**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM 10-K/A**


Amendment
        No. 1




**x**
            
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934****For
                the fiscal year ended June 30, 2008****o**
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934****For
                the transition period from
                              
                to**


**Commission
      File Number 001-33073**





**MRU
      HOLDINGS, INC.**


(Exact
      name of registrant as specified in its charter)




**Delaware**
            
            **33-0954381**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer Identification No.)**590
                Madison Avenue, 13th Floor, New York, NY**
            
            **10022**(Address
                of principal executive offices)
            
            (Zip
                Code)




Registrant’s
      telephone number, including area code: **(212)
      398-1780**


Securities
      registered pursuant to Section 12(b) of the Act:




**Title
                of Each Class**
            
            **Name
                of Each Exchange**
              **on
                Which Registered**common
                stock, par value $0.001 per share
            
            The
                NASDAQ Global Market


Securities
      registered pursuant to Section 12(g) of the
      Act:  None




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities
      Act.   Yes o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange
      Act.   Yes o No x




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the registrant
      was required to file such reports), and (2) has been subject to the filing
      requirements for at least the past 90
      days.   Yes x No o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
      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-K or any amendment to this Form 10 ‐ K. o












Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                accelerated filero
            Accelerated
                filerx
            Non-accelerated
                filero
            Smaller
                reporting companyo




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





**MARKET
      VALUE**





The
      aggregate market value of the outstanding common stock held by non-affiliates
      of
      the registrant was approximately $92,389,784 as
      of
      December 31, 2007 (the last business day of the registrant’s most recently
      completed second fiscal quarter) based on the closing sale price on The NASDAQ
      Stock Market on that date.





**OUTSTANDING
      STOCK**




As
      of
      September 12, 2008 there were 31,721,174 outstanding
      shares of the registrant’s common stock.





**DOCUMENTS
      INCORPORATED BY REFERENCE**




None.




2


**EXPLANATORY
          NOTE**
  We
          are
          filing this Amendment No. 1 on Form 10-K/A to our Annual Report on Form
          10-K
          (the "Annual Report") filed on September 15, 2008 with the Securities and
          Exchange Commission solely for the purpose of including information that
          was to
          be incorporated by reference from our definitive proxy statement pursuant
          to
          Regulation 14A of the Securities Exchange Act of 1934. We will not file
          our
          definitive proxy statement within 120 days of our fiscal year ended June
          30,
          2008 and therefore, we are amending and restating in their entirety, Items
          10,
          11, 12, 13 and 14 of Part III of the Annual Report. Except as described
          above,
          no other amendments are being made to the Annual Report. Except as specifically
          set forth herein, this Form 10-K/A does not reflect events occurring after
          the
          September 15, 2008 filing of our Annual Report nor does it modify or update
          the
          disclosure contained in the Annual Report in any way other than as required
          to
          reflect the amendments discussed above and the reflected
          below.




3


**MRU
      HOLDINGS, INC.**





**Table
      of Contents**




**PART
                  III**
              
              5Item
                  10.
              Directors,
                  Executive Officers and Corporate Governance
              5Item
                  11.
              Executive
                  Compensation
              12Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              24Item
                  13.
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              27Item
                  14.
              Principal
                  Accounting Fees and Services
              29**PART
                  IV**
              
              31Item
                  15.
              Exhibits,
                  Financial Statement Schedules
              31Signatures
              
              33




4


**PART
          III**
 
 **Item
          10.**  ****  **Directors,
          Executive Officers and Corporate Governance.**
 
 **Board
          of Directors; Committees**
 
 Our
          board
          of directors currently consists of nine members and is currently comprised
          of
          Messrs. Fisher, Bushley, Mathieson, Brown, Dhaliwal, Elinsky, McGuinn,
          Khan and
          Garg. Our board of directors has reviewed and considered transactions and
          relationships between each director or any member of his immediate family
          and
          the company and its subsidiaries and affiliates. Our board of directors
          has
          determined that Messrs. Fisher, Bushley, Mathieson, Brown and Dhaliwal
          are
          independent under the criteria for independence set forth in the NASDAQ
          listing
          standards.
 
 The
          names, ages as of October 28, 2008, and existing positions with us of the
          directors, if any, are as follows:
  **Name**
                **Age**
                **Office
                    or Position Held**Edwin
                    J. McGuinn, Jr.
                57
                Chairman
                    and Chief Executive OfficerRaza
                    Khan
                31
                Co-Founder,
                    Co-President and DirectorVishal
                    Garg
                30
                Co-Founder,
                    Co-President, Secretary and DirectorRichmond
                    T. Fisher
                50
                DirectorC.
                    David Bushley
                66
                DirectorAndrew
                    Mathieson
                45
                DirectorMichael
                    M. Brown
                36
                DirectorSunil
                    Dhaliwal
                32
                DirectorGregory
                    N. Elinsky
                44
                Director
 
 The
          name,
          principal occupation for the last five years, selected biographical information
          and the period of service as our director of each of our directors are
          set forth
          below.
 
 **Edwin
          J. McGuinn, Jr.** —Mr.
          McGuinn has served as our Chairman since April 2004 and our Chief Executive
          Officer, or CEO, since October 2004. In
          addition to his duties at the Company, Mr. McGuinn is also the President
          of
          eLOT, Inc., and its subsidiary interest eLottery.com (formerly known as
          Executone, Inc), an intellectual property services and e-commerce
          consultant 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 of directors since July
          8,
          2004.
 
 5
 **Raza
          Khan** —Mr.
          Khan
          has served as our President since July 2004 and became Co-President with
          Mr.
          Garg in May 2008. Prior to the Company, 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 of directors since
          July 8,
          2004.
 
 **Vishal
          Garg** —Mr.
          Garg
          served as our Chief Financial Officer, or CFO, from July 2004 until the
          promotion of Jonathan Coblentz to the position in May 2008, at which time
          Mr.
          Garg become Co-President along with Mr. Khan. Prior to the Company, 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 of directors since July 8, 2004.
 
 **Richmond
          T. Fisher** —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, 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 CEO at Standard and Poors Securities, Inc. in 1998 and 1999. Mr. Fisher
          has
          served on our board of directors since March 22, 2005.
 
 **C.
          David Bushley** —Mr.
          Bushley recently retired as Senior Vice President and Director of Global
          Compensation for Bank of New York Mellon and was formerly on the board
          of
          directors at Education Lending Group, Inc. Prior to the merger of Mellon
          Financial Corp. and Bank of New York, Mr. Bushley was Global Director of
          Compensation and Benefits for Mellon Financial Corporation. Prior to Mellon,
          he
          served as Financial Services Industry National Practice Leader, Compensation
          Consulting, for PriceWaterhouseCoopers LLP, the Senior Vice President and
          CFO of
          Amdura Corporation and as the Senior Vice President and the Chief Lending
          Officer of Dime Savings Bank. Prior to this, Mr. Bushley spent nine years
          with
          Merrill Lynch & Co. where he held a variety of senior management positions,
          including the position of President of Merrill Lynch Mortgage Company,
          Chief
          Credit Officer and President of Merrill Lynch Private Capital. Mr. Bushley
          has
          served on our board of directors since July 8, 2005.
 
 6
 **Andrew
          Mathieson** —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 of directors since January 25, 2006.
 
 **Michael
          M. Brown** —Mr.
          Brown is a General Partner at Battery Ventures, which he joined in 1998.
          Additionally, Mr. Brown is a member of the board of directors at the following
          companies: Fingerhut Direct Marketing, J. Hilburn, Panjiva, TradeKing and
          Trading Machines. 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), OutlookSoft (acquired by SAP)
          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 of directors since February 24, 2006.
 
 **Sunil
          Dhaliwal** —Mr.
          Dhaliwal is a General Partner at Battery Ventures, which he joined in 1998.
          Mr.
          Dhaliwal is also currently a board member of Next Investments and Copan
          Systems.
          He has previously served as a director of Netezza Corporation (NYSE Arca:
          NZ),
          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 (NASDAQ: CBEY),
          CipherTrust, Inc. (acquired by Secure Computing), 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 and 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 of directors since February 24,
          2006.
 
 **Gregory
          N. Elinsky** —
Mr.
          Elinsky is a co-founder and senior managing director at Keane Advisors,
          LLC and
          has been an investment advisor for nearly two decades. Mr. Elinsky also
          serves
          as CEO of Executive Capital Strategies LLC, a registered investment advisory
          firm. Mr. Elinsky was previously a vice president for the Private Client
          Services Division of Goldman Sachs before moving his business to Merrill
          Lynch.
          He is well versed in asset allocation modeling, single stock risk management,
          option and derivative strategies, as well as qualified ESOP’s. Mr. Elinsky is
          also a member of the board of directors for the Southeast Region for the
          Second
          Mile, Tammac Corporation, Impeva Labs and Free-Fi Networks. Mr. Elinsky
          has
          served on our board of directors since July 31, 2008.
 
 On
          July
          10, 2008, the Company entered into a note and warrant purchase agreement
          (the
“July 10th Purchase Agreement”), by and among the Company, Battery Ventures VII,
          L.P. (“BV7”), Battery Investment Partners VII, LLC (“BIP7,” and together with
          BV7, “Battery”) and a non-affiliated investor listed on the Investor Schedule
          attached thereto (each, a “July 10th Investor” and collectively, the “July 10th
          Investors”) pursuant to which, in exchange for a payment of $4,000,000 in cash,
          the Company issued, in a private placement transaction: (i) promissory
          notes in
          the original aggregate principal amount of $5,000,000 (collectively, the
          “Promissory Notes”) and (ii) warrants to purchase in the aggregate 2,222,222
          shares of common stock. Pursuant to Section 8 of the Promissory Notes,
          the July
          10th Investors were collectively entitled to approve one member of the
          board of
          directors for so long as the July 10th Investors held all of the Promissory
          Notes. The July 10th Investors proposed that Mr. Elinsky be elected to
          the board
          of directors. Effective July 31, 2008, the board of directors, following
          a
          recommendation from our Nominating and Corporate Governance Committee,
          unanimously approved the election of Mr. Elinsky as a director of the Company.
          The board of directors determined that Mr. Elinsky is not an “independent”
director under the NASDAQ Marketplace Rules.
 
 **Committees**
  Our
          board
          of directors currently has three standing committees which are comprised
          entirely of independent directors: the audit committee, the compensation
          committee and the nominating and corporate governance committee. Our board
          of
          directors conducts its business through meetings of the board of directors,
          actions taken by written consent in lieu of meetings and by the actions
          of its
          committees. During the fiscal year ended June 30, 2008, our board of directors
          held nine
          meetings and took action by written consent eight times. During the fiscal
          year
          ended June 30, 2008: (i) the audit committee held four meetings and took
          action
          by written consent once, (ii) the compensation committee held four meetings
          and
          took action by written consent ten times, and (iii) the nominating and
          corporate
          governance committee held one meeting and discussed matters informally
          in
          performing its functions. During the fiscal year ended June 30, 2008, each
          director attended at least 75% of all meetings of the board of directors,
          and at
          least 75% of all meetings of committees on which he served.
 
 7
 ***Audit
          Committee:***
 
 The
          audit
          committee is currently comprised of Messrs. Fisher, Brown and Dhaliwal,
          with Mr.
          Fisher serving as the committee’s chairperson. All audit committee members are
          independent within the meaning of Rule 4200 of the NASDAQ listing standards
          and
          meet the criteria for independence set forth in Rule 10A-3 under the Securities
          Exchange Act of 1934, as amended. All members of the audit committee are
          financially literate and our board of directors has determined that Mr.
          Fisher
          is an “audit committee financial expert” within the meaning of Item 407(d) of
          Regulation S-K under the Securities Exchange Act of 1934, as amended, or
          the
          Exchange Act. The Securities and Exchange Commission, or SEC, has determined
          that the audit committee financial expert designation does not impose on
          a
          person with that designation any duties, obligations or liability that
          are
          greater than the duties, obligations or liability imposed on such person
          as a
          member of the audit committee of the board of directors in the absence
          of such
          designation. Among other things, the audit committee appoints our independent
          auditors and oversees the quality and integrity of our financial reporting
          and
          the audits of our financial statements by our independent auditors and
          in
          fulfilling its oversight function, reviews with our management and independent
          auditors the scope and result of the annual audit, our auditors’ independence
          and our accounting policies. The audit committee is also responsible for
          the
          overall administration of our code of business conduct and ethics and reviewing
          and approving all related party transactions. Our board of directors has
          approved a written charter under which the audit committee operates. This
          charter is posted on our corporate website at www.mruholdings.com . A copy
          of
          our audit committee charter is available free of charge, upon request directed
          to Investor Relations, MRU Holdings, Inc., 590 Madison Avenue, 13th Floor,
          New
          York, New York 10022.
 
 The
          audit
          committee has adopted complaint procedures for accounting and auditing
          matters
          in accordance with Rule 10A-3 under the Exchange Act. The full text of
          these
          complaint procedures is available on our corporate website at
          www.mruholdings.com. A copy of our complaint procedures is available free
          of
          charge, upon request directed to Investor Relations, MRU Holdings, Inc.,
          590
          Madison Avenue, 13th Floor, New York, New York 10022.
 
 ***Compensation
          Committee:***
 
 The
          compensation committee is currently comprised of Messrs. Bushley, Brown
          and
          Mathieson, with Mr. Bushley serving as the committee’s chairperson. All
          compensation committee members are independent in accordance with the criteria
          for independence set forth in the NASDAQ listing standards. In general,
          the
          compensation committee oversees the compensation of executive officers
          and
          senior management, including plans and programs relating to cash compensation,
          incentive compensation, equity-based awards and other benefits and perquisites
          and administers any such plans or programs as required by the terms thereof.
          In
          particular, the compensation committee’s primary duties are described in the
          compensation committee charter and include, among other things:
 
 •
                reviewing
                    the competitiveness of our executive compensation programs to
                    ensure (1)
                    the attraction and retention of corporate officers, (2) the motivation
                    of
                    corporate officers to achieve our business objectives, and (3)
                    the
                    alignment of the interests of key leadership with the long-term
                    interests
                    of our stockholders;
 
 •
                reviewing
                    and approving the compensation structure for corporate officers
                    at a level
                    of corporate vice president and above;
 
 •
                overseeing
                    an evaluation of the performance of our executive officers including
                    feedback on all executive officers from senior staff and approving
                    the
                    annual compensation, including salary, bonus, incentive and equity
                    compensation for the executive officers;
 
 •
                reviewing
                    and approving the goals and objectives of our CEO, evaluating
                    CEO
                    performance in light of these corporate objectives, and setting
                    CEO
                    compensation consistent with our philosophy;
 
 •
                reviewing
                    and discussing with the board of directors and senior officers
                    plans for
                    officer development and corporate succession plans for the CEO
                    and other
                    senior officers;
 
 •
                reviewing
                    and making recommendations concerning long-term incentive compensation
                    plans, including the use of equity-based plans; and
 
 8
 •
                except
                    as otherwise delegated by the board of directors, administering
                    the
                    equity-based and employee benefit plans.
 
 Our
          board
          of directors has approved a written charter under which the compensation
          committee operates. This charter is posted on our corporate website at
          www.mruholdings.com. A copy of our compensation committee charter is available
          free of charge, upon request directed to Investor Relations, MRU Holdings,
          Inc.,
          13th Floor, New York, New York 10022.
 
 ***Nominating
          and Corporate Governance Committee:***
 
 The
          nominating and corporate governance committee is currently comprised of
          Messrs.
          Brown, Bushley and Fisher, with Mr. Brown serving as the committee’s
          chairperson. All nominating and corporate governance committee members
          are
          independent in accordance with the criteria for independence set forth
          in the
          NASDAQ listing standards. Among other things, the corporate governance
          committee
          identifies qualified individuals to become board members and recommends
          to the
          board of directors individuals to be designated as nominees for election
          as
          directors at the annual meetings of stockholders. More specifically, the
          nominating and corporate governance committee is responsible for reviewing,
          on
          an annual basis, the requisite skills and characteristics of individual
          members
          of the board of directors, as well as the composition of the board of directors
          as a whole, in the context of our needs. The nominating and corporate governance
          committee will review all nominees for director, including those recommended
          by
          stockholders, and will recommend that the board select those nominees whose
          attributes it believes would be most beneficial to us. This review involves
          an
          assessment of the personal qualities and characteristics, accomplishments
          and
          business reputation of each potential nominee. The nominating and corporate
          governance committee will assess candidates’ qualifications based on all factors
          it considers appropriate, which may include (a) ensuring that the board
          of
          directors, as a whole, is diverse and consists of individuals with various
          and
          relevant career experience, relevant technical skills, industry knowledge
          and
          experience, financial expertise (including expertise that could qualify
          a
          director as a “financial expert”, as that term is defined by the rules of the
          SEC), local or community ties and (b) minimum individual qualifications,
          including strength of character, mature judgment, familiarity with our
          business
          and industry, independence of thought and an ability to work collegially.
 
 Our
          board
          of directors has approved a written charter under which the nominating
          and
          corporate governance committee operates. This charter is posted on our
          corporate
          website at www.mruholdings.com. A copy of our nominating and corporate
          governance committee charter is available free of charge, upon request
          directed
          to Investor Relations, MRU Holdings, Inc., 590 Madison Avenue, 13th Floor,
          New
          York, New York 10022.
 
 **Corporate
          Governance**
 
 ***Codes
          of Conduct:***
 
 We
          have
          adopted a code of business conduct and ethics that applies to all of our
          directors, officers and employees. In addition, we have also adopted a
          code of
          ethics that applies to our CEO, our CFO and other of our senior financial
          officers. The codes are designed to comply with applicable SEC regulations
          and
          NASDAQ listing standards and both codes are posted on our corporate website
          at
          www.mruholdings.com. A copy of either code is available free of charge,
          upon
          request directed to Investor Relations, MRU Holdings, Inc., 590 Madison
          Avenue,
          13th Floor, New York, New York 10022.
 
 ***Stockholder
          Nominations and Communications Policy:***
 
 Our
          board
          of directors has adopted policies with respect to the consideration of
          candidates recommended by stockholders for election as directors and stockholder
          communications with the board of directors.
 
 Stockholders
          may recommend director nominees for consideration by the nominating and
          corporate governance committee by submitting the names and the following
          supporting information to our secretary at: Secretary, Stockholder Nominations,
          MRU Holdings, Inc., 590 Madison Avenue, 13th Floor, New York, NY 10022.
          The
          submissions should include a current resume and curriculum vitae of the
          candidate and a statement describing the candidate’s qualifications and contact
          information for personal and professional references. The submission should
          also
          include the name and address of the stockholder who is submitting the nominee,
          the number of shares which are owned of record or beneficially by the submitting
          stockholder and a description of all arrangements or understandings between
          the
          submitting stockholder and the candidate.
 
 9
 Stockholders
          and other interested parties may communicate directly with our board of
          directors or the non-management directors. All communications should be
          in
          writing and should be directed to our secretary at: Secretary, Stockholder
          Communications, MRU Holdings, Inc., 590 Madison Avenue, 13th Floor, New
          York, NY
          10022. The sender should indicate in the address whether it is intended
          for the
          entire board of directors, the non-management directors as a group or an
          individual director. Each communication intended for the board of directors
          or
          non-management directors received by the secretary will be forwarded to
          the
          intended recipients in accordance with the existing instructions.
 
 The
          full
          text of the stockholder nominations and communications policy is available
          on
          our corporate website at www.mruholdings.com. A copy of the policy is available
          free of charge, upon request directed to Investor Relations, MRU Holdings,
          Inc.,
          590 Madison Avenue, 13th Floor, New York, New York 10022.
 
 ***Director
          Attendance at Annual Meeting of Stockholders***
 
 We
          do not
          have a formal policy regarding attendance by directors at our annual meeting
          of
          stockholders but invite and encourage all directors to attend. We make
          every
          effort to schedule our annual meeting of stockholders at a time and date
          to
          permit attendance by directors, taking into account the directors’ schedules and
          the timing requirements of applicable law. Last year, three of the eight
          directors attended the 2007 annual meeting of stockholders.
 
 ***Compensation
          Committee Interlocks and Insider Participation***
 
 During
          the fiscal year ended June 30, 2008, the compensation committee of the
          board of
          directors was comprised of Messrs. Bushley, Brown and Mathieson. None of
          the
          committee’s members was employed by us as an officer or employee during the
          fiscal year ended June 30, 2008. No committee member had any interlocking
          relationships requiring disclosure under applicable rules and regulations.
 
 For
          a
          description of certain relationships and transactions with members of the
          board
          of directors or their affiliates, see "—Transactions with Related Persons,
          Promoters and Certain Control Persons" beginning on page 27.
 
 **Executive
          and Senior Officers**
 
 The
          following sets forth the positions, ages as of October 28, 2008 and selected
          biographical information for our executive and senior officers who are
          not
          directors.
 
 **Name**
                **Age**
                **Office
                    or Position Held**Jonathan
                    Coblentz
                37
                Chief
                    Financial Officer and TreasurerJohn
                    P. Derham
                42
                Chief
                    Marketing OfficerYariv
                    C. Katz
                32
                Vice
                    President and General CounselJim
                    Briggs
                41
                Managing
                    Director, Finance and
                    Controller
  **Jonathan
          Coblentz** —Mr.
          Coblentz has served as our CFO and Treasurer since May 2008. He previously
          served as Head of Capital Markets since April 2007. In 1992, Jonathan began
          his
          structured finance career in the Asset Backed Finance Group of The First
          Boston
          Corporation (now Credit Suisse). During the nearly five years he spent
          there, he
          structured and executed securitizations for customers over a broad range
          of
          asset classes. As part of this process, he helped various student lenders
          develop their student loan securitization programs. After leaving First
          Boston
          in 1997, Jonathan joined Goldman Sachs & Co., where he worked initially as
          an asset backed banker and later joined the firm’s Principal
          Finance Group. Prior to leaving Goldman in 2004, Jonathan led the student
          loan
          finance team, which successfully re-established the firm’s presence in the
          student loan ABS market. In the last two years prior to joining MRU, Jonathan
          worked in the structured finance group at Fortress Investment Group, sourcing
          and analyzing investment opportunities in consumer and commercial finance
          and
          the insurance industry. Jonathan graduated summa cum laude from Yale University
          in 1992, receiving a B.S. in Applied Mathematics with a concentration in
          Economics.
  **John
          P. Derham** —Mr.
          Derham has served as our Chief Marketing Officer, or CMO, since October
          2007.
          Mr. Derham is responsible for the development and execution of all marketing
          activities in the organization. Prior to joining us, Mr. Derham served
          as SVP
          and CMO of Advanta Bank Corp., among other roles over a span of 15 years.
          Mr.
          Derham has served as an officer at JPMorgan Chase and the Royal Bank of
          Scotland, as well.
  10
 **Yariv
          C. Katz** —Mr.
          Katz
          has served as Vice President and our General Counsel since August 2007.
          From September
          2001 to August 2007, Mr. Katz served as a corporate associate at the law
          firm of
          Paul, Hastings, Janofsky & Walker LLP. Mr. Katz holds a B.A. in Political
          Science from Binghamton University and a J.D. from the Fordham University
          School
          of Law.
 
 **Jim
          Briggs** —Mr.
          Briggs has served as Managing Director, Finance and Controller since October
          2007. Prior to joining us, Mr. Briggs served as CFO of JP Morgan’s Worldwide
          Security Services’ Operations and Client Service units from 2006 to 2007. 
Mr. Briggs also served as Global Head of Valuation Control at JP Morgan,
          among
          other roles in JP Morgan’s Investment Bank Finance group over a span of 14
          years.
 
 **Section
          16(a) Beneficial Ownership Reporting Compliance**
 
 Section
          16(a) of the Securities Exchange Act of 1934 requires our directors, executive
          officers and persons who own, or are part of a group that owns, more than
          10% of
          a registered class of our equity securities to file with the SEC reports
          regarding their ownership and changes in ownership of our equity securities.
          Based solely on our review of Forms 3, 4 and 5 available to us and other
          information obtained from our directors, officers and certain 10% stockholders
          or otherwise available to us and amendments thereto, we believe that all
          or our
          officers, directors and greater than 10% beneficial owners have timely
          satisfied
          their Section 16(a) reporting obligations for the fiscal year ended June
          30,
          2008, except for the following: a Form 4 required to be filed by Mr. McGuinn
          in
          February 2008 was inadvertently filed one day late; Form 4s required to
          be filed
          by Messrs Khan and Garg in February 2008 were inadvertently filed several
          days
          late; Form 4s required to be filed by Messrs Khan and Garg in January 2008
          were
          inadvertently filed one day late; a Form 4 required to be filed by Mr.
          Katz in
          August 2007 was inadvertently filed one day late; Form 4s required to be
          filed
          by Messrs Fisher, Bushley and Mathieson in July 2007 were inadvertently
          filed in
          October 2007; and a Form 4 required to be filed by BV7 in January 2007
          was
          inadvertently filed in November 2007.
 11
  **Item
          11.**   **Executive
          Compensation.**
  **Compensation
          Committee Report**
  Our
          compensation committee has reviewed the Compensation Discussion &
Analysis with management and, based on that review, recommends to the board
          of directors that it
          be included herein.
  **Compensation
          Committee**
  C.
          David
          Bushley
 Michael
          M. Brown
 Andrew
          Mathieson
  **Compensation
          Discussion and Analysis**
  **I.    Administration
          of Compensation and Compensation Programs**
  Our
          compensation committee’s role is to discharge our board of director’s
          responsibilities relating to compensation of the Company’s executives, to
          produce an annual report on executive compensation for inclusion in the
          Company’s proxy statement and to oversee and advise our board of directors on
          the adoption of policies that govern the Company’s compensation programs,
          including stock and benefit plans.
 
 Our
          compensation committee is responsible for reviewing and approving the goals
          and
          objectives of our CEO, evaluating the CEO’s performance in light of those goals
          and objectives, and setting the CEO’s compensation consistent with our
          philosophy. Our compensation committee is also responsible for overseeing
          an
          evaluation of the performance of our executive officers, including feedback
          on
          all executive officers from senior staff, and approving the annual compensation,
          including salary, bonus, and equity compensation for our executive officers.
          In
          addition, as was done with respect to the fiscal year 2008 compensation
          decisions with respect to our CEO and our co-presidents, our compensation
          committee may recommend the compensation packages for our executive officers
          to
          the independent members of our board of directors, who then approve the
          compensation packages. In fiscal year 2008, the independent members of
          our board
          of directors (which include the members of the compensation committee)
          approved
          the compensation packages for Messrs. McGuinn, Khan and Garg exactly as
          such
          compensation packages were recommended by our compensation committee. For
          the
          fiscal year ended June 30, 2008, our named executive officers, or NEOs,
          for whom
          we are required to provide compensation information pursuant to the rules
          of the
          SEC are:
 
 **Name**
                **Title**Edwin
                    J. McGuinn, Jr.
                Chairman
                    and CEORaza
                    Khan
                Co-Founder
                    and Co-PresidentVishal
                    Garg
                Co-Founder,
                    Co-President and SecretaryJonathan
                    Coblentz
                Chief
                    Financial OfficerJohn
                    Derham
                Chief
                    Marketing Officer
  **II.    Compensation
          Philosophy and Program Objectives**
  As
          described above, our objective is to provide compensation packages that
          attract
          and retain corporate officers, motivate corporate officers to achieve the
          Company’s business objectives, and align the interests of key leadership with
          the long-term interests of the Company’s stockholders. As discussed in more
          detail below, our compensation program is designed to reward executives
          for
          furthering our objectives. Our executive compensation program consists
          of three
          main elements: an annual base salary, annual cash bonus compensation and
          long-term incentive compensation consisting of equity awards under our
          2004
          Incentive Plan (the “2004 Plan”). Salaries for executive officers are usually
          specified in an executive officer’s employment agreement or offer letter and are
          set at a level believed necessary to attract and retain the executive.
          The
          Company’s cash bonus program is generally retrospective and takes into account
          the accomplishments the executive officers and the Company have achieved
          over
          the previous year relating to key business goals that drive our financial
          performance. Awards of options to purchase our common stock, restricted
          stock
          and restricted stock units are designed to align our executive officers’
interests with those of our stockholders and to operate as retention and
          motivational vehicles through time vesting conditions.
 
 12
 We
          believe that the compensation provided to our executives should be commensurate
          with the performance of the Company and must recognize the competitive
          environment for talented executives in which we operate. In evaluating
          the
          performance of the Company, the compensation committee believes it is
          appropriate to take the current credit crisis and its affect on the Company’s
          business into consideration. We compete for talent with other student loan
          companies and consumer finance companies. The overall principle guiding
          our NEO
          compensation is to pay total compensation that encourages outstanding
          performance and is in line with the competitive market. The actual compensation
          paid to each NEO will vary based on Company and individual performance
          and the
          NEO’s role within the Company. Our CEO’s employment agreement expires on October
          31, 2009 and the employment agreements for each of our co-presidents expire
          on
          April 1, 2009. These employment agreements, among other things, specify
          each
          executive’s base salary, minimum annual salary increases and minimum bonus
          amounts. Our CFO and CMO do not have employment agreements. Certain of
          the terms
          of their compensation are specified in their offer letters.
  **III.    Procedural
          Approach—Role of the Compensation Committee and Board of
          Directors**
  Compensation
          for our CEO and our co-presidents is based on their employment agreements.
          The
          employment agreements for Messrs. Khan and Garg provide for minimum salary
          increases and bonus amounts and provide the Company with discretion to
          provide
          for salary increases and bonuses in excess of the specified minimum amounts.
          Our
          compensation committee generally meets during the first calendar quarter
          of each
          year to discuss salary increases for our CEO and co-presidents, as well
          as bonus
          payments and equity awards to be made to these executive officers. In evaluating
          our co-presidents, our compensation committee takes the compensation
          recommendations of our CEO, as well as our CEO’s evaluations of our
          co-presidents, into account. In evaluating our CEO, our compensation committee
          takes into account input it receives from the other independent directors
          of our
          board of directors as well as from our co-presidents. During the first
          quarter
          of 2008, our compensation committee met three times to discuss the compensation
          for our co-presidents (our CEO’s compensation was discussed at two of these
          meetings) and made a recommendation with respect to the compensation packages
          for our CEO and co-presidents during the third meeting. Our independent
          directors subsequently reviewed the compensation recommendations made by
          our
          compensation committee and approved the compensation packages recommended
          by our
          compensation committee. In addition, in connection with the extension of
          our
          CEO’s employment agreement, in September 2007 our compensation committee
          approved amendments to our CEO’s employment agreement to provide him with
          certain additional benefits. ****
  The
          employment agreements with our co-presidents expire on April 1, 2009. Pursuant
          to their original terms, each of these employment agreements automatically
          renews for an additional five-year term unless the Company or the applicable
          executive provides written notice of its or his intention not to renew
          the
          agreement at least six months prior to April 1, 2009, which would have
          been
          October 1, 2008. However, these employment agreements have been amended
          so that
          each of the Company and Messrs. Khan and Garg has until November 1, 2008
          to
          provide notice of its or his intention not to renew. Our compensation committee
          is currently negotiating with Messrs. Khan and Garg with respect to the
          terms of
          their employment. Compensation decisions with respect to our CFO and CMO
          are
          generally made around the anniversary of their hiring based on input on
          their
          performance supplied to the compensation committee by our CEO. Our CFO
          started
          at MRU on April 2, 2007, and his compensation was updated by the compensation
          committee at a meeting held on May 7, 2008. Our CMO was hired on October
          15,
          2007.
  Our
          compensation committee held four meetings and took action by written consent
          10
          times during the fiscal year ended June 30, 2008.
  **IV.    Compensation
          Structure**
  **A.    Overview
          of Elements of Pay**
  In
          the fiscal year ended June 30, 2008 we utilized three main elements of
          compensation:
  13
  ·
                Annual
                    Base Salary—Annual base salary as set forth in the executives’ employment
                    agreements or offer letters, as applicable, subject to increase
                    from time
                    to time at the discretion of our compensation committee and,
                    with respect
                    to our CEO and co-presidents, the independent members of our
                    board of
                    directors;
  ·
                Annual
                    Cash Bonus—Variable pay in the form of cash bonuses as set forth in the
                    executives’ employment agreements or offer letters, as applicable, and as
                    determined by our compensation committee and, with respect to
                    our CEO and
                    co-presidents, the independent members of our board of directors,
                    designed
                    to reward executives for the attainment of business goals, primarily
                    through review of the executive’s performance and the Company’s operating
                    performance; and
  ·
                Long-Term
                    Incentive Compensation—Awarded in the form of stock options, including
                    incentive stock options (“ISOs”) and nonqualified stock options (“NQOs”),
                    restricted stock awards (“RSAs”) and restricted stock units (“RSUs”).
  **B.    Detail
          of Elements of Pay**
  **(1)**  ***Base
          Salary***
  The
          annual salaries vary according to the levels of responsibility undertaken
          by
          each executive officer. We strive to compensate our NEOs with salaries
          commensurate with prevailing compensation practices in other small, high
          growth
          companies. Our compensation committee generally reviews our NEO’s base salaries
          on an annual basis and may review them more frequently as necessary. Consistent
          with our philosophy of designing our executive compensation program to
          be
          commensurate with Company performance, our mix of compensation is weighted
          towards the variable and long-term incentive components, particularly with
          respect to our CEO and our co-presidents. ****
 
 Edwin
          J.
          McGuinn. Jr. serves as our CEO pursuant to an amended employment agreement
          entered into as of September 27, 2007. The amended employment agreement
          provides
          for Mr. McGuinn’s employment through October 31, 2009 and increased
          Mr. McGuinn’s base salary from $242,000 to $250,000 per year. Under the terms of
          his employment agreement, Mr. McGuinn’s base salary shall be increased annually,
          effective on January 1 of each calendar year, in an amount no less than
          10%. In
          determining our CEO’s compensation package, our compensation committee referred
          to certain compensation data it had obtained relating to small, high-growth
          companies.
 
 Raza
          Khan
          and Vishal Garg each serve as our Co-Presidents pursuant to separate employment
          agreements entered into with the Company as of April 1, 2004 and are entitled
          to
          minimum base salaries pursuant to those agreements. In setting, Messrs.
          Khan and
          Garg’s compensation, our compensation committee reviewed Mr. Khan and Mr. Garg’s
          individual performances during the calendar year ended December 31, 2007.
          The
          discussion regarding Mr. Khan and Mr. Garg’s goals and overall summary of
          accomplishments included, among other things: (i) meeting the budgeted
          level of
          originations; (ii) lowered cost of origination; (iii) the acquisition of
          certain
          assets (Embark) from The Princeton Review; (iv) capital market executions
          including the Nomura takeout, the renewal of the Merrill Lynch credit facility,
          the DZ Bank warehouse line increase and the development of relationships
          with
          certain other major institutions; (v) the hiring of certain key executives
          including Jonathan Coblentz, the our CFO and Treasurer, John Derham, the
          Company’s CMO and Yariv Katz, our General Counsel; (vi) the development of
          improved marketing strategies; (vii) the execution of the offshoring strategy to
          reduce costs; (viii) the improvement of technology, infrastructure and
          related
          staff; and (ix) the role and visibility on the “right side” of the student loan
          industry problems. The compensation committee, taking into account our
          CEO’s
          evaluation of, and compensation recommendation with respect to, our
          co-presidents recommended to our independent directors compensation packages
          for
          each of Mr. Khan and Mr. Garg that included annual base salaries of $242,000
          per
          year, which represented a 10% increase in accordance with each of their
          employment agreements, which recommendations were adopted by the independent
          members of our board of directors. In determining the compensation packages
          for
          our co-presidents, our compensation committee referred to certain compensation
          data it obtained relating to small, high-growth companies.
  Jonathan
          Coblentz serves as our CFO and treasurer. Our CFO’s initial base salary,
          pursuant to an offer letter with the Company dated as of February 28, 2007,
          was
          $200,000 per year. The Compensation Committee, following a discussion regarding
          Mr. Coblentz’s individual performance, summary of accomplishments and
          compensation since his arrival in April 2007 (including the base salary
          and a
          grant of RSUs, as discussed in further detail below) and taking into account
          our
          CEO’s evaluation of, and compensation recommendation with respect to, our CFO,
          approved a compensation package, which included a base salary of $215,000
          per
          year, effective as of May 15, 2008.
 
 14
 John
          Derham serves as our CMO. Mr. Derham’s base salary, pursuant to an offer letter
          with the Company dated as of August 27, 2007, is $250,000 per year with
          annual
          increases based upon the compensation committee’s review of Mr. Derham’s
          performance and the performance of his division.
 
 **(2)**  ***Annual
          Cash Bonus***
 
 We
          award
          cash bonuses as a short-term incentive to drive the achievement of our
          annual
          performance goals and to focus executive behavior on the fulfillment of
          annual
          business objectives. Pursuant to their employment agreements, each of our
          CEO
          and co-presidents are eligible to earn annual cash bonuses in an amount
          no less
          than $50,000 for each calendar year. The decision of our compensation committee
          and our independent directors to pay our CEO, and co-presidents bonuses
          in
          excess of $50,000 was made due to their contributions to the Company over
          the
          preceding calendar year as discussed above under “—Base Salary” above. During
          the fiscal year ended June 30, 2008, our CEO and our co-presidents each
          received
          a cash bonus of $210,000.
 
 Mr.
          Coblentz received a cash bonus of $100,000 for the fiscal year ended June
          30,
          2008 based on the factors set forth above under “—Base Salary” above.
 
 On
          October 20, 2008, the compensation committee approved a cash bonus for
          Mr.
          Derham of $75,000 for the fiscal year ended June 30, 2008. Pursuant to
          his offer
          letter with the Company, Mr. Derham was entitled to an annual bonus opportunity
          of 30% of his base salary paid in either cash or stock options, at Mr.
          Derham’s
          discretion, upon a full year of employment, conditioned on Mr. Derham’s annual
          review and the Company’s performance.
 
 **(3)**  ***Long-Term
          Incentive Compensation***
 
 The
          Company maintains the 2004 Plan. The 2004 Plan is an equity-based compensation
          plan adopted to further the long-term stability and financial success of
          the
          Company and its subsidiaries. The 2004 Plan enables compensation committee
          to
          provide equity-based incentives through grants or awards of stock options,
          RSAs,
          RSUs, performance grants, stock awards and stock appreciation rights.
 
 Pursuant
          to the 2004 Plan, on October 16, 2007, our compensation committee awarded
          NQOs
          to our CEO to purchase from the Company 150,000 shares of the Company’s common
          stock at an exercise price of $4.70, one third of which has vested and
          the
          remainder which vests equally on each of October 16, 2009 and 2010. The
          compensation committee recommended to our independent directors and our
          independent directors approved an additional grant of NQOs to our CEO to
          purchase 150,000 shares of our common stock at an exercise price of $2.17
          on
          February 14, 2008. This grants vests in three equal annual installments
          beginning on February 14, 2009.
 
 The
          compensation committee recommended to our independent directors and our
          independent directors awarded grants of 500,000 NQOs on February 14, 2008
          to
          each of our co-presidents. These stock options have an exercise price of
          $2.17
          and vest in 3 equal annual installments beginning on February 14, 2009.
          The
          grants were made as part of the total compensation package awarded to our
          co-presidents due to their contributions to the Company over the preceding
          calendar year as discussed above under “—Base Salary” above and their expected
          future contributions to the Company.
 
 The
          compensation committee approved a grant of stock options to Mr. Coblentz
          to
          purchase 200,000 shares of the Company’s common stock on May 7, 2008 at an
          exercise price of $2.15 per share and which vests in three equal annual
          installments beginning on May 7, 2009. This grant was made as part of the
          total
          compensation package awarded to our CFO in May 2007 due to his contributions
          to
          the Company over the preceding 12 months year as discussed above under
“—Base
          Salary” above and his expected future contributions to the
          Company.
 
 Pursuant
          to his offer letter with the Company and the 2004 Plan, the compensation
          committee granted to John Derham 125,000 RSUs on November 1, 2007. Such
          RSUs
          vest in three equal annual installments beginning on November 1, 2008.
          In
          addition, the compensation committee approved a grant of stock options
          to Mr.
          Derham to purchase 25,000 shares of the Company’s common stock on July 24, 2008
          at an exercise price of $1.57 per share and which vests in three equal
          annual
          installments beginning on July 24, 2009.
 
 **(4)**  ***Retirement,
          Perquisites and Other Personal Benefits***
 
 We
          do not
          maintain any defined benefit or supplemental executive retirement programs
          for
          NEOs. The Company maintains a 401(k) plan, but does not match employee
          contributions.
  15
 Our
          CEO
          and co-presidents are entitled to receive certain other personal benefits
          pursuant to the terms of their employment agreements. Among other things,
          the
          Company pays the cost of such executive’s coverage under most benefit plans,
          including coverage for such executive’s spouse and dependent minor children, if
          any, expenses incurred in connection with the benefit plan coverages as
          the
          result of any deductible or co-insurance provision of any insurance policy,
          not
          to exceed $10,000 per year, and long-term disability insurance providing
          the
          executive with payments of $10,000 per month until age 65, subject to certain
          exceptions.
 
 Pursuant
          to his offer letter with the Company, Mr. Derham is entitled to a housing
          allowance of $50,000 to utilize for rent and related expenses of a corporate
          apartment in Manhattan. Upon Mr. Derham’s completion of permanent relocation,
          the Company will increase Mr. Derham’s salary by this amount.
  **C.    Interrelationship
          of Elements of Pay**
  In
          determining the overall mix of elements comprising total compensation,
          the
          compensation committee emphasizes the relationship of compensation to
          performance. This approach to compensation provides the executives with
          a base
          level of compensation, while motivating the executives to enhance our business
          and achieve our goals, thereby producing a high level of performance for
          the
          Company and greater variable pay for the executive. We also award significant
          levels of long-term incentive compensation that through time-based vesting
          provide a counter-balance to short-term annual cash bonus compensation
          and
          advance the Company’s retention and motivation compensation objectives. In
          addition, as discussed under “VIII. Post-Employment Severance and
          Change-in-Control Benefits” below, we provide our CEO and our co-presidents with
          certain post-employment severance and change in control payments in specified
          circumstances. **** The
          Company provides these benefits to its CEO and co-presidents so that it
          has the
          continued dedication and full attention of these key employees notwithstanding
          the possibility, threat or occurrence of a “change in control” and because it
          believes that such payments are necessary to retain the services of these
          individuals. In addition, as described below, the Company provides our
          CMO with
          certain post-employment severance in specified circumstances.
  **D.    Pay
          Levels**
  The
          total
          annual compensation (salary, cash bonuses and long-term incentive compensation)
          for NEOs is determined based on several factors including the individual’s
          position and responsibilities, as well as the pay levels in the marketplace
          for
          similar positions. We chose the amount of each element our CEO’s compensation
          based on the compensation committee’s subjective assessment of the level of
          compensation necessary to retain him and to sufficiently incentivize him
          to
          continue to promote stockholder value. We chose the amount of each element
          of
          compensation paid to our NEOs other than our CEO based on our compensation
          committee’s subjective assessment, with input from our CEO, of the level of
          compensation necessary to retain these NEOs and to incentivize them to
          continue
          to promote stockholder value.
  **V.** **Stock
          Ownership Guidelines**
  We
          do not
          currently have stock ownership guidelines for our NEOs.
  **VI.  
          Benchmarking**
  In
          determining the compensation packages for our CEO and our co-presidents,
          our
          compensation committee referred to certain compensation data it had obtained
          relating to small, high-growth companies.
  **VII.  Post-Employment
          Severance and Change-in-Control Benefits**
  Our
          CEO
          and co-presidents each have an employment agreement that provides for severance
          payments and other benefits, including following a change in control that
          results in a loss of employment or a significant change in employment.
          In
          addition, our CMO’s offer letter provides for certain severance payments under
          certain circumstances. The table below reflects the amount of compensation
          payable to each of our NEOs in the event the executive’s employment is
          terminated on specified grounds. In addition to the amounts listed in the
          table
          below, each NEO is entitled to unpaid base salary and payment for accrued
          vacation days through his last day of employment with the
          Company.
 
 16
 **Name
                    and Termination Event**
                
                **Cash
                    Severance Payment**
                
                **Continuation
                    of Employer-Paid Health Insurance**
                
                **Acceleration
                    of Stock Awards (1)**
                
                **Total
                    Termination Benefits****Edwin
                    J. McGuinn, Jr.**Termination
                    For Cause
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                0
                
                $
                25,000Disability
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                12,000
                      (7
                )
                $
                37,000Termination
                    With Good Reason (2)
                
                $
                392,280
                    (4
                )
                $
                8,335(5
                )
                $
                12,000
                    (7
                )
                $
                412,615Termination
                    Without Cause by the Executive
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                12,000
                    (7
                )
                $
                37,000Termination
                    Without Cause by the Company
                
                $
                392,280
                    (4
                )
                $
                8,335(5
                )
                $
                12,000
                    (7
                )
                $
                412,615Death
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                12,000
                      (7
                )
                $
                37,000**Raza
                    Khan**Termination
                    For Cause
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                0
                
                $
                25,000Disability
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                0
                
                $
                25,000Termination
                    With Good Reason (2)
                
                $
                528,876
                    (4
                )
                $
                4,314(6
                )
                $
                40,000
                    (7
                )
                $
                573,190Termination
                    Without Cause by the Executive
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                40,000
                    (7
                )
                $
                65,000Termination
                    Without Cause by the Company
                
                $
                528,876
                    (4
                )
                $
                4,314(6
                )
                $
                40,000
                    (7
                )
                $
                573,190Death
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                0
                
                $
                25,000**Vishal
                    Garg**Termination
                    For Cause
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                0
                
                $
                25,000Disability
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                0
                
                $
                25,000Termination
                    With Good Reason (2)
                
                $
                528,876
                    (4
                )
                $
                4,314(6
                )
                $
                40,000
                    (7
                )
                $
                573,190Termination
                    Without Cause by the Executive
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                40,000
                    (7
                )
                $
                65,000Termination
                    Without Cause by the Company
                
                $
                528,876
                    (4
                )
                $
                4,314(6
                )
                $
                40,000
                    (7
                )
                $
                573,190Death
                
                $
                25,000
                    (3
                )
                $
                0
                
                $
                0
                
                $
                25,000**Jonathan
                    Coblentz**Termination
                    For Cause/Resignation Without Good Reason
                
                $
                0
                
                $
                0
                
                $
                0
                
                $
                0Disability
                
                $
                0
                
                $
                0
                
                $
                0
                
                $
                0Termination
                    Other Than For Cause or Disability/Resignation With Good
                    Reason
                
                $
                0
                
                $
                0
                
                $
                140,625
                    (9
                )
                $
                140,625Death
                
                $
                0
                
                $
                0
                
                $
                0
                
                $
                0**John
                    P. Derham**Termination
                    For Cause/Resignation Without Good Reason
                
                $
                0
                
                $
                0
                
                $
                0
                
                $
                0Disability
                
                $
                0
                
                $
                0
                
                $
                0
                
                $
                0Termination
                    Other Than For Cause or Disability/Resignation With Good Reason
                
                $
                125,000 (8
                )
                $
                0
                
                $
                281,250
                    (10
                )
                $
                406,250Death
                
                $
                0
                
                $
                0
                
                $
                0
                
                $
                0
  (1)
                For
                      valuation purposes, assumes closing price on The NASDAQ Stock
                      Marketon
                      June 30, 2008 of $2.25. (2)
                “Good
                      Reason” includes, among other things, certain change of control scenarios.
                      For a full definition, please see each officer’s respective employment
                      agreement which is filed with the
                      SEC. (3)
                Includes
                      payment of accrued but unpaid bonus. Each executive’s employment agreement
                      specifies a minimum annual bonus of $50,000 for each calendar
                      year. (4)
                Includes
                    full base salary (including the guaranteed annual 10% increases)
                    through
                    the “Scheduled Termination Date” (as such term is defined in the
                    executive’s employment agreement), the executive’s guaranteed annual
                    bonuses in the amount of $50,000 that he would have been awarded
                    through
                    the “Scheduled Termination Date”, the value of vacation days that the
                    executive would have accrued through the “Scheduled Termination Date” and
                    severance pay in an amount equal to the sum of the executive’s annual base
                    salary in effect immediately prior to his last date of employment.
                    The
                    executive may elect to receive his full base salary (including
                    the
                    guaranteed annual 10% increases) and guaranteed annual bonuses
                    in the
                    amount of $50,000 through his Scheduled Termination Date on the
                    same
                    schedule as if he were still employed with the Company. If the
                    executive
                    does not make this election, he will receive these payments in
                    a lump sum
                    within 45 days of his last day of employment with the
                    Company. (5)
                Includes
                      4 months of payment of healthinsurance
                      benefits. (6)
                Includes
                    10 months of payment of health insurance
                    benefits. (7)
                Pursuant
                      to Mr. McGuinn’s employment agreement, in the event Mr. McGuinn’s
                      employment agreement with the Company is terminated by reason
                      of death,
                      disability or without “Cause” (as defined in the employment agreement), or
                      in the event Mr. McGuinn terminates the agreement for “Good Reason,” or in
                      the event that Mr. McGuinn shall no longer be employed in the
                      position of
                      Chairman of the Board and CEO for any reason other than a termination
                      for
                      “Cause,” all of Mr. McGuinn’s granted and unvested options and warrants
                      immediately vest and become immediately exercisable by Mr.
                      McGuinn. Such
                      options and warrants may be exercised by Mr. McGuinn, or his
                      legal
                      representative, as appropriate, for a period of one year following
                      the
                      date of termination. Pursuant to Messrs. Khan and Garg’s employment
                      agreements, in the event that either executive is terminated
                      without
                      “Cause” (as defined in the employment agreements) or terminates his
                      agreement for “Good Reason,” all granted and unvested options granted
                      pursuant to the employment agreements immediately vest and
                      become
                      immediately exercisable by the
                      executive. (8)
                Pursuant
                      to Mr. Derham’s offer letter, he is entitled to six months of base
                      salary in the event that (i) his title is changed to one of
                      lower rank,
                      (ii) he is transferred to a position within the Company that
                      does not
                      report directly to the then-current or acting President or
                      CEO (or person
                      having equivalent duties and authority) for reasons other than
                      unsatisfactory performance as determined in our sole discretion
                      and (iii)
                      his employment is terminated by us other than for “Cause” as defined
                      below. Pursuant to Mr. Derham’s offer letter, “Cause” shall include, among
                      other things (i) a violation of any law, rule or regulation;
                      (ii) an
                      indictment or conviction of a felony; (iii) the commission
                      of a fraudulent
                      act, act of dishonesty, breach of trust or any act of moral
                      turpitude;
                      (iv) a violation of our policies (including, but not limited
                      to, any
                      violation under our Code of Business Conduct and Ethics) or
                      misconduct
                      related to, or breach of, his duties to us, our subsidiaries
                      and/or our
                      affiliates or our customers, clients, employees or stockholders,
                      whether
                      with or without prior notice or warning; and (v) the failure
                      to perform
                      satisfactorily the duties associated with his job function
                      or to follow
                      reasonable directives of his
                      manager. (9)
                Mr.
                      Coblentz’s restricted stock award agreement specifies that in the event
                      of
                      a “Change in Control” (as such term is defined in the 2004 Plan), all
                      shares of restricted stock covered by the award shall become
                      free of all
                      restrictions and become fully vested and transferable. (10)
                Mr.
                      Derham’s restricted stock unit award agreement specifies that in the
                      event
                      of a “Change in Control” (as defined in the 2004 Plan), all restricted
                      units covered by the award shall become free of all restrictions
                      and
                      become fully vested and
                      transferable.
 17
  **VIII.    Impact
          of Tax and Accounting**
  Section 162(m)
          of the Internal Revenue Code of 1986 limits the deductibility in our tax
          return
          of compensation over $1 million to any of our executive officers unless, in
          general, the compensation is paid pursuant to a plan which is
          performance-related, non-discretionary and has been approved by our
          stockholders. The compensation committee’s policy with respect to
          Section 162(m) is to make every reasonable effort to ensure that
          compensation is deductible to the extent permitted, while simultaneously
          providing our executives with appropriate rewards for their performance
          and
          therefore the compensation committee may authorize the payment of compensation
          to NEOs outside the limits of Section 162(m).
  **IX.    Post
          June 30, 2008 Actions**
  The
          compensation committee of our board of directors is currently in negotiations
          with Messrs. Khan and Garg regarding their employment agreements. In addition,
          as described above, with respect to our CMO, the compensation committee
          approved
          (i) a
          grant
          of stock options to purchase 25,000 shares of the Company’s common stock on July
          24, 2008 and
          (ii)
          a cash bonus of
          $75,000 on
          October 20, 2008.
  **X.    Conclusion**
  The
          compensation committee believes that the total compensation paid to each
          of our
          NEOs is competitive and appropriate given the context of our business
          achievements and the individual performance of the NEOs in the past fiscal
          year.
  18
  **Executive
          Compensation**
 
 For
          a
          narrative description of the terms of the restricted stock and stock option
          awards described in the tables below, please see “ Compensation Discussion and Analysis—IV. Compensation Structure—B. Details of Elements of
          Pay—3. Long-Term Incentive Compensation.” in this Item 11. For a description of
          our employment agreements with our CEO and co-presidents, please see “Employment
          Agreements” below.
 
 ***Summary
          Compensation Table***
 
 The
          following table sets forth for the year indicated the annual compensation
          of our
          CEO, our Co-Presidents, our CFO and our other NEOs, as such term is defined
          in
          Item 402(a) of Regulation S-K:
 
 **Name
                    and Principal Position**
                
                **Year**
                
                **Salary**
                  **$**
                
                **Bonus**
                  **$**
                
                **Stock
                    Awards**
                  **$
                    (1)**
                
                **Options
                    Awards**
                  **$
                    (1)**
                
                **Non-equity
                    Incentive Plan Compensation $**
                
                **All
                    Other****Compensation**
                  **$**
                
                **Total**
                  **$**Edwin
                    J. McGuinn, Jr.
                  Chief
                    Executive Officer
                
                2008
                  2007
                
                246,000
                  234,667
                
                210,000
                  150,000
                
                -
                  -
                
                238,413
                  348,661
                
                -
                  -
                
                -
                  -
                
                694,413
                  733,328Raza
                    Khan
                  Co-President
                
                2008
                  2007
                
                231,000
                  210,000
                
                210,000
                  150,000
                
                -
                  -
                
                1,085,664
                  1,541,523
                
                -
                  -
                
                -
                  -
                
                1,526,664
                  1,901,523Vishal
                    Garg
                  Co-President,
                    Secretary
                
                2008
                  2007
                
                231,000
                  210,000
                
                210,000
                  150,000
                
                -
                
                1,085,664
                  1,541,523
                
                -
                  -
                
                -
                  -
                
                1,526,664
                  1,901,523Jonathan
                    Coblentz
                  Chief
                    Financial Officer and Treasurer (2)
                
                2008
                  2007
                
                201,875
                  50,000
                
                100,000
                  -
                
                208,438
                  225,806
                
                15,479
                  -
                
                -
                  -
                
                -
                  -
                
                525,792
                  272,806John
                    P. Derham
                  Chief
                    Marketing Officer (3)
                
                2008
                
                177,083
                
                75,000
                
                141,102
                
                -
                
                -
                
                39,297
                    (4)
                
                432,482
 
 (1)
                Represents
                    the dollar amount of compensation expense recognized by us for
                    financial
                    statement reporting purposes in the 2008 and 2007 fiscal years
                    for the
                    fair value of the employee options, restricted stock and restricted
                    stock
                    units granted in fiscal year 2008 and all prior fiscal years,
                    in
                    accordance with Statement of Financial Accounting Standards No.
                    123R,
                    Accounting for Stock-Based Compensation, which we refer to as
                    FAS 123R.
                    These amounts reflect our accounting expense for these awards,
                    and do not
                    correspond to the actual value recognized by the NEOs nor to
                    the amount of
                    compensation awarded for performance in fiscal years 2008 and
                    2007.
                    Pursuant to SEC rules, the amounts shown exclude the potential
                    impact from
                    estimated forfeitures related to service-based vesting conditions.
                    The
                    assumptions made in the valuation of our stock and option awards
                    are
                    discussed in Note 7, “Stockholders’ Equity,” to our consolidated financial
                    statements contained in our Annual
                    Report.
 (2)
                Mr.
                    Coblentz joined us in April
                    2007.
 (3)
                Mr.
                    Derham joined us in October
                    2007.
 (4)
                Reflects
                    housing allowance in connection with Mr. Derham’s relocation to New York
                    City.
  19
  
 ***Grants
          of Plan-Based Awards***
 
 The
          following table provides information on awards made pursuant to the 2004
          Plan in
          fiscal year 2008 to each NEO. There can be no assurance that the grant
          date fair
          value of stock and stock option awards will ever be realized:
 
 **Estimated
                    future payouts under non-equity incentive plans**
                **Estimated
                    future payouts under equity incentive plan awards**
                **All
                    other stock awards: number of shares of stock or units
                    (#)**
                **All
                    other option awards: number of securities underlying options
                    (#)**
                **Exercise
                    of base price of option awards ($/Sh)**
                **Grant
                    date fair value of stock and option awards ($)****Name**
                **Grant
                    Date**
                **Threshold**
                  **($)**
                **Target**
                  **($)**
                **Maximum**
                  **($)**
                **Threshold**
                  **($)**
                **Target**
                  **($)**
                **Maximum**
                  **($)**
 Edwin
                    J. McGuinn, Jr.
                **10/16/2007**
                  
                  **02/14/2008**
                **-**
                  
                  **-**
                **-**
                  
                  **-**
                **-**
                  
                  **-**
                **-**
                  
                  **-**
                **-**
                  
                  **-**
                **-**
                  
                  **-**
                **-**
                  
                  **-**
                **150,000**
                  
                  **150,000**
                **$4.70**
                  
                  **$2.17**
                **418,801**
                  
                  **190,800**Raza
                    Khan
                **02/14/2008**
                **-**
                **-**
                **-**
                **-**
                **-**
                **-**
                **-**
                **500,000**
                **$2.17**
                **636,001**Vishal
                    Garg
                **02/14/2008**
                **-**
                **-**
                **-**
                **-**
                **-**
                **-**
                **-**
                **500,000**
                **$2.17**
                **636,001**Jonathan
                    Coblentz
                **05/07/2008**
                **-**
                **-**
                **-**
                **-**
                **-**
                **-**
                **-**
                **200,000**
                **$2.15**
                **278,644**John
                    P. Derham
                **11/1/2007**
                **-**
                **-**
                **-**
                **-**
                **-**
                **-**
                **125,000**
                **-**
                **-**
                **635,000**
 
 
 ***Outstanding
          Equity Awards at Fiscal Year-End 2008***
 
 The
          following table shows the number of shares covered by stock options, restricted
          stock and restricted stock unit grants held by our NEOs on June 30,
          2008:
 
 **Option
                    Awards**
                **Stock
                    Awards****Name**
                **Grant
                    Date**
                **Number
                    of securities underlying unexercised options
                    exercisable**
                  **(#)**
                **Number
                    of securities underlying unexercised options
                    unexercisable**
                  **(#)**
                **Equity
                    incentive plan awards: number of securities underlying unexercised
                    unearned options**
                  **(#)**
                **Option
                    Exercise Price**
                  **($)**
                **Option
                    Expiration Date**
                **Number
                    of shares of restricted stock and shares underlying restricted
                    stock units
                    that have not yet vested (1)**
                  **(#)**
                **Market
                    value of shares of restricted stock and shares underlying restricted
                    stock
                    units that have not yet vested (2)**
                  **($)**
                **Equity
                    incentive plan awards: number of unearned shares, units or other
                    rights
                    that have not vested**
                  **(#)**
                **Equity
                    incentive plan awards: market or payout value of unearned shares,
                    units or
                    other rights that have not vested**
                  **(#)**
 Edwin
                    J. McGuinn, Jr.
                **11/01/2004**
                  **09/20/2005**
                  **01/25/2006**
                  **10/16/2007**
                  **02/14/2008**
                **410,000**
                  **250,000**
                  **133,332**
                  **0**
                  **0**
                **0**
                  **0**
                  **66,668**
                  **150,000**
                  **150,000**
                **0**
                **$1.60**
                  **$3.00**
                  **$3.83**
                  **$4.70**
                  **$2.17**
                **11/01/2014**
                  **09/20/2015**
                  **01/25/2016**
                  **10/16/2017**
                  **02/14/2018**
                **_**
                **_**
                **_**
                **_**Raza
                    Khan
                **07/08/2004**
                  **09/20/2005**
                  **03/01/2007**
                  **05/14/2007**
                  **02/14/2008**
                **300,000**
                  **700,000**
                  **200,000**
                  **400,000**
                  **0**
                **0**
                  **0**
                  **0**
                  **0**
                  **500,000**
                **0**
                **$1.00**
                  **$3.15**
                  **$6.38**
                  **$6.77**
                  **$2.17**
                **07/08/2014**
                  **09/20/2015**
                  **03/01/2017**
                  **05/14/2017**
                  **02/14/2018**
                **_**
                **_**
                **_**
                **_**Vishal
                    Garg
                **07/08/2004**
                  **09/20/2005**
                  **03/01/2007**
                  **05/14/2007**
                  **02/14/2008**
                **300,000**
                  **700,000**
                  **200,000**
                  **400,000**
                  **0**
                **0**
                  **0**
                  **0**
                  **0**
                  **500,000**
                **0**
                **$1.00**
                  **$3.15**
                  **$6.38**
                  **$6.77**
                  **$2.17**
                **07/08/2014**
                  **09/20/2015**
                  **03/01/2017**
                  **05/14/2017**
                  **02/14/2018**
                **_**
                **_**
                **_**
                **_**Jonathan
                    Coblentz
                **05/01/2007**
                  **05/07/2008**
                **-**
                  **0**
                **-**
                  **200,000**
                **0**
                **-**
                  **$2.15**
                **-**
                  **05/07/2018**
                **62,500(3)**
                **140,625**
                **_**
                **_**John
                    P. Derham
                **11/01/2007**
                **-**
                **-**
                **0**
                **-**
                **-**
                **125,000(4)**
                **281,250**
                **_**
                **_**
 
 20
 (1)
                Represents
                    the number of shares underlying restricted stock and restricted
                    stock
                    units awards that vest based upon the passage of time and the
                    employees’
                    continued service at the
                    company.
 (2)
                Market
                    value of shares based upon the $2.25 NASDAQ Stock Market closing
                    price on
                    June 30, 2008.
 (3)
                Represents
                    shares of restricted stock received in conjunction with commencement
                    of
                    employment.
 (4)
                Represents
                    restricted stock units received in conjunction with commencement
                    of
                    employment.
  ***Option
          Exercises and Stock Vested Table***
 
 The
          following table shows the number of shares of our common stock acquired
          upon the
          vesting of restricted stock awards and the exercise of stock options during
          the
          fiscal year ended June 30, 2008:
 
 Option
                    Awards
                Stock
                    Awards**Name**
                **Number
                    of shares acquired on exercise**
                  **(#)**
                **Value
                    realized on exercise**
                  **($)**
                **Number
                    of shares acquired on vesting**
                  **(#)**
                **Value
                    realized on vesting**
                  **($)(1)**
 Edwin
                    J. McGuinn, Jr.
                -
                -
                -
                -Raza
                    Khan
                -
                -
                -
                -Vishal
                    Garg
                -
                -
                -
                -Jonathan
                    Coblentz
                -
                -
                31,250
                56,875John
                    P. Derham
                -
                -
                -
                -
 
 (1)
                Value
                    realized on vesting is calculated by multiplying the number of
                    shares of
                    stock or units by the market value on the vesting date.
 
 **Employment
          Agreements**
 
 We
          entered into an executive employment agreement with our Chairman and CEO,
          Edwin
          J. McGuinn, Jr. on November 17, 2004. The employment agreement, as amended
          on
          September 27, 2007, provides for an annual base salary of $250,000 beginning
          January 1, 2008. The agreement provides for a minimum annual increase in
          base
          salary of 10% and additional increases at the discretion of our board of
          directors. The employment agreement also provides for a minimum annual
          bonus of
          $50,000 and bonuses in excess thereof at the discretion of our board of
          directors. Grants of stock options shall vest and be exercisable pursuant
          to the
          terms and conditions of our 2004 Plan.
 
 Mr.
          McGuinn’s employment agreement expires on October 31, 2009, subject to earlier
          termination. Upon expiration, the agreement will automatically renew itself
          from
          year to year unless either party elects to modify or not to renew the agreement
          pursuant to a written notice given by one party and received by the other
          not
          later than 60 days prior to the expiration of the agreement or any extension
          thereto. The agreement provides that if we terminate Mr. McGuinn’s employment
          without cause or if he terminates his employment agreement for good reason,
          he
          will be entitled to his base salary (including guaranteed annual ten percent
          increases), guaranteed annual bonus, continued health and benefits coverage
          and
          the value of unused vacation days accrued until the expiration date of
          his
          employment agreement, plus one year of severance pay, in addition to any
          earned
          but unpaid base salary, unpaid pro rata annual bonus and unused vacation
          days
          accrued through Mr. McGuinn’s last day of employment, including any carryover
          days. In the event of such termination, his base salary and guaranteed
          bonus is
          payable by us within 45 days after his last day of employment unless Mr.
          McGuinn
          elects to have such amounts paid in the same manner as they would have
          been paid
          had he remained employed by us. 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: a significant change, and resulting diminution,
          in his
          duties and responsibilities; an assignment to him of a different and subordinate
          title; a change in control of the Company; a significant relocation of
          our
          office or a material breach of the agreement by us. 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.
 
 21
 For
          purposes of Mr. McGuinn’s agreement, “Change of Control” means our board of
          directors votes to approve: (a) any consolidation or merger of the Company
          pursuant to which 50% or more of the outstanding voting securities of the
          surviving or resulting company are not owned collectively by the common
          share
          and warrant holders of Iempower, Inc. as of November 1, 2004 (the “Current
          Control Group”); (b) any sale, lease, exchange or other transfer (in one
          transaction or a series of related transactions) of all, or substantially
          all,
          of the assets of the Company other than any sale, lease, exchange or
          other
          transfer to any company where the Company owns, directly or indirectly,
          100% of
          the outstanding voting securities of such company after any such transfer;
          (c)
          any person or persons (as such term is used in Section 13(d) of the Exchange
          Act), other than the Current Control Group, shall acquire or become the
          beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
          whether directly, indirectly, beneficially or of record, of 50% or more
          of
          outstanding voting securities of the Company; or (d) commencement by any
          entity,
          person, or group (including any affiliate thereof, other than the Company)
          of a
          tender offer or exchange offer where the offeree acquires more than 50%
          of the
          then outstanding voting
          securities of the Company.
 
 We
          have
          also entered into executive employment agreements with Raza Khan and Vishal
          Garg. 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 our board of directors.
          As of
          the date hereof, Messrs. Khan and Garg each earn an annual base salary
          of
          $242,000. Each employment agreement also provides for a minimum annual
          bonus of
          $50,000 and bonuses in excess thereof at the discretion of our board of
          directors. Under the agreements, each executive received options to purchase
          up
          to 20% of the shares of our common stock made available under the 2004
          Plan, 50%
          of which vested immediately and the remaining 50% vested 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 2004 Plan.
          Additionally, during each calendar quarter during the terms of the agreements,
          each executive is to receive options to purchase an additional 5% of
          the shares of our common stock made available under the 2004 Plan. The
          exercise
          price of all options will be the fair market value of our common stock
          on the
          date the option is granted.
 
 Each
          employment agreement expires on April 1, 2009, subject to earlier termination
          by
          either us or Messrs. Khan and Garg, and shall automatically renew for an
          additional five years unless a party provides notice of intention not to
          renew
          on or before November 1, 2008. Upon expiration, each employment agreement
          will
          automatically renew for a period of five years unless either party elects
          not to
          renew the agreement. Each employment agreement provides that if we terminate
          Messrs. Khan and Garg without cause or if they terminate their employment
          agreements for good reason, they will be entitled to any earned but unpaid
          base
          salary, unpaid pro rata annual bonus and unused vacation days accrued through
          their last day of employment with the Company, their base salary (including
          guaranteed annual ten percent increases), guaranteed annual bonus, continued
          health and benefits coverage and the value of unused vacation days accrued
          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
          executive’s base salary and guaranteed bonus is payable by us 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 applicable executive: a significant change, and resulting
          diminution, in the executive’s duties and responsibilities; an assignment to the
          executive of a different and subordinate title; or a “change in control” of the
          Company. Each employment agreement prohibits Messrs. Khan and Garg 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. Messrs. Khan and Garg’s employment agreements include a similar
“Change in Control” definition as described above with respect to Mr. McGuinn’s
          employment agreement.
 
 Our
          compensation committee is currently in negotiations with Messrs. Khan and
          Garg
          regarding their employment agreements.
  22
  **Director
          Compensation**
  For
          our
          fiscal year ended June 30, 2008, our independent directors, other than
          those
          affiliated with Battery, were entitled to receive an annual retainer of
          $15,000.
          In addition, Mr. Fisher earned an additional $25,000 for serving as chairman
          of
          our special committee of independent directors that was formed to review
          certain
          proposed and completed capital-raising transactions (the “Special Committee”),
          and Mr. Bushley earned an additional $12,500 for serving on the Special
          Committee. On July 17, 2008, our board of directors approved an increase
          in the
          annual retainer fees paid to our independent directors, other than those
          affiliated with Battery, from $15,000 to $20,000. This increase has been
          deferred, however, until we successfully raise additional equity capital.
          In
          addition to board fees, for our fiscal year ended June 30, 2008, our independent
          directors, other than those affiliated with Battery, received a stock option
          grant to purchase 20,000 shares of our common stock. Our independent directors
          that are affiliated with Battery do not receive compensation for serving
          on our
          board of directors. Battery, through its affiliates, is a significant
          stockholder of the Company, owning a majority of our series B convertible
          preferred stock (“Series B Preferred Stock”) and all of our series B-2
          convertible preferred stock (“Series B-2 Preferred Stock”). No compensation was
          paid to Mr. Elinsky during our fiscal year ended June 30, 2008, as he did
          not
          become a director until July 2008.
 
 The
          following table sets forth the compensation paid by us to our non-employee
          directors for the fiscal year ended June 30, 2008:
 
 Name
                
                Fees
                    Earned or Paid in Cash
                  ($)
                
                Stock
                    Awards
                  ($)
                
                Option
                    Awards
                  ($)(1)(2)
                
                Non-Equity
                    Incentive Plan Compensation
                  ($)
                
                Change
                    in Pension Value and Nonqualified Deferred Compensation Earnings
                  ($)
                
                All
                    Other Compensation
                  ($)
                
                Total
                  ($)Richmond
                    T. Fisher
                
                $
                40,000
                
                
                --
                
                $
                82,530
                
                
                --
                
                
                --
                
                
                --
                
                $
                122,530C.
                    David Bushley
                
                $
                27,500
                
                
                --
                
                $
                67,381
                
                
                --
                
                
                --
                
                
                --
                
                $
                94,881Andrew
                    Mathieson
                
                $
                15,000
                
                
                --
                
                $
                79,883
                
                
                --
                
                
                --
                
                
                --
                
                $
                94,883Michael
                    M. Brown
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Sunil
                    Dhaliwal
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --Gregory
                    N. Elinsky
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
                
                
                --
 
 (1)
                Represents
                    the dollar amount of compensation expense recognized by us for
                    financial
                    statement reporting purposes in the fiscal 2008 for the fair
                    value of the
                    stock options granted in fiscal year 2008 and all prior fiscal
                    years, in
                    accordance with FAS 123R. These amounts reflect our accounting
                    expense for
                    these awards, and do not correspond to the actual value recognized
                    by the
                    directors nor to the amount of compensation awarded in fiscal
                    2008.
                    Pursuant to SEC rules, the amounts shown exclude the potential
                    impact from
                    estimated forfeitures related to service-based vesting conditions.
                    The
                    assumptions made in the valuation of our stock awards are discussed
                    in
                    Note 7, “Stockholders’ Equity,” to our consolidated financial statements
                    contained in our Annual
                    Report.
 (2)
                During
                    the fiscal year ended June 30, 2008, each of our independent
                    directors,
                    other than those affiliated with Battery, received an option
                    to purchase
                    20,000 shares of our common stock with an exercise equal to the
                    fair
                    market value of our common stock on the date of grant. The grant
                    date fair
                    value calculated in accordance with FAS 123R of each of these
                    awards was
                    $67,381. As of June 30, 2008, our independent directors, other
                    than those
                    affiliated with Battery, had the following stock
                    options:
  **Name**
                  
                  **Grant
                      Date**
                  
                  **Number
                      of Securities Underlying Unexercised Options**
                    **(#)**
                    **Exercisable**
                  
                  **Number
                      of Securities Underlying Unexercised Options**
                    **(#)**
                    **Unexercisable**
                  
                  **Option
                      Exercise Price**
                    **($)**
                  
                  **Option
                      Expiration Date**Richmond
                      T. Fisher
                  
                  03/22/2005
                    08/11/2005
                    06/30/2006
                    11/14/2006
                    07/19/2007
                  
                  20,000
                    40,000
                    13,333
                    20,000
                    20,000
                  
                  -
                    -
                    6,667
                    -
                    -
                  
                  $4.75
                    $2.85
                    $5.90
                    $6.45
                    $5.64
                  
                  03/22/2015
                    08/11/2015
                    06/30/2016
                    11/14/2016
                    07/19/2017C.
                      David Bushley
                  
                  08/11/2005
                    11/14/2006
                    07/19/2007
                  
                  67,500
                    23,750
                    20,000
                  
                  -
                    -
                    -
                  
                  $2.85
                    $6.45
                    $5.64
                  
                  08/11/2015
                    11/14/2016
                    07/19/2017Andrew
                      Mathieson
                  
                  01/25/2006
                    11/14/2006
                    07/19/2007
                  
                  57,500
                    27,500
                    20,000
                  
                  10,000
                    -
                    -
                  
                  $3.83
                    $6.45
                    $5.64
                  
                  01/25/2016
                    11/14/2016
                    07/19/2017Gregory
                      N. Elinsky
                  
                  -
                  
                  -
                  
                  -
                  
                  -
                  
                  -
 23
  **Item
          12.**  **Security
          Ownership of Certain Beneficial Owners and Management and Related Stockholder
          Matters.**
  **Equity
          Compensation Plan Information**
 
 The
          following table summarizes information, as of June 30, 2008, relating to
          our
          equity compensation plans pursuant to which shares of our common stock
          or other
          equity securities may be granted from time to time:
 
 **(a)**
                  **Number of securities to be**
                  **issued upon exercise of**
                  **outstanding options**
                **(b)**
                  **Weighted average**
                  **exercise price of**
                  **outstanding options**
                **(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 (1)
                6,665,039
                3.54
                2,028,012Equity
                    compensation plans not approved by security holders
                __
                __
                __Totals
                6,665,039
                3.54
                2,028,012
 
 (1)
                The
                    number of securities remaining for future issuance consists of
                    639,012
                    shares issuable under our 2004 Plan and 1,389,000 shares issuable
                    under
                    our 2005 Consultant Incentive Plan. Awards under such plans may
                    include
                    restricted stock, unrestricted stock, stock options, stock appreciation
                    rights, and performance shares or other equity-based awards,
                    as the board
                    of directors may determine.
 
  24
  **Security
          Ownership of Certain Beneficial Owners and
          Management**
 
 The
          following table sets forth certain information regarding the beneficial
          ownership of our shares of common stock, Series B Preferred Stock and Series
          B-2
          Preferred Stock, as of October 27, 2008 by (i) each person whom we know
          to
          beneficially own 5% or more of our common stock and/or our Series B Preferred
          Stock and Series B-2 Preferred Stock and, (ii) each of our directors, (iii)
          each
          person listed on the Summary Compensation Table set forth under “Executive
          Compensation” in Item 11 of this Form 10-K/A and (iv) all of our directors and
          executive officers as a group. The number of shares of common stock beneficially
          owned by each stockholder is determined in accordance with the rules of
          the SEC
          and does not necessarily indicate beneficial ownership for any other purpose.
          Under such rules, beneficial ownership includes those shares of common
          stock
          over which the stockholder exercises sole or shared voting or investment
          power
          and any shares which the person has the right to acquire within 60 days
          through
          the exercise of any option, warrant or right, through conversion of any
          security
          or pursuant to the automatic termination of a power of attorney or revocation
          of
          a trust, discretionary account or similar arrangement. The percentages
          in the
“percent of class” column, however, is based on the assumption, expressly
          required by the rules of the SEC, that only the person or entity whose
          ownership
          is being reported has converted or exercised common stock equivalents into
          shares of common stock; that is, shares underlying common stock equivalents
          are
          not included in calculations in the table below for any other purpose,
          including
          for the purpose of calculating the number of shares outstanding generally.
          The
“voting power” column below represents the voting power of each person or entity
          listed in the table taking into account that our Series B Preferred Stock
          and
          our Series B-2 Preferred Stock vote on an as-converted basis. Thus, the
          percentages in the “voting power” column have been calculated by including all
          of our outstanding Series B Preferred Stock and Series B-2 Preferred Stock
          in
          the denominator for each person, whether or not they own any Series B Preferred
          or Series B-2 Preferred. Except as otherwise noted below, the address for
          each
          person listed on the table is c/o MRU Holdings, Inc., 590 Madison Avenue,
          13 th Floor,
          New York, New York, 10022.
 
 **Name
                    of Beneficial Owner**
                
                **Amount
                    and Nature of Beneficial Ownership of Stock**
                
                **Percent
                    of Class (1)**
                
                **Voting
                    Power (2)**Edwin
                    J. McGuinn, Jr.
                
                1,078,006
                (3)
                3.40%
                
                2.62%Raza
                    Khan
                
                4,829,578
                (4)
                14.34%
                
                10.88%Vishal
                    Garg
                
                4,746,754
                (4)
                14.10%
                
                10.70%Richmond
                    T. Fisher
                
                161,666
                (5)
                *
                
                *Andrew
                    Mathieson
                
                135,000
                (6)
                *
                
                *C.
                    David Bushley
                
                141,250
                (7)
                *
                
                *Michael
                    M. Brown
                
                0
                
                *
                
                *Sunil
                    Dhaliwal
                
                0
                
                *
                
                *Gregory
                    N. Elinsky
                
                585,213
                (8)
                1.83%
                
                1.37%Jonathan
                    Coblentz
                
                87,500
                
                *
                
                *John
                    P. Derham
                
                76,666
                
                *
                
                *Battery
                    Partners VII, LLC
                
                10,772,626
                (9)
                30.74%
                
                23.55%BlackRock,
                    Inc.
                
                4,480,183
                (10)
                13.68%
                
                10.31%Y&S
                    Nazarian Revocable Trust
                
                3,138,279
                (11)
                9.88%
                
                7.39%Merrill
                    Lynch & Co., Inc.
                
                2,262,411
                (12)
                6.66%
                
                5.07%All
                    executive officers and directors as a group (12 persons)
                
                11,841,633
                
                32.03%
                
                24.63%
 
 25
 ____________________________
 *  Represents
          holdings of less than 1%.
 
 1)  Beneficial
          ownership is calculated based on 31,721,174 shares of our common stock
          issued
          and outstanding as of October 27, 2008.
 
 2)  Voting
          power is calculated based on 42,425,007 shares of our common stock, Series
          B
          Preferred Stock and Series B-2 Preferred Stock issued and outstanding as
          of
          October 27, 2008.
 
 3)  Includes
          (i) 843,332 shares of common stock underlying options exercisable within
          60 days
          of October 27, 2008 and (ii) 99,795 shares of common stock and 67,004 shares
          of
          common stock underlying warrants registered in the name of Donna McGuinn,
          Mr.
          McGuinn’s wife. Mr. McGuinn disclaims beneficial ownership of the securities
          registered in the name of Donna McGuinn.
 
 4)  Includes
          352,670 shares of common stock underlying warrants and 1,600,000 shares
          of
          common stock underlying options exercisable within 60 days of October 27,
          2008.
 
 5)  Includes
          25,000 shares of common stock underlying warrants and 136,666 shares of
          common
          stock underlying options exercisable within 60 days of October 27,
          2008.
 
 6)  Includes
          135,000 shares of common stock underlying options exercisable within 60
          days of
          October 27, 2008.
 
 7)  Includes
          141,250 shares of common stock underlying options exercisable within 60
          days of
          October 27, 2008.
 
 8)  Includes
          327,868 shares of common stock underlying warrants held by Professional
          Investments of America, LLC. Mr. Elinsky and his wife have a 100% ownership
          interest in the LLC.
 
 9)  Battery
          Ventures VII, L.P. directly owns, and has the sole voting and dispositive
          power
          with respect to, 834,020 shares of our common stock, 4,437,646 shares of
          our
          common stock issuable upon conversion of shares of our Series B Preferred
          Stock,
          2,155,804 shares of our common stock issuable upon conversion of shares
          of
          Series B-2 Preferred Stock, 1,405,668 shares of our common stock issuable
          upon
          conversion of shares of Series B Preferred Stock underlying warrants exercisable
          within 60 days of October 27, 2008, and 1,736,963 shares of common stock
          issuable upon exercise of common stock warrants exercisable within 60 days
          of
          October 27, 2008. Battery Investment Partners VII, LLC directly owns, and
          has
          the sole voting and dispositive power with respect to, 15,980 shares of
          our
          common stock, 85,027 shares of our common stock issuable upon conversion
          of
          Series B Preferred Stock, 41,305 shares of common stock issuable upon conversion
          of shares of Series B-2 Preferred Stock, 26,934 shares of our common stock
          issuable upon conversion of shares of Series B Preferred Stock underlying
          warrants exercisable within 60 days of October 27, 2008, and 33,279 shares
          of
          common stock issuable upon exercise of common stock warrants exercisable
          within
          60 days of October 27, 2008. Battery Partners VII, LLC is the general partner
          of
          Battery Ventures VII, L.P. and the manager of Battery Investment Partners
          VII,
          LLC. Battery Partners VII, LLC and each of its managing members, Richard
          D.
          Frisbie, Thomas J. Crotty, Kenneth P. Lawler, Morgan M. Jones, R. David
          Tabors,
          Scott R. Tobin, Roger Lee and Mark H. Sherman (collectively referred to
          as the
“BP Managing Members”), may be deemed to have the sole voting and dispositive
          power with respect to all of the shares owned by Battery Ventures VII,
          L.P. and
          Battery Investment Partners VII, LLC. Each of the BP Managing Members disclaims
          beneficial ownership of shares, except to the extent of his individual
          pecuniary
          interest therein. This information was obtained from our records and from
          reports filed with the SEC by Battery Ventures VII, L.P., Battery Investment
          Partners VII, LLC, Battery Partners VII, LLC, Richard D. Frisbie, Thomas
          J.
          Crotty, Kenneth P. Lawler, Morgan M. Jones, R. David Tabors, Scott R. Tobin
          and
          Mark H. Sherman. The address of Battery Partners VII, LLC is 930 Winter
          Street,
          Suite 2500, Waltham, Massachusetts 02451.
  26
 10)  Includes
          3,015,116 shares of common stock issuable upon conversion of Series B Preferred
          Stock and 955,068 shares issuable upon conversion of Series B Preferred
          Stock
          underlying warrants exercisable within 60 days of October 27, 2008 held
          by
          BlackRock Investment Management LLC. BlackRock Investment Management LLC
          is an
          investment advisor and a subsidiary of BlackRock, Inc. BlackRock, Inc.
          disclaims
          beneficial ownership of the shares held by BlackRock Investment Management
          LLC.
          This information was obtained from our records and from reports filed with
          the
          SEC by BlackRock, Inc. The address of BlackRock, Inc. is 40 East 52nd Street,
          New York, New York 10022.
 
 11)  Includes
          36,000 shares
          of
          common stock underlying warrants exercisable within 60 days of October
          27, 2008. This
          information was obtained from our records and from reports filed with the
          SEC
          by Younes
          Nazarian and Soraya J. Nazarian, Trustees of the Y&S Nazarian Revocable
          Trust. The address of Y&S Nazarian Revocable Trust is 1801 Century Park
          West, 5th Floor, Los Angeles, California 90067.
 
 12)  Includes
          2,232,410 shares of common stock issuable upon exercise of common stock
          warrants
          exercisable within 60 days of October 27, 2008 held by Merrill Lynch Bank
          USA
          and 30,000 shares of our common stock held by First Republic Investment
          Management, Inc. Merrill Lynch Bank USA and First Republic Investment
          Management, Inc. are wholly owned subsidiaries of Merrill Lynch & Co., Inc.
          Merrill Lynch & Co., Inc. disclaims beneficial ownership of the shares held
          by Merrill Lynch Bank USA and First Republic Investment Management, Inc. This
          information was obtained from our records and from a report filed with
          the SEC
          by Merrill Lynch & Co., Inc. The
          address of Merrill Lynch & Co., Inc. is 4 World Financial Center, 250 Vesey
          St., New York, New York 10080.
 
 **Item
          13.**  **Certain
          Relationships and Related Transactions, and Director
          Independence.**
 
 **Transactions
          with Related Persons, Promoters and Certain Control
          Persons**
 
 ***Battery***
 
 Battery
          Partners VII, LLC, the general partner of BV7 and the manager of BIP7,
          beneficially owns an aggregate of 30.74%
          of
          our outstanding common stock on an as converted basis as of October 27,
          2008.
          Two members of our board of directors, Michael M. Brown and Sunil Dhaliwal,
          are
          affiliated with Battery.
 
 *June
          30, 2008 Purchase of B-2 Preferred and Warrants*
 
 On
          June
          30, 2008, pursuant to a private placement, Battery purchased from us 2,197,109
          shares (the “June 30th Shares”) of Series B-2 Preferred Stock and warrants
          exercisable for an aggregate of 659,132 shares of common stock prior to
          June 29,
          2013 (the “June 30th Warrants”) at a price of $2.25 per share (the “Series B-2
          Original Issue Price”) plus $0.0375 per share attributable to the June 30th
          Warrants for a total amount of $5,025,886.84, which equaled the principal
          amount
          of the June
          9th
          Notes (as defined below) plus accrued and unpaid interest on the June 9th
          Notes
          as of June 30, 2008.
 
 The
          Series B-2 Preferred Stock holders are entitled to receive when, and if
          declared
          by our board of directors out of funds legally available therefor, dividends
          on
          the Series B-2 Preferred Stock at a simple annual rate equal to 9% of the
          Series
          B-2 Original Issue Price (the “Series B-2 Dividend Rate”), up to, but not
          including September 30, 2008 (the “Alternate Interest Rate Date”) and at a
          simple annual interest rate of 18% of the Series B-2 Original Issue Price
          (the
“Alternate Rate”) from and after the Alternate Interest Rate Date until the
          Series B-2 Preferred Stock is converted, exchanged or redeemed as described
          in
          the certificate of designation for the Series B-2 Preferred Stock; provided,
          however, dividends shall not be declared, unless permitted under the June
          30th
          Subordination Agreement (as defined below). Subject to the foregoing and
          certain
          other conditions, such as NASDAQ Marketplace Rules, dividends may be paid
          by us
          in cash or shares of common stock.
 
 On
          June
          30, 2008, in connection with the issuance of the Series B-2 Preferred Stock,
          we
          entered into a subordination agreement with Battery, Viking Asset Management
          L.L.C. (“Viking”) and the buyers of certain secured senior notes issued by us
          dated as of October 19, 2007 (the “June 30th Subordination Agreement”). Pursuant
          to the June 30th Subordination Agreement, among other things, Battery agreed
          that the payment of any amounts pursuant to the Series B-2 Preferred Stock
          would
          be subordinated to the payment in full of the obligations, liabilities
          and other
          amounts owed to Viking by us under a previous purchase agreement and
          note.
 
 27
 *Prepayment
          and Cancellation of June 9* *th* *Notes*
 
 We
          entered a note and warrant purchase agreement with Battery on June 9, 2008
          pursuant to which we issued, in exchange for a payment of $5,000,000 in
          cash,
          (i) convertible promissory notes in the original aggregate principal amount
          of
          $5,000,000 (collectively, the “June 9th Notes”) and (ii) warrants (the “June 9th
          Warrants”) to purchase in the aggregate 490,196 shares of common stock, which
          were exercisable at an exercise price of $2.55 per share if, and only if,
          the
          June 9th Notes were not converted or repaid on or prior to September 30,
          2008.
          On June 30, 2008, we and Battery agreed to amend the June 9th Notes to
          allow for
          their prepayment. We prepaid the principal amount of the June 9th Notes
          plus
          accrued and unpaid interest on the June 9th Notes as of June 30, 2008 and
          the
          June 9th Notes and June 9th Warrants were cancelled.
  *July
          1, 2008 Consulting Agreement*
 
 On
          July
          1, 2008, we entered into a consulting services agreement (the “Consulting
          Agreement”) with Battery Partners VII, LLC (the “Consultant”), an affiliate of
          Battery. Pursuant to the Consulting Agreement, we agreed to pay the Consultant
          a
          fee of $150,000 for consulting services provided during the six month period
          ending December 31, 2008, payable promptly following the execution of the
          Consulting Agreement, and an additional fee of $75,000 per quarter for
          each
          subsequent quarterly period that the Consultant provides services to us.
          As of
          the date hereof, we owe $150,000 to the Consultant, but no fees have been
          paid
          to the Consultant. The Consulting Agreement has a term of one year and
          may be
          renewed or extended for any period as may be agreed by the parties
          thereto.
  *July
          10, 2008 Purchase of Notes and Warrants*
 
 On
          July
          10, 2008, we entered into a note and warrant purchase agreement (the “July 10th
          Purchase Agreement”) with Battery (the “July 10th Investor”). In exchange for
          Battery’s payment of $2,000,000 in cash, we issued to Battery, in a private
          placement transaction: (i) promissory notes (the “July 10th Notes”) in the
          original aggregate principal amount of $2,500,000 (the “July 10th Original
          Principal Amount”) and (ii) warrants exercisable for an aggregate of 1,111,111
          shares of
          common
          stock prior to July 9, 2013, at an exercise price of $2.25 per share, subject
          to
          certain adjustments (the “July 10th Warrants”).
  The
          July
          10th Notes accrue interest on the unpaid principal amount at a simple annual
          interest rate of 18% per annum; provided, however, the July 10th Original
          Principal Amount shall increase by 20% 60 days after the date of issuance
          of the
          July 10th Notes (the “First Principal Reset Date”), unless we sell equity
          securities (the “Equity Securities”) in the future pursuant to an equity
          financing (including the issuance of Equity Securities upon the conversion
          or
          exchange of debt securities (the “Automatically Converting Debt Securities”)
          issued in connection with such equity financing) in which we receive in
          excess
          of a minimum threshold amount of gross proceeds (an “Equity Financing”) prior to
          the First Principal Reset Date; provided, further, that the July 10th Original
          Principal Amount shall increase by an additional 20% 120 days after the
          date of
          the issuance of the July 10th Notes (the “Second Principal Reset Date”) unless
          we issue the Automatically Converting Debt Securities or the Equity Securities
          prior to the Second Principal Reset Date. No interest under the July 10th
          Notes
          shall be due prior to October 31, 2010 (the “Maturity Date”). The principal
          amounts of the July 10th Notes are due on the Maturity Date.
  In
          addition, if we undertake an Equity Financing, then the outstanding principal
          amount of the July 10th Notes together with the accrued, but unpaid interest
          will be mandatorily prepaid subject to certain conditions contained in
          the July
          10th Subordination Agreement (as defined below) and the July 10th Notes.
          Subject
          to the July 10th Subordination Agreement, the July 10th Notes may be prepaid
          without premium or penalty at our option on 10 days prior notice to the
          July
          10th Investors.
 
 Also
          on
          July 10, 2008, in connection with the issuance of the July 10th Notes,
          we
          entered into a subordination agreement with Battery, an unaffiliated investor,
          Viking and the buyers of certain secured senior notes issued by us dated
          as of
          October 19, 2007 (the “July 10th Subordination Agreement”). Pursuant to the July
          10th Subordination Agreement, among other things, Battery agreed that the
          payment of any amounts pursuant to the July 10th Notes would be subordinated
          to
          the payment in full of the obligations, liabilities and other amounts owed
          to
          Viking by us under a previous purchase agreement and note.
 
 *October
          24, 2008 Exchange Agreement*
  On
          October 24, 2008, we entered into an Agreement, Consent and Waiver (the
          “Exchange Agreement”) with Battery, as the sole holder of our Series B-2
          Preferred Stock. Pursuant to the Exchange Agreement, among other things,
          Battery
          agreed that, to the extent we issue convertible senior notes (the “Notes”), all
          outstanding shares of Series B-2 Preferred Stock will be exchanged for
          the Notes
          simultaneously with the issuance of the Notes in an amount which equals
          the sum
          of (a) any and all accrued and unpaid dividends on the Series B-2 Preferred
          Stock and (b) the aggregate Series B-2 Original Issue Price, defined in
          our
          Certificate of Designation of Series B-2 Preferred Stock as a purchase
          price
          equal to $2.25 per share.
  28
 *Series
          B Preferred Stock Conversion Agreement and Series B Warrant
          Exercises*
  On
          October 24, 2008, we entered into agreements with the holders of a majority
          (the
“Majority Holders”), including Battery, of our Series B Preferred Stock,
          pursuant to which, among other things, the Majority Holders have
          agreed:
  ·
                that
                    no outstanding warrants to purchase shares of Series B Preferred
                    Stock
                    (“Series B Warrants”) may be exercised by the Majority Holders, unless the
                    only holder of Series B Preferred Stock and Series B Warrants
                    that has not
                    signed an agreement to refrain from exercising its Series B Warrant
                    (the
                    “Series B Minority Holder”) exercises its Series B Warrant, in which case,
                    the Majority Holders may exercise their Series B Warrants, but
                    only up to
                    an amount proportional to the amount of the Series B Warrant
                    exercised by
                    the Series Minority Holder;
  ·
                to
                    convert their shares of Series B Preferred Stock into common
                    stock;
                    and
  ·
                as
                    the Majority Holders of the Series B Preferred Stock, to cause
                    the
                    conversion of all outstanding shares of Series B Preferred Stock
                    into
                    shares of the Company’s common stock on February 17, 2009 (the first
                    business day after all the Series B Warrants expire), to the
                    extent such
                    shares of Series B Preferred Stock have not been converted into
                    common
                    stock pursuant to an
                    agreement.
  *Voting
          Agreements*
  In
          addition, holders of approximately 31.13% of our voting stock, including
          Battery
          and Messrs. Khan and Garg, have agreed to vote for certain corporate actions
          necessary to effectuate a proposed offering. To the extent we issue Notes
          (as
          defined under *October
          24, 2008 Exchange Agreement)* this
          percentage will increase due to anti-dilution adjustments made to the Series
          B
          Preferred Stock, which vote on an as-converted basis.
  ***Review
          and Approval of Related-Party Transactions***
  Pursuant
          to NASDAQ Marketplace Rule 4350(h) and the charter of our audit committee,
          the
          audit committee is responsible for reviewing and approving all related-party
          transactions, defined as those transactions required to be disclosed under
          Item
          404(a) of Regulation S-K.
 
 On
          occasion, the board of directors has delegated the authority to review
          and
          approve certain related-party transactions to a Special Committee in lieu
          of the
          audit committee. The Special Committee has approved transactions as
          follows:
 
 ·
                On
                    June 6, 2008, the Special Committee approved the issuance of
                    the June 9th
                    Notes and the June 9th
                    Warrants;
 
 ·
                On
                    June 30, 2008, the Special Committee approved (i) Battery’s purchase from
                    us of our Series B-2 Preferred, (ii) the prepayment and cancellation
                    of
                    the June 9th Notes and the June 9th Warrants and (iii) our entrance
                    into
                    the Consulting Agreement with the Consultant;
                    and
 
 ·
                On
                    July 10, 2008, the Special Committee approved Battery’s purchase of the
                    July 10th Notes and July 10th
                    Warrants.
  **Item
          14.**  **Principal
          Accounting Fees and Services.**
 
 **Principal
          Accountant Fees and Services**
 
 Bagell,
          Josephs, Levine & Company, L.L.C. was our independent registered public
          accounting firm that audited our financial statements for the fiscal years
          ended
          June 30, 2008 and June 30, 2007. We have selected Bagell, Josephs, Levine
&
Company, L.L.C. as our independent registered public accounting firm for
          the
          first three quarters of the fiscal year ending June 30, 2009. The aggregate
          fees
          billed by Bagell, Josephs, Levine & Company, L.L.C. for the fiscal years
          ended June 30, 2008 and 2007 are as follows:
  29
 **Fiscal
                    Year Ended June 30,****2008**
                
                **2007**Audit
                    fees (a)
                
                $
                452,588
                
                $
                224,143Audit-related
                    fees (b)
                
                
                19,420
                
                
                0Total
                    audit and audit-related fees
                
                
                472,007
                
                
                224,143Tax
                    fees (c)
                
                
                22,662
                
                
                8,691All
                    other fees
                
                
                0
                
                
                0Total
                
                $
                494,670
                
                $
                232,834
 
 (a)
                Audit
                    fees include amounts billed to us related to annual financial
                    statement
                    audit work, reviews of our quarterly financial statements, comfort
                    letters
                    and advice provided on accounting matters that arose in connection
                    with
                    audit services. Approximately $161,474 of the audit fees incurred
                    in
                    fiscal year 2008 represent recurring and nonrecurring services
                    associated
                    with the Sarbanes-Oxley Section 404 internal control
                    audit.
  (b)
                The
                    audit-related fees include principally amounts billed to us related
                    to due
                    diligence.
  (c)
                Tax
                    fees include amounts billed to us primarily for tax planning
                    and
                    consulting, tax compliance and preparation and review of tax
                    returns.
 
 **Audit
          Committee Pre-Approval Policy**
 
 In
          accordance with our audit committee charter, prior to services being rendered,
          the audit committee reviews and pre-approves both audit and non-audit services,
          including tax services, to be provided by our independent auditors. Pursuant
          to
          our audit committee charter, the authority to grant pre-approvals may be
          delegated to one or more designated members of the audit committee whose
          decisions will be presented to the full audit committee at its regularly
          scheduled meeting.




30


**PART
      IV**





**Item
      15.****Exhibits,
      Financial Statement Schedules**





(a)(3)
            Exhibits




31




**EXHIBIT
      INDEX**





*
            31.1
            Certification
                of Edwin J. McGuinn, Jr., Chief Executive Officer, as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.*
            31.2
            Certification
                of Jonathan Coblentz, Chief Financial Officer, as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of
                2002.





*
            Filed
                herewith.




32




**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned thereunto duly authorized.





October
        28, 2008


Date




/s/
      Edwin
      J. McGuinn, Jr.


Edwin
      J.
      McGuinn, Jr.


Chief
      Executive Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed by the following person on behalf of the registrant and in the capacities
      and on the dates indicated.





October
                  28, 2008
              
              /s/
                  Edwin J. McGuinn, Jr.Date
              
              Edwin
                  J. McGuinn, Jr.Chief
                  Executive Officer and Chairman of the Board of Directors(Principal
                  Executive Officer)October
                    28, 2008
              
              /s/
                  Jonathan CoblentzDate
              
              Jonathan
                  CoblentzChief
                  Financial Officer and Treasurer(Principal
                  Financial and Accounting Officer)October
                    28, 2008
              
              /s/
                  Raza KhanDate
              
              Raza
                  KhanCo-President
                  and DirectorOctober
                    28, 2008
              
              /s/
                  Vishal GargDate
              
              Vishal
                  GargCo-President
                  and DirectorOctober
                    28, 2008
              
              /s/
                  Richmond T. FisherDate
              
              Richmond
                  T. FisherDirectorOctober
                    28, 2008
              
              /s/
                  C. David BushleyDate
              
              C.
                  David BushleyDirectorOctober
                    28, 2008
              
              /s/
                  Michael M. BrownDate
              
              Michael
                  M. BrownDirectorOctober
                    28, 2008
              
              /s/
                  Sunil DhaliwalDate
              
              Sunil
                  DhaliwalDirectorOctober
                    28, 2008
              
              /s/
                  Andrew MathiesonDate
              
              Andrew
                  MathiesonDirectorOctober
                    28, 2008
              
              /s/
                  Gregory N. ElinskyDate
              
              Gregory
                  N. ElinskyDirector




33