership interest by releasing MRUG from its obligation to repay an equal
      amount of its outstanding obligations to Universal under the credit support
      facility. If fully funded and the purchase right exercised, Universal will
      have
      a 65% ownership interest in MRUG in the form of Series “A” Perpetual Preferred
      Stock of MRUG. Eligible borrowers who require a guaranty will pay an upfront
      guaranty fee and be charged an annual fee for the term of their loan. We intend
      to sell the cash flows from the annual fees for their net present value. All
      of
      the fees will be divided between us and Universal at 35% and 65%, respectively,
      after Universal receives its reserve amount.





**FFELP
      Loans**


To
      provide a “one-stop shop” for higher education finance, we plan to provide
      students with FFELP loans. 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 has 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 have
      an
      agreement with the American Education Services/Pennsylvania Higher Education
      Assistance Agency (AES/PHEAA) to be our government guarantor willing to guaranty
      the loans. We have applied for and received a Lender Identification Number
      (“LID”) from the DoE.





7


At
      this
      time, we have agreed to outsource origination, disbursement, and servicing
      to
      AES/PHEAA, as we have experience with AES/PHEAA as the servicer of the Company’s
      alternative private student loans and AES/PHEAA has the requisite experience
      and
      expertise in the origination and servicing of FFELP loans. AES/PHEAA will handle
      any borrower inquiries, electronic signatures, recordkeeping requirements,
      and
      procedures for the assignment, sale or transfer of loans. In addition, the
      AES/PHEAA 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
      established a sales force which reaches out to high schools, colleges and
      universities to educate the about our product offerings.





We
      have
      formed referral relationships with third-parties who wish to provide private
      loan products to their customer base. 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 the existing marketplace.




**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 robust 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. The
      responsibilities of our customer service and technical support personnel
      include:





·
            responding
                to consumers’ questions about the 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 the 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.





8


**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 a third party, who remits 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 recently enacted 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.





**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, 2006 we had 70 full time employees. Our employees are not represented
      under any collective bargaining agreements. We consider our relations with
      our
      employees to be good.





9


**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 JP Morgan Chase, Citibank, First Marblehead, Nelnet,
                and
                Sallie Mae;





·
            Friendliness:
                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 Wells Fargo, 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 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 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.





**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. 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.





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





None.





**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder Matters.**





Our
      Common Stock has been quoted on the OTC Bulletin Board under the symbol
“MHOI.OB” since July 21, 2004. Prior to that time, 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 OTC Bulletin Board.
      The quotations reflect inter-dealer prices, without retail mark-up, mark-down
      or
      commission, and may not represent actual transactions.




10





**High**
            
            **Low****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**Fiscal
                year 2005**Quarter
                ended June 30, 2005
            
            $
            5.06
            
            $
            3.00Quarter
                ended March 31, 2005
            
            $
            6.75
            
            $
            3.83**Fiscal
                year 2004**Quarter
                ended December 31, 2004
            
            $
            5.50
            
            $
            3.89Quarter
                ended September 30, 2004
            
            $
            4.30
            
            $
            0.01





As
      of
      August 17, 2006, there were approximately fifty-two (52) 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.





For
      information regarding the securities authorized for issuance under our equity
      compensation plans, see our disclosure in Item 11 of this annual
      report.





**Item
      6. Management’s Discussion and Analysis.**





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 portfolio, and the costs associated with originating, financing, and
      managing our student loan portfolio.





11


The
      Company’s interest income, or net interest earned on its student loan portfolio,
      is the primary source of the Company’s income and is primarily impacted by the
      size of the portfolio and the Company’s management of its portfolio for default
      and delinquencies. The alternative private student loans that the Company
      originated through the Webbank-MRU Lending, Inc. loan program bear variable
      rates of interest that are adjusted monthly with the changes in the London
      Interbank Offered Rate (LIBOR). The alternative student loans that the Company
      currently originates through the Doral Bank-MRU Lending, Inc. and Doral Bank-MRU
      Funding SPV, Inc. loan programs bear variable rates of interest that are
      adjusted quarterly with LIBOR. Since the Company has outsourced the servicing
      of
      its alternative private student loan portfolios to a third party, who is
      responsible for sending monthly statements and collecting payments from our
      borrowers, remitting those payments to the Company, and generating reporting
      on
      its activities to the Company, this third party is also responsible for
      adjusting the interest rates on all alternative student loans based on the
      applicable LIBOR term.





Since
      the
      Company’s alternative 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 Company’s alternative student loan portfolio is
      most affected by rates of default, delinquencies, recoveries, and prepayments.
      The Company originated its first alternative 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 alternative
      private student loan portfolio, the Company considers several factors including:
      loans in repayment versus those in deferred status, delinquency or default
      status, and recoveries.





The
      Company plans to either sell or securitize its alternative student loan
      portfolio, which will generate a gain on sale for the Company for this asset.
      The timing of this event is dependent on several factors, including but not
      limited to the following: the size of the Company’s alternative private student
      loan portfolio, 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.





Operating
      expenses include the indirect costs to generate and acquire student loans and
      other general and administrative expenses. 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, 2006 (AUDITED) COMPARED TO THE SIX MONTHS ENDED
      JUNE 30, 2005 (AUDITED) AND THE YEAR ENDED DECEMBER 31, 2004
      (AUDITED).**





**Loan
      Portfolio Interest Income** - Total
      loan portfolio interest increased from $297 for the six months ended June 30,
      2005 to $1,206,160 for the year ended June 30, 2006 as a result of the growth
      of
      the alternative private student loan portfolio, from $158K as of June 30, 2005
      to $38.7M as of June 30, 2006. The Company had no interest income for the year
      ended December 31, 2004 as the Company had no loan portfolio at that
      time.





**Facility
      interest and origination bank costs** - Total
      facility interest and origination bank costs also increased as a result of
      the
      growth of the alternative private student loan portfolio. As of June 30, 2005,
      the Company had not yet made an advance against the credit facility with Nomura
      Credit and Capital (Nomura). As of June 30, 2006, the Company had outstanding
      advance balances with Nomura of approximately $18,730,000 and with the new
      credit facility with Merrill Lynch Bank USA of approximately $17,860,000. The
      Company incurred approximately $947,000 in facility interest costs for the
      year
      ended June 30, 2006.





The
      Company incurred approximately $131,000 in originating bank fees and accrued
      interest paid to originating banks (Webbank and Doral Bank FSB NY) during the
      year ending June 30, 2006. For the six months ending June 30, 2005, the Company
      had incurred approximately $10,000 in originating bank fees and accrued interest
      paid to Webbank.





12


The
      Company did not have a credit facility or loan program agreement (originating
      bank) for the year ended December 31, 2004, when facility interest and
      origination bank costs were $0 for the year.





**Provision
      for loan losses (bad debt expenses)** - As of
      June 30, 2006, the Company established a loan loss reserve of approximately
      $815,000 based upon a review of the Company’s alternative private student loans
      that are in repayment and extrapolating those default, delinquency, and recovery
      experiences to both currently serviced and deferred loans in its alternative
      private student loan portfolio. As of June 30, 2005, the Company had no
      experience with defaults, delinquencies, or recoveries that would support a
      provision for loan losses on its $158K alternative private student loan
      portfolio.





**Referral
      marketing costs** - As of
      June 30, 2006, the Company had incurred approximately $372,000 in referral
      marketing costs paid to third parties for referring student loan borrowers
      to
      the Company to fund in alternative private student loans or to refer to other
      lenders for other student loan product funding. This increased from
      approximately $190,000 in referral marketing costs paid to third parties in
      the
      six months ending June 30, 2005, which were exclusively for student loan
      borrowers that the Company referred to other lenders for consolidation student
      loan funding.





**Operating
      expenses** -
      Operating expenses increased to approximately $24.2M for the year ending June
      30, 2006 from approximately $4.1M for the six months ending June 30,
      2005.




Stock-based
      compensation accounted for $7.8M of the approximately $22.8M in total operating
      expenses that the Company incurred for the year ending June 30, 2006. This
      resulted from the Company’s compliance with FAS 123R.




Salaries
      and benefits increased approximately $3.6M for the year ending June 30, 2006
      from the six months ending June 30, 2005 as a result of the Company’s increased
      student loan originations.




Advertising
      costs increased approximately $4.3M for the year ending June 30, 2006 from
      the
      six months ending June 30, 2005 as a result of the Company’s expanding presence
      in the marketplace.




Amortization
      of deferred financing fees accounted for $1.8M in total operating expenses
      for
      the year ending June 30, 2006. These costs resulted from the Company’s student
      loan credit facilities with Nomura Credit and Capital and Merrill Lynch Bank
      USA.





Operating
      expense increased to approximately $4.1M for the six months ending June 30,
      2005
      from approximately $1.9M for the year ended December 31, 2004.




Salaries
      and benefits increased approximately $1.4M for the six months ending June 30,
      2005 from the year ending December 31, 2004 as a result of the Company’s initial
      hiring.




Legal
      fees increased approximately $315K for the six months ending June 30, 2005
      from
      the year ending December 31, 2004 resulting from the increased legal fees to
      close the Nomura credit facility.








**Financial
      Condition, Liquidity and Capital Resources**





Our
      liquidity requirements have consisted, and we expect that they will continue
      to
      consist, of capital expenditures, working capital, facility interest expenses,
      sales and marketing expenses, and general corporate expenses.





We
      expect
      to continue to leverage our credit facilities with Merrill Lynch and Nomura
      to
      provide the Company the funding required to originate future alternative private
      student loans.





**Cash
      and Cash Equivalents**


As
      of
      June 30, 2006, the Company had cash of $20,874,934. As of June 30, 2005, the
      Company had cash of $6,894,522. The increase in cash and cash equivalents is
      primarily due to our Series B Preferred Convertible Stock Offering in February
      and May 2006. 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 $19.8M and $6.8M respectively for the year ended June 30, 2006
      and
      the six months ended June 30, 2005.





13


**Property
      and Equipment, Net**


As
      of
      June 30, 2006, the Company had net property and equipment of $537,131. As of
      June 30, 2005, the Company had net property and equipment of $273,073. The
      increase of $264,058 in net equipment was related to our increase in general
      and
      corporate staff, sales and marketing staff, and operations staff.





**Other
      Prepaid Expenses**


We
      had
      other prepaid expense of $388,477 at June 30, 2006 compared to $133,540 at
      June
      30, 2005. The increase in other prepaid expense was primarily due prepaid
      expenses for the Achiever Fund I LLC affiliate - $86,500.





**Other
      Assets**


We
      had
      other assets of $686,321 at June 30, 2006 and $570,783 at June 30, 2005. The
      increase in other assets is primarily due to $259,293 in net deferred financing
      fees, $120,000 in investment in Achiever Fund I LLC, $98,960 in net intangible
      assets, reduced by decrease in security deposits of $362,715.





**Accounts
      Payable and Accrued Expenses**


We
      had
      accounts payable of $1,410,865, accrued expenses of $870,571, and accrued
      payroll of $161,609 at June 30, 2006 and $577,478 in accounts payable, accrued
      expenses of $170,775, and accrued payroll of $225,644 at June 30, 2005. The
      increase in accounts payable is due to approximately $600K in increased
      marketing payables. The increase in accrued expenses from June 30, 2005 to
      June
      30, 2006 is due to approximately $600K in accrued Series B Convertible Preferred
      dividends, which are payable in additional shares of Series B Convertible
      Preferred stock.





**Contractual
      Obligations and Commercial Commitments**





Contractual
      Obligations




TOTAL
              
              Current
              
              1-3yrs
              
              >3YrsLong
                  Term Debt
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0Capital
                  Lease Obligations
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0Operating
                  Leases
              
              $
              1.5M
              
              $
              557K
              
              $
              996K
              
              $
              0Unconditional
                  Purchase Obligations
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0Other
                  Long-Term Obligations
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0TOTAL
                  Contractual Cash Obligations
              
              $
              1.5M
              
              $
              557K
              
              $
              996K
              
              $
              0


The
      Company leases office and other corporate space under leases with terms between
      one and four years. Monthly payments under the current leases range between
      $1,525 and $31,860. The Company is required to pay its pro-rata share of costs
      relating to certain of the leased facilities. Amounts listed above include
      only
      the contractually obligated portions of these operating leases.





Commercial
      Commitments




TOTAL
              
              Current
              
              1-3yrs
              
              >3yrsLines
                  of Credit
              
              $
              36.6M
              
              $
              0
              
              $
              36.6M
              
              $
              0Standby
                  Letters of Credit
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0Guarantees
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0Standby
                  Repurchase Obligations
              
              $
              0
              
              $
              0
              
              $
              0
              
              $
              0Other
                  Commercial Commitments
              
              $
              806K
              
              $
              806K
              
              $
              0
              
              $
              0TOTAL
                  Commercial Commitments
              
              $
              37.4M
              
              $
              806K
              
              $
              36.6M
              
              $
              0


The
      Company has a $165M three-year credit facility to collateralize its alternative
      private student loans with Nomura Credit and Capital (Nomura) and a $175M
      one-year credit facility with Merrill Lynch Bank USA (Merrill), terms of both
      facilities are described in Part I, Item 1 of this annual report 10-KSB. At
      June
      30, 2006, the Company has approximately $18,730,000 advanced on the Nomura
      Credit and Capital credit facility and approximately $17,864,000 advanced on
      the
      Merrill Lynch Bank US credit facility.





The
      Company’s subsidiaries MRU Lending, Inc. and MRU Funding SPV, Inc. have loan
      sale agreements with Doral Bank Federal Savings Bank New York (Doral Bank).
      At
      June 30, 2006, the Company had total commitments to Doral Bank of approximately
      $806K.





14


**Our
      Plan Of Operations For The Next Twelve Months**


In
      the
      near term, we intend to use our cash on hand 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 and cash on hand are not sufficient to satisfy liquidity
      requirements, we will seek to obtain 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 on acceptable
      terms, the ability to fund expansion, develop and 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 private student loan volume from its two
      primary 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 and evaluating the mediums in which it
      communicates its message. In the third-party referral marketing partner channel,
      the Company is working with existing referral marketing partners to train
      partner staffs and implement processes and systems to enable referral marketing
      partners’ customers to easily connect to the Company’s products.





Operationally,
      the Company is seeking continuous improvements 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. The Company continues
      to attempt to better understand the Company’s customer service experience so
      that prospective and current borrowers can more easily understand the terms
      and
      conditions of the Company’s products versus the Company’s competitors and easily
      comply with the Company’s information requests required to underwrite their
      credit requested.





**OFF-BALANCE
      SHEET ARRANGEMENTS**





As
      of
      June 30, 2006, the Company’s MRU Universal Guarantee Agency, Inc. (MRUG)
      subsidiary has no outstanding commitments under the credit line provided by
      the
      commitment letter MRUG received from Universal Finanz Holding AG on October
      25,
      2004.





**CRITICAL
      ACCOUNTING POLICY AND ESTIMATES**





The
      Company’s Management 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 reporting period.
      On an
      on-going basis, management evaluates its estimates and judgments, including
      those related to revenue recognition, accrued expenses, financing operations,
      and 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. Actual results may differ from these
      estimates under different assumptions or conditions. The most significant
      accounting estimates inherent in the preparation of our financial statements
      include estimates as to the appropriate carrying value of certain assets and
      liabilities which are not readily apparent from other sources. These accounting
      policies are described at relevant sections in this discussion and analysis
      and
      in the notes to the consolidated financial statements included in this annual
      report.





15





**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 F-1.





**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.





On
      August
      9, 2006, the Securities and Exchange Commission (SEC) announced an extension
      for
      compliance for non-accelerated filers for the Section 404 internal control
      requirements of the Sarbanes-Oxley Act 0f 2002. In order to permit
      non-accelerated filers and their auditors to have the benefit of the management
      guidance that the SEC intends to issue, and to have the opportunity to evaluate
      and implement the revisions that the Public Company Accounting Oversight Board
      (PCAOB) plans to make to Auditing Standard Number 2, *An
      Audit of Internal Controls Over Financial Reporting performed in Conjunction
      with an Audit of Financial Statements* ,
      the SEC
      expects to issue a short postponement of the effective date of the SEC’s rules
      implementing Section 404 for non-accelerated filers. It is anticipated that
      any
      such postponement would nonetheless require all filers to comply with the
      management assessment required by Section 404(a) of Sarbanes-Oxley for fiscal
      years beginning on or after December 16, 2006. As the Company is a
      non-accelerated filer for purposes of compliance with Section 404 of the
      Sarbanes-Oxley Act of 2002, the Company at present will be required to be
      compliant with Section 404 for the fiscal year beginning July 1, 2007 and ending
      June 30, 2008.





**(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**





None


**PART
      III**





**Item
      9. Directors and Executive Officers.**





Set
      forth
      below is certain information regarding our directors, executive officers, key
      personnel, and members of our advisory board. Our directors are elected
      annually.




16


**DIRECTORS
      AND EXECUTIVE OFFICERS**





**Name**
            **Age**
            **Positions
                Held and Principal Occupations During the Past Five
                Years**


Edwin
                J. McGuinn, Jr.
            55
            *Chairman
                and Chief Executive Officer***-**In
                addition to his duties at MRU, Mr. McGuinn is also the President
                of eLOT,
                Inc and its subsidiary interest eLottery.com (formerly known as Executone,
                Inc), a telephony services and e-commerce provider for the governmental
                lottery industry. Prior to joining eLOT, Mr. McGuinn was President
                and CEO
                of Automated Trading Systems, Inc. (LimiTrader.com), an institutional
                electronic trading system for new issue and secondary corporate bonds.
                From 1992 to 1997, Mr. McGuinn was Senior Managing Director and Head
                of
                the Equity Products for Rodman & Renshaw and Mabon Securities
                specializing in mid-cap research and corporate finance for consumer
                services, specialty finance, health care and technology companies.
                From
                1981 to 1992, Mr. McGuinn was a managing director and member of Lehman
                Brothers Fixed Income Operating Committee. While at Lehman Brothers,
                Mr.
                McGuinn was responsible for developing Lehman’s global presence in U.S.
                fixed income arbitrage and international fixed income trading, sales
                and
                research. During 1973 to 1981, Mr. McGuinn was a Senior Manager with
                Ernst
                & Young in the audit and management consulting divisions. Mr. McGuinn
                sits on the advisory board of a venture capital company, and the
                board of
                directors of eLot, Inc. and Enigma Software Group, Inc.,a
                New York City based public company developer of software and
                Internet-based systems.Mr.
                McGuinn received a Bachelor of Arts in Mathematics and Economics
                from
                Colgate University and a Master of Science in Accounting from New
                York
                University. He holds NASD Series 7, 8, and 24 licenses along with
                a
                Certified Public Accounting license from the State of New York (inactive).
                Mr. McGuinn has served on our Board since July 8, 2004.Raza
                Khan
            29
            *Co-Founder,
                President and Director***-**Prior
                to MRU, Mr. Khan co-founded Silk Road Interactive, a consulting company
                advising clients on business and financial strategy, brand development
                and
                marketing, and technology. Mr. Khan worked with clients such as Sony
                Music, the White House Historical Association, Computers4Sure, Blades
                Board Skate, and RMH, a subsidiary of Advanta, among others. Mr.
                Khan has
                collaborated on the development of various innovations in the financial
                services sector including the development of human capital based
                investment instruments for which he has been cited in numerous articles
                and news segments including the Financial Times and CNN. He has lectured
                at the CATO Institute and the Harvard Business Club regarding investing
                in
                human capital. Mr. Khan attended New York University. Mr. Khan has
                served
                on our Board since July 8, 2004.






17




**Name**
              **Age**
              **Positions
                  Held and Principal Occupations During the Past Five
                  Years**


Vishal
                Garg
            28
            *Co-Founder,
                Chief Financial Officer, and Director***-**Prior
                to MRU, Mr. Garg was a Founder & Managing Partner at 1/0 Capital LLC
                and Schwendiman Technology Partners LLC - hedge funds focused on
                investments in emerging markets with approximately $125 million in
                combined firm assets. At Schwendiman, Mr. Garg managed a group of
                funds
                focused on emerging markets for large clients such as Bank Julius
                Baer,
                Credit Suisse Group, Republic National Bank/HSBC, Pictet & Cie., among
                others. In addition, he was the portfolio manager for a $15 million
                frontier markets managed account for Goldman Sachs Commodities Corp.
                Prior
                to 1/0 and Schwendiman, Mr. Garg was with Morgan Stanley in the Latin
                America Investment Banking and M&A groups with a focus on telecom,
                technology and media companies. Prior to Morgan Stanley, he was with
                VZB
                Partners, as the Asia Pacific Portfolio Manager for the Strategos
                Fund,
                managing an investment portfolio of approximately $50 million, and
                co-managing a $10 million managed account for Rockefeller & Co. Mr.
                Garg graduated Beta Gamma Sigma with highest honors from the Stern
                School
                of Business at New York University. Mr. Garg has served on our Board
                since
                July 8, 2004.Richmond
                T. Fisher
            48
            *Director*-
                Mr. Fisher is the Co-Founder and the Managing Director of RaceRock
                Capital
                Partners, LLC, a closely held private equity firm located in Stamford
                Connecticut that provides expansion and acquisition capital to growth
                companies. Prior to joining RaceRock Capital Partners, Mr. Fisher
                was
                Founder and Managing Partner of Race Point Partners, LLC, a specialized
                business consulting firm serving private equity, venture capital,
                banks,
                and other organizations in need of specialized executive skills in
                the
                area of risk assessment, stressed ands distressed portfolio assessment,
                interim executive leadership and business turnaround. Prior to founding
                Race Point Partners, Mr. Fisher was Senior Vice President of Global
                Sales
                with Standard and Poors Investment Services and a member of their
                senior
                operating committee from January 2000 through April 2002. In addition,
                Mr.
                Fisher Held the position of President and Chief Executive Officer
                at
                Standard and Poors Securities, Inc. in 1998 and 1999. Mr. Fisher
                currently
                holds NASD Series 7, 24 and 63 licenses. Mr. Fisher has served on
                our
                Board since March 22, 2005.C.
                David Bushley
            63
            *Director
                -*Previously, Mr. Bushley was the Senior Vice President, Human Resources
                for
                Mellon Financial Corporation and was formerly on the Board of Directors
                at
                Education Lending Group, Inc. Prior to joining Mellon Financial Corp.,
                Mr.
                Bushley served as Financial Services Industry National Practice Leader,
                Compensation Consulting, for PriceWaterhouseCoopers, the Senior Vice
                President and Chief Financial Officer of Amdura Corporation and as
                the
                Senior Vice President and the Chief Lending Officer for Mortgage
                Banking
                at the Dime Savings Bank. Prior to this, Mr. Bushley spent 9 years
                with
                Merrill Lynch & Co. where he held a variety of senior management
                positions, including the position of President of Merrill Lynch Mortgage
                Company. Mr. Bushley has served on our Board since July 8,
                2005.




18




**Name**
              **Age**
              **Positions
                  Held and Principal Occupations During the Past Five
                  Years**


Andrew
                Mathieson
            43
            *Director
                -*Mr.
                Mathieson is President and Founder of Fintura Corporation. Previously,
                Mathieson was a Managing Director of InfiStar Corporation of Atlanta,
                Georgia and also served as a Director of InfiCorp Holdings, Inc.,
                the
                parent corporation of InfiStar and InfiBank, N.A, and a wholly owned
                subsidiary of First National of Nebraska, Inc. Prior to joining InfiStar
                in September 1994, Mr. Mathieson was the founder and Principal of
                Mathieson Consulting, a strategy and general management consultancy
                based
                in Chicago. In that position, he assisted First Data Corporation
                with a
                number of projects, including the development of its three-year strategic
                plan. Prior to launching Mathieson Consulting, Mr. Mathieson was
                the
                director of Blue Cross and Blue Shield Association's national consulting
                practice. He has also worked for The Graycon Group, United Airlines
                and
                Citicorp Diners Club. Mr. Mathieson holds an MBA from the University
                of
                Chicago with a double specialization in marketing and business economics
                and an undergraduate degree from the University of Michigan. Mr.
                Mathieson
                has served on our Board since January 25, 2006.Michael
                M. Brown
            34
            *Director
                -*A
                partner at Battery Ventures, which he joined in 1998, Mr. Brown is
                a
                member of the board of directors at the following companies: Fingerhut
                Direct Marketing, OutlookSoft Corporation and TradeKing. In addition,
                Mr.
                Brown has been actively involved with Battery's investments in
                ChemConnect, The London International Financial Futures and Options
                Exchange (acquired by Euronext) and Pedestal, Inc. From 1996 to 1998,
                Mr.
                Brown was a member of the High Technology Group at Goldman, Sachs
&
                Co., where he worked on a variety of debt and equity financings and
                merger
                and acquisition assignments. Prior to joining the High Technology
                Group,
                he was a Financial Analyst within Goldman's Financial Institutions
                Group.
                Mr. Brown graduated magna cum laude from Georgetown University with
                a BS
                in Finance and International Business. Mr. Brown has served on our
                Board
                since February 24, 2006.Sunil
                Dhaliwal
            30
            *Director
                -*A
                partner at Battery Ventures, which he joined in 1998, Mr. Dhaliwal
                is
                currently a board member at Netezza Corporation, and a board observer
                at
                CipherTrust, Inc. Mr. Dhaliwal previously served as a director or
                board
                observer at Storigen Systems (acquired by EMC), @Stake (acquired
                by
                Symantec), and Storability Software (acquired by StorageTek). Mr.
                Dhaliwal
                has also been involved with other Battery investments including Cbeyond
                Communications and Akara (acquired by Ciena). Prior to joining Battery,
                Mr. Dhaliwal worked in the High Technology Group at Alex Brown & Sons,
                Inc. where he executed numerous equity financings, and mergers &
                acquisitions in the communications and software industries. Mr. Dhaliwal
                graduated from Georgetown University with a BS in Finance and
                International Business. Mr. Dhaliwal has served on our Board since
                February 24, 2006.




**KEY
      PERSONNEL**




**Name**
            **Age**
            **Position**Jonathan
                R. Strong
            51
            Chief
                Technology OfficerRandy
                L. Rasmussen
            41
            Managing
                Director of Finance & ControllerWalter
                B. Balmas
            39
            Senior
                Vice President of School Channel MarketingJason
                M. Hare
            32
            Vice
                President, Capital MarketsPhillip
                J. Sbrochi
            57
            Special
                Securitization Advisor





19


*Jonathan
      R. Strong, Chief Technology Officer* - Prior
      to joining MRU, Mr. Strong was President of The Strong Group, Inc., Director
      of
      Management Consulting for DMR Group, Projects Director for CAP Gemini, Senior
      Management Consultant at Touche Ross and Systems Manager for RCA’s Corporate
      Controller. Mr. Strong holds an MBA in management and finance from Drexel
      University, a Masters in Psychoanalysis from the Philadelphia School of
      Psychoanalysis and a Bachelors in Psychology from the University of Pennsylvania
      where he was named, “Benjamin Franklin National Scholar





*Randy
      L. Rasmussen, Managing Director of Finance & Controller -* From
      May
      2001 ** to
      joining the Company, Mr. Rasmussen held the position of Controller for several
      New York based private companies including Waterfront Media, Inc., a
      venture-stage Internet media company, and venture-stage software companies
      CapitalThinking, Inc. (acquired by CapitalStream, Inc.) and NeoVision
      Hypersystems, Inc. (since acquired by SS&C Technologies). Prior to that
      time, Mr. Rasmussen was Director of Finance and Administration for Always-On
      Inc. (since acquired by Veracicom Inc.), a venture stage Internet applications
      service provider. Mr. Rasmussen has
      progressive financial experience from The Associated Press, Knight-Ridder,
      Roadway Express and KPMG. Mr. Rasmussen has a BSBA in Accounting and Finance
      from Creighton University and an MBA from the University of Pittsburgh.
      Additionally, Mr. Rasmussen is an inactive Certified Public Accountant from
      the
      State of Pennsylvania.







*Walter
      B. Balmas, Senior Vice President of* *School
      Channel Marketing* - Prior
      to MRU Holdings, Inc., Mr. Balmas was the Director of Loan Origination at
      Allstudent, a leading federal student loan company in California.  Mr.
      Balmas managed all aspects of origination and servicing, helping to grow
      Allstudent to over $200M in originations with a portfolio of over $1B in loans.
      Prior to Allstudent, Mr. Balmas was a Project Manager at ACS; Assistant Director
      of Financial Aid at the University of Southern California, one of the largest
      private loan originating schools in the United States; and was the Vice
      President of Lending at the University of Southern California Federal Credit
      Union, which he grew from zero to over $50 million in originations within a
      two
      year period. Mr. Balmas has a BA from the University of Southern
      California.




*Jason
      Hare, Vice President of Capital Markets* - Prior
      to MRU Holdings Inc., Mr. Hare was an Assistant Vice-President in the Asset
      Finance Group at Financial Security Assurance (“FSA”). Mr. Hare was responsible
      for originating, underwriting, and structuring domestic asset-backed
      securitizations and lending facilities, primarily for consumer receivables.
      While in the Asset Finance Group, Mr. Hare was responsible for underwriting
      approximately $10 billion of sub-prime and near-prime auto receivables. He
      also
      participated in underwriting $500 million of other assets including small-medium
      size ticket equipment leases, manufactured housing, and credit cards. Mr. Hare
      was also responsible for managing the relationships among FSA, issuers, bankers,
      and rating agencies. Prior to joining the Asset Finance Group, Mr. Hare served
      a
      member of a group that supported the Asset Finance Group through monthly
      monitoring and reporting of transaction performance. Mr. Hare has a Bachelors
      Degree in Finance from Boston College and an MBA from Fordham
      University.





*Phillip
      J. Sbrochi, Special Securitization Advisor* - Mr.
      Sbrochi spent 29 years at Bank One Corp. where he was most recently the Head
      of
      National Retail Lending, which included the Student Loan Business for Bank
      One
      Ohio Corp. Bank One was the second largest Federal Loan player after Sallie
      Mae.
      Mr. Sbrochi is presently working as a consultant for a Midwestern regional
      bank,
      guiding the development of a liquidation model for delinquent and charged-off
      loans. Prior to consulting, Mr. Sbrochi founded Break-Thru Financial Company,
      LLC. At Bank One, Mr. Sbrochi previously served as Manager in Installment Loans
      and Vice President of the Retail Loan Division, managing the origination and
      servicing of all retail loan products, such as Student Loans. Later, Mr. Sbrochi
      became Executive Vice President and Manager of the National Retail Lending
      Division and moved to Banc One Capital Corporation as Managing Director of
      the
      Specialty Finance Mezzanine Fund. Mr. Sbrochi holds an MBA from Capital
      University in Columbus Ohio and a BS in Business Administration from The Ohio
      State University.





20


**Advisory
      Board**





*Michael
      L. Robertson* **-** Michael
      L. Robertson is a highly successful and widely recognized entrepreneur focusing
      on new markets. He spearheaded revolutions in the media and software business
      and is currently the founder and chief executive officer of Lindows.com, a
      consumer software company that creates choice in the operating system
      marketplace. Mr. Robertson served as Chief Executive Officer and Chairman of
      the
      Board at MP3.com since March 1998.





*Gobind
      Sahney* **-** Gobind
      Sahney is the founder of GO Services, a leading servicing and collections
      agency. Mr. Sahney also founded YES, Inc. a successful consumer finance (credit
      card) marketing organization affiliated with MBNA America Bank. He is also
      the
      founder of Sahney and Company, an investment management firm specializing in
      private equity and alternative investment deal/transaction evaluation and
      valuation for companies interested in the Asia-Europe-USA corridor. He also
      advises clients in the specific functions of corporate finance and mergers
      and
      acquisitions. Mr. Sahney has over 15 years experience in corporate finance,
      credit and business management; has past experience in public and private
      accounting; in mortgage banking, and with a private investment partnership.
      He
      serves as director of Herbonics, Inc. and International Metal Products (Asia)
      Pte.Ltd.(Singapore). Mr. Sahney is also a member of the Babson College Board
      of
      Trustees, the Babson College Asian Advisory Board, and a trustee of The Scripps
      Whittier Institute for Diabetes (Chairman, 2001).








**CODE
      OF ETHICS**





We
      have
      adopted a Code of Ethics which applies to our Chief Executive Officer
      (“ **CEO** ”),
      Chief
      Financial Officer (“ **CFO** ”),
      and
      other senior financial staff and embodies principles to which such officers
      are
      expected to adhere and advocate.  These tenets for ethical business conduct
      encompass rules regarding individual and peer responsibilities, as well as
      responsibilities to the Company’s employees, the public and other
      stockholders.  Our Code of Ethics is available at the Company’s website at www.MRUHoldings.com.





We
      will
      continue to review and, when appropriate, take additional steps in the future
      to
      continue to strengthen and develop our corporate governance practices to ensure
      that we are focused on the long-term benefit of our stockholders.





**BOARD
      OF DIRECTORS**





*Communications
      with the Board of Directors* .
      The
      Board has established a process for stockholders to communicate questions or
      concerns about the Company directly to the Board. Such communications may be
      confidential or anonymous and may be submitted in writing to the Company’s
      Corporate Secretary, Louis W. Zehil, at 1345 Avenue of the Americas, New York,
      New York 10105.





*Compensation
      of Directors.* **** The
      Company reimburses independent directors for their reasonable out-of-pocket
      expenses related to attending meetings of the Board. Management directors do
      not
      receive any compensation for their services as directors other than the
      compensation they receive as our officers.





*Committees.* ** The
      Board
      has established three standing committees comprised entirely of independent
      directors and has adopted written charters for each of these committees.
      Charters for each standing committee are available at the Company’s website at
      www.mruholdings.com.





*Audit
      Committee and Audit Committee Financial Expert* **.** The
      Audit
      Committee was established on May 11, 2005 and is primarily concerned with the
      integrity of the Company’s financial statements, compliance with legal and
      regulatory requirements, independence and qualifications of our independent
      auditor and performance of the company’s internal audit function. The Audit
      Committee is chaired by Mr. Fisher who the Board has determined is an “audit
      committee financial expert” and “independent” as defined under applicable rules
      of the Securities and Exchange Commission. The Audit Committee met four times
      in
      fiscal year 2006.





*Nominating
      Committee.* **** The
      Nominating Committee was established on July 21, 2005 and is responsible for
      the
      establishing criteria for director nominees and identifying qualified
      individuals for nomination as director nominees, annual reviews of director
      compensation and benefits, oversight of annual self-evaluations of the Board
      and
      its committees as well as director performance and Board dynamics. The
      Nominating Committee makes recommendations to the entire board concerning the
      structure and membership of the Board and its committees. The Nominating
      Committee will consider stockholder recommendations for director nominees which
      should be sent to the Nominating Committee c/o our Corporate Secretary, Louis
      W.
      Zehil, at 1345 Avenue of the Americas, New York, New York 10105. Mr. Brown
      is
      the Chairman of the Nominating Committee. The Nominating Committee met once
      in
      fiscal year 2006.





*Compensation
      Committee.* The
      Compensation Committee was established on July 21, 2005 and is responsible
      for
      reviewing and approving executive compensation and monitoring management
      resources, structure, succession planning, development, selection process and
      performance of key executives. The Compensation Committee administers the
      Company’s equity compensation plans. The Chairman of the Compensation Committee
      is Mr. Bushley. The Compensation Committee met two times in fiscal year
      2006.





21


*Procedure
      for the Consideration of Board Candidates Submitted by
      Stockholders.* **** The
      Board
      of Directors has adopted procedures for the
      submission of director nominees by stockholders for consideration by
      theBoard.
      If a determination is made that an additional director is required, the Board
      will consider nominees submitted by the Company’s stockholders. Stockholders can
      submit qualified names of nominees for director by writing to our Corporate
      Secretary, Louis W. Zehil at 1345 Avenue of the Americas, New York, New York
      10105. For such nominee to be considered, the nomination must be received by
      the
      Corporate Secretary not less than ninety (90) days prior to the date of the
      Company’s proxy materials for the preceding year’s annual meeting and the
      nomination must include the following information:





·
            the
                name and address of the proposing stockholder as it appears on the
                Company’s books and the number of shares of Common Stock that are owned
                beneficially by such stockholder (if the stockholder is not a holder
                of
                record appropriate evidence of the stockholder’s ownership must be
                submitted with the nomination);





·
            the
                name, address and contact information of the
                nominee;





·
            a
                statement of the nominee’ business and educational
                experience;





·
            detailed
                information about any relationship or understanding between the proposing
                stockholder and the nominee or any other stockholder or group of
                stockholders; and





·
            a
                statement that the nominee is willing to be considered and willing
                to
                serve as a director if nominated and
                elected.





**SECTION
      16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE**





The
      Exchange Act requires our executive officers and directors, and any persons
      owning more than 10 percent of a class of our stock, to file certain reports
      on
      ownership and changes in ownership with the SEC. We believe that during fiscal
      year 2006 our executive officers and directors filed on a timely basis all
      reports required by Section 16(a) of the Exchange Act relating to transactions
      involving our equity securities beneficially owned by them. In making this
      statement, we have relied upon examination of the copies of Forms 3, 4 and
      5
      provided to us and the written representation of our directors, officers and
      10
      percent shareholders.





22


**Item
      10. Executive Compensation.**





**SUMMARY
      COMPENSATION TABLE**







The
      following table summarizes the annual compensation paid to the Company’ named
      executive officers for the years ending June 30, 2006, June 30, 2005, and
      December 31, 2004:





**Name
                and Position**
            
            **Year**
            
            **Annual**
              **Salary**
            
            **Bonus**
            
            **Securities
                Underlying Options/SARs**
              **(#)**Ed
                McGuinn
            
            
            2006
            
            $
            213,333
            
            $
            125,000
            
            
            450,000Chief
                Executive Officer
            
            
            2005
            
            $
            183,500
            
            $
            100,000
            
            
            410,0002004
            
            
            --
            
            
            --
            
            
            --Raza
                Khan
            
            
            2006
            
            $
            197,875
            
            $
            125,000
            
            
            700,000President
            
            
            2005
            
            $
            168,313
            
            $
            100,000
            
            
            300,0002004
            
            $
            34,475
            
            
            --
            
            
            --Vishal
                Garg
            
            
            2006
            
            $
            197,875
            
            $
            125,000
            
            
            700,000Executive
                Vice President and
            
            
            2005
            
            $
            168,313
            
            $
            100,000
            
            
            300,000Chief
                Financial Officer
            
            
            2004
            
            $
            34,475
            
            
            --
            
            
            --




**OPTION/SAR
      GRANTS IN LAST FISCAL YEAR**





**Name
                and Position**
            
            **No.
                of Securities Underlying Options**
            
            **Percent
                of Total**
              **Options
                Granted**
              **to
                Employees in**
              **Fiscal
                Year**
            
            **Exercise
                Of Base Price ($/SH)**
            
            **Expiration**
              **Date**Edwin
                J. McGuinn
              Chief
                Executive Officer
            
            450,000
            
            14.67%
            
            $3.83
            
            1/25/2016Raza
                Khan
              President
            
            700,000
            
            22.82%
            
            $3.15
            
            9/20/2015Vishal
                Garg
              Chief
                Financial Officer
            
            700,000
            
            22.82%
            
            $3.15
            
            9/20/2015





**AGGREGATE
      OPTION EXERCISES IN LAST FISCAL YEAR**





Our
      named
      executive officers exercised no stock options in fiscal year 2006.




**EMPLOYMENT
      AGREEMENTS**




We
      have
      entered into an executive employment agreement with our Chairman and CEO, Edwin
      J. McGuinn, Jr. The employment agreement provides for an initial annual base
      salary of $200,000. The agreement provides for a minimum annual increase in
      base
      salary of 10% and additional increases at the discretion of the Board of
      Directors. The employment agreement also provides for a minimum annual
      performance-based bonus of $50,000 and bonuses in excess thereof at the
      discretion of the Board of Directors. Under the agreement, Mr. McGuinn will
      also
      receive options to purchase up to 410,000 shares of our common stock made
      available under our 2004 Omnibus Incentive Plan (the “Plan”), which vest
      quarterly and become fully exercisable on November 1, 2005. Subsequent grants
      of
      stock options shall vest and be exercisable pursuant to the terms and conditions
      of the Plan. The exercise price of the 410,000 options will be $1.60 per share
      and the exercise price of any future option will be the fair market value of
      our
      common stock on the date such options are granted. Under the agreement, the
      Company is required to grant Mr. McGuinn 250,000 options at an exercise price
      of
      $3.00 per share, 25% of which vest and become exercisable on the grant date
      and
      an additional 12.5% vesting and becoming exercisable on the first day of each
      quarter thereafter, if the Company increases the number of shares of Common
      Stock available under the Plan.





23


Mr.
      McGuinn’s employment agreement expires on November 11, 2007, subject to
      extension or earlier termination. The agreement provides that if Mr. McGuinn
      is
      terminated by us without cause or if he terminates his employment agreement
      for
      good reason, he will be entitled to his base salary, guaranteed bonus and all
      health and benefits coverage until the expiration date of his employment
      agreement, plus one year of severance pay. At the election of Mr. McGuinn,
      in
      the event of such termination, his base salary and guaranteed bonus is payable
      by the Company within 45 days after his last day of employment. Additionally,
      all stock options granted to him will immediately vest.





Under
      the
      agreement, good reason includes any of the following occurring without the
      consent of Mr. McGuinn: an adverse change resulting in a diminution in his
      duties and responsibilities; an adverse change in his title; a change in control
      of the Company, or a significant relocation of the Company’s office. His
      employment agreement prohibits Mr. McGuinn from competing with us, or soliciting
      our customers or employees, in the United States for a period of two years
      from
      the date of their termination of employment.





We
      have
      also entered into executive employment agreements with Vishal Garg and Raza
      Khan. Each employment agreement provides for an initial annual base salary
      of
      $150,000. The agreements provide for a minimum annual increase in base salary
      of
      10% and additional increases at the discretion of the Board of Directors. Each
      employment agreement also provides for a minimum annual performance-based bonus
      of $50,000 and bonuses in excess thereof at the discretion of the Board of
      Directors. Under the agreements, each executive will also receive options to
      purchase up to 20% of the shares of our common stock made available under the
      Plan, 50% of which will vest immediately and the remaining 50% will vest on
      the
      first anniversary of the grant date. Subsequent grants of stock options shall
      vest and be exercisable pursuant to the terms and conditions of the Plan.
      Additionally, during each calendar quarter during the term of the agreement,
      each executive will receive options to purchase an additional 5% of the shares
      of our common stock made available under the Plan. The exercise price of all
      options will be the fair market value of our common stock on the date such
      options are granted.





Each
      employment agreement expires on April 1, 2009, subject to extension or earlier
      termination. Each employment agreement provides that if Messrs. Garg and Khan
      are terminated by us without cause or if they terminate their employment
      agreements for good reason, they will be entitled to their base salary,
      guaranteed bonus and all health and benefits coverage until the expiration
      date
      of their employment agreements, plus one year of severance pay. At the election
      of the executive in the event of such termination, the executives base salary
      and guaranteed bonus is payable by the Company within 45 days after his last
      day
      of employment. Additionally, all stock options granted to them will immediately
      vest.





Under
      the
      agreements, good reason includes any of the following occurring without the
      consent of the executive: an adverse change resulting in a diminution in the
      executive’s duties and responsibilities; an adverse change in the executive’s
      title; or a change in control of the Company. Each employment agreement
      prohibits Messrs. Garg and Khan from competing with us, or soliciting our
      customers or employees, in the United States for a period of one year from
      the
      date of their termination of employment.





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





The
      following table sets forth certain information regarding the beneficial
      ownership of our Common Stock on a diluted basis including the exercise of
      all
      options and warrants as of June 30, 2006 by (i) each person who, to our
      knowledge, beneficially owns, or upon completion of the Offering will
      beneficially own, more than 5% of our Common Stock; (ii) each of our directors
      and executive officers of the Company; and (iii) all of our executive officers
      and directors as a group: ****




24




**Name
                of Beneficial Owner**
            
            **Amount
                (1)**
            
            **Percent**
              **of
                Class**Edwin
                J. McGuinn, Jr.(2)
            
            688,484
            
            3.79%Raza
                Khan(3)
            
            4,002,216
            
            20.95%Vishal
                Garg(4)
            
            3,981,376
            
            20.83%Richmond
                T. Fisher
            
            50,000
            
            0.28%C.
                David Bushley
            
            51,250
            
            0.29%Andrew
                Mathieson
            
            65,000
            
            0.37%Michael
                Brown
            
            55,000
            
            0.31%Sunil
                Dhaliwal
            
            40,000
            
            0.23%Y&S
                Nazerian Revocable Trust (5)
            
            1,565,909
            
            8.88%Nomura
                Credit & Capital, Inc. (6)
            
            6,545,004
            
            27.11%All
                directors and named executive officers as a group
            
            8,933,326
            
            42.20%





(1)
            Beneficial
                ownership is calculated based on 17,593,565 shares of common stock
                issued
                and outstanding as of June 30, 2006. Beneficial ownership is determined
                in
                accordance with Rule 13d-3 of the SEC. The number of shares beneficially
                owned by a person includes shares of common stock underlying options
                or
                warrants held by that person that are currently exercisable or exercisable
                within 60 days of June 30, 2006. The shares issuable pursuant to
                the
                exercise of those options or warrants are deemed outstanding for
                computing
                the percentage ownership of the person holding those options and
                warrants
                but are not deemed outstanding for the purposes of computing the
                percentage ownership of any other person. Unless otherwise indicated,
                the
                persons and entities named in the table have sole voting and sole
                investment power with respect to the shares set forth opposite that
                person’s name, subject to community property laws, where applicable.


(2)
            Includes
                8,845 shares of Common Stock underlying warrants and 542,814 shares
                of
                Common Stock underlying options exercisable within 60 days of June
                30,
                2006.


(3)
            Includes
                858,006 shares of Common Stock underlying warrants and 650,000 shares
                of
                Common Stock underlying options exercisable within 60 days of June
                30,
                2006.


(4)
            Includes
                865,586 shares of Common Stock underlying warrants and 650,000 shares
                of
                Common Stock underlying options exercisable within 60 days of June
                30,
                2006.


(5)
            Includes
                36,000 shares of Common Stock underlying warrants exercisable within
                60
                days of June 30, 2006.


(6)
            Includes
                6,545,004 shares of Common Stock underlying warrants exercisable
                within 60
                days of June 30, 2006.





**EQUITY
      COMPENSATION PLAN INFORMATION**





The
      following table sets forth, as of June 30, 2006, the number of securities
      outstanding under the Company’s stock option plan, the weighted average exercise
      price of such options, and the number of options available for grant under
      such
      plan:





(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
            
            2,838,553
            
            $2.77
            
            1,596,513Equity
                compensation plans non approved by security holders
            
            --
            
            --
            
            --Totals
            
            2,838,553
            
            $2.77
            
            1,596,513




25


**Item
      12. Certain Relationships and Related Transactions.**





The
      obligations of the Company under the ISID Finance of America, Inc. 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 . .





**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
            Certificate
                of Incorporation
            Exhibit
                3.1 to Company’s Registration Statement on Form SB-2 (No.
                333-67222)3.2
            Certificate
                of Amendment to the Certificate of Incorporation
            Exhibit
                3.1 to Company's Form 8-K dated March 7, 20033.3
            Certificate
                of Designation
            Exhibit
                4.1 to Company’s Current Report on Form 8-K filed on February 10, 2005
                (No. 001-33487)3.4
            By-laws
            Exhibit
                3.2 to Company’s Registration Statement on Form SB-2 (File No.
                333-67222)4
            2004
                Ominibus Incentive Plan
            Exhibit
                4(c) to Company’s Registration Statement on Form SB-2 filed on August 24,
                200410.1
            Credit
                Agreement between MRU Lending, Inc. and Nomura Credit & Capital, Inc.,
                dated February 4, 2005
            Exhibit
                10.1 to Company’s Registration Statement on Form SB-2 filed on March 22,
                200510.2
            Employment
                Agreement dated November 17, 2004 between the Company and Edwin J.
                McGuinn, Jr.
            Exhibit
                10 to Company’s Pre-Effective Amendment No. 1 to Form SB-2 filed on
                November 18, 200410.3
            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 on July 29,
                2005.10.4
            Loan
                Sale Agreement dated July 25, 2005 between MRU Lending, Inc. and
                Doral
                Bank NY, FSB
            Exhibit
                10.2 on Company’s Current Report on Form 8-K filed on July 29,
                2005.10.5
            Sublease
                between ISID Finance of America, Inc. and MRU Holdings, Inc. dated
                April
                26, 2005
            Exhibit
                10.1 to Company’s Current Report on From 8-K filed on May 18,
                2005.10.6
            Guaranty
                of Edwin McGuinn 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 on May 18,
                2005.10.7
            Consent
                to Sublease of 1114 Trizechahn-Swig, L.L.C.
            Exhibit
                10.3 to Company’s Current Report on Form 8-K filed on May 18,
                2005.14
            Code
                of Ethics
            Exhibit
                14 to Company’s Annual Report on Form 10-KSB filed on March 22, 2005 (File
                No. 000-33487)21
            Subsidiaries
                of the Company
            Exhibit
                21 to Company’s Annual Report on Form 10-KSB filed on March 22, 2005 (File
                No. 000-33487)23
            Consent
                of Bagell, Josephs & Company, LLC
            Exhibit
                23(a) to Company’s Annual Report on Form 10-KSB filed on March 22, 2005
                (File No. 000-33487)31.1
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive
                Officer*31.2
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive
                Officer*32
            Section
                1350 Certifications*


________________


*
      filed
      herewith





26








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







Bagell,
      Josephs, Levine & Company, L.L.C. was the independent registered public
      accounting firm that audited the Company’s financial statements for the fiscal
      years ending June 30, 2006 and June 30, 2005. The aggregate fees billed by
      Bagell, Josephs, Levine& Company in connection with audit and non-audit
      services rendered for fiscal years 2006 and 2005 are as follows:





**Fiscal
                Year 2006**
            **Fiscal
                Year 2005**Audit
                Fees1
            $96,719
            $80,008Audit-related
                Fees2
            $0
            $0Tax
                Fees3
            $0
            $0All
                Other Fees4
            $0
            $0TOTAL
            $96,719
            $80,008





(1)
            Represents
                fees for professional services rendered in connection with the audit
                of
                our annual financial statements, reviews of our quarterly financial
                statements and advice provided on accounting matters that arose in
                connection with audit services.


(2)
            Represents
                fees for professional services related to the audits of our employee
                benefit plan and other statutory or regulatory
                filings.


(3)
            Represents
                fees for tax services provided in connection with general tax
                matters.


(4)
            All
                other fees represent fees for services provided to the Company that
                are
                not otherwise included in the categories above which consist of fees
                for
                professional services related to the review of our annual and quarterly
                financial statements for various filings made by the Company with
                the
                Commission.







27





**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, as amended, the Company has duly caused this report to be signed on its
      behalf by the undersigned, thereby duly authorized on September 28, 2006.








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






Pursuant
      to the requirements of 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, 2006
            /s/ Edwin J. McGuinn,
              Jr.By: Edwin J. McGuinn, Jr.Its: Chief Executive Officer and
              DirectorDate: September 28, 2006
            /s/ Vishal
              GargBy: Vishal GargIts: Chief Financial Officer and
              DirectorDate: September 28, 2006
            /s/ Raza
              KhanBy: Raza KhanIts: President and
              Director




28


**EXHIBIT
      INDEX**





**Exhibit
                No.**
            **Description**
            **Incorporated
                by Reference to Filings Indicated**3.1
            Certificate
                of Incorporation
            Exhibit
                3.1 to Company’s Registration Statement on Form SB-2 (No.
                333-67222)3.2
            Certificate
                of Amendment to the Certificate of Incorporation
            Exhibit
                3.1 to Company's Form 8-K dated March 7, 20033.3
            Certificate
                of Designation
            Exhibit
                4.1 to Company’s Current Report on Form 8-K filed on February 10, 2005
                (No. 001-33487)3.4
            By-laws
            Exhibit
                3.2 to Company’s Registration Statement on Form SB-2 (File No.
                333-67222)4
            2004
                Ominibus Incentive Plan
            Exhibit
                4(c) to Company’s Registration Statement on Form SB-2 filed on August 24,
                200410.1
            Credit
                Agreement between MRU Lending, Inc. and Nomura Credit & Capital, Inc.,
                dated February 4, 2005
            Exhibit
                10.1 to Company’s Registration Statement on Form SB-2 filed on March 22,
                200510.2
            Employment
                Agreement dated November 17, 2004 between the Company and Edwin J.
                McGuinn, Jr.
            Exhibit
                10 to Company’s Pre-Effective Amendment No. 1 to Form SB-2 filed on
                November 18, 200410.3
            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 on July 29,
                2005.10.4
            Loan
                Sale Agreement dated July 25, 2005 between MRU Lending, Inc. and
                Doral
                Bank NY, FSB
            Exhibit
                10.2 on Company’s Current Report on Form 8-K filed on July 29,
                2005.10.5
            Sublease
                between ISID Finance of America, Inc. and MRU Holdings, Inc. dated
                April
                26, 2005
            Exhibit
                10.1 to Company’s Current Report on From 8-K filed on May 18,
                2005.10.6
            Guaranty
                of Edwin McGuinn 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 on May 18,
                2005.10.7
            Consent
                to Sublease of 1114 Trizechahn-Swig, L.L.C.
            Exhibit
                10.3 to Company’s Current Report on Form 8-K filed on May 18,
                2005.14
            Code
                of Ethics
            Exhibit
                14 to Company’s Annual Report on Form 10-KSB filed on March 22, 2005 (File
                No. 000-33487)21
            Subsidiaries
                of the Company
            Exhibit
                21 to Company’s Annual Report on Form 10-KSB filed on March 22, 2005 (File
                No. 000-33487)23
            Consent
                of Bagell, Josephs & Company, LLC
            Exhibit
                23(a) to Company’s Annual Report on Form 10-KSB filed on March 22, 2005
                (File No. 000-33487)31.1
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive
                Officer*31.2
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive
                Officer*32
            Section
                1350 Certifications*


________________


*
      filed
      herewith





29




**BAGELL,
        JOSEPHS, LEVINE & 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**
 
 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, 2006 and 2005 and the related
        consolidated statements of operations, consolidated changes in stockholders’
equity (deficit), and consolidated cash flows for the year ended June 30,
        2006,
        the six months ended June 30, 2005 and the year ended December 31, 2004.
        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
        have
        conducted our audits in accordance with standards established by 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
        financial statements are free of material misstatement. An audit includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the consolidated financial statements. An audit also includes assessing the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall consolidated 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 consolidated financial position of MRU Holdings,
        Inc. and Subsidiaries as of June 30, 2006 and 2005 and the results of their
        consolidated operations, changes in stockholders’ equity (deficit) and cash
        flows for the year ended June 30, 2006, the six months ended June 30, 2005
        and
        the year ended December 31, 2004 in conformity with accounting principles
        generally accepted in the United States of America.
 
 **BAGELL,
        JOSEPHS, LEVINE & COMPANY, L.L.C.**
 BAGELL,
        JOSEPHS, LEVINE & COMPANY, L.L.C.
 Certified
        Public Accountants
 Gibbsboro,
        New Jersey
 September
        28, 2006
 
 MEMBER OF:
              AMERICAN
                  INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
                CENTER
                  FOR PUBLIC COMPANY AUDIT FIRMS (CPCAF)
                NEW
                  JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
                PENNSYLVANIA
                  INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
                FLORIDA
                  STATE BOARD OF ACCOUNTANCY
   F-1
 **MRU
          HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          AUDITED BALANCE SHEETS**
 **JUNE
          30, 2006 AND JUNE 30, 2005**
 **ASSETS****2006**
                
                **2005****CURRENT
                    ASSETS:**Cash
                    and cash equivalents
                
                $
                20,874,934
                
                $
                6,894,522Accounts
                    receivable
                
                
                4,167
                
                
                20,246Student
                    loans receivable, net of allowance, held for sale
                
                
                38,749,736
                
                
                158,479Collateral
                    deposit - student loans
                
                
                0
                
                
                250,000Prepaid
                    expenses and other current assets
                
                
                388,477
                
                
                133,540**Total
                    Current Assets**
                
                
                60,017,314
                
                
                7,456,787Fixed
                    assets, net of depreciation
                
                
                537,131
                
                
                273,073**OTHER
                    ASSETS:**Security
                    deposits
                
                
                30,248
                
                
                392,963Intangible
                    assets, net of amortization
                
                
                98,960
                
                
                0Investment
                    in Achiever Fund I, LLC
                
                
                120,000
                
                
                0Deferred
                    financing fees, net of amortization
                
                
                1,930,854
                
                
                177,820**Total
                    Other Assets**
                
                
                2,180,062
                
                
                570,783**TOTAL
                    ASSETS**
                
                $
                62,734,507
                
                $
                8,300,643**LIABILITIES
                    AND STOCKHOLDERS' EQUITY (DEFICIT)****CURRENT
                    LIABILITIES:**Accounts
                    payable
                
                $
                1,410,865
                
                $
                577,478Accrued
                    expenses
                
                
                870,571
                
                
                170,775Accrued
                    payroll
                
                
                161,609
                
                
                225,644Notes
                    payable - Doral Bank
                
                
                806,182
                
                
                0Notes
                    payable - Merrill Lynch
                
                
                17,863,560
                
                
                0**Total
                    Current Liabilities**
                
                
                21,112,787
                
                
                973,897**LONG-TERM
                    LIABILITIES:**Notes
                    payable - Nomura Credit & Capital
                
                
                18,732,264
                
                
                0Deferred
                    origination fee revenue
                
                
                1,327,273
                
                
                7,388**Total
                    Long-term Liabilities**
                
                
                20,059,537
                
                
                7,388**Total
                    Liabilities**
                
                
                41,172,324
                
                
                981,285**STOCKHOLDERS'
                    EQUITY (DEFICIT)**Preferred
                    Stock, Series A, $.001 par value; 25,000,000 shares
                    authorized0
                    and 3,250,006 shares issued and outstanding as of 06/30/2006
                    and
                    06/30/2005
                
                
                0
                
                
                3,250Preferred
                    Stock, Series B, $.001 par value; 25,000,000 shares
                    authorized7,631,580
                    and 0 shares issued and outstanding as of 06/30/2006 and
                    06/30/2005
                
                
                7,632
                
                
                0Common
                    Stock, $.001 par value; 200,000,000 shares authorized, 17,593,565
                    and13,664,502
                    issued and outstanding as of 06/30/2006 and 06/30/2005
                
                
                17,593
                
                
                13,664Additional
                    paid-in capital
                
                
                35,775,538
                
                
                6,426,066Additional
                    paid-in capital - options
                
                
                7,518,079
                
                
                0Additional
                    paid-in capital - warrants
                
                
                10,369,549
                
                
                7,382,068Accumulated
                    deficit
                
                
                (32,126,208
                )
                
                (6,505,690
                )**Total
                    Stockholders' Equity (Deficit)**
                
                
                21,562,183
                
                
                7,319,358**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)**
                
                $
                62,734,507
                
                $
                8,300,643
  The
          accompanying notes are an integral part of these consolidated financial
          statements.
  F-2
 **MRU
          HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **FOR
          THE YEAR ENDED JUNE 30, 2006 (AUDITED), SIX MONTHS ENDED JUNE 30, 2005
          (AUDITED), AND THE YEAR ENDED DECEMBER 31, 2004
          (AUDITED)**
 **2006**
                
                **2005**
                
                **2004****CASH
                    FLOWS FROM OPERATING ACTIVITIES**Net
                    (loss)
                
                
                ($24,988,912
                )
                
                ($4,071,163
                )
                
                ($1,871,433
                )**Adjustments
                    to reconcile net loss to net cash****used
                    in operating activities:**Depreciation
                    and amortization
                
                
                1,969,858
                
                
                70,595
                
                
                13,782Increase
                    in stock options outstanding
                
                
                7,814,692
                
                
                0
                
                
                0(Increase)
                    in tax provision valuation stock options outstanding
                
                
                (2,656,995
                )
                
                0
                
                
                0Increase
                    in allowance for uncollectible accounts/bad debt expense
                
                
                814,631
                
                
                0
                
                
                0**Changes
                    in assets and liabilities**Decrease/(Increase)
                    in accounts receivable
                
                
                16,079
                
                
                (20,246
                )
                
                0Decrease/(increase)
                    in collateral deposit - student loans
                
                
                250,000
                
                
                (250,000
                )
                
                0(Increase)
                    in prepaid expenses and other current assets
                
                
                (254,937
                )
                
                41,016
                
                
                (180,032
                )Decrease/(increase)
                    in security deposits
                
                
                362,715
                
                
                (386,938
                )
                
                0(Increase)
                    in student loans receivable, held for sale
                
                
                (39,405,888
                )
                
                (158,479
                )
                
                0Increase
                    in accounts payable and accrued expenses
                
                
                1,039,897
                
                
                165,584
                
                
                458,482(Decrease)/Increase
                    in accrued payroll
                
                
                (64,035
                )
                
                225,644
                
                
                0Increase
                    in deferred origination fee revenue
                
                
                1,319,885
                
                
                7,388
                
                
                0Total
                    adjustments
                
                
                (28,794,098
                )
                
                (305,436
                )
                
                292,232**Net
                    cash (used in) operating activities**
                
                
                (53,783,010
                )
                
                (4,376,599
                )
                
                (1,579,201
                )**CASH
                    FLOWS FROM INVESTING ACTIVITIES**Acquisition
                    of fixed assets and intangible assets
                
                
                (573,977
                )
                
                (247,867
                )
                
                (70,409
                )(Increase)
                    in investment in Achiever Fund I LLC
                
                
                (120,000
                )
                
                0
                
                
                0**Net
                    cash (used in) investing activities**
                
                
                (693,977
                )
                
                (247,867
                )
                
                (70,409
                )**CASH
                    FLOWS FROM FINANCING ACTIVITES**Increase
                    in advances - originating loan program agreements
                
                
                37,624,454
                
                
                0
                
                
                0(Decrease)
                    due to repayments - originating loan program agreements
                
                
                (36,818,272
                )
                
                0
                
                
                0Increase
                    in advances - Nomura Credit and Capital credit facility
                
                
                19,286,667
                
                
                0
                
                
                0(Decrease)
                    due to repayments - Nomura Credit and Capital credit
                    facility
                
                
                (554,403
                )
                
                0
                
                
                0Increase
                    in advances - Merrill Lynch credit facility
                
                
                17,920,204
                
                
                0
                
                
                0(Decrease)
                    due to repayments - Merrill Lynch credit facility
                
                
                (56,644
                )
                
                0
                
                
                0Proceeds
                    from bridge loan
                
                
                0
                
                
                0
                
                
                750,000Proceeds
                    from sale of stock and equity, net of expenses
                
                
                0
                
                
                0
                
                
                2,548,438Proceeds
                    from conversion of warrants
                
                
                406,356
                
                
                107,760
                
                
                0Reduction
                    in stock options outstanding due to exercise
                
                
                (296,613
                )
                
                0
                
                
                0Proceeds
                    from conversion of options
                
                
                646,500
                
                
                0
                
                
                0Increase
                    in deferred tax due to stock options outstanding
                
                
                2,656,995
                
                
                0
                
                
                0Costs
                    associated with Series A convertible preferred issuance
                
                
                0
                
                
                (534,899
                )
                
                0Gross
                    proceeds from sale of Series A convertible preferred
                    issuance
                
                
                0
                
                
                10,503,750
                
                
                0(Increase)
                    in deferred financing fees
                
                
                (525,000
                )
                
                (206,500
                )
                
                0Costs
                    associated with Series B convertible preferred issuance
                
                
                (832,845
                )
                
                0
                
                
                0Gross
                    proceeds from sale of Series B convertible preferred
                    issuance
                
                
                29,000,000
                
                
                0
                
                
                0**Net
                    cash provided by financing activities**
                
                
                68,457,399
                
                
                9,870,111
                
                
                3,298,438**NET
                    INCREASE IN CASH AND CASH EQUIVALENTS**
                
                
                13,980,412
                
                
                5,245,645
                
                
                1,648,828**CASH
                    AND CASH EQUIVALENTS - BEGINNING OF PERIOD**
                
                
                6,894,522
                
                
                1,648,877
                
                
                49**CASH
                    AND CASH EQUIVALENTS - END OF PERIOD**
                
                $
                20,874,934
                
                $
                6,894,522
                
                $
                1,648,877**SUPPLEMENTAL
                    DISCLOSURE OF CASH FLOW INFORMATION:****CASH
                    PAID DURING THE PERIOD FOR:**Interest
                    expense
                
                $
                23,501
                
                $
                67,786
                
                $
                67,786**SUPPLEMENTAL
                    DISCLOSURE OF NON-CASH ACTIVITIES:**Issuance
                    of common stock for conversion of bridge loan
                
                $
                0
                
                $
                0
                
                $
                750,000Issuance
                    of preferred stock in conversion of dividends payable
                
                $
                522,381
                
                $
                0
                
                $
                0Accrued
                    Series A and B stock dividends
                
                $
                599,750
                
                $
                121,086
                
                $
                0Issuance
                    of warrants
                
                $
                2,987,481
                
                $
                7,382,068
                
                $
                0Preferred
                    stock converted to common shares
                
                $
                3,448
                
                $
                0
                
                $
                0
 
 The
          accompanying notes are an integral part of these consolidated financial
          statements.
 F-3
 **MRU
          HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
 **FOR
          THE YEAR ENDED JUNE 30, 2006 (AUDITED), SIX MONTHS ENDED JUNE 30, 2005
          (AUDITED), AND YEAR ENDED DECEMBER 31, 2004
          (AUDITED)**
 **Year**
                
                **Six
                    Months**
                
                **Year****Ended**
                
                **Ended**
                
                **Ended****June
                    30,**
                
                **June
                    30,**
                
                **December
                    31,****2006**
                
                **2005**
                
                **2004****(Audited)**
                
                **(Audited)**
                
                **(Audited)****OPERATING
                    REVENUE:**Referral
                    income - consolidations
                
                $
                0
                
                $
                238,175
                
                $
                0Referral
                    income - private student loans
                
                
                1,889
                
                
                881
                
                
                8,177Loan
                    portfolio interest income - private loans
                
                
                1,206,160
                
                
                297
                
                
                0Origination
                    fee revenue - private
                
                
                9,526
                
                
                0
                
                
                0Late
                    payment fee revenue
                
                
                494
                
                
                0
                
                
                0License
                    income
                
                
                26,423
                
                
                0
                
                
                0**Total
                    Operating Revenue**
                
                
                1,244,492
                
                
                239,353
                
                
                8,177**COST
                    OF REVENUES**Referral
                    marketing costs - consolidations
                
                
                23,300
                
                
                189,725
                
                
                0Referral
                    marketing costs - private student loans
                
                
                348,822
                
                
                0
                
                
                0Facility
                    interest and origination bank costs
                
                
                1,078,202
                
                
                10,185
                
                
                0Bad
                    debt reserve
                
                
                814,631
                
                
                0
                
                
                0Consulting
                    and hosting
                
                
                53,775
                
                
                0
                
                
                0Servicing
                    and custodial costs
                
                
                82,625
                
                
                25,070
                
                
                0**Total
                    Cost of Revenues**
                
                
                2,401,355
                
                
                224,980
                
                
                0**GROSS
                    PROFIT/(LOSS)**
                
                
                (1,156,863
                )
                
                14,373
                
                
                8,177**OPERATING
                    EXPENSES**Corporate
                    general and administrative expenses
                
                
                9,609,122
                
                
                1,104,701
                
                
                774,122Sales
                    and marketing expenses
                
                
                7,447,426
                
                
                791,261
                
                
                312,301Operations
                    expenses
                
                
                2,522,738
                
                
                257,307
                
                
                35,687Technology
                    development
                
                
                1,466,705
                
                
                855,132
                
                
                158,646Legal
                    expenses
                
                
                590,513
                
                
                791,011
                
                
                475,984Other
                    operating expenses
                
                
                661,255
                
                
                247,807
                
                
                98,894Depreciation
                    and amortization
                
                
                1,969,858
                
                
                70,595
                
                
                13,782**Total
                    Operating Expenses**
                
                
                24,267,617
                
                
                4,117,814
                
                
                1,869,416**OPERATING
                    (LOSS)**
                
                
                (25,424,480
                )
                
                (4,103,441
                )
                
                (1,861,239
                )**OTHER
                    INCOME/(EXPENSE)**Interest
                    income
                
                
                428,201
                
                
                83,398
                
                
                13,931Interest
                    expense
                
                
                (23,501
                )
                
                (67,905
                )
                
                (22,133
                )Other
                    non-operating income/(expense)
                
                
                30,868
                
                
                16,785
                
                
                (1,992
                )**Total
                    Other Income/(Expense)**
                
                
                435,568
                
                
                32,278
                
                
                (10,194
                )**NET
                    (LOSS) BEFORE PROVISION FOR INCOME TAXES**
                
                
                (24,988,912
                )
                
                (4,071,163
                )
                
                (1,871,433
                )Provision
                    for income taxes
                
                
                0
                
                
                0
                
                
                0**NET
                    (LOSS)**
                
                
                ($24,988,912
                )
                
                ($4,071,163
                )
                
                ($1,871,433
                )**LESS
                    PREFERRED STOCK DIVIDEND**
                
                
                (599,750
                )
                
                (121,086
                )
                
                0**(LOSS)
                    APPLICABLE TO COMMON SHARES**
                
                
                ($25,588,662
                )
                
                ($4,192,249
                )
                
                ($1,871,433
                )**NET
                    (LOSS) PER BASIC AND DILUTED SHARES**
                
                
                ($1.69
                )
                
                ($0.31
                )
                
                ($0.14
                )**WEIGHTED
                    AVERAGE NUMBER OF COMMON****SHARES
                    OUTSTANDING**
                
                
                15,100,652
                
                
                13,608,511
                
                
                13,209,331
 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 (DEFICIT)**
 **FOR
          THE YEAR ENDED JUNE 30, 2006 (AUDITED) AND SIX MONTHS ENDED JUNE 30, 2005
          (AUDITED)**
 **AND
          THE YEAR ENDED DECEMBER 31, 2004 (AUDITED)**
  **Series
                      A Preferred Stock**
                  
                  
                  
                  **Series
                      B Preferred Stock**
                  
                  
                  
                  **Common
                      Stock**
                  
                  
                  
                  **Additional**Paid-In
                  
                  **Additional**Paid-In Capital
                  
                  **Additional**Paid-In Capital
                  
                  **Accumulated****Shares**
                  
                  **Amount**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **Shares**
                  
                  **Amount**
                  
                  **Capital**
                  
                  **-
                      Options**
                  
                  **-
                      Warrants**
                  
                  **(Deficit)**
                  
                  **Total****Balance,
                      December 31, 2003**
                  
                  
                  900,000
                  
                  $
                  900
                  
                  
                  0
                  
                  $
                  0
                  
                  
                  10,300,000
                  
                  $
                  10,300
                  
                  $
                  438,800
                  
                  $
                  0
                  
                  $
                  0
                  
                  
                  ($442,008
                  )
                  $
                  7,992Additional
                      capital contribution
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  30,450
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  30,450Net
                      (loss) for the six months endedJune
                      30, 2004 before effects of reverse merger
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (200,889
                  )
                  
                  ($200,889
                  )Subtotal-June
                      30, 2004
                  
                  
                  900,000
                  
                  $
                  900
                  
                  
                  0
                  
                  $
                  0
                  
                  
                  10,300,000
                  
                  $
                  10,300
                  
                  $
                  469,250
                  
                  $
                  0
                  
                  $
                  0
                  
                  
                  ($642,897
                  )
                  
                  ($162,447
                  )Effects
                      of Reverse MergerElimination
                      of Iempower equity
                  
                  
                  (900,000
                  )
                  
                  (900
                  )
                  
                  
                  
                  
                  
                  
                  
                  (10,300,000
                  )
                  
                  (10,300
                  )
                  
                  (469,250
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  ($480,450
                  )Distribution
                      of Pacific Technology equity to Iempower holders
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,863,433
                  
                  
                  6,863
                  
                  
                  439,790
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  446,653Assumption
                      of Pacific Technology liabilities by Iempower holders
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  466,519
                  
                  
                  466
                  
                  
                  29,894
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  30,360Remaining
                      equity in Pacific Technology (now MRU Holdings, Inc.)
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  3,600,000
                  
                  
                  3,600
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  3,600Issuance
                        of shares in conversionof bridge loan and accrued
                        interest
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  468,750
                  
                  
                  469
                  
                  
                  749,531
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  750,000Common
                      stock issued for cash, July 2004 - net of expenses
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,150,000
                  
                  
                  2,150
                  
                  
                  2,455,674
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  2,457,824Common
                      stock issued for cash, October 2004
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  37,500
                  
                  
                  38
                  
                  
                  59,962
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  60,000Net
                      (loss) for the period July 1, 2004 to December 31, 2004
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,670,544
                  )
                  
                  ($1,670,544
                  )**Balance,
                      December 31, 2004**
                  
                  
                  0
                  
                  $
                  0
                  
                  
                  0
                  
                  $
                  0
                  
                  
                  13,586,202
                  
                  $
                  13,586
                  
                  $
                  3,734,851
                  
                  $
                  0
                  
                  $
                  0
                  
                  
                  ($2,313,441
                  )
                  $
                  1,434,996Issuance
                      of Series A preferred stock, February 2005
                  
                  
                  3,250,006
                  
                  $
                  3,250
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,583,533
                  
                  
                  
                  
                  
                  7,382,068
                  
                  
                  
                  
                  $
                  9,968,851Exercise
                      of warrants at $2.00 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  40,000
                  
                  
                  40
                  
                  
                  79,960
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  80,000Exercise
                      of warrants at $1.60 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,100
                  
                  
                  7
                  
                  
                  12,153
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  12,160Exercise
                      of warrants at $0.50 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  31,200
                  
                  
                  31
                  
                  
                  15,569
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  15,600Net
                      (loss) for the six monthsended
                      June 30, 2005
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,192,249
                  )
                  
                  ($4,192,249
                  )**Balance,
                      June 30, 2005**
                  
                  
                  3,250,006
                  
                  $
                  3,250
                  
                  
                  0
                  
                  $
                  0
                  
                  
                  13,664,502
                  
                  $
                  13,664
                  
                  $
                  6,426,066
                  
                  $
                  0
                  
                  $
                  7,382,068
                  
                  
                  ($6,505,690
                  )
                  $
                  7,319,358Exercise
                      of warrants at $2.00 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  145,709
                  
                  
                  146
                  
                  
                  291,273
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  291,419Exercise
                      of warrants at $1.60 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  46,050
                  
                  
                  46
                  
                  
                  73,634
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  73,680Exercise
                      of warrants at $0.99 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  21,060
                  
                  
                  21
                  
                  
                  20,927
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  20,948Exercise
                      of warrants at $0.50 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  37,021
                  
                  
                  37
                  
                  
                  18,473
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  18,510Exercise
                      of warrants at $0.02 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  89,950
                  
                  
                  90
                  
                  
                  1,709
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,799Exercise
                      of options at $3.07 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  16,250
                  
                  
                  16
                  
                  
                  83,984
                  
                  
                  (34,113
                  )
                  
                  
                  
                  
                  
                  
                  $
                  49,887Exercise
                      of options at $3.00 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  50,000
                  
                  
                  50
                  
                  
                  224,950
                  
                  
                  (75,000
                  )
                  
                  
                  
                  
                  
                  
                  $
                  150,000Exercise
                      of options at $2.00 per share
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  75,000
                  
                  
                  75
                  
                  
                  337,425
                  
                  
                  (187,500
                  )
                  
                  
                  
                  
                  
                  
                  $
                  150,000Issuance
                      of Series A preferred stock dividend
                  
                  
                  198,017
                  
                  
                  198
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  137,573
                  
                  
                  
                  
                  
                  
                  
                  
                  (31,855
                  )
                  $
                  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
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  28,167,156Accrue
                      Series B preferred stock dividend
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (599,750
                  )
                  
                  ($599,750
                  )Accrue
                      warrants issued to Merrill Lynch
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,987,481
                  
                  
                  
                  
                  $
                  2,987,481Accrue
                      FAS123R stock option expense
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,814,692
                  
                  
                  
                  
                  
                  
                  
                  $
                  7,814,692Net
                      (loss) for the year ended June 30, 2006
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (24,988,912
                  )
                  
                  ($24,988,912
                  )**Balance,
                      June 30, 2006**
                  
                  
                  0
                  
                  $
                  0
                  
                  
                  7,631,580
                  
                  $
                  7,632
                  
                  
                  17,593,565
                  
                  $
                  17,593
                  
                  $
                  35,775,538
                  
                  $
                  7,518,079
                  
                  $
                  10,369,549
                  
                  
                  ($32,126,207
                  )
                  $
                  21,562,183
 The
            accompanying notes are an integral part of these consolidated financial
            statements.
 F-5
  
  
 **MRU

        HOLDINGS, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        FINANCIAL STATEMENTS**
 **FOR
        THE YEAR ENDED**
 **JUNE
        30, 2006 (AUDITED), THE SIX MONTHS ENDED JUNE 30, 2005 (AUDITED), AND THE
        YEAR
        ENDED DECEMBER 31, 2004 (AUDITED)**
     
 F-6
 
 **MRU
        HOLDINGS, INC. AND SUBSIDIARIES**
 **JUNE
        30, 2006 AND 2005, AND DECEMBER 31, 2004**
 
 
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS (AUDITED)**
 **FOR
        THE YEAR ENDED JUNE 30, 2006, SIX MONTHS ENDED JUNE 30, 2005, AND YEAR ENDED
        DECEMBER 31, 2004**
 
 
 ·
              Report
                  of Independent Registered Accounting
                  Firm
 
 ·
              Consolidated
                  Balance Sheets as of June 30, 2006 and
                  2005(Audited)
 
 ·
              Consolidated
                  Statements of Operations for the Year Ended June 30, 2006 (Audited),
                  Six
                  Months Ended June 30, 2005 (Audited), and Year Ended December 31,
                  2004
                  (Audited)
 
 ·
              Consolidated
                  Statements of Cash Flows for the Year Ended June 30, 2006 (Audited),
                  Six
                  Months Ended June 30, 2005 (Audited), and Year Ended December 31,
                  2004
                  (Audited)
 
 ·
              Consolidated
                  Statement of Changes in Stockholders Equity/(Deficit) from January
                  1, 2004
                  through June 30, 2006 (Audited)
 
 ·
              Notes
                  to Consolidated Financial
                  Statements
   F-7
 
 **MRU
        HOLDINGS, INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **JUNE
        30, 2006 AND 2005 AND DECEMBER 31, 2004**
 
 
 **NOTE
                1 -**
              **ORGANIZATION
                  AND BASIS OF
                  PRESENTATION**
 
 The
        Company was incorporated in Delaware on March 2, 2000 as Dr. Protein.Com,
        Inc.
        and on March 7, 2003 changed its name to Pacific Technology, Inc. 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 31 st to June
        30 th .
 
 On
        September 20, 2005, the 2005 Annual Meeting of Stockholders was held at the
        principal offices of the Company. At the Annual Meeting the Company’s
        stockholders voted on, and approved by requisite stockholder vote, the following
        matters: 1) the election of six directors to the Company’s Board of Directors,
        2) Adoption of the 2005 Consultant Incentive Plan, 3) Adoption of an Amendment
        and Restatement to the 2004 Omnibus Incentive Plan, and 4) Approval of an
        Amendment to the Company’s Certificate of Incorporation to increase the number
        of authorized shares of common stock from 50,000,000 shares to 200,000,000
        shares and the number of authorized shares of preferred stock from 5,000,000
        shares to 25,000,000.
 
 **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.
 
 F-8
 **Revenue
        Recognition**
 
 The
        Company records its revenue on the 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, 2006,
        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 91for 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).
 
 **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
        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, $82,626 in
        student loan servicing and custodial costs, $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.
 
 For
        the
        six months ended June 30, 2005, the Company incurred $189,725 in referral
        marketing costs related to referring consolidation loan borrowers to other
        lenders, $25,070 in student loan servicing and custodial costs, and $10,185
        in
        originating bank costs.
 
 For
        the
        year ended December 31, 2004, the Company incurred no costs of
        revenues.
 
 
 F-9
 **Allowance
        for Loan Losses**
 
 The
        allowance for loan losses represents management’s estimate of possible losses on
        student loans. This evaluation process is subject to numerous estimates and
        judgments. The Company will evaluate the adequacy of the allowance for loan
        losses on its federally insured loan portfolio separately from its alternative
        private student loan portfolio. (Since the Company has not yet originated
        any
        federally insured loan portfolio through June 30, 2006, even though the Company
        had the ability to originate federally insured loans, only the allowance
        for the
        alternative private student loan portfolio will be discussed.)
 
 In
        determining the adequacy of the allowance for loan losses for the alternative
        private student loan portfolio, the Company considers several factors including:
        loans in repayment versus those in nonpayment status, delinquency status,
        and
        trends in defaults in the portfolio based on Company data. 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 provision for loan
        losses.
 
 The
        allowance for loan losses is maintained at a level management believes is
        adequate to provide for estimated possible credit losses inherent in the
        loan
        portfolio. This evaluation is inherently subjective because it requires
        estimates that may be susceptible to significant changes.
 
 For
        the
        year ended June 30, 2006, the Company recorded $814,631 for reserves for
        bad
        debts, based on an analysis of the default and delinquency history on the
        portion of its student loan portfolio that is currently serviced, for the
        Company’s entire student loan portfolio (both currently servicing and deferred
        servicing). There was no allowance established for the six months ended June
        30,
        2005.
 
 **Cash
        and Cash Equivalents**
 
 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, 2006 and 2005, the Company’s uninsured
        cash balances total $19,782,730 and $6,805,965, respectively.
 
 Included
        in cash and cash equivalents are restricted cash deposits that are not available
        to the Company for working capital purposes. At June 30, 2006 and 2005, the
        Company’s restricted cash balances were $2,975,430 and $0,
        respectively.
 
 F-10
 **Collateral
        Deposit - Student Loans**
 
 As
        of
        June 30, 2005, the Company entered into a loan purchase and sale agreement
        with
        Webbank, a Utah state chartered financial institution, which required the
        Company to post $250,000 as a collateral deposit in an interest-bearing account
        with Webbank. The deposit was returned to the Company as part of the termination
        of the loan purchase and sale agreement with Webbank in November
        2005.
 
 **Security
        Deposits**
 
 As
        of
        June 30, 2006 and June 30, 2005, the Company had $30,248 and $392,963
        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.
 
 **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
              3YearsLeasehold improvements
              3YearsFurniture and fixtures
              3Years
 
 **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.
 
 **Advertising**
 
 The
        Company expenses the costs associated with advertising and marketing as
        incurred. Advertising and marketing expenses, included in the statements
        of
        operations for the year ended June 30, 2006, the six months ended June 30,
        2005,
        and the year ended December 31, 2004 were $7,447,426,  $124,504,
        and $16,030, respectively.
 
 F-11
 **Reclassification**
 
 Certain
        amounts in the June 30, 2005 and December 31, 2004 financial statements have
        been reclassified to conform to the June 30, 2006 presentation. There was
        no
        effect on net loss for the periods
 
 Note
        that
        the Company revised its Statement of Changes in Stockholders’ Equity through
        June 30, 2005 to delete all references to the former public company (Pacific
        Technology, Inc.), the accounting acquiree, and to present only the equity
        of
        the former private company (Iempower, Inc.), the accounting acquirer in the
        reverse merger that transpired.
 
 **(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 year ended June 30, 2006, the six months ended June 30, 2005, and the
        year
        ended December 31, 2004:
  Net
                    (loss)
                
                $
                (24,988,912
                )
                $
                (4,071,163
                )
                $
                (1,871,433
                )Weighted-average
                    common stockOutstanding
                    (Basic)
                
                
                15,100,652
                
                
                13,608,511
                
                
                13,209,331Weighted-average
                    common stockequivalents:Stock
                    options
                
                
                -
                
                
                -
                
                
                -Warrants
                
                
                -
                
                
                -
                
                
                -Weighted-average
                    common stockoutstanding
                    (Diluted)
                
                
                15,100,652
                
                
                13,608,511
                
                
                13,209,331
 
 For
        June
        30, 2006 and 2005 and for December 31, 2004, warrants (15,362,546, and
        11,356,876, and 3,214,727) were not included in the computation of diluted
        EPS
        because inclusion would have been antidilutive. For June 30, 2006 and 2005
        and
        for December 31, 2004, options (5,007,237, and 744,999, and 478,750) were
        not
        included in the computation of diluted EPS because inclusion would have been
        antidilutive.
 
 F-12
 **Financial
        Instruments Disclosures of Fair Value**
 
 The
        estimates of fair value of financial instruments are summarized as
        follows:
 
 Carrying
        amounts approximate fair value
  June
                    30, 2006
                
                June
                    30, 2005Cash
                
                $
                20,874,934
                
                $
                6,894,522Accounts
                    Receivable
                
                
                4,167
                
                
                20,246Accounts
                    Payable
                
                
                1,410,865
                
                
                546,727
 
 Fair
        values approximate carrying values because of the short time until
        realization.
 
 
 Assets
        with fair values exceeding carrying amounts
  June
                    30, 2006Carrying
                    Value
                
                Fair
                    ValueStudent
                    loan receivable, held for sale
                
                $
                38,749,736
                
                $
                44,382,462
 The
        Company determined the fair value of its student loans receivable through
        a net
        present value analysis of its student loan portfolios, adjusted for defaults,
        delinquencies, and prepayments.
 
 **Stock
        Based Compensation**
 
 At
        June
        30, 2006, 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 be recognized
        in the financial statements over the period that an employee provides service
        in
        exchange for the award.
 
 The
        Company recognized $7,814,692 in stock based compensation expense for the
        year
        ended June 30, 2006.
 
 **Recent
                  Accounting
                  Pronouncements**
 
 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.
  F-13
 
 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 requires that all separately recognized servicing
                  assets and liabilities be initially measured at fair value, if
                  practicable, and requires 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
                  will be effective for the Company beginning in the first quarter
                  of fiscal
                  2007. The adoption of SFAS 156 is not expected to have any material
                  impact
                  on the Company’s consolidated financial condition or results of
                  operations.
 
 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 will be 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 is not expected to have
                  any
                  material impact on the Company’s consolidated financial condition or
                  results of operations.
 
 **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 depending on
        the student borrower’s choice of repayment option (deferred, interest payment
        only, and principal and interest payment).  Origination fee revenue is
        recognized over the principal servicing life of the loan.
  F-14
 The
        Company values its student loan receivables at the lower of cost or market.
        The
        Company determined the fair market value of its student loans receivable
        through
        a net present value analysis of its student loan portfolios, adjusted for
        defaults, delinquencies, and prepayments. 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.
 
 MRU
        Lending, Inc. and MRU Funding SPV, Inc. have loan purchase agreements with
        Doral
        Bank Federal Savings Bank New York, an affiliate of the Doral Financial
        Corporation. Through November 30, 2005, MRU Lending, Inc. had a loan purchase
        agreement with Webbank, a Utah state chartered financial institution and
        a
        wholly owned subsidiary of WebFinancial Corporation.
  The
        Doral-MRU Lending loan program is secured by a $1 million ninety-day certificate
        of deposit held by MRU Lending at Doral Bank, with assignment rights to Doral
        Bank.  The Doral-MRU Funding SPV loan program is secured by a $1 million
        ninety-day certificate of deposit held by MRU Funding SPV at Doral Bank,
        with
        assignment rights to Doral Bank.
 
 Through
        June 30, 2006, the Company purchased the following private student loan volumes
        through its various subsidiary loan programs:
 
 ○
              The
                  Doral-MRU Lending loan program purchased approximately $18.3 million
                  in
                  private student loans.
 
 ○
              The
                  Doral-MRU Funding SPV loan program purchased approximately $18.4
                  million
                  in private student loans.
  ○
              The
                  Webbank-MRU Lending loan program purchased approximately $1.5 million
                  in
                  private student loans.
   F-15
 **NOTE
                4 -**
              **FIXED
                  ASSETS**
 
 Fixed
        assets consist of the following at June 30, 2006 and 2005:
  2006
                
                2005Computer
                    network equipment
                
                $
                691,872
                
                $
                302,803Furniture
                    and fixtures
                
                
                57,912
                
                
                21,994Leasehold
                    improvements
                
                
                5,884
                
                
                5,884755,668
                
                
                330,681Less:
                    accumulated depreciation
                
                
                (218,537
                )
                
                (57,608
                )Total
                    fixed assets
                
                $
                537,131
                
                $
                273,073
 Depreciation
        expense for the year ended June 30, 2006 and the six months ended June 30,
        2005
        was $160,930 and $41,915, 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. As of June 30, 2006,
        the
        book value of this intangible asset, net of $49,480 accumulated amortization,
        was $98,960.
 
 **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
        was
        no provision for income taxes for the year ended June 30, 2006,  for
        the
        six months ended June 30, 2005, and the year ended December 31,
        2004
 
 F-16
 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 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.
  2006
                
                2005
                
                2004Deferred
                    tax assets
                
                $
                8,496,230
                
                $
                1,951,707
                
                $
                192,629Less:
                    valuation allowance
                
                
                (8,496,230
                )
                
                (1,951,707
                )
                
                (192,629
                )Totals
                
                $
                -
                
                $
                -
                
                $
                -
 
 At
        June
        30, 2006 and 2005 and December 31, 2004, the Company had accumulated deficits
        of
        $32,126,208, $6,505,690, and $2,313,441, 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.
 
 Following
        is the Company’s approximated schedule of net operating loss carry
        forwards:
  December
                    31, 2000
                
                $
                336,000December
                    31, 2003
                
                $
                134,000December
                    31, 2004
                
                $
                1,860,000June
                    30, 2005
                
                $
                4,176,000June
                    30, 2006
                
                $
                24,988,912
  **NOTE
                7 -**
              **STOCKHOLDERS’
                  EQUITY**
 
 **Common
        Stock**
 
 There
        were 200,000,000 and 50,000,000 shares of common stock authorized, with
        17,593,565 and 13,664,502 shares issued and outstanding at June 30, 2006
        and
        2005, respectively. The par value for the common stock is $.001 per
        share.
 
 F-17
 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/warrant
 ○
              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
                  manditorily converted to common,
                  respectively
 
 The
        following details the common stock transactions for the six months ended
        June
        30, 2005:
 
 ○
              40,000
                  warrants were exercised at a price of
                  $2.00/warrant
 ○
              7,100
                  warrants were exercised at a price of
                  $1.60/warrant
 ○
              31,200
                  warrants were exercised at a price of
                  $0.50/warrant
 
 **Series
        A Convertible Preferred Stock**
 
 There
        were 25,000,000 and 5,000,000 shares of Series A convertible preferred stock
        authorized, with 0 and 3,250,006 issued and outstanding as of June 30, 2006
        and
        2005, respectively. The par value for the preferred shares is $0.001 per
        share.
  On
        January 27, 2005, the Company filed a Designation of Powers, Preferences
        and
        Rights of Series A Convertible Preferred Stock, par value $0.001 per share
        (the
        Certificate of Designation) with the Secretary of State of the State of
        Delaware. Pursuant thereto, the Company authorized 4,500,000 shares of its
        preferred stock to be designated as Series A Convertible Preferred Stock
        and
        issued or offered at a purchase price equal to $3.50 per share. A total of
        3,250,006 shares of the Series A Convertible Preferred Stock have been sold
        by
        the Company in the private placement transaction
 
 The
        Series A Preferred Stock was convertible at any time into common stock of
        the
        Company at a price of $3.50 per share subject to adjustment for future stock
        issuances, splits, dividends, and recapitalizations. For the first year of
        issuance, cumulative dividends of 7% per annum were payable quarterly in
        additional shares of Series A Convertible Preferred Stock. The Series A
        Convertible Preferred Stock has no voting rights except on certain defaults
        in
        payment of dividends and as otherwise required by law.
 
 F-18
 The
        Company issued 198,017 shares of Series A Convertible Preferred stock as
        a
        dividend.
 
 On
        January 12, 2006, the Board of the Directors of the Company approved and
        authorized the mandatory conversion of the Series A Convertible Preferred
        Stock
        into the Company’s Common Stock whereas the market price of the Company’s Common
        Stock had exceeded $4.025 (115% of the $3.50 conversion price, as required
        by
        the Certificate of Designation of Powers, Preferences, and Rights of the
        Series
        A Convertible Preferred Stock) for twenty of the thirty most recent consecutive
        trading days, with the thirtieth day period concluding on January 12, 2006.
        There were 3,448,023 shares of Series A converted to common stock.
 
 **Series
        B Convertible Preferred Private Placement**
 
 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.
 
 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-19
 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 LBI 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.
 
 All
        Series B Convertible Preferred Stock certificates were issued as of May 8,
        2006.
 
 As
        of
        June 30, 2006, the Series B Convertible Preferred Stock issued has not been
        registered with the Securities and Exchange Commission.
 
 **Stock
        Options**
 
 Under
        the
        amended 2004 Omnibus Incentive Plan (OIP), the Company may grant either
        incentive stock options pursuant to Section 422 of the Internal Revenue Code
        (ISOs), 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.
 
 Prior
        to
        January 2006, the Company issued OIP grants to officers, directors, and/or
        employees with the exercise price of the grant being the price of the Company’s
        common stock at closing on the date of hire (officer or employee) or election
        (director). Since January 2006, the Compensation Committee instructed the
        Company to adopt a cliff vesting structure for OIP grants, where officers
        and
        employees that join between January 2006 and June 30, 2006 will be issued
        OIP
        grants as of June 30, 2006 with the grant’s exercise price being the price of
        the Company’s common stock at closing on June 30, 2006 with the grant being
        one-third vested as of June 30, 2006.
 
 F-20
 Since
        January 2006, the Compensation Committee instructed the Company that the
        independent directors of the Company will receive the following OIP
        grants:
 
 ·
              Upon
                  election, 60,000 NQO grant which vests 50% upon election with the
                  remainder vesting annually at beginning of each fiscal year over
                  the
                  following three years;
 ·
              At
                  the beginning of each fiscal year, 20,000 NQO grant which vests
                  100% upon
                  grant date;
 ·
              Board
                  committee chairpersons, which are all required by Company by-law
                  to be
                  independent directors, at the beginning of each fiscal year receive
                  the
                  following NQO grants which vest 100% upon grant
                  date:
 o
              Audit
                  committee - 15,000 NQO grant or $10,000 cash stipend, director
                  choice
 o
              Compensation
                  committee - 7,500 NQO grant or $5,000 cash stipend, director
                  choice
 o
              Nominating
                  committee - 3,750 NQO grant or $2,500 cash stipend, director
                  choice
 o
              Transaction/governance
                  committee - 7,500 NQO grant or $5,000 cash stipend, director
                  choice
 
 The
        following table summarizes the stock option activity for the years ended
        June
        30, 2006 and 2005:
  2006
                
                2005Options
                    outstanding at beginning of year
                
                
                1,836,500
                
                
                0Options
                    granted
                
                
                3,066,987
                
                
                1,836,500Options
                    exercised
                
                
                (141,250
                )
                
                0Options
                    forfeited or expired
                
                
                (8,750
                )
                
                0Options
                    outstanding at year end
                
                
                4,762,237
                
                
                1,836,500Exercisable
                    options at year end
                
                
                2,902,083
                
                
                1,003,501
  The
        following table summarizes information about stock options outstanding at
        June
        30, 2006:
 
 Exercise
                
                Weighted
                
                WeightedPrice
                
                Number
                
                Average
                
                Number
                
                AverageRange
                
                Outstanding
                
                Remain.
                    Life
                
                Exercisable
                
                Exer.
                    Price$0.01-$1.00
                
                
                600,000
                
                
                8.02
                
                
                600,000
                
                $
                1.00$1.01-$2.00
                
                
                595,000
                
                
                8.25
                
                
                579,348
                
                $
                1.67$2.01-$3.00
                
                
                493,250
                
                
                8.61
                
                
                247,397
                
                $
                2.97$3.01-$4.00
                
                
                2,246,500
                
                
                9.27
                
                
                1,086,086
                
                $
                3.31$4.01-$5.00
                
                
                263,500
                
                
                9.28
                
                
                120,168
                
                $
                4.58$5.01-$6.00
                
                
                564,237
                
                
                9.99
                
                
                269,083
                
                $
                5.90TOTAL
                
                
                4,762,237
                
                
                
                
                
                2,902,083
                
                $
                2.77
 
 F-21
 **Warrants**
 
 During
        2004, the Company issued 3,079,447 common stock warrants related to the issuance
        of shares in the Company after the reverse merger of Iempower and Pacific
        Technology. The warrants vest upon grant date and expire three years from
        grant
        date. These warrants may be called by the Company if the Company’s common stock
        trades at or above $3.00 per share for twenty consecutive days before the
        Company exercises this call option. For warrant holders that do not elect
        to
        participate at the call, the Company will buy back their warrants at the
        par
        vale of the underlying security, which for the Company’s common stock is $0.001
        per share.
 
 During
        2004, no warrants were exercised.
 
 In
        2005,
        through June 30, 2005, the Company issued 227,500 common stock warrants to
        promoters of the Company’s offering of Series A convertible preferred stock. The
        warrants vest upon grant date and expire five years from grant
        date.
 
 In
        2005,
        through June 30, 2005, the Company issued 7,999,449 common stock warrants
        to
        Nomura Credit and Capital, Inc. (Nomura). 6,545,004 warrants vested on February
        4, 2005. 1,454,445 warrants vest on February 4, 2007. The warrants expire
        in ten
        (10) years or thirty (30) days after condition of uncured lender default.
        The
        exercise price for the warrants issued to Nomura is $3.50. The 1,454,445
        warrant
        vesting can be accelerated due to the following events: a merger or
        consolidation of the Company with or into any Person in connection with which
        the holders of the Company’s Common Stock receive any consideration or
        distributions in respect to their holdings of the Company’s Common Stock; or a
        sale by the Company of all or substantially all of its assets; or the
        acquisition by any person or group of Persons of shares of the Company’s Common
        Stock from either the Company or one or more Common Stock holders of the
        Company
        in connection with the acquisition of the beneficial ownership of voting
        capital
        stock of the Company representing more than 40% of the total voting power
        of all
        outstanding shares of capital stock of the Company entitled to vote generally
        in
        elections of the board of directors. The number of shares and the exercise
        price
        for which these warrants are exercisable have anti-dilution protection for
        the
        following: issuance of common stock dividends payable in additional shares
        of
        common stock; or issuance of additional shares of common stock at a price
        that
        is less than the common stock warrant exercise price of $3.50; or any event
        that
        would have the effect of not fairly protecting the purchase rights represented
        by these warrants.
 
 In
        2005,
        through June 30, 2005, there were 40,000 warrants exercised at $2.00, 7,100
        warrants exercised at $1.60, and 31,200 warrants exercised at
        $0.50.
 
 F-22
 In
        2006,
        through June 30, 2006, 2,395,842 common stock warrants were issued to promoters
        and investors related to the private offering of the Company’s Series B
        convertible preferred stock offering. The warrants vest on the grant date
        and
        have a term of five years.
 
 In
        2006,
        through June 30, 2006, the Company issued 1,895,188 common stock warrants
        to
        Merrill Lynch Bank USA (MLBUSA). The exercise price for 1,482,751 warrants
        is
        $3.50. These warrants have the following vesting schedule: 889,651 warrants
        were
        vested upon grant. 296,550 vest upon the first anniversary of the original
        issue
        date, and 296,550 vest upon the second anniversary of the original issue
        date.
        The exercise price for the remaining 412,437 warrants is $3.80. Both warrants
        have ten year terms. These warrants vest in full upon the second anniversary
        of
        the original issue date, assuming that MLBUSA has renewed its credit facility
        with MRU Funding SPV and that MRU Funding SPV is not in default of the credit
        facility. Both warrants contain anti-dilution provisions protecting the holder
        of these warrants from the Company issuing common stock dividends in kind,
        issuance of additional shares of common stock, issuances of stock purchase
        rights and convertible securities, or otherwise reorganize, reclassify, merge,
        consolidate or dispose of the assets of the Company.
 
 In
        2006,
        through June 30, 2006, there were 145,709 warrants exercised at $2.00, 46,050
        warrants exercised at $1.60, 21,060 warrants exercised at $0.99, 37,021 warrants
        exercised at $0.50, and 89,950 warrants exercised at $0.02.
 
 The
        Company has the following warrants outstanding for the purchase of its common
        stock:
  Exercise
                
                Expiration
                
                June
                    30
                
                June
                    30Price
                
                Date
                
                2006
                
                2005$0.02
                
                
                April
                    2009
                
                
                0
                
                
                89,950$0.50
                
                
                September
                    2006
                
                
                0
                
                
                37,021$0.99
                
                
                September
                    2006
                
                
                64,747
                
                
                68,220$0.99
                
                
                December
                    2006
                
                
                808,540
                
                
                818,646$0.99
                
                
                December
                    2007
                
                
                530,603
                
                
                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
                
                
                361,850
                
                
                412,950$2.00
                
                
                July
                    2007
                
                
                374,481
                
                
                512,115$2.00
                
                
                October
                    2007
                
                
                0
                
                
                7,075$3.50
                
                
                February
                    2007
                
                
                7,999,449
                
                
                7,999,449$3.50
                
                
                February
                    2010
                
                
                227,500
                
                
                227,500$3.50
                
                
                February
                    2016
                
                
                1,482,751
                
                
                0$3.80
                
                
                December
                    2010
                
                
                159,000
                
                
                0$3.80
                
                
                February
                    2011
                
                
                2,236,842
                
                
                0$3.80
                
                
                December
                    2016
                
                
                412,437
                
                
                0$4.00
                
                
                April
                    2010
                
                
                50,000
                
                
                50,000TOTAL
                
                
                
                
                
                15,361,547
                
                
                11,356,876Exercisable
                    warrants
                
                
                
                
                
                13,444,665
                
                
                9,902,431Weighted
                    average exercise price
                
                
                
                
                $
                3.14
                
                $
                2.87
  F-23
 **NOTE
                  8 -**
              **CREDIT
                  LINE WITH UNIVERSAL FINANZ HOLDING
                  AG**
 
 On,
        October 25, 2004 the Company entered into a commitment letter with Universal
        Finanz Holding AG (“Universal”) under which Universal offered to provide up to
        $50 million of credit support to be used as collateral security for the
        obligations of MRU Universal Guarantee Agency, Inc. (the “Guarantor”), a wholly
        owned subsidiary of the Company, as a guarantor of student loans and lines
        of
        credit arranged by the Company or banks and other financial institutions.
        Universal’s commitment is conditioned on the satisfaction of certain conditions
        including the execution of an agreement providing Universal the right to
        purchase up to 65% ownership interest in the Guarantor and pay the purchase
        price for such ownership interest by releasing the Guarantor from its obligation
        to repay an equal amount of its outstanding obligations to
        Universal.
 
 As
        of
        June 30, 2006, June 30, 2005, and December 31, 2004, there were no amounts
        outstanding on the credit line with Universal Finanz Holding AG to any Company
        subsidiary or affiliate.
 
 **NOTE
                9 -**
              **CREDIT
                  LINE WITH NOMURA CREDIT & CAPITAL,
                  INC.**
 
 On
        February 4, 2005, MRU Lending, Inc. (“MRU Lending”), a wholly-owned subsidiary
        of MRU Holdings, Inc. (“the Company”) entered into a credit agreement (the
“Credit Agreement”), by and among Nomura Credit & Capital, Inc. as Agent
        (“Nomura”), 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 MRU Lending 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 MRU Lending and not otherwise released, together with a pledge of
        100%
        of the capital stock of MRU Lending. 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 Company recognized amortization
        expense associated with the financing fees of $68,832 for the year ended
        June
        30, 2006 and $28,680 for the year ended June 30, 2005.
 
 F-24
 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
        MRU Lending 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 MRU Lending’s ability to originate student
        loans, and failure of the Company to indirectly own 100% of the outstanding
        capital stock of MRU Lending. The facility has a three year term. As a result
        of
        this transaction, Nomura was granted a warrant, subject to certain terms
        and
        conditions, to purchase common stock of the Company equal to 27.5% ownership
        interest in the Company on a diluted basis.
 
 As
        of
        June 30, 2006, MRU Lending obtained approximately $19 million in financing
        against the Nomura line of credit by collateralization of loans originated
        through the loan programs with Doral Bank FSB New York and Webbank. Through
        purchases of defaulted loans by MRU Lending and repayment by MRU Lending
        to
        Nomura for prepayments and payments of scheduled principal loan payments
        by the
        borrowers to MRU Lending, the June 30, 2006 outstanding balance due Nomura
        by
        MRU Lending is approximately $18.7 million, which is due by February,
        2008.
 
 **NOTE
                10 -**
              **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. This credit facility
        will
        enable the Company to expand the scope of its school lending program to over
        3,700 programs of higher education. The facility has 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 February 2006. The Company paid $525,000 in deferred
        financing fees in association with the Credit Agreement. The Company recognized
        amortization expense associated with the financing fees of $198,875 for the
        year
        ended June 30, 2006.
 
 As
        of
        June 30, 2006, the MRUF obtained approximately $17.9 million in financing
        through the MLBU line of credit by collateralization of loans originated
        through
        the Doral Bank FSB New York-MRUF loan program.
 
 F-25
 **NOTE
                  11 -**
              **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. 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
        balance due to the Bank for origination of MRUL private student loans was
        $44,266 as of June 30, 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. 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.
 
 The
        balance due to the Bank for origination of MRUO private student loans was
        $761,916 as of June 30, 2006.
 
 On
        May 5,
        2005, MRU Lending, Inc. (“MRUL”), a wholly-owned subsidiary of the Company
        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.
 
 The
        Company has no balance due to Webbank for origination of loans as of June
        30,
        2006 and June 30, 2005
 
 F-26
  **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**
 
 **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
  **Operating
        Leases**
 
 The
        Company leases office and other corporate space under leases with terms between
        one and four years. Monthly payments under the current leases range between
        $1,525 and $31,860. 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 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 December 31, 2006:
 
 For
        the
        year ending June 30, 2006:
  2007
                
                
                539,0152008
                
                
                382,3192009
                
                
                159,2992010
                
                
                0$
                1,080,633
  F-27
  **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.
     F-28