S-1/A 1 v086727-s1a.htm

As filed with the Securities and Exchange Commission on October 5, 2007

Registration No. 333-144034

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2
to
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

CampusU, Inc.

(Exact Name of Registrant as Specified in its Charter)

   
Delaware   7389   04-3464073
(State or Other Jurisdiction
of Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

803 Sycolin Road, Suite 204
Leesburg, VA 20175
(703) 777-9110

(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)

Robert S. Frank, President and Chief Executive Officer
803 Sycolin Road, Suite 204
Leesburg, VA 20175
(703) 777-9110

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 
Kenneth R. Koch, Esq.
Todd E. Mason, Esq.
Mintz Levin Cohn Ferris Glovsky and
Popeo, P.C.
666 Third Avenue
New York, New York 10017
(212) 935-3000
(212) 983-3115 — Facsimile
  Douglas S. Ellenoff, Esq.
Lawrence A. Rosenbloom, Esq.
Ellenoff Grossman & Schole LLP
370 Lexington Avenue
New York, New York 10017
(212) 370-1300
(212) 370-7889 — Facsimile

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

   
Title of Each Class of
Security Being Registered
  Proposed Maximum
Aggregate Offering Price(1)(2)
  Amount of
Registration Fee
Shares of Common Stock, $0.00041 par value per share   $26,162,500   $882.63

(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
(2) Includes shares of common stock subject to an over-allotment option granted to the underwriters, if any.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

-
 
Preliminary Prospectus   Subject To Completion, Dated October 5, 2007

[GRAPHIC MISSING]

3,500,000 Shares
Common Stock

This is our initial public offering. We are offering 3,500,000 shares of our common stock. We currently expect the initial public offering price for our stock will be between $5.50 and $6.50 per share.

Prior to this offering, there has been no public market for our common stock. We have applied to list our common stock on the Nasdaq Capital Market under the symbol “CMPS.” No assurance can be given that such listing will be approved.

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 6 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.

   
  Per Share   Total Proceeds
Public offering price   $ [•  ]     $ [•  ]  
Underwriting discounts and commissions   $ [•  ]     $ [•  ]  
Non-accountable expense allowance(1)   $ [•  ]     $ [•  ]  
Proceeds to us (before expenses)(2)   $ [•  ]     $ [•  ]  

(1) Payable to Maxim Group LLC, the representative of the underwriters.
(2) We estimate that the total expenses of this offering, excluding the underwriters’ discount and the non-accountable expense allowance, will be approximately $1,600,000.

We have granted an over-allotment option to the underwriters. Under this option, the underwriters may elect to purchase up to an additional 525,000 shares of common stock from us at the public offering price, less the estimated underwriting discounts and commissions, within 45 days from the date of this prospectus to cover over-allotments, if any.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

We are offering the shares of common stock for sale on a firm-commitment basis. The underwriters expect to deliver our securities to investors in the offering on or about [•  ], 2007.

Maxim Group LLC

             Sole Book Runner

Ferris, Baker Watts,
Incorporated                    

The date of this prospectus is [•  ], 2007



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You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with different information. We are not, and the underwriters are not, making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.

For investors outside the United States:  Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.

This prospectus includes trade names and trademarks of CampusU, Inc., as well as those of other companies, which are the property of their respective holders. Use or display by CampusU, Inc. of other parties’ trade names, trade marks or products is not intended to and does not imply a relationship with, or endorsement or sponsorship of CampusU, unless otherwise indicated, by the trade name or trademark owners.


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PROSPECTUS SUMMARY

This summary highlights certain information appearing elsewhere in this prospectus. As this is a summary, it does not contain all of the information that you should consider in making an investment decision. You should read the entire prospectus carefully, including the information under “Risk Factors” and our financial statements and the related notes included in this prospectus, before investing.

Unless otherwise indicated herein, all share-related information contained in this prospectus, including conversion and exercise prices, are after taking into account a reverse stock split of 1-for-4.1 which the company will implement immediately upon effectiveness of this offering.

Unless otherwise indicated herein, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option.

Our Business

We are an Internet-based, interactive merchandising, marketing and media company focused on the college student market. We are creating online communities where college students purchase products and share ideas, discoveries and experiences. Our online communities are intended to attract users through features and subjects that are compelling to college students, including student-generated content, such as blogs, videos and other multimedia content.

We currently generate sales by selling products primarily to college students, and mostly at academic discount prices of up to 80% off suggested retail prices, made available to us by manufacturers on the condition that the sale be to students and other qualified purchasers in the academic community. These programs are open only to a limited number of companies and offer a significant pricing advantage. Our e-commerce model is driven by our ability to verify that a college student is the purchaser of the goods offered. We offer a comprehensive product line of more than 8,000 distinct name-brand software and other technology products, and we also plan to generate revenue from selling targeted marketing and advertising programs to advertisers and corporations to help them sell their products to college students.

Our goal is to leverage our existing e-commerce business and our historical focus on the college student market to become the leading provider of Internet-based media and e-commerce by:

continuing to grow our academic discount e-commerce business;
developing marketing programs that provide academic discount products on a promotional basis and incorporate viral marketing;
creating or acquiring media properties to expand the type of information, content, interactive tools and user-generated text and video that attracts college students; and
diversifying and expanding our product offerings within our core academic discount and merchandising businesses.

We expect to launch the beta versions of our initial community and content websites beginning in the fourth quarter of 2007. These sites include:

www.CampusU.com, which will contain numerous interactive features and subject matters relating to college life, humor, travel, advice and entertainment;
www.CampusFlix.com, which will focus on user-generated video on a variety of topics, including independent film and music; and
www.LazyStudents.com, which will provide research sources and advice on studying and test taking.

We have generated sales for several years, and our sales increased 73.0% from $6.9 million in 2005 to $11.9 million in 2006, although we have not yet attained profitability. For the six months ended June 30, 2007, our sales increased by 101.8% over the comparable period in 2006. We expect to begin generating revenues from our marketing and media businesses by the end of 2007, and we will seek to grow these revenues substantially over the next few years.

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Recent Developments

In May 2007, we issued $3.0 million of convertible debentures. The debentures are due in May 2008 and bear interest at 8.0% per annum, payable quarterly. The debentures are convertible, at the holder’s option, upon certain events, including the completion of this offering, at a price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus. In connection with the issuance of the debentures, we also issued warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the debentures. The warrants are subject to standard anti-dilution protection for proportional splits and corporate reorganizations at an exercise price per share equal to the greater of (i) the price of one share of common stock issued in this offering and (ii) $8.20. The warrants expire three years from the date of issuance.

Additionally, in June 2007, we issued 810,000 shares of our Series A convertible preferred stock and warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the Series A convertible preferred stock and received proceeds of $1.6 million, including $0.5 million from the conversion of a 10% promissory note. Cumulative dividends on the Series A convertible preferred stock accrue at an annual rate of 8.0% per annum and are payable quarterly. Upon completion of this offering, the shares of Series A convertible preferred stock will automatically convert at a price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus. The warrants are subject to standard anti-dilution protection for proportional splits and corporate reorganizations at an exercise price per share equal to the greater of (i) the price of one share of common stock issued in this offering and (ii) $8.20. The warrants expire three years from the date of issuance.

The shares of common stock issuable upon conversion of the debentures, the shares of Series A convertible preferred stock and the exercise of the warrants have unlimited piggyback registration rights. These shares will be subject to a six-month lock-up period following the effective date of this prospectus and the holders thereof have registration rights requiring us to file a registration statement 120 days after the effective date of this prospectus to have such shares registered for resale.

Risk Factors

Our business is subject to numerous risks, as discussed more fully in the section entitled “Risk Factors” beginning on page 6 of this prospectus. Principal risks of our business include:

Our ability to generate revenue and profit from our business model is unproven. Since our recent growth represents an expansion of our marketing model, we do not have a long history upon which to base forecasts of future operating results. Thus, any predictions about our future revenues and expenses may not be as accurate as they would be if we had a longer history operating a business focused on e-commerce sales.
We have historically depended on sales to academic institutions. Although we have shifted our business model over the past several years to greater reliance on e-commerce sales to college students, we will continue to be subject to the funding and spending dynamics of educational institutions throughout the United States. If federal and/or state government funding of these institutions were to drop significantly overall, or if it were shifted away from technology purchases to other needs, we likely would experience a reduction in our sales and, depending upon the degree of our reliance upon institutional sales at that point, a material adverse effect on our overall business and financial condition.

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It is uncertain whether online college student sites will generate sufficient revenues from the sale of products or advertising for us to survive. For our business to be viable, we must provide users with an acceptable blend of products, information, services and community offerings that will attract student-age consumers to our online sites frequently. We expect to provide many of our services to users without charge and we may not be able to generate sufficient revenues to pay for these services.
We intend to expand our operations and staff materially following this offering, in large part by utilizing the proceeds from this offering. Our new employees will include a number of key managerial, financial, marketing and sales, technical and operations personnel who will not have been fully integrated into our operations. We expect the expansion of our business to place a significant strain on our limited managerial, operational and financial resources.
We depend upon the efforts and abilities of our senior executives, Michael Faber, Robert Frank and Christopher Eimas. The loss or unavailability of the services of any of these individuals for any significant period of time could have a material adverse effect on our business, prospects, financial condition and results of operations.

Our Corporate Information

We were incorporated in Delaware in April 1999 and, in May 2007, we changed our name from CampusTech, Inc. to CampusU, Inc. We re-launched our e-commerce website in February 2005, when, based on a number of factors — including a rebounding economy, increased public confidence in Internet shopping and a significant increase in the availability of broadband Internet connections — we decided to focus our time, capital and efforts on building commerce and content websites for college students.

Our principal offices are located at 803 Sycolin Road SE, Suite 204, Leesburg, Virginia, 20175, and our telephone number is (703) 777-9110. We also have offices in Washington, D.C. and Chicago, Illinois, and we expect to open an office in New York City in 2007. Our corporate website address is www.CampusUInc.com, and we operate a number of other websites, including, but not limited to, www.CampusTech.com, www.CampusU.com, www.CampusFlix.com and www.LazyStudents.com. Information contained on our websites is not a part of this prospectus.

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The Offering

Common stock outstanding prior to this offering.    
    6,497,775 shares
Common stock offered by us    
    3,500,000 shares
Common stock to be outstanding after the offering    
    10,972,315 shares
Over-allotment option    
    525,000 shares
Use of Proceeds    
    Our current estimate of the use of the net proceeds from this offering is as follows: (i) repay-
ment of any unconverted and outstanding convertible debentures (17%); (ii) development of new media properties (13%); (iii) potential acquisitions (15%); (iv) expansion of our current business (15%); and (v) general corporate purposes, including working capital (40%). We will, however, have broad discretion over the use of proceeds in this offering and the estimates may change over time.
Proposed Nasdaq Capital Market symbol    
    “CMPS”

The share information provided above and elsewhere in this prospectus is based on the number of shares of common stock outstanding as of October 3, 2007, and takes into account a reverse stock split of 1-for-4.1 which the company will implement upon effectiveness of this offering in order to achieve the minimum bid price required under the applicable Nasdaq Capital Market listing standards. It does not include:

895,737 shares of common stock issuable upon the exercise of stock options outstanding as of October 3, 2007 at a weighted-average exercise price of $2.4451 per share;
1,819,594 shares of common stock issuable upon the exercise of warrants outstanding as of October 3, 2007 at a weighted-average exercise price of $1.26257 per share;
1,543,286 shares of common stock reserved for future awards under our stock plan;
635,269 shares of common stock issuable upon the conversion of our debentures in the principal amount of $3.0 million, including any accrued but unpaid interest thereon, at a conversion price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus;
warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the debentures at an exercise price per share equal to the greater of (i) the price of one share of common stock issued in this offering and (ii) $8.20;
339,271 shares of common stock issuable upon the conversion of 810,000 shares of our Series A convertible preferred stock, including any accrued but unpaid dividends thereon, at a conversion price per share equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus; and
warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the Series A convertible preferred stock at an exercise price per share equal to the greater of: (i) the price of one share of common stock issued in this offering and (ii) $8.20.

As of the date of this offering, our officers, directors and employees, holding an aggregate of: (i) [•  ] shares, or [•  ]%, of our common stock; (ii) warrants to purchase an aggregate of [•  ] shares, or [•  ]%, of our common stock and (iii) options to purchase an aggregate of 895,737 shares, or [•  ]%, of our common stock, will be subject to a lock-up period of twelve months following the effective date of this offering. All of our other shareholders, holding an aggregate of (i) [•  ] shares, or [•  ]%, of our common stock and (ii) warrants to purchase an aggregate of [•  ] shares, or [•  ]%, of our common stock will be subject to a lock-up period of six months following the effective date of this offering. The shares of common stock issuable to two principal stockholders and the shares of common stock issuable upon conversion of our debentures and our Series A convertible preferred stock, and upon exercise of warrants issued in connection with our debentures and our Series A convertible preferred stock, carry registration rights which require us to file a registration statement beginning 120 days after the date of this prospectus registering all such shares of common stock for public resale. All such shares of common stock will be subject to a lock-up period of six months following the effective date of this offering.

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SUMMARY FINANCIAL DATA

The following table summarizes our consolidated financial data for the periods presented. We prepared this information using our consolidated financial statements for each of the periods presented. You should read this information in conjunction with our audited and unaudited consolidated financial statements and related notes, “Selected Historical Financial and Operating Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

             
  Years Ended December 31,   Six Months Ended June 30,
     2006   2005   2004   2003   2002   2007   2006
     (In Thousands, Except Per Share Data)
Consolidated Statement of Operations Data:
                                                              
Sales   $ 11,911     $ 6,886     $ 4,781     $ 4,757     $ 5,587     $ 9,885     $ 4,900  
Cost of products sold     10,329       5,910       4,079       3,989       4,714       8,655       4,204  
Gross Profit     1,582       976       702       768       873       1,230       696  
Selling, general and administrative     5,139       2,106       1,202       1,230       1,947       4,722       2,241  
Loss from operations     (3,557 )      (1,130 )      (500 )      (462 )      (1,074 )      (3,492 )      (1,545 ) 
Interest expense, net     (536 )      (356 )      (165 )      (380 )      (294 )      (302 )      (463 ) 
Other income (expense)(1)     (1,429 )                  265                   (1,429 ) 
Loss before income tax expense     (5,522 )      (1,486 )      (665 )      (577 )      (1,368 )      (3,794 )      (3,437 ) 
Income tax expense     49       54                         25       25  
Net loss     (5,571 )      (1,540 )      (665 )      (577 )      (1,368 )      (3,819 )      (3,462 ) 
Dividend on preferred stock                                   (8 )       
Accretion of beneficial conversion feature on preferred stock                                   (25 )       
Net loss attributable to common stockholders   $ (5,571 )    $ (1,540 )    $ (665 )    $ (577 )    $ (1,368 )    $ (3,852 )    $ (3,462 ) 
Net loss per share:
Basic and diluted
  $ (0.97 )    $ (0.37 )    $ (0.17 )    $ (0.15 )    $ (0.60 )    $ (0.59 )    $ (0.64 ) 
Shares used in per share calculations
Basic and diluted
    5,758       4,145       3,911       3,808       2,273       6,492       5,372  

(1) See Note 4 of the Notes to the Consolidated Financial Statements included elsewhere in this prospectus with respect to the $1.4 million of other expense in the year ended December 31, 2006 and the six months ended June 30, 2006.

           
  As of December 31,   As of June 30,
     2006   2005   2004   2003   2002   2007
     (In Thousands, Except Per Share Data)
Consolidated Balance Sheet Data:
Cash and cash equivalents   $ 1,361     $ 150     $ 38     $ 83     $ 95     $ 2,639  
Goodwill     1,235       1,235       1,235       1,235       1,235       1,235  
Total assets     3,454       1,861       1,622       1,639       1,648       5,988  
Debt     1,390       1,229       663       500       1,521       2,672  
Capital lease obligations     38       36       20       37       56       32  
Total stockholders’ deficit     (244 )      (1,885 )      (897 )      (233 )      (1,204 )    $ (519 ) 

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, together with all of the other information contained in this prospectus, including the consolidated financial statements and the related notes appearing at the end of this prospectus before deciding to invest in our common stock. If any of the following events actually occur, our business, business prospects, financial condition, results of operations or cash flows could be materially affected, and you could lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below.

Risks Specific to Our Business

Our revenue and income potential has been limited and is still unproven, and any predictions about our future revenues and expenses may not be as accurate as they would be if we had a longer history operating a business based on our current business model.

Our revenue and income potential has been limited in the past by capital constraints and is still unproven. Since our recent growth represents an expansion of our marketing model, we do not have a long history upon which to base forecasts of future operating results. Moreover, although we plan to continue to enhance our marketing efforts by establishing Internet communities where college students can interact and purchase our offered goods, no assurances can be given that we will be able to implement such strategy or, if implemented, whether such strategy will achieve our goals. Therefore, any predictions about our future revenues and expenses may not be as accurate as they would be if we had a longer history operating a business focused on e-commerce sales.

Furthermore, we began to shift our focus to the consumer market in early 2005. Accordingly, we have only a limited operating history under our current business model with which you can evaluate our business and prospects. An investor in our common stock must consider the risks and difficulties frequently encountered by small companies in new and rapidly evolving markets, such as the e-commerce and Internet marketing and advertising markets. Our inability to address these risks could materially and adversely affect our revenues, financial condition and business operations.

We have a history of significant losses and could incur significant losses for the foreseeable future.

We have not been profitable over the past few years and may continue to incur significant losses and negative cash flow for the foreseeable future. We incurred net losses of $11.6 million and used cash for operations of $5.8 million for the period from January 1, 2004 through June 30, 2007. As of June 30, 2007, our accumulated deficit was $15.5 million. We also expect to continue to incur significant operating expenses and capital expenditures and, as a result, we will need to generate significant revenues to achieve profitability. Even if we do achieve profitability, we cannot assure you that we can maintain or increase profitability on a quarterly or annual basis in the future. Failure to achieve or maintain profitability would likely materially and adversely affect the market price of our common stock and the viability of our company.

Because of our continuing operating losses and negative cash flow from operations, combined with a continuing working capital deficit and expected future operating losses and negative cash flow from operations, there is substantial doubt about our ability to continue as a “going concern.”

Our continuing operating losses and negative cash flow from operations, combined with a continuing working capital deficit and expected future operating losses and negative cash flow from operations, have led our independent registered public accountants to conclude that there is substantial doubt as to our ability to continue as a “going concern.” Our lack of sufficient liquidity could make it more difficult for us to secure additional financing or enter into strategic relationships with distributors on terms acceptable to us, if at all, and may materially and adversely affect the terms of any financing that we may obtain. Our continuation as a “going concern” is dependent upon achieving profitable operations and related positive cash flow and satisfying our immediate cash needs by external financing until we are profitable. Our plans to achieve profitability include expanding our customer base and increasing revenue. No assurances can be given, however, that we will be able to achieve these goals or that we will be able to continue as a going concern.

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We may not be able to obtain additional financing necessary to execute our business strategy.

We currently believe that the net proceeds from this offering, together with our current cash and cash equivalents, will be sufficient to fund our working capital and capital expenditure requirements for at least the next 24 months. Further, to the extent we require additional funds to support our operations or the expansion of our business, we may need to sell additional equity, issue debt or convertible securities or obtain credit facilities through financial institutions. We cannot assure you that additional funding will be available to us in amounts or on terms acceptable to us. If sufficient funds are not available or are not available on acceptable terms, our ability to fund our expansion, take advantage of acquisition opportunities, develop or enhance our services or products or otherwise respond to competitive pressures would be significantly limited. These factors, along with continuing operating losses and negative cash flow from operations, combined with a continuing working capital deficit and expected future operating losses and negative cash flow from operations, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

If the use of the Internet as a commerce and advertising medium develops more slowly than we expect, our future revenues and prospects could be materially and adversely affected because we expect to derive a large percentage of our revenues from e-commerce transactions.

71% of our 2006 sales and 68% of our sales for the six months ended June 30, 2007 were derived from e-commerce transactions, and we expect that a large percentage of our revenues will continue to be based on e-commerce transactions. While we expect to increase the amount and percentage of our sales derived from Internet marketing and advertising programs, many companies still have little or no experience with Internet advertising and have allocated only a limited portion of their advertising and marketing budgets to Internet activities. If the rate of adoption of Internet advertising slows, particularly by entities that have historically relied upon traditional methods of advertising and marketing, then our future revenues and prospects could be materially and adversely affected.

We have an unproven business model and it is uncertain whether online college student sites will generate sufficient revenues from the sale of products or advertising for us to survive.

Our model for conducting business and generating revenues is still new and unproven. Our business model depends upon our ability to generate revenue streams from multiple sources through our online sites, including: online sales of products that are offered at substantial discounts and focused on college students and Internet sponsorship and advertising fees from third parties. We currently do not have any agreements with advertisers that guarantee such revenues. Thus, any revenues from Internet advertising are not expected initially to be substantial. It is uncertain whether student-related online sites that rely on advertising, marketing and e-commerce revenue can generate sufficient revenues from the sale of products, marketing programs and Internet advertising for us to survive. For our business to be viable, we must provide users with an acceptable blend of products, information, services and community offerings that will attract college students to our online sites frequently. In addition, we must provide sponsors, advertisers and vendors the opportunity to reach these consumers. We expect to provide many of our services to users without charge and we may not be able to generate sufficient revenues to pay for these services. Accordingly, we are not certain that our business model will be viable or that we can sustain revenue growth or be profitable.

Our authorizations to operate on behalf of primary technology manufacturers whose products we sell can be terminated by the manufacturer, with or without cause and on short notice, which could materially and adversely affect our business.

We are authorized to market and sell software and other technology products by more than 100 technology manufacturers, including many of the largest, most well-known companies in the information technology industry such as, Microsoft, Hewlett Packard, Sony, Palm, Adobe, Symantec, Nikon, Riverdeep and Canon. To become an authorized education marketer, and to maintain our status, we have often gone through a selective evaluation process. To stay authorized, we are required to achieve certain sales levels and to adhere to certain standards of operations and corporate behavior. As is customary in our business, our authorization takes the form of a verbal agreement or tacit understanding with the manufacturer; other authorizations take the form of

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a written term sheet. No matter what the form of authorization, however, the reality of our relationships is that the manufacturer has the right to determine which companies it will authorize as its partners in the education market. Thus, most of our authorizations, written or not, are for renewable one-year terms, and may be terminated by the manufacturer, with or without cause, on short notice. Although we have never been de-authorized by any significant technology manufacturer, no assurances can be given that a significant technology manufacturer, for no apparent or good reason, could terminate our authorization. If sales of that manufacturer’s products comprised a sizeable portion of our total revenues, the lost ability to sell those products likely would have a material adverse effect on our revenues, financial condition and business operations.

If all, most or many key technology manufacturers begin selling their products at academic discount prices directly to end-users in the education market, or discontinue their academic discount programs altogether, our ability to compete effectively for purchases by such end-users would be significantly weakened.

Many, if not most, technology manufacturers employ an indirect model to market, sell and deliver their products to education market buyers. To accomplish this, manufacturers authorize firms like ours (variously referred to as marketers, resellers, dealers, VARs, solution providers and/or systems integrators) to be the market participants that deal directly with potential education market buyers. The manufacturers generally concentrate on research and development and broad-based brand and product marketing, and firms like ours deliver targeted marketing to, and actually transact sales with, education market buyers. To ensure the effectiveness of this indirect model, most manufacturers have agreed, either tacitly or by written agreement, to support and not compete against its marketing and sales partners. If, however, a technology manufacturer were to compete against its own marketing partners by offering its products directly to end users in the education market, its substantial cost advantage would severely weaken the competitive position of its marketing partners. If several of our key technology manufacturers were to engage in direct selling or to discontinue their academic programs altogether, it would likely have a material adverse effect on our revenues, financial condition and business operations. No guarantees can be given that one or more important technology manufacturers will not discontinue their academic discount programs or engage in direct selling. While we believe that most manufacturers have maintained their academic discount programs and have chosen not to employ competitive practices, there is no guarantee that they will continue these practices in the future.

We expect competition to increase because of the business opportunities presented by the growth of the Internet and e-commerce, and may also intensify as a result of industry consolidation and a lack of substantial barriers to entry, which could reduce our market share, the number of our customers, our transaction and advertising revenues and our margins. Increased competition in our markets could reduce our market share, the number of our customers, our transaction and advertising revenues and our margins.

The Internet advertising markets are new, rapidly evolving and intensely competitive, and we expect such competition to intensify in the future. We face competition for customers, users and advertisers from general online services or online services or Internet sites targeted at college students, as well as from the online sites of retail stores, manufacturers and other student-focused organizations.

Many of our current and potential competitors have longer operating histories, significantly greater financial, technical and marketing resources, greater name recognition and substantially larger user or membership bases than we have and, therefore, have a significantly greater ability to attract customers and advertisers. In addition, many of our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in Internet user requirements, as well as devote greater resources than we can to the development, promotion and sale of services.

Furthermore, several different plausible scenarios could occur to negatively impact the competitive dynamics of our market, including technology manufacturers opening their academic programs to all firms applying for authorized status in the education market and certain very large systems integrators, distributors or government contractors devoting substantial resources to an education-focused division.

Any or a combination of these scenarios might occur in the coming years, and the result of any or all of them, would be to heighten the intensity of competition for technology sales to education market buyers. Increased competition could result in price reductions, lower margins or loss of market share. In addition, if we expand internationally, we may face additional competition. There can be no assurance that we will be able to compete against current and future competitors.

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If the assumptions that we use regarding the growth of e-commerce and Internet are incorrect, then the projections we include in this prospectus may be materially different from actual results.

This prospectus contains various third-party data and projections related to our business, our market and the Internet, including those relating to the sales generated by e-commerce, the number of Internet users and the amount spent on Internet advertising. These data and projections have been included in studies prepared by independent market research firms, and the projections are based on surveys, financial reports and models used by these firms, as well as a number of assumptions. If the underlying data or one or more of the assumptions contained in these reports turns out to be incorrect, actual results or circumstances may be materially different from the projections included in this prospectus. Any difference could reduce our sales and harm our results of operations.

We may be unable to continue to build awareness of our brand name, which would negatively impact our business and make it very difficult to generate sponsorship and advertising revenues.

Building recognition of our brand is critical to attracting and expanding our online user base. Because we plan to continue building brand recognition, we may find it necessary to accelerate expenditures on our sales and marketing efforts or otherwise increase our financial commitment to creating and maintaining brand awareness. Our failure to promote and maintain our brand would adversely affect our business and cause us to incur significant expenses in promoting our brand without an associated increase in our net revenues.

Because we have limited financial, technical, human and other resources, we may be unable to attract and retain the highly skilled personnel we will need to expand our business.

Following this offering, we intend to expand our operations and staff. Our new employees will include a number of key managerial, financial, marketing and sales, technical and operations personnel who will not have been fully integrated into our operations. We expect the expansion of our business to place a significant strain on our limited managerial, operational and financial resources. We will be required to expand our operational and financial systems significantly and to expand, train and manage our work force in order to manage the expansion of our operations. Our failure to fully integrate our new employees into our operations could have a material adverse effect on our business, prospects, financial condition and results of operations. Our ability to attract and retain highly-skilled personnel is critical to our operations and expansion. We face competition for these types of personnel from other technology companies and more established organizations, many of which have significantly larger operations and greater financial, technical, human and other resources than we have. We may not be able to attract and retain qualified personnel on a timely basis, on competitive terms or at all. If we are not able to attract and retain such personnel, our business, prospects, financial condition and results of operations will be materially adversely affected.

We depend upon our senior management and their loss or unavailability could put us at a competitive disadvantage.

We currently depend upon the efforts and abilities of our senior executives, particularly Michael Faber, Robert Frank and Christopher Eimas. The loss or unavailability of particularly the services of any of these individuals for any significant period of time could have a material adverse effect on our business, prospects, financial condition and results of operations. We expect to have in place a key-person life insurance with respect to the loss of services of Robert Frank in the amount of $1.5 million upon the effective date of this offering.

Members of our Board of Directors have not worked together as a group for a significant period of time and they each have only some or no experience as a director of a public company. As a result, they may not be able to effectively manage our business.

Our Board of Directors consists of two executive directors and three independent, non-executive directors. Two of our current independent directors, Glenn A. Bergenfield and Richard M. Graf, were appointed as our directors in June 2006. The other independent director, Mary Dridi, was appointed as our director in March 2007. Only one of our current independent directors, Mr. Bergenfield, has had any experience as a director of a public company. Additionally, we contemplate increasing the size of our Board of Directors to at

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least seven members by the addition of two additional independent directors. We can give no assurance that we will be able to recruit such independent directors, or if we are able to recruit additional independent directors, that any of such persons will have any experience as a director or manager of a public company. As a result, our Board of Directors will lack a history of working together as a group and currently lacks significant experience in operating a public company. The lack of shared experience and lack of significant experience of our Board of Directors in operating a public company could have an adverse effect on its ability to quickly and efficiently respond to problems and effectively manage our business and deal effectively with the issues surrounding the operation of a public company.

If we cannot protect our domain names, it will impair our ability to develop our brand.

We currently hold various Web domain names, including, but not limited to, www.CampusTech.com, www.CampusU.com, www.CampusFlix.com and www.LazyStudents.com. The acquisition and maintenance of domain names generally is regulated by Internet regulatory bodies. The regulation of domain names in the United States and foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we may be unable to acquire or maintain relevant domain names in all countries in which we expect to conduct business. Furthermore, it is unclear whether laws protecting trademarks and similar proprietary rights will be extended to protect domain names. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. We may not be able to carry out our business strategy of establishing a strong brand if we cannot prevent others from using similar domain names or trademarks. This could impair our ability to increase market share and sales.

Our business and prospects would suffer if we were unable to protect and enforce our intellectual property rights.

We rely solely upon copyright, trade secret and trademark law and assignment of invention and confidentiality agreements to protect our proprietary technology, processes, content and other intellectual property to the extent that protection is sought or secured at all. We cannot assure you that any steps we might take will be adequate to protect against infringement and misappropriation of our intellectual property by third parties. Similarly, we cannot assure you that third parties will not be able to independently develop similar or superior technology, processes, content or other intellectual property. The unauthorized reproduction or other misappropriation of our intellectual property rights could enable third parties to benefit from our technology without paying us for it. If this occurs, our business and prospects would be materially and adversely affected. In addition, disputes concerning the ownership or rights to use intellectual property could be costly and time consuming to litigate, may distract management from other tasks of operating the business and may result in our loss of significant rights and the loss of our ability to operate our business.

We rely upon the intellectual property rights of our technology manufacturers to protect the software and other technology products that we sell. If one of our key technology manufacturers is unable to protect its intellectual property rights and we are enjoined from selling their products to education market buyers, it might have a material adverse effect on our revenues, financial condition and business operations.

We regard the copyrights, service marks, trademarks, trade secrets and other intellectual property of our technology manufacturers as critical to our potential achievement of our business objectives. It is very common in the technology industry, however, for competing firms to sue each other for infringement of one type of intellectual property or another. If a third party were to sue one of our technology manufacturers and gain an injunction against the continued sale of that manufacturer’s product or products, such injunction might very well prevent us from continuing to sell that or those products. If such product or products then accounted for a significant portion of our sales revenues, having to cease selling such product or products likely would have an adverse effect on our revenues and financial condition.

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Our operating results are subject to significant fluctuation, which may adversely affect the trading price of our common stock.

Our quarterly sales and operating results have fluctuated significantly in the past and are expected to continue to fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control.

For instance, seasonal and cyclical patterns may affect our sales. In 2006 and 2005, 29.4% and 33.1% of our sales occurred in the third quarter of the year, respectively, due to the “back-to school” season. Because we have not generated substantial advertising and marketing revenues, we have been unable to determine whether our advertising and marketing revenues are or will be affected by seasonal fluctuations. As a result of these factors, we may experience fluctuations in our revenues from quarter to quarter. Additional factors include, among others:

the level of online usage;
demand for online advertising;
the advertising budgeting cycles of specific advertisers;
the introduction of new sites and services by us or our competitors; and
economic conditions specific to the Internet, e-commerce and online media.

Due to the foregoing and similar factors, it is possible that our results of operations in one or more future quarters may fall below the expectations of securities analysts and investors. In such event, the trading price of our common stock is likely to decline.

Although we have no current intention to do so, we may seek to acquire complementary businesses in the future, and we may fail to integrate such acquisitions and reduce our operating expenses. In addition, the costs associated with potential acquisitions or strategic alliances may dilute your investment.

Although we have no current intention to do so, we may in the future seek to acquire complementary businesses, assets or technologies. The integration of the businesses, assets and technologies we may acquire would thus be critical to our strategy. Integrating the management and operations of these businesses, assets and technologies is time consuming, and we cannot guarantee that we will achieve any of the anticipated synergies and other benefits expected to be realized from acquisitions. We have no experience with making acquisitions and we expect to face one or more of the following difficulties:

difficulty integrating the products, services, financial, operational and administrative functions of acquired businesses, especially those larger than us;
diversion of financial and management resources from existing operations;
risks of entering new markets;
potential loss of key employees;
inability to generate sufficient revenues to offset acquisition or investment costs;
delays in realizing the benefits of our strategies for an acquired business which fails to perform in accordance with expectations; and
acquiring businesses with unknown liabilities, software bugs or adverse litigation and claims.

These difficulties could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations.

In addition, to pay for an acquisition or to enter into a strategic alliance, we might use equity securities, debt, cash, including the proceeds from this offering, or a combination of the foregoing. If we use equity securities, our stockholders may experience dilution. In addition, an acquisition may involve non-recurring charges or involve amortization of significant amounts of goodwill. The related increases in expenses could adversely affect our results of operations. Any such acquisitions or strategic alliances may require us to obtain additional equity or debt financing, which may not be available on commercially acceptable terms, if at all.

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We depend upon other companies to provide us with warehousing, fulfillment and distribution services, and system failures or other problems at our company or these other companies could cause us to lose customers and revenues.

We use other companies to fulfill and arrange for distribution of almost all our products. In the future, we expect to use other companies for warehousing services as well. If we are unable to continue to rely on other companies to provide us with these services in a timely fashion or if these services become impaired, whether through labor shortage, slow down or stoppage, deteriorating financial or business condition or other system failures or for any other reason, we would not be able, at least temporarily, to sell or ship our products to our customers. We also may be unable to engage alternative warehousing, fulfillment or distribution services on a timely basis.

We may experience business disruptions or failures if third parties fail to provide reliable software, systems and related services to us and such disruptions and failures could cause advertiser or user dissatisfaction, thereby reducing the attractiveness of our sites and adversely affecting our business and results of operations.

We are dependent on various third parties for software, systems and related services in connection with our hosting and accounting software, data transmission and security systems. Several of the third parties that provide software and services to us have a limited operating history and have relatively new technology. These third parties are dependent on reliable delivery of services from others. To date, we have not experienced significant problems with the services that these third parties provide to us. If our current providers were to experience prolonged systems failures or delays, we would need to pursue alternative sources of services. Although alternative sources of these services are available, we may be unable to secure such services on a timely basis or on terms favorable to us.

In particular, the continuing and uninterrupted performance of our computer systems is critical to our ability to operate our business. Our customers and advertisers may become dissatisfied by any systems disruption or failure that interrupts our ability to provide our services and content to them. Substantial or repeated system disruptions or failures would reduce the attractiveness of our online sites significantly. Substantially all of our communications hardware and some of our other computer hardware operations are located at locations owned and/or managed by other companies. Fire, floods, earthquakes, power loss, telecommunications failures, break-ins and similar events could damage these systems. Computer viruses, electronic break-ins or other similar disruptive problems could also adversely affect our online sites. Our business could be materially and adversely affected if our systems were affected by any of these occurrences. We rely on these other companies to develop plans to implement in the event of a disaster and we do not presently have a formal disaster recovery plan. In the normal course of business, we must record and process significant amounts of data quickly and accurately. In the past, as is common in the industry, our sites have experienced slower response times and decreased traffic. These types of occurrences in the future could cause users to perceive our sites as not functioning properly and therefore cause them to use another online site or other methods to obtain products or services. In addition, our users depend on Internet service providers, online service providers and other site operators for access to our online sites. Many of them have experienced significant outages in the past, and could experience outages, delays and other difficulties due to system disruptions or failures unrelated to our systems. Although we carry general liability insurance, our insurance may not cover any claims by dissatisfied customers or may not be adequate to indemnify us for any liability that may be imposed in the event that a claim were brought against us. Any system disruption or failure, security breach or other damage that interrupts or delays our operations could cause us to lose customers and advertisers and adversely affect our business and results of operations.

We may be subject to liability if third parties misappropriate our users’ personal information.

If third parties were able to penetrate our network security or otherwise misappropriate our users’ personal or credit card information, we could be subject to liability. Our liability could include claims for unauthorized purchases with credit card information, impersonation or other similar fraud claims, as well as for other misuses of personal information, such as for unauthorized marketing purposes. These claims could result in costly and time-consuming litigation, which could adversely affect our financial condition.

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In addition, the Federal Trade Commission and state agencies have been investigating various Internet companies regarding their use of personal information. We could have additional expenses if new regulations regarding the use of personal information are introduced or if our privacy practices are investigated.

Risks Related to Our Industry

If the use of the Internet as a medium for commerce does not continue to grow, our business and prospects would be materially and adversely affected as our business model is focused on e-commerce sales and Internet advertising and marketing.

We cannot assure you that a sufficient number of customers, especially the college student customers that relate to our market, will continue to use the Internet as a medium for commerce, particularly for purchases of products such as the ones we sell or expect to sell. Our long-term viability depends substantially upon the continued increasing acceptance and the development of the Internet as effective media for consumer commerce and for advertising. Use of the Internet to effect retail transactions and to advertise is still at an early stage in its development. Continued development of the Internet into a larger commercial marketplace is subject to a number of factors, including:

continued growth in the number of users of such services;
concerns about transaction security;
continued development of the necessary technological infrastructure;
development of enabling technologies;
having the resources to protect against security breaches;
the ability to counteract problems caused by viruses and spoofing;
uncertain and increasing government regulation; and
the development of complementary services and products.

We may be unable to respond to the rapid technological change in our industry, which could harm our business by impeding our ability to enhance existing services and develop and license new services.

Our business relies on computer and telecommunications technologies, and will continue to do so as we seek to implement our online community strategy. Our ability to integrate these technologies into our business is essential to our competitive position and our ability to execute our business strategy. The Internet and e-commerce are characterized by rapid technological change. Sudden changes in user and customer requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices could render our existing online sites and proprietary technology and systems obsolete. The emerging nature of products and services focused on college students and their rapid evolution will require that we continually improve the performance, features and reliability of our online services. Our ability to effectuate our business goals will depend, in part, on our ability:

to enhance our existing services;
to develop and license new services and technology that address the increasingly sophisticated and varied needs of our prospective customers and users; and
to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.

The development of online sites and other proprietary technology entails significant technological and business risks and requires substantial expenditures and lead time. We may be unable to use new technologies effectively or adapt our online sites, proprietary technology and transaction-processing systems to customer requirements or emerging industry standards. Updating our technology internally and licensing new technology from third parties may require significant additional capital expenditures. Furthermore, technologies may be developed that can block the display of our ads. We expect that a material percentage of our revenue will

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be derived from fees paid to us by advertisers in connection with the display of ads on our web pages. As a result, ad-blocking technology in the future, could adversely affect our revenues, financial condition and business operations.

We may become subject to, and may not be adequately protected from, liability arising from information retrieved from our sites.

We may be subject to claims for defamation, negligence, copyright or trademark infringement, personal injury or other legal theories relating to the information we publish on our online sites. These types of claims have been brought, sometimes with negative results for companies like ours, against online services as well as other print publications in the past. We also could be subject to claims based upon the content that is accessible from our online sites through links to other online sites or through content and materials that may be posted by members in chat rooms or bulletin boards. Our insurance, which covers commercial general liability, may not adequately protect us against these types of claims.

We may incur significant expenses related to the security of personal information online because the viability of our business depends on the acceptance of on-line services and e-commerce.

The need to transmit securely and protect confidential information online has been a significant barrier to e-commerce and online communications. Any well-publicized compromise of security could deter people from using the Internet to conduct transactions that involve transmitting confidential information. Because the viability of our business depends on the acceptance of online services and e-commerce, we may incur significant costs to protect against the threat of security breaches or to alleviate problems caused by such breaches.

If we become subject to burdensome government regulation and legal uncertainties related to doing business online, our e-commerce and advertising revenues could decline and our business and prospects could suffer.

Laws and regulations directly applicable to Internet communications, commerce and advertising are becoming more prevalent. Due to the increasing popularity and use of the Internet, it is possible that laws and regulations may be adopted covering issues such as user privacy, pricing, content, taxation and quality of products and services. Any new legislation could hinder the growth in use of the Internet generally and decrease the acceptance of the Internet and other online services as media of communications, commerce and advertising. This legislation could also expose us to substantial liability or require us to incur significant expenses in complying with any new regulations. The governments of states and foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. The laws governing the Internet remain largely unsettled, even in areas where legislation has been enacted. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy, libel and taxation apply to the Internet and Internet advertising services. In addition, the growth and development of the market for e-commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, which may impose additional burdens on companies conducting business online. The adoption or modification of laws or regulations relating to the Internet and other online services could cause our sponsorship, advertising and merchandise revenues to decline and our business and prospects to suffer.

If the U.S. economy were to undergo a severe economic downturn, we would likely experience a significant reduction in our sales to individual college student and faculty customers (and most probably to educational institutions as well), and a consequent material adverse effect on our business and financial condition.

In 2006, as part of our planned strategic initiatives, we placed greater emphasis on sales to individual college student and faculty customers via our website and as a result, sales to individual customers for the six months ended June 30, 2007 accounted for 61.7% of our total revenues. If the United States were to have a sharp and/or prolonged economic slump or recession, consumer spending overall, and technology purchasing in particular, likely would decrease and have an adverse impact on our sales, business prospects and financial condition.

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If government funding for education were to sharply decrease, the funds available for educational institutions to make technology purchases would decrease sharply as well. This would likely have a material adverse impact on our revenues, and quite possibly on our overall business and financial condition.

We sell software and other technology products to individual student, faculty and staff as well as to academic institutions. For most of our history, the majority of our sales have come from institutions. We have now shifted our business model to greater reliance on e-commerce sales to individual customers, which in 2005, 2006 and the six months ended June 30, 2007 accounted for 53.7%, 66.5%, and 61.7% of our total sales, respectively. Even with our focus on and the growth of our e-commerce business, we will continue to be subject to the funding and spending dynamics of educational institutions throughout the United States. If federal and/or state government funding of these institutions were to drop significantly overall, or if it were shifted away from technology purchases to other needs, we likely would experience a reduction in our sales and, depending upon the degree of our reliance upon institutional sales at that point, a material adverse effect on our overall business and financial condition.

We need to establish and maintain key marketing alliances to grow our e-commerce sales and to complement our institutional sales force, and we have only entered into a small number of key alliances.

To grow the sales of both our institutional and individual lines of e-commerce business, we need to establish and maintain many marketing alliances. In our e-commerce focused individual business, we have identified many different potential marketing alliances that will enable us to reach greater numbers of eligible college students more quickly and at less cost per customer acquired than the methods we are now employing. To date, because of constrained capital resources and a lack of experienced business development personnel, we have been able to establish marketing alliances with only a few of the potential marketing partners we have identified. We intend to use a portion of the proceeds from this offering to begin to hire the required marketing and business development personnel and to invest in effective marketing alliances and advertising vehicles. There can be no guarantee, however, that we will be able to establish significant additional marketing alliances, or that the marketing alliances that we do establish or the marketing partners whom we do entrust will actually prove to have a significant return on investment.

We may incur potential product liability for products sold online, which could seriously damage our financial results, reputation and brand name.

Consumers may sue us if any of the products that we sell online are defective, fail to perform properly or injure the user, or if consumers experience problems of other kinds relating to products purchased through our online sites. We plan to sell a range of products targeted specifically at college students through our various online sites. Such a strategy involves numerous risks and uncertainties. Although we seek to include in our agreements with manufacturers and providers of services certain provisions intended to limit our exposure to liability claims, these limitations may not prevent all potential claims. Liability claims could require us to spend significant time and money in litigation or to pay significant damages. As a result, any such claims, whether or not successful, could seriously damage our financial results, reputation and brand name.

Risks Related to Our Common Stock and This Offering

There has been no prior market for our common stock, our stock price may experience extreme price and volume fluctuations and any volatility in our stock price could result in claims against us.

Prior to this offering, investors could not buy or sell our common stock publicly. An active public market for our common stock may not develop or be sustained after the offering. The initial public offering price will be determined by negotiations between the underwriters’ representatives and us and the initial public offering price may not be indicative of prices that will prevail in the trading market. See “Underwriting” for more information regarding the factors that will be considered in determining the initial public offering price.

Fluctuations in market price and volume are particularly common among securities of Internet and other e-commerce and Internet advertising companies. The market price of our common stock may fluctuate significantly in response to the following factors, some of which are beyond our control:

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variations in quarterly operating results;
changes in market valuations of Internet and other technology companies;
our announcements of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
failure to complete significant sponsorship, advertising and merchandise sales;
additions or departures of key personnel;
future sales of common stock; and
changes in financial estimates by securities analysts.

In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its common stock. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management’s attention and resources.

Future sales of shares by our stockholders could cause the market price of our common stock to drop significantly, even if our business is performing.

After this offering (and assuming conversion of all Series A convertible preferred stock, including accrued and unpaid dividends, and our debentures, including accrued and unpaid interest), we will have outstanding approximately 10,972,315 shares of common stock. This includes the 3,500,000 shares we are selling in this offering, which may be resold in the public market immediately. The remaining 7,472,315 shares will become available for resale in the public market as shown in the chart below.

 
Number of Restricted Shares/% of Total Shares Outstanding Before Offering   Date of Availability for Resale into the Public Market
0/0%   Will be eligible for sale upon the date of this prospectus under SEC Rule 144(k).
[•  ]/[•  ]%   [518,705] shares held by two stockholders, 339,271 shares held by six Series A convertible preferred stockholders and 635,269 shares held by 16 holders of our debentures, assuming a conversion price of $4.80, which is based on 80% of the $6.00 mid-point of the price range indicated on the front cover of this prospectus, will be eligible for sale following 180 days after the date of this prospectus due to the release of the lock-up agreement these stockholders have with the underwriters.
[•  ]/[•  ]%   Non-affiliate shares will be eligible for sale following 365 days from the date of this prospectus.
[•  ]/[•  ]%   Affiliate shares will be eligible for sale, from time to time, following 365 days from the date of this prospectus.

At any time and without public notice, the underwriters may, in their sole discretion, release all or some of the securities subject to the lock-up agreements. As shares saleable under Rule 144(k) are sold after the closing of this offering or as restrictions on resale end, the market price of our stock could drop significantly if the holders of restricted shares sell them or are perceived by the market as intending to sell them. This decline in our stock price could occur even if our business is otherwise doing well. For more detailed information, please see “Shares Eligible for Future Sale” and “Underwriting — Lock-up Agreements.”

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur an immediate dilution of $4.47 (or 74.5%) in net tangible book value per share from the price you paid, based upon the initial public offering price of $6.00 per share. The exercise of

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outstanding warrants and options and the conversion of debentures will result in further dilution of your investment. In addition, if we raise funds by issuing additional shares, the newly issued shares may further dilute your ownership interest.

After this offering, our executive officers, directors and 5% or greater stockholders will exercise significant control over all matters requiring a stockholder vote.

After this offering, our executive officers, directors and existing stockholders who each own greater than 5% of the common stock that was outstanding immediately before this offering and their affiliates, in the aggregate, will beneficially own approximately 47% of our outstanding common stock. As a result, these stockholders will be able to exercise control over all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This concentration of ownership also could have the effect of delaying or preventing a change in control.

One of our principal stockholders, Drax Holdings, L.P., has a contractual right to a preferred liquidation payment with respect to the sale of all or substantially all of our assets or the merger of our company, which may make us a less attractive acquisition or investment target.

One of our principal stockholders, Drax Holdings, L.P., which owns 525,328 shares of common stock, is entitled to a preferred liquidation payment in the amount of $1,400,000 in the event we sell all or substantially all of our assets to a third party or we enter into a merger or consolidation with another entity. This preferred liquidation payment is reduced and eliminated to the extent that the stockholder receives proceeds from the sale of its common stock. This required preferred payment could make us a less attractive acquisition or investment target, unless we can obtain a waiver from such stockholder. However, we cannot assure you that such stockholder would provide a waiver to us or that our obligation to pay the liquidation amount will not hinder any such proposed merger or acquisition which may be favorable to our stockholders.

Certain of our current investors have rights which could impede our ability to raise additional capital.

Certain warrants issued by us to two of our stockholders, one of whom is a principal stockholder, Smithfield Fiduciary LLC, contain provisions which could impede our ability to raise capital in the future. Subject to certain limitations, the warrants provide to each such stockholder a right to participate in future issuances for up to their respective pro rata portion of such issuances, but in no event shall the pro rata portion of such stockholders, in the aggregate, be less than $3,000,000 of any new issuance. Although we may seek waiver of such rights, no assurances can be given that they will be willing to do so with respect to future offerings. The future exercise of such rights could discourage third parties from investing in our company and may require us to obtain funding from such stockholders, which could give them greater control over us.

Our Executive Chairman and Chairman of our Board of Directors holds secured and unsecured demand notes issued by us, and his interests as a holder of such notes may differ from our interests.

Michael Faber, our Executive Chairman and Chairman of our Board of Directors, holds secured and unsecured demand notes issued by us in the aggregate principal amount of approximately $1,342,000. The interests of Mr. Faber, as a holder of such demand notes, may differ from our interests. For instance, the demand notes contain a demand feature which enables Mr. Faber to cause the amounts owed under the notes to be repaid immediately. These notes cannot be repaid from the proceeds of this offering by agreement with the underwriters. Additionally, by an agreement with two warrant holders, one of whom is a principal stockholder, Smithfield Fiduciary LLC, we are restricted from repaying, redeeming, repurchasing or exchanging for value these notes until the earlier of the expiration of any lock-up period for such warrant holders related to our initial public offering or the registration of shares owned or obtainable up exercise of warrants by such warrant holders. Our Executive Chairman and Chairman of our Board of Directors may choose to exercise this demand feature at times not favorable to us. Accordingly, the demand notes may create a conflict of interest for our Executive Chairman and Chairman of our Board of Directors.

We may allocate net proceeds from this offering in ways with which you may not agree.

Our management will have broad discretion in using the proceeds from this offering and may use the proceeds in ways with which you may disagree. We are not required to allocate the net proceeds from this offering to any specific investment or transaction; therefore you cannot determine at this time the value or

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propriety of our application of the proceeds. Moreover, you will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use our proceeds. We may use the proceeds for corporate purposes that do not immediately enhance our prospects for the future or increase the value of your investment. As a result, you and other stockholders may not agree with our decisions.

The requirements of being a public company may strain our resources and distract management.

As a public company, we will incur significant legal, accounting, corporate governance and other expenses that we did not incur as a private company. We will be subject to the requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, The Nasdaq Capital Market, to which we have applied to have our common stock approved for quotation, and other rules and regulations. These rules and regulations may place a strain on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. Sarbanes-Oxley requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We currently do not have an internal audit group. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, we will need to devote significant resources and management oversight. As a result, our management's attention may be diverted from other business concerns. In addition, we will need to hire additional accounting staff with appropriate public company experience and technical accounting knowledge and we cannot assure you that we will be able to do so in a timely fashion.

These rules and regulations may also make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our Board of Directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

Our amended and restated certificate of incorporation, amended and restated bylaws and certain provisions of Delaware law may delay or prevent a change in our management and make it more difficult for a third party to acquire us.

Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in our Board of Directors and management team. Some of these provisions:

authorize the issuance of preferred stock that can be created and issued by our Board of Directors without prior stockholder approval, commonly referred to as “blank check” preferred stock, with rights senior to those of our common stock;
provide for the Board of Directors to be divided into three classes;
require that the holders of 80% of our issued and outstanding common stock approve the removal of our directors; and
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit stockholder action by written consent.

In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of large stockholders to complete a business combination with, or acquisition of, us. These provisions may prevent a business combination or acquisition that would be attractive to stockholders and could limit the price that investors would be willing to pay in the future for our stock.

These provisions also make it more difficult for our stockholders to replace members of our Board of Directors and to influence the management of our company because our Board of Directors is responsible for appointing the members of our management.

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We could issue “blank check” preferred stock without stockholder approval with the effect of diluting then current stockholder interests and impairing their voting rights.

Our certificate of incorporation authorizes the issuance of up to 10,000,000 shares of “blank check” preferred stock with designations, rights and preferences as may be determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue a series of preferred stock with dividend, liquidation, conversion, voting or other rights which could dilute the interest of, or impair the voting power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying or preventing a change in control. For example, it would be possible for our Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our company.

The Nasdaq Capital Market may delist our securities from quotation on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

We anticipate that our securities will be listed on the Nasdaq Capital Market, a national securities exchange, upon consummation of this offering. We cannot assure you that our securities will be listed and, if listed, will continue to be listed on the Nasdaq Capital Market in the future. If the Nasdaq Capital Market delists our securities from trading on its exchange, we could face significant material adverse consequences, including:

a limited availability of market quotations for our securities;
a determination that our common stock is a “penny stock” which will require brokers trading in our common stock to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our common stock;
a limited amount of news and analyst coverage for our company;
reduced liquidity with respect to our securities; and
a decreased ability to issue additional securities or obtain additional financing in the future.

If penny stock regulations impose restrictions on the marketability of our common stock, the ability of our stockholders to sell shares of our common stock could be impaired.

The Securities and Exchange Commission, or the SEC, has adopted regulations that generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Exceptions include equity securities issued by an issuer that has (i) net tangible assets of at least $2,000,000, if such issuer has been in continuous operation for more than three years, or (ii) net tangible assets of at least $5,000,000, if such issuer has been in continuous operation for less than three years, or (iii) average revenue of at least $6,000,000 for the preceding three years. Unless an exception is available, the regulations require that prior to any transaction involving a penny stock, a risk disclosure schedule must be delivered to the buyer explaining the penny stock market and its risks.

You should be aware that, according to the SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include:

Control of the market for the security by one or a few broker-dealers;
“Boiler room” practices involving high-pressure sales tactics;
Manipulation of prices through prearranged matching of purchases and sales;
The release of misleading information;
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
Dumping of securities by broker-dealers after prices have been manipulated to a desired level, which hurts the price of the stock and causes investors to suffer loss.

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We are aware of the abuses that have occurred in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, we will strive within the confines of practical limitations to prevent such abuses with respect to our common stock.

We have not paid, and do not expect to pay, cash dividends, on our common stock.

We have not paid any cash dividends on our common stock, and we do not intend to pay cash dividends in the foreseeable future. We intend to retain future earnings, if any, for reinvestment in the development and expansion of our business. Any credit agreements which we may enter into with institutional lenders may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and any other factors that the Board of Directors decides is relevant.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

the anticipated benefits and risks associated with our business strategy;
our future operating results and the future value of our common stock;
the anticipated size or trends of the markets in which we compete and the anticipated competition in those markets;
our ability to launch and operate our online communities;
our ability to attract visitors to our online communities in a cost-efficient manner;
our ability to compete and respond to technological changes;
our ability to attract and retain qualified management personnel;
our future capital requirements and our ability to satisfy our capital needs; and
the anticipated use of the proceeds realized from this offering.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors” beginning on page 6. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward looking statements represent our estimates and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update any forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

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USE OF PROCEEDS

We estimate that our net proceeds from the sale of 3.5 million shares of common stock in this offering will be approximately $17.3 million after deducting estimated offering expenses of $1.6 million and underwriting discounts and commissions and assuming an initial public offering price of $6.00 per share, the mid-point of the price range indicated on the front cover of this prospectus. If the over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $20.1 million.

We currently intend to use the proceeds of this offering as follows:

   
  Approximate Allocation of
Net Proceeds
  Approximate Percentage of
Net Proceeds
     (In Millions)
Repayment of 8% convertible debentures(1)   $ 3.0       17 % 
Development of new media properties(2)   $ 2.2       13 % 
Expansion of current business(3)   $ 2.6       15 % 
Potential acquisitions(4)   $ 2.6       15 % 
General corporate purposes, including working capital(5)   $ 6.9       40 % 
Total   $ 17.3       100 % 

(1) This represents the cost of paying off any of our unconverted and outstanding convertible debentures in the initial principal amount of $3.0 million. The debentures are due in May 2008 and bear interest at 8.0% per annum, payable quarterly. The debentures are convertible, at the holder’s option, upon certain events, including the completion of this offering, at a price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus.
(2) The development of new media properties involves the creation and development of new online communities where college students purchase products, share ideas and discoveries and develop important skills.
(3) Expansion of current business includes costs related to the development and enhancement of our existing interactive websites and online communities, hiring qualified staff and investing in marketing alliances and new advertising vehicles.
(4) These expenditures include costs related to the potential acquisitions of products, technologies or businesses that are complementary to our current and future business and product lines, although we have no current plans, agreements or commitments for acquisitions of any businesses, products or technologies. We also may use these funds to acquire www.LazyStudents.com pursuant to our existing exclusive license.
(5) We expect that general corporate and working capital expenditures will include, among other potential uses: (i) personnel costs, particularly marketing and business development personnel that we expect to hire following the consummation of this offering; (ii) the payment of cash bonuses totaling $325,000 to our executive officers upon the consummation of this offering; (iii) the additional costs of being a public company, including audit fees, legal fees and compliance with the Sarbanes-Oxley Act of 2002; and (iv) the remainder, if any, for general working capital.

The allocation of the net proceeds of the offering set forth above represents our estimates based upon our current plans and assumptions regarding industry and general economic conditions and our future revenues and expenditures.

Investors are cautioned, however, that expenditures may vary substantially from these estimates. Investors will be relying on the judgment of our management, who will have broad discretion regarding the application of the proceeds of this offering. The amounts and timing of our actual expenditures will depend upon numerous factors, including the amount of cash generated by our operations and the amount of competition we face. We may find it necessary or advisable to use portions of the proceeds from this offering for other purposes.

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Circumstances that may give rise to a change in the use of proceeds include:

the need or desire on our part to accelerate, increase or eliminate existing initiatives due to, among other things, changing market conditions and competitive developments; and/or
if strategic opportunities of which we are not currently aware present themselves (including acquisitions, joint ventures, licensing and other similar transactions).

From time to time, we evaluate these and other factors and we anticipate continuing to make such evaluations to determine if the existing allocation of resources, including the proceeds of this offering, is being optimized. Pending such uses, we intend to invest the net proceeds of this offering in direct and guaranteed obligations of the United States, interest-bearing, investment-grade instruments or certificates of deposit.

DIVIDEND POLICY

We have never paid or declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business, and we do not anticipate paying any cash dividends for the foreseeable future following this offering. Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements and other factors that our Board of Directors deems relevant. In addition, the terms of any future debt or credit facility may preclude us from paying dividends.

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2007, as follows:

on an actual basis;
on a pro forma basis, after giving effect to the conversion, upon the closing of this offering, of: (i) all outstanding shares of our Series A preferred convertible stock, including accrued but unpaid dividends thereon, at a conversion price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus; and (ii) our debentures, in the principal amount of $3.0 million, including any accrued but unpaid interest thereon, at a conversion price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus; and
on a pro forma, as adjusted, basis giving effect to: (i) the pro forma matters referred to above; and (ii) the sale of 3,500,000 shares of common stock by us in this offering at an assumed initial public offering price of $6.00 per share, after deducting underwriting discounts and commissions and estimated offering expenses.

This table should be read with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes to those financial statements appearing elsewhere in this prospectus.

     
  As of June 30, 2007
     Actual   Pro Forma   Pro Forma,
as Adjusted
     (In Thousands, Except Share and Per Share Data)
Cash and cash equivalents and marketable securities   $ 2,639     $ 2,639     $ 19,939  
Long-term debt, including current portion   $ 2,672       1,387       1,387  
Capital leases, including current portion     32       32       32  
Stockholders’ equity (deficit):
                       
Preferred stock, $0.0001 par value; 10,000,000 shares authorized actual and 810,000 shares issued and outstanding actual; 0 shares issued and outstanding pro forma and pro forma, as adjusted                  
Common stock, $0.00041 par value per share; 70,000,000 shares authorized actual and 6,497,775 shares issued and outstanding, actual; 7,472,315 shares issued and outstanding, pro forma; 10,972,315 shares issued and
outstanding, pro forma as adjusted
    3       3       4  
Additional paid-in capital     14,979       17,166       34,465  
Accumulated deficit     (15,501 )      (16,483 )      (16,483 ) 
Total stockholders’ equity (deficit)     (519 )      686       17,986  
Total capitalization   $ 2,185     $ 2,105     $ 19,405  

All information in the above table reflects a 1-for-4.1 reverse stock split, which we will implement upon effectiveness of this offering. Unless otherwise indicated, the table above excludes:

895,737 shares of common stock issuable upon the exercise of stock options outstanding as of October 3, 2007 at a weighted-average exercise price of $2.4451 per share;
1,819,594 shares of common stock issuable upon the exercise of warrants outstanding as of October 3, 2007 at a weighted-average exercise price of $1.26257 per share;
1,543,286 shares of common stock reserved for future awards under our stock plan;
warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the debentures at an exercise price per share equal to the greater of (i) the price of one share of common stock issued in this offering and (ii) $8.20; and
warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the Series A convertible preferred stock at an exercise price per share equal to the greater of (i) the price of one share of common stock issued in this offering and (ii) $8.20.

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DILUTION

If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. We calculate net tangible book value per share of by dividing the net tangible book value (tangible assets less total liabilities) by the number of outstanding shares of common stock.

Our pro forma net tangible book value (deficit) at June 30, 2007, which gives effect to the conversion, upon the closing of this offering, of: (i) all outstanding shares of our Series A preferred convertible stock, including accrued but unpaid dividends thereon, at a conversion price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus; and (ii) our debentures, in the principal amount of $3.0 million, including any accrued but unpaid interest thereon, at a conversion price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus, was $(0.5) million, or $(0.07) per share of common stock, based on 7,472,315 shares of common stock outstanding. After giving effect to the sale of 3,500,000 shares of common stock by us in this offering at an assumed initial public offering price of $6.00 per share, less the estimated underwriting discounts and commissions and the estimated offering expenses payable by us, our pro forma net tangible book value at June 30, 2007, would be $16.8 million, or $1.53 per share. This represents an immediate increase in the pro forma net tangible book value of $1.60 per share to existing stockholders and an immediate dilution of $4.47 per share to new investors purchasing shares in this offering. The following table illustrates this per share dilution:

   
Assumed initial public offering price            $ 6.00  
Historical net tangible book value (deficit) per share as of
June 30, 2007
  $ (0.27 )          
Increase per share attributable to the conversion of Series A
convertible preferred stock and convertible debentures
    0.20        
Pro forma net tangible book value (deficit) per share as of June 30, 2007     (0.07 )          
Increase per share attributable to this offering     1.60           
Pro forma net tangible book value per share after this offering              1.53  
Dilution per share to new investors in this offering            $ (4.47 ) 

The following table shows, at June 30, 2007, on a pro forma basis as described above, the difference between the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and by new investors purchasing common stock in this offering:

         
  Shares Purchased   Total Consideration   Average Price Per Share
     Number   Percentage   Amount   Percentage
Existing stockholders     7,472,315       68.1 %    $ 15,322,034       42.2 %    $ 2.05  
New investors     3,500,000       31.9 %    $ 21,000,000       57.8 %    $ 6.00  
Total     10,972,315       100.0 %    $ 36,322,034       100.0 %         

Assuming the underwriters’ over-allotment option is exercised in full, sales by us in this offering will reduce the percentage of shares held by existing stockholders to 65.0% and will increase the number of shares held by new investors to 4,025,000, or 35.0%. This information is based on shares outstanding as of June 30, 2007 and takes into account a reverse stock split of 1-for-4.1 which we will implement upon effectiveness of this offering. It excludes:

895,737 shares of common stock issuable upon the exercise of stock options outstanding as of October 3, 2007 at a weighted-average exercise price of $2.4451 per share;

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1,819,594 shares of common stock issuable upon the exercise of warrants outstanding as of October 3, 2007 at a weighted-average exercise price of $1.26257 per share;
1,543,286 shares of common stock reserved for future awards under our stock plan;
635,269 shares of common stock issuable upon the conversion of our debentures in the principal amount of $3.0 million, including any accrued but unpaid interest thereon, at a conversion price equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus;
339,271 shares of common stock issuable upon the conversion of 810,000 shares of our Series A convertible preferred stock, including any accrued but unpaid dividends thereon, at a conversion price per share equal to 80% of the public offering price of our common stock, or $4.80, based on the $6.00 mid-point of the price range indicated on the front cover of this prospectus;
warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the debentures at an exercise price per share equal to the greater of: (i) the price of one share of common stock issued in this offering and (ii) $8.20; and
warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the Series A convertible preferred stock at an exercise price per share equal to the greater of: (i) the price of one share of common stock issued in this offering and (ii) $8.20.

To the extent these options or warrants are exercised, or the convertible notes or Series A preferred stock are converted, there will be further dilution to the new investors.

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SELECTED HISTORICAL AND FINANCIAL OPERATING DATA

(In Thousands, Except Per Share Amounts)

The selected statement of operations data for each of the years ended December 31, 2006, 2005 and 2004, and the selected balance sheet data as of December 31, 2006 and 2005 have been derived from the audited consolidated financial statements included elsewhere in this prospectus which have been audited by BDO Seidman, LLP, independent registered public accounting firm. The balance sheet as of December 31, 2004 has been audited by BDO Seidman, LLP, but is not included herein. The selected statement of operations data for the years ended December 31, 2003 and 2002 and the selected balance sheet data as of December 31, 2003 and 2002 have been derived from our unaudited consolidated financial statements and related notes which are not included in this prospectus. The consolidated statements of operations data for the six months ended June 30, 2007 and 2006, and the consolidated balance sheet data as of June 30, 2007, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include, in the opinion of management, all adjustments, consisting of only normal recurring adjustments, that management considers necessary for the fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of results to be expected for any future period and the results for the six months ended June 30, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007.

You should read the following selected consolidated historical financial data below in conjunction with our financial statements, including the related notes, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The selected financial data in this section is not intended to replace the consolidated financial statements and is qualified in its entirety by the consolidated financial statements and related notes included in this prospectus.

             
  Years Ended December 31,   Six Months Ended June 30,
     2006   2005   2004   2003   2002   2007   2006
     (In Thousands, Except Per Share Data)
Consolidated Statement of Operations Data:
                                                              
Sales   $ 11,911     $ 6,886     $ 4,781     $ 4,757     $ 5,587     $ 9,885     $ 4,900  
Cost of products sold     10,329       5,910       4,079       3,989       4,714       8,655       4,204  
Gross Profit     1,582       976       702       768       873       1,230       696  
Selling, general and administrative     5,139       2,106       1,202       1,230       1,947       4,722       2,241  
Loss from operations     (3,557 )      (1,130 )      (500 )      (462 )      (1,074 )      (3,492 )      (1,545 ) 
Interest expense, net     (536 )      (356 )      (165 )      (380 )      (294 )      (302 )      (463 ) 
Other income (expense)(1)     (1,429 )                  265                   (1,429 ) 
Loss before income tax expense     (5,522 )      (1,486 )      (665 )      (577 )      (1,368 )      (3,794 )      (3,437 ) 
Income tax expense     49       54                         (25 )      25  
Net loss     (5,571 )      (1,540 )      (665 )      (577 )      (1,368 )      (3,819 )      (3,462 ) 
Dividend on preferred stock                                   (8 )       
Accretion of beneficial conversion feature on preferred stock                                   (25 )       
Net loss attributable to common stockholders   $ (5,571 )    $ (1,540 )    $ (665 )    $ (577 )    $ (1,368 )    $ (3,852 )    $ (3,462 ) 
Net loss per share:
Basic and diluted
  $ (0.97 )    $ (0.37 )    $ (0.17 )    $ (0.15 )    $ (0.60 )    $ (0.59 )    $ (0.64 ) 
Shares used in per share calculations
Basic and diluted
    5,758       4,145       3,911       3,808       2,273       6,492       5,372  

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(1) See Note 4 of the Notes to the Consolidated Financial Statements included elsewhere in this prospectus with respect to the $1.4 million of other expense in the year ended December 31, 2006 and the six months ended June 30, 2006.

           
  As of December 31,   As of
June 30,
     2006   2005   2004   2003   2002   2007
     (In Thousands, Except Per Share Data)
Consolidated Balance Sheet Data:
Cash and cash equivalents   $ 1,361     $ 150     $ 38     $ 83     $ 95     $ 2,639  
Goodwill     1,235       1,235       1,235       1,235       1,235       1,235  
Total assets     3,454       1,861       1,622       1,639       1,648       5,988  
Debt     1,390       1,229       663       500       1,521       2,672  
Capital lease obligations     38       36       20       37       56       32  
Total stockholders’ deficit     (244 )      (1,885 )      (897 )      (233 )      (1,204 )    $ (519 ) 

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with “Selected Financial Data” and/our financial statements and the notes to those statements included elsewhere in this prospectus. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements involve assumptions, risks and uncertainties. Our actual results could differ materially from those indicated in these forward-looking statements as a result of certain factors, as more fully described in the “Risk Factors” section and elsewhere in this prospectus. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

Overview

We are an Internet-based, interactive merchandising, marketing and media company focused on the college student market. We are creating online communities where college students purchase products and share ideas, discoveries and experiences. Our online communities are intended to attract users through features and subjects that are compelling to college students, including student-generated content, such as blogs, videos and other multimedia content. We offer a comprehensive product line of more than 8,000 distinct name-brand software and other technology products at discounts of up to 80% less than the retail prices under academic discount programs created by technology manufacturers exclusively for buyers in the education market. These programs are open only to a limited number of authorized education marketers and solutions providers and offer a significant pricing advantage.

We operate nationwide and our customers span the breadth of the education marketplace. We serve both individual and institutional customers in the kindergarten through twelfth grade and higher education levels, all of which make up the education market. With our long history and exclusive education focus, we believe we have the knowledge, industry relationships, and expertise to serve our college student customers’ particular technology needs and have earned what we believe to be a reputation as a trusted technology provider to the college student market.

In recent years, we have experienced substantial growth in sales, from $4.8 million in 2004 and $6.9 million in 2005 to $11.9 million in 2006. For the six months ended June 30, 2007, sales grew to $9.9 million from $4.9 million in the same period in 2006.

Operating losses have also increased substantially over the same period from $0.5 million in 2004 and $1.1 million in 2005 to $3.6 million in 2006. For the six month period ended June 30, 2007, the operating loss grew to $3.5 million from $1.5 million in the same period in 2006.

Our business model depends upon our ability to generate revenue streams from multiple sources through our current and pending Internet sites, including: online sales of products that are offered at substantial discounts and focused on college students and Internet sponsorship and advertising fees from third parties. The following are key factors and trends that will affect our consolidated financial condition and results of operations:

71% of our 2006 sales and 68% of our sales for the six months ended June 30, 2007 were derived from e-commerce transactions, and we expect that a large percentage of our revenues will continue to be based on e-commerce transactions. We believe that the recent increase in our marketing expenditures has been the primary driver of our online sales growth. If the rate of adoption of Internet advertising slows, particularly by entities that have historically relied upon traditional methods of advertising and marketing, and this decreases the effectiveness of our online marketing efforts, our future revenues and prospects could be materially and adversely affected.
Many, if not most, technology manufacturers employ an indirect model to market, sell and deliver their products to education market buyers. Rather than engaging in direct marketing activities, manufacturers authorize companies like us to deal directly with potential education market buyers. If several of our key technology manufacturers were to engage in direct selling or to discontinue their academic programs altogether, it would likely have a material adverse effect on our revenues, financial condition and business operations.

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Building recognition of our brand is critical to attracting and expanding our online user base. To accomplish this, we may need to increase our expenditures for our sales and marketing efforts or otherwise increase our financial commitment to creating and maintaining brand awareness. Our failure to promote and maintain our brand could adversely affect our business and might cause us to incur significant expenses in promoting our brand without an associated increase in our net revenues.
We have increased our investment in our business since 2004, which has contributed to our increased operating losses. We expect to continue to make expenditures related to the development of our business, including expenditures to hire additional personnel relating to sales and marketing. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company.
Our college student target market is large and is expected to continue to grow. As the market grows, we intend to capitalize on our market position, further penetrate the market with existing products, expand our product offerings and develop complementary community and content websites. Two of our most significant challenges in competing in a large market are, and will be, to choose which opportunities to pursue and to maintain a level of expenses that allow us to expand our business and achieve increased revenue and profitability.

We were incorporated in Delaware on April 20, 1999, and acquired the business of our wholly-owned subsidiary, Campus Tech, Inc., a Virginia corporation, on June 16, 1999. On May 30, 2007, we changed our name from “CampusTech, Inc.” to “CampusU, Inc.”

Source of Revenue

We derive revenue from marketing and selling software and technology products to individual and institutional customers. We are seeking to continue our growth by: continuing to grow our academic discount e-commerce business; developing marketing programs that provide academic discount products on a promotional basis and incorporate viral marketing; creating or acquiring media properties to expand the type of information, content, interactive tools and user generated text and video that attracts college students; and diversifying and expanding our product offerings within our core academic discount and merchandising businesses.

In the past we have experienced seasonal sales growth associated with the back-to-school period. Sales in the July/August/September back-to-school season were 29.4%, 33.1% and 29.9% of total annual sales in fiscal years 2006, 2005 and 2004, respectively. Part of our strategy is to diversify the products we sell at academic discounts and this could result in more balanced revenues throughout the year. However, based upon our current product mix we will continue to experience significant fluctuations in quarterly operating results.

Cost of Products Sold

Our cost of products sold primarily consists of the costs paid to manufacturers and distributors for the software and technology products sold. Shipping and handling costs are also included in the costs of products sold.

We sell thousands of software titles and other products from many well-known publishers and manufacturers. During the years 2006, 2005 and 2004, a single manufacturer supplied approximately 64%, 57% and 30%, respectively, of all products sold and the same supplier supplied 52% and 64% of all products sold for the six months ended June 30, 2007 and 2006, respectively.

We maintain purchasing relationships with many software wholesalers. There was a concentration of products purchased from two software wholesalers, of approximately 69% and 20% in 2006, 74% and 10% in 2005 and 48% and 26% in 2004, and 48% and 23% and 79% and 12% during the six months ended June 30, 2007 and 2006, respectively.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist of:

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personnel and related costs including salaries, employee benefits, commissions, stock-based compensation and other incentive compensation for executives, sales, corporate marketing, product marketing, product management, finance, human resources, information systems and other administrative functions;
sales promotion expenses, costs of marketing materials and other marketing events, including trade shows and industry conventions and advertising;
legal and accounting professional fees;
recruiting and training costs;
other corporate expenses and related overhead; and
travel related expenses for executives, sales, corporate marketing and other administrative personnel.

We expense our sales commissions at the time of sale. We expect our sales and marketing expenses to increase in the future as we increase the number of direct sales professionals and invest in both online and offline marketing programs. However, we expect sales and marketing expenses to decrease as a percentage of revenue for the near future as we anticipate that our revenue will increase more rapidly than our sales and marketing costs.

We expect our general and administrative expenses to increase in the future as we incur increased expenses related to investing in an infrastructure to support our continued growth and operating as a publicly-traded company, including costs associated with compliance with Section 404 of the Sarbanes-Oxley Act, directors’ and officers’ liability insurance, and additional professional services. However, we expect general and administrative expenses to decrease as a percentage of revenue for the foreseeable future after fiscal 2007, as we believe that rate at which our revenue will increase will exceed the rate at which we expect to incur these additional expenses.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. In many instances, we could have reasonably used different accounting estimates, and in other instances, changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation of our financial condition or results of operations will be affected.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Revenue Recognition

We generate revenues from marketing and selling of software and technology products. Such sales are recorded when persuasive evidence of an arrangement exists, shipment has occurred, the fee is fixed and determinable and the collectibility is probable and, if required by the contract terms, acceptance criteria are met. In our business, software products are delivered without post-contract customer support and without any further obligation to the customer. All software sales are covered by a money back guarantee which allows customers that are not satisfied with the product, for any reason, to return it in resalable condition within 15 days of shipment. We have the right to charge a 15% restocking fee if the return is received more than 30 days after shipment. There is no reserve for sales returns as, historically, such returns have been immaterial. Our suppliers ship products directly to our customers; therefore we generally do not carry inventory.

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We have direct remit/assignment of proceeds arrangements with two of our suppliers. We record revenue generated under these arrangements on a gross basis in accordance with EITF Issue No. 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent.”

Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R) using the modified prospective transition method, which requires us to apply its provisions to awards granted, modified, repurchased or cancelled after the effective date and to awards granted prior to, but not yet vested as of, the effective date. Under this transition method, stock-based compensation expense recognized beginning January 1, 2006 is based on the grant-date fair value of stock awards granted or modified on or after January 1, 2006. We did not grant any options to purchase our common stock in 2004 or 2005. There were no unvested options prior to January 1, 2006.

During 2006 and the first quarter of 2007, we granted employees options to purchase our common stock at exercise prices equal to the fair market value of the underlying common stock at the date of each grant based on arms-length transactions involving our common stock. The option grants during 2006 were all at $3.485 per share, except for grants in January 2006 representing 37.4% of the total option grants in 2006, which were at $1.640 per share. The options granted in the first quarter of 2007 were at $4.10 per share and we did not grant any options in the second quarter of 2007. In August 2007, our Board of Directors promised, although it has not yet granted, 53,899 options to certain employees and non-employees at the earlier of the initial public offering or December 31, 2007. The exercise price will be equal to the initial public offering price or the fair market value of our common stock as of December 31, 2007, as determined by the Board of Directors. Determining the fair market value of our common stock requires complex and subjective judgments since there is no public trading market for our common stock. We did not obtain contemporaneous valuations from third party valuation specialists because the Board of Directors believed our private placement transactions, with independent third parties which occurred in 2006 and to date in 2007, involving our common stock, were the best estimate of fair value at the time. During 2006, we did not believe that there were any significant events that warranted a revised valuation of our common stock.

We expect the initial public offering price of our common stock to be more than the estimated fair value of our recent option grants for the following reasons:

Continued and sustained execution of our new business plan installed in late 2005, which has produced growth in sales of 73% in 2006 and 102% for the six months ended June 30, 2007 over the comparable period of 2006;
The extension of our student discount model to new partners and products during 2006;
Installation and stability of a high-quality management team during 2006; and
Increased liquidity and marketability of our common stock upon the consummation of our initial public offering.

The aggregate intrinsic value of options outstanding as of June 30, 2007, based on a per common share price of $6.00, which is the mid-point of the price range indicated on the front cover of this prospectus, was $3.2 million.

We account for stock option grants to non-employees who are not directors in accordance with Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” which require that the estimated fair value of these instruments measured at the earlier of the performance commitment date or the date at which performance is complete be recognized as an expense ratably over the period in which the related services are rendered. We determine the fair value of these instruments using the Black-Scholes option pricing model.

Goodwill

Our goodwill arose from the acquisition of Campus Tech, Inc., a Virginia corporation, in 1999. We annually evaluate goodwill for impairment in accordance with Statement of Financial Accounting Standards

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No. 142, “Goodwill and Other Intangible Assets.” We plan to perform more frequent evaluations if impairment indicators arise which indicate that more likely than not, the fair value of the business is less than the carrying value of goodwill. If goodwill becomes impaired, some or all of the goodwill could be written off as a charge to operations. We review the carrying value of goodwill by comparing the carrying value to the estimated fair value of the business. The fair value is based on management’s estimate of the future discounted cash flows to be generated by our business. Changes in our business could affect these estimates, which in turn could affect the recoverability of goodwill. Factors we consider important that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant adverse changes in business climate or regulations, significant changes in senior management, significant changes in the strategy of our overall business, significant negative industry or economic trends, and a decline in our credit rating, Determining whether a triggering event has occurred includes significant judgment from management.

Convertible Debt and Series A Convertible Preferred Stock Offerings and Detachable Stock Purchase Warrants

We analyze our convertible debt and Series A convertible preferred stock financings in accordance with SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” to determine if any embedded features should be bifurcated. If the conversion feature is not required to be bifurcated we apply EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments.” EITF 98-5 clarifies the accounting for instruments with beneficial conversion features and adjustable conversion ratios. Beneficial conversion features include contingent conversion features that allow convertible debt and Series A convertible preferred stock holders to convert at prices below offering prices of future private placements of common stock of at least $5 million, if such private placements occur. The beneficial conversion feature is calculated by allocating the proceeds received in the financing to the intrinsic value based on the effective conversion price as a result of the allocated proceeds. The value of the beneficial conversion feature is recognized as a discount and is amortized to interest expense or to dividends, whichever is appropriate, from the date of issuance to the stated redemption date.

In conjunction with convertible debt and Series A convertible preferred stock financings, we have periodically committed to issue detachable stock purchase warrants to investors. The proceeds received in each transaction are allocated between debt or equity and additional paid-in capital based on the relative fair value of the debt and stock purchase warrants. We have not issued any detachable stock purchase warrants that require liability treatment under SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” or EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” Accordingly, our warrants are included in equity.

Certain of the convertible debt and Series A convertible preferred stock agreements have registration rights agreements related to the stock, if converted, that could impose certain penalties upon us should we not meet the filing requirements under the agreements. We have adopted FSP 00-19-2, “Accounting for Registration Payment Arrangements” as of December 31, 2006 and June 30, 2007. Under FSP 00-19-2, we record a liability for registration payments when it becomes probable that payments will be made. As of December 31, 2006, no liability has been provided for registration payment provisions. See Note 5 to the Consolidated Financial Statements for additional information regarding registration rights.

Income Taxes

We account for income taxes in accordance with FASB Statement No. 109, “Accounting for Income Taxes,” which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. SFAS 109 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of all of the deferred tax asset will not be realized. The realization of the deferred tax assets will be assessed on an annual basis, or on an interim basis, if required.

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Results of Operations

The following table sets forth our sales, costs of products sold, and other financial data for the specified periods:

         
  Years Ended December 31,   Six Months Ended June 30,
     2006   2005   2004   2007   2006
               (In Thousands)          
Sales   $ 11,911     $ 6,886     $ 4,781     $ 9,885     $ 4,900  
Cost of products sold     10,329       5,910       4,079       8,655       4,204  
Gross profit     1,582       976       702       1,230       696  
Selling, general and administrative     5,139       2,106       1,202       4,722       2,241  
Loss from operations     (3,557 )      (1,130 )      (500 )      (3,492 )      (1,545 ) 
Interest expense, net     (536 )      (356 )      (165 )      (302 )      (463 ) 
Other expense     (1,429 )                        (1,429 ) 
Loss before income tax expense     (5,522 )      (1,486 )      (665 )      (3,794 )      (3,437 ) 
Income tax expense     49       54        —        25       25  
Net loss     (5,571 )      (1,540 )      (665 )      (3,819 )      (3,462 ) 
Dividend on preferred stock                       (8 )       
Accretion of beneficial conversion feature on preferred stock                       (25 )       
Net loss attributable to common stockholders   $ (5,571 )    $ (1,540 )    $ (665 )    $ (3,852 )    $ (3,462 ) 

The following table sets forth our results of operations as a percentage of total revenue for the specified periods:

         
  Years Ended December 31,   Six Months Ended June 30,
     2006   2005   2004   2007   2006
               (% of Sales)          
Sales     100 %      100 %      100 %      100 %      100 % 
Cost of products sold     87 %      86 %      85 %      88 %      86 % 
Gross profit     13 %      14 %      15 %      12 %      14 % 
Selling, general and administrative     43 %      30 %      25 %      48 %      46 % 
Loss from operations     (30 )%      (16 )%      (10 )%      (36 )%      (32 )% 
Interest expense, net     (4 )%      (5 )%      (4 )%      (3 )%      (9 )% 
Other expense     (12 )%                        (29 )% 
Loss before income tax expense     (46 )%      (21 )%      (14 )%      (39 )%      (70 )% 
Income tax expense     1 %      1 %             —  %      1 % 
Net loss     (47 )%      (22 )%      (14 )%      (39 )%      (71 )% 
Dividend on preferred stock                              
Accretion of beneficial conversion feature on preferred stock                              
Net loss attributable to common stockholders     (47 )%      (22 )%      (14 )%      (39 )%      (71 )% 

Comparison of Six Months Ended June 30, 2007 and Six Months Ended June 30, 2006

Sales.  Sales were $9.9 million in the six months ended June 30, 2007 compared to $4.9 million in the six months ended June 30, 2006, an increase of $5.0 million or 101.8%. The increase in sales was driven primarily by: (i) a $3.2 million, or 90.4%, increase in Internet sales to $6.7 million in the six months ended June 30, 2007 from $3.5 million in the six months ended June 30, 2006 and (ii) a $1.8 million, or 132.4%, increase in direct sales to $3.1 million in the six months ended June 30, 2007 from $1.3 million in the six

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months ended June 30, 2006. This growth was driven by increased software sales, resulting from increased online and offline marketing and focused efforts on direct sales to educational institution customers.

Cost of Products Sold.  Cost of products sold was $8.7 million in the six months ended June 30, 2007 compared to $4.2 million in the six months ended June 30, 2006, an increase of $4.5 million or 105.9%. The increase in cost of products sold during the six months ended June 30, 2007 compared to the six months ended June 30, 2006 resulted from increased sales.

Gross Profit.  Gross profit increased $0.5 million, or 76.8%, from $0.7 million in the six months ended June 30, 2006 to $1.2 million in the six months ended June 30, 2007 primarily due to the additional contribution of increased sales. Gross margin decreased from 14.2% in the six months ended June 30, 2006 to 12.4% in the six months ended June 30, 2007 primarily because cost of products sold increased at a higher rate than sales, particularly for direct sales to educational institutions as well as our free shipping programs, which resulted in $0.1 million of shipping costs in 2007 that were not covered by revenue. Various free shipping promotions were put in place between July 2006 and April 2007, when these particular promotions were discontinued.

Selling, General and Administrative.  Selling, general and administrative expenses increased $2.5 million, or 110.7%, from $2.2 million in the six months ended June 30, 2006 to $4.7 million in the six months ended June 30, 2007. The increase in general and administrative expenses was due primarily to increases in payroll and payroll related expenses of approximately $0.8 million resulting from the addition of new employees. We also recognized $0.1 million less compensation expense related to employee stock option grants during the six months ended June 30, 2007 than the same period last year. Additionally, marketing and selling expenses increased $0.4 million, as a result of the expansion of our efforts to direct customers to our websites primarily through targeted online marketing channels such as sponsored search, pay per click, portal advertising, e-mail campaigns and other initiatives. Although our marketing expenses are largely variable, based on growth in sales and changes in rates, we expect to increase marketing spend in the future to drive higher awareness of our student discount programs. We also experienced an increase of $1.2 million in professional fees related to work performed in preparation for our proposed initial public offering. Finally, facilities and other administrative expenses increased $0.1 million to accommodate rapid personnel growth and credit card processing fees increased $0.1 million as a result of increased sales.

Interest expense.  Interest expense decreased $0.2 million, or 34.8%, from $0.5 million in the six months ended June 30, 2006 to $0.3 in the six months ended June 30, 2007. The decrease was due primarily to the absence in the second quarter of 2007 of $0.3 million of back interest on a related party note which was accrued in the second quarter of 2006, partially offset by the additional interest expense of $0.1 million related to the second quarter 2007 financing transactions.

Other Expense.  Other expense decreased $1.4 million, or 100% from $1.4 million in the six months ended June 30, 2006 to $0 in the six months ended June 30, 2007. The decrease relates to a non-cash expense in the six months ended June 30, 2006 resulting from our election to convert $1.0 million in convertible promissory notes at the request of the holders, during the course of a presumed qualifying $5.0 million private equity offering instead of at the offering conclusion, as specified in the agreement. The fair value of the shares issued exceeded the carrying value of the promissory notes and accrued interest by $1.4 million.

Comparison of Years Ended December 31, 2006 and 2005

Sales.  Sales were $11.9 million in 2006 compared to $6.9 million in 2005, an increase of $5.0 million or 73.0%. The increase in sales was driven primarily by: (i) a $4.6 million, or 118.3%, increase in Internet sales to $8.4 million in 2006 from $3.8 million in 2005, and (ii) a $0.4 million, or 14.4%, increase in direct sales to $3.4 million in 2006 from $3.0 million in 2005. This growth was driven by increased software sales, resulting from increased online and offline marketing, further described below.

Cost of Products Sold.  Cost of products sold was $10.3 million in 2006 compared to $5.9 million in 2005, an increase of $4.4 million or 74.8%. The increase in cost of products sold during 2006 compared to 2005 resulted from increases in sales.

Gross Profit.  Gross profit increased $0.6 million, or 62.0%, from $1.0 million in 2005 to $1.6 million in 2006 and was due to the contribution of increased sales. Gross margin decreased from 14.2% in 2005 to 13.3% in 2006 due primarily to our marketing tool of offering free shipping, which we put in place in July 2006 and which was not in place during 2005. Our free shipping program resulted in $0.1 million of shipping costs in 2006 which were not covered by revenue.

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Selling, General and Administrative.  Selling, general and administrative expenses increased $3.0 million, or 143.9%, from $2.1 million in 2005 to $5.1 million in 2006. The increase in general and administrative expenses was due primarily to increases in payroll and payroll related expenses of approximately $1.3 million resulting from the addition of new employees. We also recognized $0.5 million of additional compensation expense related to employee stock option grants. Additionally, marketing and selling expenses increased $0.6 million, as a result of the expansion of our efforts to direct customers to our websites primarily through targeted online marketing channels such as sponsored search, portal advertising, e-mail campaigns, and other initiatives. Although our marketing expenses are largely variable, based on growth in sales and changes in rates, we expect to increase marketing spend in the future to drive higher awareness of our student discount programs. Finally, we experienced an increase of $0.3 million in facilities and other administrative expenses to accommodate rapid personnel growth, an increase in professional fees of approximately $0.2 million related to work performed in preparation for our proposed initial public offering, and an increase in credit card processing fees of $0.1 million due to higher sales volume.

Interest expense.  Interest expense increased $0.2 million, or 50.8%, from $0.4 million in 2005 to $0.5 million in 2006. The increase was due to the accrual of back interest on a related party note of $0.3 million, which was partially offset by lower levels of debt in 2006 versus 2005.

Other Expense.  Other expense was $1.4 million in 2006 and zero in 2005. The expense represents a non-cash expense resulting from our election to convert $1.0 million in convertible promissory notes at the request of the holders, during the course of a presumed qualifying $5.0 million private equity offering instead of at the offering conclusion, as specified in the agreement. The fair value of the shares issued exceeded the carrying value of the promissory notes and accrued interest by $1.4 million.

Comparison of Years Ended December 31, 2005 and 2004

Sales.  Sales were $6.9 million in 2005 compared to $4.8 million in 2004, an increase of $2.1 million or 44.0%. The increase in sales was driven by a $2.7 million, or 237.1%, increase in Internet sales to $3.8 million in 2005 from $1.1 million in 2004, partially offset by a $0.6 million, or 16.0%, decrease in direct sales. The growth in Internet sales resulted from higher software sales from increased online and offline marketing, discussed below in selling, general and administrative expenses. The decrease in direct sales reflects a shift toward the Internet as the preferred sales channel.

Cost of Products Sold.  Cost of products sold was $5.9 million in 2005 compared to $4.1 million in 2004, was due to sales increases.

Gross Profit.  Gross profit increased $0.3 million, or 39.4%, from $0.7 million in 2004 to $1.0 million in 2005 because of the additional contribution of increased sales. Gross margin decreased from 14.7% in 2004 to 14.2% in 2005 primarily because the cost of products sold grew at a slightly higher rate than sales. Historically, our gross margins fluctuate based on several factors, including the mix of our products sold, and this fluctuation is expected to continue.

Selling, General and Administrative.  Selling, general and administrative expenses increased $0.9 million, or 75.3%, from $1.2 million in 2004 to $2.1 million in 2005. The increase reflected higher marketing and selling expenses of $0.3 million related to the expansion of our efforts to direct customers to our websites primarily through targeted online marketing channels such as sponsored search and portal advertising, increases in payroll and payroll related expenses of approximately $0.3 million resulted from the addition of new employees. Finally, we experienced an increase in facilities and other administrative expenses to accommodate our rapid personnel growth of $0.1 million, additional professional services of $0.1 million and an increase in credit card processing fees of $0.1 million due to higher sales volume.

Interest expense.  Interest expense increased $0.2 million, or 115.9%, from $0.2 million in 2004 to $0.4 million in 2005. The increase was due to the higher levels of debt in 2005 than in 2004, as well as additional detachable warrants outstanding, the amortization of which is included in interest expense. During 2005, several investors and Mr. Faber, our current Executive Chairman, loaned us an aggregate of $1.0 million. In connection with the loans, they received warrants to purchase 1,201,200 shares of common stock at an exercise price of $0.8325 per share.

Quarterly Results of Operations

The following table presents selected items from our unaudited quarterly consolidated results of operations for our most recent nine quarters. You should read the following table in conjunction with the

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consolidated financial statements and the related notes appearing elsewhere in this prospectus. We have prepared the data on the same basis as our audited annual consolidated financial statements. This table includes all adjustments, consisting solely of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. Operating results for any quarter are not indicative of results for any future quarters or for a full year.

           
  For the Three Months Ended
  June 30,
2007
  March 31,
2007
  December 31,
2006
  September 30,
2006
  June 30,
2006
  March 31,
2006
     (In Thousands, Except Per Share Data)
Sales   $ 5,295     $ 4,590     $ 3,536     $ 3,475     $ 2,615     $ 2,285  
Cost of products sold     4,645       4,010       3,106       3,019       2,269       1,936  
Gross profit     650       580       430       456       346       349  
Selling, general and administrative     2,100       2,622       1,589       1,309       1,186       1,055  
Loss from operations     (1,450 )      (2,042 )      (1,159 )      (853 )      (840 )      (706 ) 
Interest expense, net     (260 )      (42 )      (35 )      (39 )      (353 )      (110 ) 
Other expense                                   (1,429 ) 
Loss before income taxes     (1,710 )      (2,084 )      (1,194 )      (892 )      (1,193 )      (2,245 ) 
Income tax expense     13       12       12       12       12       12  
Net loss     (1,723 )      (2,096 )      (1,206 )      (904 )      (1,205 )      (2,257 ) 
Dividend on preferred stock     (8 )                               
Accretion of beneficial conversion feature on preferred stock     (25 )                               
Net loss attributable to common stockholders   $ (1,756 )    $ (2,096 )    $ (1,206 )    $ (904 )    $ (1,205 )    $ (2,257 ) 
Net loss per share, basic and diluted   $ (0.27 )    $ (0.32 )    $ (0.19 )    $ (0.15 )    $ (0.21 )    $ (0.46 ) 

       
  For the Three Months Ended
     December 31,
2005
  September 30,
2005
  June 30,
2005
  March 31,
2005
     (In Thousands, Except Per Share Data)
Sales   $ 1,880     $ 2,281     $ 1,507     $ 1,218  
Cost of products sold     1,596       1,984       1,279       1,051  
Gross profit     284       297       228       167  
Selling, general and administrative     789       516       402       400  
Loss from operations     (505 )      (219 )      (174 )      (233 ) 
Interest expense, net     (160 )      (107 )      (70 )      (18 ) 
Other expense                        
Loss before income taxes     (665 )      (326 )      (244 )      (251 ) 
Income tax expense     14       13       14       13  
Net loss     (679 )      (339 )      (258 )      (264 ) 
Dividend on preferred stock                        
Accretion of beneficial conversion feature on preferred stock                        
Net loss attributable to common stockholders   $ (679 )    $ (339 )    $ (258 )    $ (264 ) 
Net loss per share, basic and diluted   $ (0.15 )    $ (0.08 )    $ (0.06 )    $ (0.07 ) 

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Liquidity and Capital Resources

Since our inception, we have incurred significant losses and, as of June 30, 2007, we had an accumulated deficit of approximately $15.5 million. We have not yet achieved profitability. We expect that our selling, general and administrative expenses will continue to increase and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability.

Sources of Liquidity

Historically we have financed our operations and capital expenditures by issuing convertible promissory notes and selling common stock privately. Since January 2004, we have received net proceeds of $4.8 million from the sale of common stock, $4.2 million (see Note 4 of the Notes to Consolidated Financial Statements) from the issuance of convertible notes, including $0.5 million to a related party, and $1.6 million from the issuance of Series A convertible preferred stock, including $0.5 million of proceeds from a promissory note that was converted to Series A convertible preferred stock in June 2007. During the same period, we paid off $0.6 million in convertible notes payable, of which $0.5 million was to a related party, and converted $1.0 million of notes payable to common stock of which $0.4 million was to a related party. We have also used our sales to date as a source of additional liquidity. As of June 30, 2007, we had cash and cash equivalents of $2.6 million and debt, including our promissory notes issued to, Michael Faber, our Executive Chairman, and other convertible notes payable, of $2.7 million.

We are currently in compliance with all of our financial obligations and do not expect this public offering of our common stock to have any impact on our future compliance with those obligations.

In the event we are unable to complete this offering, we will be required to raise funds to cover our continued operating losses, negative working capital and negative cash flows. If we are unable to raise such funds, we may be forced to significantly curtail our operations. These factors raise substantial doubt about our ability to continue as a going concern. The report of our Independent Registered Public Accounting Firm includes a going concern explanatory paragraph.

Sources and Uses of Cash

The following table sets forth cash flow data for the periods indicated (in thousands):

         
  Years Ended December 31,   Six Months Ended
June 30,
     2006   2005   2004   2007   2006
Cash flow data:
 
Net cash used in operating activities   $ (2,537 )    $ (503 )    $ (383 )    $ (2,327 )    $ (982 ) 
Net cash used in investing activities     (44 )      (18 )      (31 )      (213 )      (32 ) 
Net cash provided by financing activities     3,792       633       369       3,818       2,159  
Net increase (decrease) in cash and cash equivalents     1,211       112       (45 )      1,278       1,145  
Cash and cash equivalents, beginning
of year
    150       38       83       1,361       150  
Cash and cash equivalents, end
of year
  $ 1,361     $ 150     $ 38     $ 2,639     $ 1,295  

Cash Flows from Operating Activities

Cash used in operating activities was $2.3 million for the six months ended June 30, 2007 compared to $1.0 million for the six months ended June 30, 2006. Our operating activities used $1.3 million additional cash in the six months ended June 30, 2007 than the same period in 2006 primarily because a $0.4 million higher net loss, after adjusting for $1.4 million in fewer non-cash expenses, was offset set by changes in current assets and liabilities totaling $0.4 million more than the same period in 2006. These changes were comprised of a $1.1 million increase in accounts payable and accrued expenses, primarily due to increased volume of costs of goods sold and the timing of payments for compensation and related tax payments, a $0.1 million reduction in payments on related party payables, a $0.3 million reduction in accrued interest payable- related party and a $0.5 million decrease in accounts receivable.

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Cash used in operating activities was $2.5 million in 2006, $0.5 million in 2005 and $0.4 million in 2004. Our operating activities used $2.0 additional cash in 2006 than in 2005 primarily because of a $4.0 million higher net loss in 2006 than 2005, offset by $1.9 million of additional non-cash expenses and a $0.1 million of increase in accounts payable and accrued expenses, primarily due to increased volume of costs of goods sold and the timing of payments for compensation and related tax payments.

Cash used in operating activities increased by $0.1 million in 2005 compared to 2004 primarily due to a $0.9 million higher net loss, offset by $0.2 million of additional non-cash expenses and a $0.6 million increase in accounts payable and accrued expenses, primarily from increased volume of costs of goods sold and the timing of payments for compensation and related tax payments.

Cash Flows from Investing Activities

Net cash used in investing activities was $213,000 and $32,000 for the six months ended June 30, 2007 and 2006 respectively, and reflect capital expenditures for purchases of office and computer equipment and in 2007, website development.

Net cash used in investing activities was $44,000 in 2006, $18,000 in 2005 and $31,000 in 2004. Investing activities for all years were capital expenditures, which consisted primarily of purchases of office and computer equipment.

Cash Flows from Financing Activities

Cash provided by financing activities was $3.8 million in the six months ended June 30, 2007 and $2.2 million in the six months ended June 30, 2006. Cash provided by financing activities increased in the six months ended June 30, 2007 compared to the same period in 2006 primarily due to the following activity in 2007: (i) $2.6 million of net proceeds from the sale of convertible notes (see Note 4 of the Notes to Consolidated Financial Statements), (ii) $1.0 million of net proceeds from the sale of Series A convertible preferred stock, (iii) $0.6 million fewer payments on notes payable and advances, and (iv) $0.5 million of proceeds from the issuance of notes payable, which were converted to Series A convertible preferred stock during the six months ended June 30, 2007, offset by $2.6 million of fewer proceeds from the sale of common stock and $0.5 million additional deferred equity offering costs.

Cash provided by financing activities was $3.8 million in 2006, $0.6 million in 2005 and $0.4 million in 2004. Cash provided by financing activities increased $3.2 million in 2006 compared to 2005 primarily due to additional proceeds in the amount of $4.6 million from the private placement of our common stock in 2006, offset by (i) $0.7 million of cash used to pay off notes payable and advances from stockholders, as well as redeem preferred stock and (ii) $0.7 million fewer proceeds from notes payable and related party payable.

Cash provided by financing activities in 2005 was higher than 2004 by $0.2 million primarily due to $0.5 million in additional proceeds from the issuance of convertible promissory notes in 2005 over 2004, offset by $0.2 million of less proceeds from related party payables and $0.1 million of payments on related party payables.

Working Capital and Capital Expenditure Needs

We believe that our existing cash and cash equivalents balances, including the proceeds of this offering and proceeds that resulted from the recently completed issuance of: (i) $3.0 million of 8% convertible debentures (see contractual obligations below), (ii) 48,780 shares of common stock issued at $4.10 per share in connection with a private placement, (iii) $0.5 million of notes payable, which was converted to Series A convertible preferred stock in June 2007 and (iv) $1.6 million of Series A convertible preferred stock issued in June 2007, which includes the $0.5 million converted notes payable, will be sufficient to meet our working capital, capital expenditure and other cash requirement needs over at least the next 24 months. Our capital outlay and operating expenditures will likely increase over the next several months as we expand our sales and marketing efforts, add personnel and prepare to be a public company. Accordingly, our future capital requirements will depend on many factors, including our rate of revenue growth and our ability to manage and control our costs as we grow.

Although we are currently not a party to any agreement or letter of intent with respect to potential investments in, or acquisitions of, businesses, we may enter into these types of arrangements in the future, which

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could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all. We currently have no plans, proposals or arrangements with respect to any specific acquisition.

Contractual Obligations

The following tables summarize our contractual obligations at December 31, 2006 and the effects such obligations are expected to have on our liquidity and cash flows in future periods (in thousands).

         
Contractual Obligations   Total   2007   2008 – 2009   2010 – 2011   More than
5 Years
Debt obligations   $ 1,390     $ 1,350     $ 19     $ 21        
Interest on debt obligations(1)     198       190       6       2        
Capital lease obligations     45       16       25       4        
Operating lease obligations     439       132       250       57        
Contract obligations(2)     72       72                    
Total   $ 2,144     $ 1,760     $ 300     $ 84        

(1) All debt obligations have fixed interest rates. See Note 4 to the Notes to Consolidated Financial Statements contained elsewhere in this prospectus for more information.
(2) Represents commitments under service contracts.

In March 2007, we issued a $0.5 million promissory note that bears interest at 10% per annum and is due in June 2007, with one 90 day extension. In June 2007 this promissory note was converted to Series A convertible preferred stock.

In April 2007, we received a waiver of a covenant from certain warrant holders which restricted us from incurring indebtedness in excess of $1.0 million prior to consummating an initial public offering of our common stock. The waiver allowed us to incur up to $3.0 million of convertible debentures. The waiver also restricts us from repaying, redeeming, repurchasing or exchanging for value $1.3 million of promissory notes due to a related party until the earlier of the expiration of any lock-up period for the warrant holders related to an initial public offering or the registration of shares owned or obtainable upon exercise of warrants by the warrant holders.

In May 2007, we issued $3.0 million of 8% Convertible Debentures. The debentures are due in May 2008 and bear interest at 8% per annum, payable quarterly. The debentures are convertible, at the holder’s option, upon certain events, including the completion of this offering, at a price equal to 80% of $6.00, the mid-point of the price range indicated on the front cover of this prospectus, or $4.80. In connection with the issuance of the debentures, we also issued warrants to purchase shares of our common stock in the aggregate of 40% of the shares of common stock underlying the debentures. The warrants are subject to standard anti-dilution protection for proportional splits and corporate reorganizations at an exercise price per share equal to the greater of: (i) the price of one share of common stock issued in this offering and (ii) $8.20. The warrants expire three years from the date of issuance.

Additionally, in June 2007, we issued 810,000 shares of our Series A convertible preferred stock and warrants to purchase shares of our common stock in the aggregate amount of 40% of the shares of common stock underlying the Series A convertible preferred stock. We received proceeds of $1.6 million, including the $0.5 million promissory note converted to Series A convertible preferred stock in June 2007. Cumulative dividends on the Series A convertible preferred stock accrue at an annual rate of 8.0% per annum, payable quarterly. Upon completion of this offering, the shares of Series A convertible preferred stock will automatically convert at a price equal to 80% of $6.00, the mid-point of the price range indicated on the front cover of this prospectus, or $4.80. The warrants are subject to standard anti-dilution protection for proportional splits and corporate reorganizations at an exercise price per share equal to the greater of (i) the price of one share of common stock issued in this offering and (ii) $8.20. The warrants expire three years from the date of issuance.

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Disclosure Controls and Procedures

A company’s internal control over financial reporting is a process designed by, or under the supervision of, a company’s principal executive and principal financial officers, or persons performing similar functions, and effected by a company’s Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. As a private company, we have designed our internal control over financial reporting to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of financial statements. As a public company, we will be required to comply with the internal control requirements of the Sarbanes-Oxley act for the fiscal year ending December 31, 2008. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Accounting Restatements

Subsequent to the issuance of our 2004 consolidated financial statements, we determined that we had not properly calculated the value of detachable stock purchase warrants issued in certain convertible debt transactions for purposes of allocating the equity portion of the proceeds to additional paid-in capital. These transactions had occurred on various dates ranging from our inception in 1999 through December 31, 2003. In addition, we also improperly capitalized debt issue costs associated with the fair value of warrants issued to a related party to extend the maturity date on a convertible promissory note during fiscal year 2003. This maturity date extension resulted in a significant modification of the promissory note agreement under EITF 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments.” Accordingly, we recorded $506,000 in other expense associated with the fair value of the warrants determined at the date of issuance. The aggregate impact of these errors restated the accumulated deficit balance as of January 1, 2004 by $0.3 million from a previously reported accumulated deficit of $3.6 million to a restated accumulated deficit of $3.9 million.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements or relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

In May 2006, after a competitive proposal process in which the incumbent auditor participated, our Board of Directors selected a new audit firm and approved a change to BDO Seidman, LLP. There were no disagreements with the prior auditor.

Recent Accounting Pronouncements

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This Statement permits companies and not-for-profit organizations to make a one-time election to carry eligible types of financial assets and liabilities at fair value, even if fair value measurement is not required under GAAP. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted if the decision to adopt the standard is made after the issuance of the Statement but within 120 days after the first day of the fiscal year of adoption, provided no financial statements have yet been issued for any interim period and provided the requirements of Statement 157, Fair Value Measurements, are adopted concurrently with SFAS 159. We do not believe that we will adopt the provisions of this Statement.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. We will adopt SFAS No. 157 on January 1, 2008 and are in the process of evaluating the impact of this statement on our consolidated financial statements.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial

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statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We adopted FIN 48 on January 1, 2007. An enterprise is required to disclose the cumulative effect of the change on retained earnings in the statement of financial position as of the date of adoption and such disclosure is required only in the year of adoption. The adoption of FIN 48 had no impact on our consolidated financial statements.

In February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments — An Amendment of FASB Statements No. 133 and 140.” This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. At adoption, any difference between the total carrying amount of the individual components of the existing bifurcated hybrid financial instrument and the fair value of the combined hybrid financial instrument should be recognized as a cumulative effect adjustment to beginning retained earnings. We do not believe that the adoption of SFAS No. 155 will have a material impact on our consolidated financial statements.

Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk related to changes in interest rates. As of December 31, 2006 and June 30, 2007, we had cash and cash equivalents of $1.4 million and $2.6 million, respectively. Our cash is deposited in and invested through highly rated financial institutions in North America. If market interest rates were to increase immediately and uniformly by 10% from levels at December 31, 2006 or June 30, 2007, we estimate that the fair value of our cash and cash equivalents will decline by an immaterial amount for dates, if any, and therefore, our exposure to interest rate changes is not significant.

Inflation

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

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BUSINESS

Overview

We are an Internet-based, interactive merchandising, marketing and media company focused on the college student market. We are creating online communities where college students purchase products and share ideas, discoveries and experiences. Our online communities are intended to attract users through features and subjects that are compelling to college students, including student-generated content, such as blogs, videos and other multimedia content. We currently generate sales by selling products and services primarily to college students, and mostly at academic discount prices of up to 80% off suggested retail prices, made available to us by manufacturers on the condition that the sale be to students and other qualified purchasers in the academic community. These programs are open only to a limited number of companies and offer a significant pricing advantage. Our e-commerce model is driven by our ability to verify that a college student is the purchaser of the goods offered. We offer a comprehensive product line of more than 8,000 distinct name-brand software and other technology products, and we plan to generate revenue from selling targeted marketing and advertising programs to advertisers and retailers to help them sell their products and services to college students.

According to independent research reports by 360Youth and Jupiter Research, college students account for approximately $200 billion per year in consumer spending, of which more than $4.0 billion is spent online with companies like ours. In addition, according to the 2006 Online Advertising Habits Survey, conducted by Experience Inc., more than 87% of college students have one or more credit cards, and 98% of them have made a purchase of a product or service online. Because of our academic discount programs, we can provide college students with prices up to 80% off suggested retail prices. Accordingly, through our existing e-commerce site, www.CampusTech.com, we are developing a strong name-brand reputation for providing students with the best prices for the products they need.

Our goal is to become the leading college-focused e-commerce and content and media company. Our strategy is focused on:

continuing to grow our academic discount commerce business;
developing marketing programs that provide academic discount products on a promotional basis and incorporate viral and word of mouth marketing;
creating or acquiring media properties to expand the type of information, content, interactive tools and user generated text and video that attracts college students; and
diversifying and expanding our product offerings within our core academic discount and merchandising businesses.

We have generated sales for several years, and our commerce sales increased 73.0% from $6.9 million in 2005 to $11.9 million in 2006, although we have not yet attained profitability. For the six months ended June 30, 2007, our sales increased by 101.8% over the comparable period in 2006. We expect to begin generating sales from our marketing and media businesses by the end of 2007, at which time we will launch one or more content websites on a variety of topics relating to college students and we will be receiving revenues from Internet advertising. These websites currently are in development and require 60 to 90 days of further software and design work prior to their initial release.

Our revenues from Internet advertising are not expected to be substantial initially. We currently do not have any agreements with advertisers that guarantee such revenues. In 2007, we started the process of establishing such agreements for both cost per action and cost per click based advertising revenues with companies which seek to attract college student customers. We also expect that there will be opportunties for advertising revenues from existing relationships with manufacturers.

We will seek to grow these revenues substantially over the next few years.

We expect to launch the beta versions of our initial community and content websites beginning in the fourth quarter of 2007 and expect these websites will include the following:

www.CampusU.com, which will contain numerous interactive features and subject matter relating to college life, humor, travel, advice and entertainment;

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www.CampusFlix.com, which will focus on user-generated video on a variety of topics, including independent film and music; and
www.LazyStudents.com, which will provide research sources and advice on studying and test taking.

In addition, we own more than 30 other domains relating to college students, many of which we may develop and grow as we expand our media and commerce presence on the Internet. These domain properties include www.CampusRave.com, www.CampusFolio.com, www.CampusButler.com, www.CampusGiving.com, www.VarsityFlix.com, www.MyCampusMatch.com, www.CampusBeat.com, www.CampusDaily.com, www.OnCampusStore.com, www.CampusNotes.com, www.CampusRadio.com, www.CampusRoad.com, and www.CampusWeek.com. We can provide no assurance that we will develop these or any other additional websites or that our business of developing and operating websites will grow.

With all of our online properties, we will be able to provide advertisers and companies with an opportunity to reach college students through both multi-channel marketing programs as well as Internet-based advertising. According to independent research conducted by Universal McCann, companies are estimated to spend approximately 6 – 8%, or approximately $17 – 23 billion per year, of the $285 billion annual national advertising market trying to reach college students. We believe we can help them do it more effectively and with better results.

Our arrangements with manufacturers generally require us to verify that each purchaser who purchases their products at an academic discount is eligible to do so due to the purchaser's academic status. Manufacturers may have different requirements for confirming academic status. For college students, for example, manufacturers typically require us to obtain a copy of the student's official school picture identification card or to verify via electronically through the National Student Clearinghouse, a non-profit organization, that the purchaser is matriculating at an educational institution. For teachers and academic institutions, manufacturers typically accept written purchase orders on school stationery as confirmation of academic status. Our ability to confirm academic status is a core competency of our e-commerce business and integral to our strategy to grow and diversify our e-commerce business. However, we do not believe that academic status confirmation is integral to our strategy of diversifying and expanding our revenues by building community and content web sites or to the growth of our Internet advertising business.

Our Internet marketing programs are designed to allow advertisers to deliver their products and messages directly to college students on a regular basis as well as at the moment they are planning and/or making a purchase. In addition, our e-commerce systems verify that every purchaser of an academic discount product, and every recipient of a marketing program promotion, is a current college student. Hence, advertisers and companies receive verified and audited results that they are building brand awareness and customer loyalty in college students efficiently and effectively.

Industry Background

We operate at the intersection of the education and consumer market sectors. We believe that the confluence of these markets provides opportunities for fast and profitable growth in media, e-commerce and marketing. The education market consists of individual and institutional customers at both the k-12 and higher education levels. According to the National Center for Education Statistics, the k-12 market consists of approximately 115,000 schools, 53.5 million students and 3.5 million faculty and staff. The higher education market consists of approximately 5,700 educational institutions, more than 17.3 million college students and 1.5 million faculty and staff.

Individual customers — both youth and college students — consist of active consumers, ages 12 to 25 and, according to independent research from 360Youth, account for more than $300 billion in spending each year across a wide range of consumer goods. The youth and college student market is coveted by manufacturers and advertisers because it is during this stage of life that young adult consumers begin to establish their lifelong brand loyalties and long-term buying habits. The college student market alone provides an enormous opportunity for online commerce and media-related advertising and marketing revenue.

College students are considered the most-wired and Internet-savvy demographic group in the nation. According to the 2006 Online Advertising Habits Survey, conducted by Experience, Inc., more than 95% of all college students own their own computer, more than 30% of them are online more than 20 hours per week,

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and 98% of all college students have made a purchase online. In fact, more college students spend 10 hours or more per week on the Internet than watching television (43% vs. 17%). According to 360Youth and Jupiter Research, in 2005, college students alone accounted for almost $200 billion in consumer spending, of which more than $4 billion was spent online. In addition, more than 87% of college students have one or more credit cards. College students and faculty members also have proven to be early adopters of new technologies and new brands and therefore they are a preferred targeted demographic for new products and innovations by corporations and advertisers.

The education market also is expected to continue to grow rapidly in coming years due to population growth, technological innovation, and the demands of the so-called knowledge economy. The children of the baby boom generation are now coming of age and swelling the ranks of high school and college students. At the same time, many adults are returning to school, both full-time and part-time, either out of a desire for lifelong learning or to increase their career mobility and incomes. Consequently, college enrollments are now at an all-time high, and are expected to continue growing at even faster rates, reaching more than 19.4 million college students in 2014.

Our Strategy

Our e-commerce strategies and content and media strategies are integrated to support each other as well as the needs of our customers. We are increasing our e-commerce revenues by extending our academic discount e-commerce programs into a variety of consumer-focused industries, and we are building our marketing and advertising revenues by developing and growing our interactive content and media websites. Accordingly, we have developed a business model that will derive revenue from multiple sources. Our revenues will come from:

selling products to college students, mostly at academic discounts; and
selling targeted multi-channel marketing and advertising programs to advertisers and corporations to help them sell their products to college students.

A key element of our strategy is to leverage our existing e-commerce business to become the leading provider of Internet-based media, e-commerce and content products to college students. Our strategy is focused on:

continuing to grow our academic discount e-commerce business;
developing marketing programs that provide academic discount products on a promotional basis and incorporate viral marketing;
creating or acquiring media properties to expand the type of information, content, interactive tools and user generated text and video;
diversifying and expanding the product offerings within our core academic discount and merchandising businesses;
expanding our relationships with education institutions and key influencers on college campuses;
building strong name-brand recognition among college students for providing them with the best prices on high-quality products;
increasing our audience of college students visiting and interacting on our web properties;
increasing our revenues from Internet advertising across all of our media properties;
enhancing our media properties to expand the type of information, content, interactive tools and user generated text and video that attracts college students; and
expanding into other university-endorsed and “must have” products for college students.

E-commerce

For the past few years, we have been focusing on the growth of our software and technology products business. We currently offer academic discounts of up to 80% off retail prices on more than 8,000 name-brand software and other technology products. These substantial discounts are offered by the manufacturers as part of an “academic discount” program they have adopted for the purpose of marketing and selling to students. Our core competency of confirming such academic status is integral to these manufacturers’ programs. Our agreements with these manufacturers generally are based on our long-standing relationships with them as a marketing partner but are not exclusive. Software sales to the education market are approximately $3 billion

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each year. Industry estimates provided by Microsoft Corp., however, are that only about 35% of the eligible individuals (e.g., students, faculty and employees) purchase via academic discount programs. Accordingly, we expect to continue using online and on-campus marketing strategies, our strategic relationships with education-related companies and our strong ties to software and technology manufacturers to expand our product sales in this industry.

Our software and technology products business is tailored to meet the demands of college students for the most attractive and timely products. We offer thousands of technology and related products to our customers throughout the year and typically vary the product selection according to a variety of factors, such as seasonality, buying patterns, new product introductions, holidays, media promotions, etc. Our goal is to provide our customers with convenience and attractive pricing as an integrated part of, and within, their online experience. We have the ability to provide our customers with access to tens of thousands of different products and we focus on providing exactly those products college students are most likely to want to purchase.

Approximately 70% of the products sold are ordered through our www.CampusTech.com website, and a series of “micro sites” (personalized websites for specific organizations) within the www.CampusTech.com domain. Orders received online are reviewed internally for academic eligibility and, once verified, typically are shipped through third parties on our behalf. Wholesalers deliver the products(s) to our customers in boxes branded for CampusU. Our customers reach out to us at our toll-free number for order status and delivery information. All returns are handled directly by us, with return rates being immaterial.

In addition, we have been working with and marketing software and other technology products directly to educational institutions through our direct sales force. In many cases, our relationships with educational institutions support and often directly lead to sales of software and technology products to college students. We currently have dozens of websites that are co-branded with an educational institution, each containing our name and logo, which have generated sales and expanded our brand name within the academic community. The sales process for direct sales is identical to orders placed online. We procure products through wholesalers who may deliver products on our behalf. Returns are also immaterial for institutional purchases, and are handled internally by us. In 2006, more than 2,250 institutions of higher education purchased products from us. We will continue to expand and further our relationships with educational institutions to support our strategy of increasing our virtual presence and touch points on college campuses.

In our commerce business, we take advantage of our experience and expertise in marketing to college students and our core capability of verifying their academic status. We also take advantage of the seamless capabilities of the internet and use our relationships with major distributors in order to hold little or no inventory.

Marketing Programs and Internet Advertising

We are developing new, non-traditional marketing programs for advertisers that incorporate our core capability of providing academic discounts, which we believe creates a very attractive and compelling marketing message to college students. In fact, according to a September 2006 survey conducted by Burst Media, “better price” is the most important factor influencing a brand switch among college students. We can deliver a wide range of promotional offers to college students incorporating a better price and we can verify that only the targeted customers have received the promotion. We also can deliver promotional offers to only those college students who meet certain defined parameters and attributes, such as geographic location, class year, and areas of interest.

We expect that advertisers will seek to take advantage of the positive impact of viral and word of mouth marketing. When college students buy a name-brand product they may not have otherwise bought because they have received an academic discount, i.e., a better price, we believe they will talk about it, show it to their friends, and describe when, where and how they bought it. College students can create viral impact that we believe can result in additional sales of that product and that brand. In fact, a recent independent study stated that 91% of students say they pay more attention to word of mouth advertising than any other from of advertising.

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With our strategy of providing products to college students at better prices, we believe our marketing programs likely will provide advertisers the ability to reach college students and encourage their brand loyalties and long-term buying habits. We now are focusing our efforts to develop marketing programs in the following industries, which typically offer products at costs higher than most college students can afford:

sports;
travel and hospitality;
entertainment;
financial services;
luxury goods; and
lifestyle goods.

As we develop, launch and expand our initial community and content sites, www.CampusU.com, www.CampusFlix.com and www.LazyStudents.com, we will be increasing our media and e-commerce presence on the Internet.

We expect that these initiatives will allow us to increase our revenues from Internet advertising as well as more extensive, multi-channel marketing programs.

University-Endorsed Products and Services

We also are expanding our relationships with educational institutions so that we are able to work with them to offer college students a variety of products and services. Generally, these products and services are considered by college students to be endorsed by the institution or an important part of their college experience. They have high rates of usage and lower customer acquisition costs. Moreover, because they are used by college students on a regular basis, and at predictable times and/or in predictable patterns, they provide an excellent source of traffic for Internet advertising and promotions. Much as we already have partnered with dozens of educational institutions to provide co-branded websites to promote product purchases, we believe we will be able to partner with educational institutions to provide many of these other products and services, including:

e-portfolios;
college roommate matching;
dorm insurance;
foreign student clearinghouses;
college-accredited student travel; and
career mentoring and counseling; among others.

Growing Our Business

We expect to generate revenues through: (i) e-commerce, (ii) marketing programs and (iii) Internet advertising.

We will seek to increase our e-commerce-based revenues by:

increasing our academic discount sales in our core software and technology products business by expanding into new marketing partnerships and marketing strategies;
expanding the breadth of our academic discount product offerings by increasing our sales efforts with new manufacturers; and
enhancing and diversifying our merchandising businesses to include a variety of seasonal, popular and “hot” products.

We expect to launch our marketing programs in 2007 and then seek to increase our marketing program revenues by:

developing marketing programs that provide academic discount products on a promotional basis to advertisers focused on the college student market;
providing advertisers and corporations with new, non-traditional channels for viral and word of mouth marketing on college campuses; and

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recruiting an experienced advertising sales team to grow sales nationally with advertisers interested in non-traditional marketing strategies.

We expect to increase our Internet advertising revenues by:

expanding the range and type of information, content, and interactive tools that attract college students, and emphasizing user generated text and video features;
developing cross-marketing strategies across our web properties to increase traffic between commerce and media-related activities; and
expanding our relationships with key influencers on college campuses, such as student bloggers, musicians, print and radio journalists and community leaders.

We expect to increase our revenues from other products and services by:

expanding into other university-endorsed and “must have” products and services for college students, including students, e-portfolios and college roommate matching; and
developing strategic relationships with other companies working on the local and community level to provide products and services to college students in order to expand our co-marketing initiatives.

Competition

We operate in a highly competitive environment. Thousands of companies market their products and services to a customer base that includes college students. Many computer companies, such as Apple Computer, among others, provide substantial discounts to the educational market that includes college students. Some companies provide academic discounts to college students only in the limited category of name-brand or educational computer software. A number of companies, including Alloy, Inc., which is a significant stockholder of ours, provide youth marketing and advertising programs focused on college and high school students. Moreover, there are other companies, such as MySpace, Facebook, and YouTube, now owned by Google, Inc., that are seeking a substantial youth audience in order to sell advertising to corporations.

We are not aware of any other company, however, that is seeking to integrate merchandising, marketing and media in order to become an advocate for students and that is working to bring them the products and services they want at prices they can afford to pay. We also are not aware of any other company that is using the Internet to create online communities where college students acquire attractive and needed products and services, share ideas and discoveries, and develop important relationships and skills, and where the business model is based on multiple sources of revenue from the combination of commerce that is supported by content and media and content and media that is supported by commerce.

Intellectual Property

We have developed and streamlined an efficient process for confirming the academic status of our customers. We are able to use, on a case-by-case basis, both real time, instant verification processes and either paper-based or electronic password-based identification authentications. We are working with our advisors and intellectual property counsel to determine what legal protections, if any, may be available for our methods, processes and applications.

We currently own more than 30 Internet domain names relating to college students and the education. We have received a registered trademark for CampusTech and we are in the process of applying for a trademark for CampusU. We expect to continue to acquire Internet domain names that may be useful to our business and we expect to apply for a number of other trademarks relating to our business.

Properties

We lease 5,187 square feet of office space located at 803 Sycolin Road SE, Suite 204, Leesburg, Virginia, 20175 under a lease that expires in June 2010, but is cancelable by us after June 2008. This lease costs approximately $10,000 per month, including taxes, insurance and operating costs. In September 2007, we leased an additional 1,700 square feet of office space at our corporate office in Leesburg. The lease expires in September 2010. The lease costs approximately $3,400 per month, including real estate taxes and operational expenses. If we terminate the lease prior to the expiration date, we will be required to pay the unamortized portion of the tenant improvements paid by the landlord, which total approximately $15,000 and will be

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amortized over the lease term. We also lease office space in other locations, including Washington, D.C. and Chicago, Illinois, with an aggregate cost of less than $8,000 per month. In addition, we reimburse our Executive Chairman or his affiliates $2,000 per month for approximately 450 square feet of office space in Washington, D.C. We are also planning to open an office in New York City in 2007.

We expect our current office space will meet our needs for at least the next one to two years, at which time we will need to increase our office space at or near our current main location in Leesburg, Virginia.

Employees

We had 39 full-time employees as of October 3, 2007. We have not experienced any work stoppages and consider our relations with our employees to be good. None of our employees are represented by a union.

Legal Proceedings

There are no material legal proceedings currently pending or, to our knowledge, threatened against us.

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MANAGEMENT

Directors and Executive Officers

The following table sets forth certain information concerning our executive officers, key employees, and directors as of October 3, 2007:

   
Name   Age   Position
Executive Officers and Key Employees:
Michael Faber   48   Executive Chairman and Chairman of the Board and Secretary
Robert S. Frank   49   President and Chief Executive Officer
Christopher Eimas   37   Chief Financial Officer and Treasurer
Susan Hogan   48   Vice President, Marketing and Sales*
Andrew (Drew) Fredrick   38   Vice President, Operations*
Ramendra Singh   32   Director, Business Development*
Non-Employee Directors:
Glenn A. Bergenfield   54   Director
Mary Dridi   46   Director
Richard M. Graf   49   Director

* Key employees.

Executive Officers and Key Employees

Michael Faber has served as our Chairman and Secretary since 1999 and as our Executive Chairman of our Board of Directors since January 2005. From June 2004 to July 2005, Mr. Faber served as a director of Secured Services, Inc., a wireless technology services company. Since July 1999, Mr. Faber has been President of NextPoint Management Company, Inc., an investment management company, and general partner of the NextPoint Partners II, L.P. and NextPoint Partners, L.P. venture capital funds. Mr. Faber has more than 15 years of experience as a principal in approximately 100 venture capital and private equity investments. Since 1990, Mr. Faber has served as a director and/or lead shareholder of more than two dozen private companies, including webMethods, Inc., XtremeSpectrum, Inc., Covelight Inc., ZonaFinanciera, Inc. and Information Markets Corp. From 1996 to 1998, Mr. Faber served as managing general partner of Walnut Growth Partners, L.P., a venture capital fund, and, from 1990 to 1996, he served as vice president and secretary of Walnut Capital Corp., an investment management company. From 1998 to 2000, Mr. Faber was of counsel to the law firm Mintz Levin Cohn Ferris Glovsky and Popeo P.C. He also was an attorney with Arnold & Porter and a senior consultant to the Advisory Board, a research and consulting company. He is a director or advisor to a number of non-profit organizations, including Winning Workplaces, Inc., Global Goods Partners, Inc. and the Synapse Market Access Fund. In June 1980, Mr. Faber received a B.A. from the State of University of New York at Albany. In June 1987, Mr. Faber received a J.D., with honors, from the University of Chicago Law School. Mr. Faber also attended The Johns Hopkins University School of Advanced International Studies from 1980 to 1982.

Robert S. Frank has served as our President and Chief Executive Officer since June 1999. In his capacity as President and Chief Executive Officer, he has had primary responsibility for our overall business strategy, investor relations, finances, marketing, human resources, and industry partnerships and alliances. From September 1983 to July 1990, Mr. Frank was an attorney at the New York City law firms of Weil, Gotshal & Manges and Rosenman & Colin. From July 1990 to January 1995, he served as General Counsel and Secretary of BLOC Development Corporation in Miami, Florida, a real estate development company. Mr. Frank served as counsel to several software, telecommunications, and financial advisory firms between January 1995 and June 1999, including F3 Software Corporation, MCI Communications Corp., and the Hamilton Securities Group, an investment management company. In 1986, he was the producer of Inside the PGA Tour, the weekly golf highlight show on ESPN. In 1993, Mr. Frank co-founded Working Capital Florida, a micro-enterprise lending organization in Miami, Florida, and he served as a director until September 1997.

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Mr. Frank received a B.S. in Economics in May 1980 from the Wharton School of the University of Pennsylvania, and he received a J.D. in May 1983 from the New York University School of Law.

Christopher Eimas has served as our Chief Financial Officer and Treasurer since March 2006. From February 2002 until February 2006, Mr. Eimas served as controller in Time Warner AOL’s new products division, responsible for multiple businesses including AIM, AOL Mobile, Mapquest.com, Netscape.com and Tegic Communications. From February 1999 to March 2002, Mr. Eimas worked as Treasury and Finance Director for VIA NET.WORKS, Inc., an internet service provider, where he helped to manage the firm’s initial public offering on NASDAQ and a number of significant financings and acquisitions. From 1997 to 1999, he was a Financial Analyst at MCI. From 1993 to 1997 he served as a Consultant at Price Waterhouse. In May 1992. Mr. Eimas received a B.A. from Grinnell College. In May 1994, Mr. Eimas received an M.S. from Georgetown University. In August 2005, Mr. Eimas received an M.B.A. from the Robert H. Smith School of Business at the University of Maryland.

Susan Hogan has served as our Vice President, Marketing and Sales, since June 2005. From October 2004 to June 2005, Ms. Hogan served as our Director of Marketing. Ms. Hogan has responsibility for directing our marketing and sales activities, including all print, email, website, and trade show activities, managing our inside sales team, and managing our relationships with our software and hardware vendors. From January 2001 until September 2004, Ms. Hogan worked as a Senior Marketing Account Executive for Technology Resource Center, Inc., an educational marketing company. In June 1977, Ms. Hogan graduated from Driscoll High School in Addison, Illinois.

Andrew (Drew) Fredrick has served as our Vice President, Operations, since September 2006. From April 2004 to August 2006, Mr. Fredrick served as Senior Director, Virtual Business Operations, Sprint Nextel Corporation, and was responsible for business, technology, and financial operations of the Virtual Business group, a collection of telesales, websales and online authorized resellers. Prior to that, from May 1999 to April 2004, Mr. Fredrick served as a Director of the Y2K program, as well as Director of IT Engineering & Finance Systems, at Sprint Nextel Corporation, where he developed, implemented and supported custom and off-the-shelf systems across a user base of more than 5000 employees. Mr. Fredrick also served as a Senior Manager of IT, managing Oracle Financials systems and building data warehouse applications. Mr. Fredrick also served as a PeopleSoft ERP Consultant with Technology Solutions Company from March 1997 to December 1997 and, from 1992 to 1997, as a Manager of Development Information Services with Public Broadcasting Service. Since April 2003, Mr. Fredrick has been a director of Practical Technologies, Ltd., a private company co-owned by an immediate family member, which serves as one of several staffing companies providing resources to CampusU. Mr. Fredrick received a B.A. from Lawrence University in June 1991 and an M.S. from The American University in January 1997.

Ramendra Singh has served as our Director, Business Development, since December 2006. From August 2005 until December 2006, Mr. Singh worked as a General Manager of subscription based security products at Time Warner AOL, where he was responsible for growing the non-access customer base, launching new products, building strategic alliances and partnerships, and developing new markets. From December 2002 until August 2005, Mr. Singh held various management positions at Nextel, responsible for business, technology and marketing operations. From July 1999 until December 2002, Mr. Singh served as Product Manager and Lead Consultant for Cysive, Inc. Mr. Singh also worked at IBM Global Services, India, as a Business Analyst and Lead Consultant. In May1996, Mr. Singh received a B.S. in Computer Science from the Institute of Technology in India. In December 2005, Mr. Singh received an M.B.A. from the Robert H. Smith School of Business at the University of Maryland.

As we continue to grow our business, we expect to hire additional people to lead our marketing programs effort.

Non-Employee Directors

Glenn A. Bergenfield has served as a member of our Board of Directors since June 2006. Mr. Bergenfield has been a practicing trial lawyer in New Jersey since 1983, specializing in legal and professional malpractice and other complex commercial litigation in both state and federal courts. He is certified by the Supreme Court of New Jersey as a Civil Trial Attorney. Mr. Bergenfield is a frequent lecturer for the American Bar Association, Association of Trial Lawyers of America, New Jersey State Bar Association and

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the New Jersey Institute of Continuing Legal Education in the areas of Civil Trial Procedure, Legal Ethics and First-Party Insurance Law. He also has lectured at Yale Law School on legal ethics and torts. He has been named as a Super Lawyer in 2005 and 2006. Prior to private practice, Mr. Bergenfield served as Deputy Attorney General in New Jersey, Assistant General Counsel for the U.S. Commission on Wage and Price Stability, and Litigation Attorney for the U.S. Federal Trade Commission. He also taught at the University of Arkansas School of Law. In 1974, Mr. Bergenfield received his B.A. from Sarah Lawrence College and, in 1978, received a J.D. from the University of Oregon School of Law. Mr. Bergenfield has been a director and co-founder of five public companies including Aquacell Technologies, Inc. He lives in Bucks County, Pennsylvania.

Mary Dridi has served as a member of our Board of Directors since March 2007. Prior to that time, Ms. Dridi served on our Advisory Board since October 2006. From October 2005 to November 2006, Ms. Dridi served as the Chief Financial Officer of buySAFE, Inc., a company which provides safe online shopping environments and offers surety bonds to provide broad protection for individual buyers from online transaction risks. She has been on the Advisory Board for buySAFE since November 2006. From May 1998 to May 2005, Ms. Dridi served as Chief Financial Officer, Executive Vice President and Treasurer of webMethods, Inc., a leading provider of business integration and optimization software, where she helped manage the company’s initial public offering and its rapid growth to $200 million in revenue. From 1991 until 1998, Ms. Dridi served as Vice President of Finance for SRA International, Inc., an information technology services company, Director of Finance for Geostar, a telecommunications company, from 1988 to 1991, and as an auditor for KPMG from 1983 to 1988. In June of 2002, Ms. Dridi was named CFO of the Year by the Northern Virginia Technology Council (NVTC), the Maryland Tech Council and the DC Tech Council. From 2002 until 2004, she served on Virginia Governor Mark Warner’s Advisory Council on Revenue Estimates. In 1983, Ms. Dridi received a B.A. in Commerce, with a concentration in Accounting, from the University of Virginia’s McIntire School of Commerce.

Richard M. Graf has served as a member of our Board of Directors since June 2006. Since April 2007, Mr. Graf has been a partner in the Washington, D.C. office of Duane Morris LLP, an international law firm with more than 650 attorneys, specializing in corporate transactions and securities matters. Prior to that, Mr. Graf was a partner in the Washington, D.C. office of Katten Muchin Rosenman LLP, a national law firm with more than 600 attorneys, from October 2002 until April 2007. From November 1998 until October 2002, he was a partner in the Business and Finance practice of the Washington, D.C. office of Mintz Levin Cohn Ferris Glovsky and Popeo, P.C. Prior to that, he served as co-founder, Chief Operating Officer and General Counsel for SSE Capital, L.L.C., a hedge fund manager, and an associate and partner in the Corporate and Real Estate Groups of the law firm of Arnold & Porter. Mr. Graf is admitted to practice in New York and the District of Columbia. In June 1979, he received his B.A. and, in December 1980, his M.A. from the University of Chicago. In May 1984, Mr. Graf earned a J.D., cum laude, from Boston College Law School.

Board of Directors

Board Composition

Our amended and restated certificate of incorporation and amended and restated bylaws to be effective upon completion of this offering provide that the authorized number of directors may be changed only by resolution of the Board of Directors. We currently have five directors. In accordance with our amended and restated certificate of incorporation and amended and restated bylaws, immediately upon the closing of this offering, our Board of Directors will be divided into three classes with staggered three-year terms. At each annual meeting of stockholders commencing with the meeting in 2008, the successors to the directors whose terms then expire will be elected to serve until the third annual meeting following the election. The term of office of the first class of directors, Class I, consisting of Richard M. Graf, will expire at our first annual meeting of stockholders immediately following the initial classification of the Board of Directors. The term of office of the second class of directors, Class II, consisting of Glenn A. Bergenfield and Mary Dridi, will expire at the second annual meeting of stockholders immediately following the initial classification of the Board of Directors. The term of office of the third class of directors, Class III, consisting of Michael Faber and Robert S. Frank, will expire at the third annual meeting of stockholders immediately following the initial classification of the Board of Directors.

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Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors.

Director Independence

Our Board of Directors has reviewed the materiality of any relationship that each of our directors has with CampusU, either directly or indirectly. Based on this review, the board has determined that the following directors are “independent directors” as defined by Nasdaq and Rule 10A-3 of the Exchange Act: Messrs. Graf, Bergenfield and Ms. Dridi.

Committees of the Board of Directors

Our Board of Directors has an audit committee, a compensation committee, and a nominating and governance committee, each of which has the composition and responsibilities described below.

Audit committee. Our audit committee is composed of Ms. Dridi (Chairman) and Messrs. Graf and Bergenfield. Each member of our audit committee satisfies the current independence standards promulgated by the SEC and by Nasdaq, as such standards apply specifically to members of audit committees. All members of our audit committee are also financially literate under the current listing standards of the Nasdaq, and our Board of Directors has determined that Ms. Dridi qualifies as the “audit committee financial expert,” as such term is defined by the SEC. Our audit committee is authorized to:

approve and retain the independent registered public accounting firm to conduct the annual audit and quarterly reviews of our books and records;
review the proposed scope and results of the audit;
review and pre-approve the independent registered public accounting firm’s audit and non-audit services rendered;
review accounting and financial controls with the independent registered public accounting firm and our financial and accounting staff;
review and approve transactions between us and our directors, officers and affiliates;
recognize and prevent prohibited non-audit services;
establish procedures for complaints received by us regarding accounting matters;
oversee internal audit functions; and
prepare the report of the audit committee that SEC rules require to be included in our annual meeting proxy statement.

Compensation committee. Our compensation committee is composed of Mr. Bergenfield (Chairman), Ms. Dridi and Mr. Graf. All members of the compensation committee qualify as independent under the current definition promulgated by Nasdaq. Our compensation committee is authorized to:

review and recommend the compensation arrangements for management, including the compensation for our Chief Executive Officer;
establish and review general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals;
approve and oversee reimbursement policies for directors, executive officers and key employees;
administer our stock incentive plan;
review and discuss the compensation discussion and analysis prepared by management to be included in our annual report, proxy statement or any other applicable filings as required by the SEC; and
prepare the report of the compensation committee that SEC rules require to be included in our annual meeting proxy statement.

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Nominating and governance committee. Our nominating and governance committee is composed of Messrs. Graf (Chairman), Bergenfield and Ms. Dridi. All members of the nominating and governance committee qualify as independent under the current definition promulgated by Nasdaq. Our nominating and governance committee is authorized to:

identify and nominate members of the Board of Directors;
develop and recommend to the Board of Directors a set of corporate governance principles applicable to our company;
review and maintain oversight of matters relating to the independence of our board and committee member, in light of the independence standards of the Sarbanes-Oxley Act of 2002 and the rules of the Nasdaq Stock Market, Inc.; and
oversee the evaluation of the Board of Directors and management.

Corporate Code of Conduct and Ethics

We have adopted a corporate code of conduct and ethics applicable to our directors and officers in accordance with applicable federal securities laws and the rules of Nasdaq Stock Market, Inc.

Advisory Board

We also have established an Advisory Board that is designed to provide advice and assistance to us in our strategic planning of our operations and growth. None of the advisors are our employees or members of our Board of Directors. Our advisors enter into Advisory Board Agreements in connection with their services. For their services, our advisors receive an option to purchase 6,006 shares of our common stock, having an exercise price equal to the fair market value at the time of grant. Such option shall vest 50% on the date of grant and 25% on each of the first and second anniversary of the date of grant. Our Board of Directors may, in its sole discretion, determine to grant additional options to the advisors relating to other services that may be provided to us by the advisors. The advisors have no formal rights or duties as special advisors and have no formal obligations to us. The Advisory Board Agreements are for an initial term of two years and may be terminated by either party on 10 days prior written notice without any further obligation or liability. Our Advisory Board members are as follows:

Julius Genachowski has served on our Advisory Board since February 2007. Currently, Mr. Genachowski serves as Special Advisor to General Atlantic, a global private-equity firm. He founded Rock Creek Ventures, an advisory and investment firm focusing on digital media, communications and commerce. Previously, Mr. Genachowski was Chief of Business Operations, General Counsel and a member of the Office of the Chairman at IAC/InterActiveCorp (Nasdaq: IACI). In addition, Mr. Genachowski also has served as Chief Counsel to Chairman Reed Hundt and Special Counsel to General Counsel William E. Kennard, of the U.S. Federal Communications Commission; law clerk to Justices David H. Souter and William J. Brennan, Jr., of the U.S. Supreme Court; and on the staffs of then - Rep. Charles Schumer and the U.S. House of Representatives Iran-Contra Committee. Mr. Genachowski has served on the Board of Directors of public companies, including Expedia, Ticketmaster and Website Pros, and private companies including The Motley Fool, Beliefnet, and Truveo. Mr. Genachowski received his B.A. from Columbia College and his J.D. from Harvard Law School.

Jason Harinstein has served on our Advisory Board since October 2006. Mr. Harinstein is currently a Principal and a member of the Corporate Development team at Google, Inc. where he works with the company’s product groups to identify and execute strategic acquisition opportunities. Previously, Mr. Harinstein was an Associate on the Internet equity research team at Deutsche Bank Securities, Inc. where he covered Internet advertising, online search, eCommerce and video game companies. He has also served as a strategy consultant at iXL, Inc. an Internet-solutions company (now, aQuantive, Inc.). Mr. Harinstein received a B.A. from Northwestern University and an M.B.A., with honors, from The University of Chicago Graduate School of Business.

James W. MacIntyre, IV has served on our Advisory Board since October 2006. Mr. MacIntyre currently serves as the Chief Executive Officer of Visual Sciences, Inc., a digital marketing and analytics solutions company that improves online marketing, sales and business operations. The company offers web

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analytics, site search, web content management, keyword bid management and, through its subsidiary Visual Sciences, LLC, provides streaming data analysis and visualization software. Previously, Mr. MacIntyre served as a founder, Chief Executive Officer, General Partner, and/or Director of Technology, for a variety of software, telecommunications and financial service companies, including Visual Sciences, Inc., various Cisneros family held companies, Comprehensive Data Systems, Inc., OneSoft Corporation, Computer and Communications Services, Inc., Together Networks, Inc. and NextPoint Partners. Mr. MacIntyre received a B.A. from the University of Vermont, with honors.

Neil Vogel has served on our Advisory Board since October 2006. Mr. Vogel currently serves as Chief Executive Officer and co-founder of Recognition Media, LLC, a leading producer of advertising and media industry awards shows and recognition programs. Recognition Media operates major international creative and marketing awards competitions, including the Webby Awards, the CLIO Awards, the Davey Awards and the Communicator Awards. Previously, Mr. Vogel served as an Officer of Alloy, Inc., a targeted direct marketing and media company for the teen and college market. He served as a key member of the Alloy management team that grew Alloy’s business from a start-up in 1998 to over $300 million in revenues and over $30 million in EBIT in 2002, raised more than $275 million, and executed and integrated 21 acquisitions with an aggregate value of over $300 million. Mr. Vogel has also served as Vice President in the investment banking group at Ladenburg Thalmann and Co. focusing on the media, consumer and leisure industries. Mr. Vogel received a B.S. from the Wharton School of Business at the University of Pennsylvania.

Stephen Joel Trachtenberg served as president of The George Washington University from 1988 to 2007. Previously, he was president of the University of Hartford, vice president and dean of the College of Liberal Arts at Boston University, special assistant to the U.S. Education Commissioner, Department of Health, Education and Welfare, and an aide to Congressman John Brademas. Mr. Trachtenberg has served on the boards of numerous nonprofit organizations and civic associations, including the Southeastern Universities Research Association, the District of Columbia Chamber of Commerce, the Atlantic 10 Conference Presidents Council, the Greater Washington Board of Trade, the D.C. Federal City Council, and the Urban League of Greater Washington, among others. He chairs the Rhodes Scholarships Selection Committee for Maryland and the District of Columbia, is a member of the Council on Foreign Relations, director of the Chiang Chen Industrial Charity Foundation in Hong Kong, and a trustee of Al-Akhawayn University in Morocco. Mr. Trachtenberg also has received numerous honors and honorary degrees, including the Albert B. Sabin Institute Humanitarian Award, “Washingtonian of the Year 2000” from Washingtonian Magazine the “Grand Officier Du Wissam Al Alaoui” by King Mohammed VI of Morocco, and the Order of St. John of Jerusalem, Knight Grand Cross for Distinguished Service to Freemasonry and Humanity. Mr. Trachtenberg received a B.A. from Columbia University, a M.P.A from Harvard University, and a J.D. from Yale Law School.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The primary objectives of the compensation committee of our Board of Directors with respect to executive compensation are to attract, retain, and motivate the best possible executive talent. The focus is to tie short and long-term cash and equity incentives to achievement of measurable corporate and individual performance objectives, and to align executives’ incentives with stockholder value creation. To achieve these objectives, the compensation committee has maintained, and expects to further implement, compensation plans that tie a substantial portion of executives’ overall compensation to our operational performance. As identified below, in support of this compensation philosophy, we believe our compensation policies provide a proper balance for allocating between long term and currently paid out compensation.

Management develops our compensation plans by utilizing publicly available compensation data and subscription compensation survey data for national and regional companies in the e-commerce and Internet marketing and advertising services industry. We believe that the practices of this group of companies provide us with appropriate compensation benchmarks because these companies have similar organizational structures and tend to compete with us for executives and other employees. For benchmarking executive compensation, we typically review the compensation data we have collected from the complete group of companies, as well as a subset of the data from those companies that have a similar number of employees as our company. We will seek to engage, when appropriate, experienced consultants to help us analyze these data and to compare our compensation programs with the practices of the companies represented in the compensation data we review.

Based on management’s analyses and recommendations, the compensation committee has approved a pay-for-performance compensation philosophy, which is intended to bring base salaries and total executive compensation in line with the fiftieth to seventy-fifth percentile of the companies that are similar in the compensation data we review.

We work within the frame work of this pay-for-performance philosophy to determine each component of an executive’s initial compensation package based on numerous factors, including:

the individual’s particular background and circumstances, including training and prior relevant work experience;
the individual’s role with us and the compensation paid to similar persons in the companies represented in the compensation data that we review;
the demand for individuals with the individual’s specific expertise and experience at the time of hire;
performance goals and other expectations for the position;
comparison to other executives within our company having similar levels of expertise and experience; and
uniqueness of industry skills.

The compensation committee also has commenced the implementation of an annual performance management program, under which annual performance goals are determined and set forth in writing at the beginning of each calendar year for the corporation as a whole, each corporate department, and each executive employee. Annual corporate goals are proposed by management and approved by our Board of Directors at the end of each calendar year for the following year (or at the early part of the new year if circumstances so require). These corporate goals target the achievement of specific operational and financial milestones. Annual department and individual goals focus on contributions which facilitate the achievement of the corporate goals and are set during the first quarter of each calendar year. Department goals are proposed by each department head and approved by the Chief Executive Officer. Individual goals are proposed by each employee and approved by his or her direct supervisor. The Executive Chairman and the Chief Executive Officer approve the goals proposed by our other executive officers. The goals of each of the Executive Chairman, Chief Executive Officer and Chief Financial Officer are approved by the compensation committee of the board. Annual salary

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increases, annual bonuses, and annual stock option awards granted to our employees are tied to the achievement of this corporate, department, and each individual’s performance goals.

We perform an interim assessment of the written goals in the third quarter of each calendar year to determine individual, department and corporate progress against the previously established goals and to make any adjustments to the goals for the remainder of the year based on changing circumstances.

During the first calendar quarter, we evaluate individual, department, and corporate performance against the written goals for the recently completed year. Consistent with our compensation philosophy, each employee’s evaluation will begin with a written self-assessment, which is submitted to the employee’s supervisor. The supervisor then prepares a written evaluation based on the employee’s self-assessment, the supervisor’s own evaluation of the employee’s performance, and input from others within the company. This process leads to a recommendation for annual employee salary increases, annual stock option awards, and bonuses, if any, which is then reviewed and approved by the compensation committee. In the case of the Executive Chairman, the Chief Executive Officer, the Chief Financial Officer, their individual performance evaluations are conducted by the compensation committee, which determines their compensation changes and awards. For all employees, including our executive officers, annual base salary increases, annual stock option awards, and annual bonuses, to the extent granted, are implemented during the first calendar quarter of the year, unless otherwise directed by the compensation committee or the Board of Directors.

Compensation Components

The components of our compensation package are identified below. We determine the amount of each element of compensation by employing a number of different factors. First, we use the executive's salary, or compensation under the employment agreement, as a benchmark to begin our analysis. Then, we review market trends in business generally, and in our industry in particular, to help determine the appropriate compensation level to satisfy our corporate compensation philosophy and goals relative to cash and equity based compensation. We also review an individual's proposed compensation relative to his peers in our company.

Finally, as appropriate, we may employ the services of compensation consultants to obtain an expert opinion in these matters, particularly when making large equity grants to its employees.

Base Salary

Base salaries for our executives are established based on the scope of their responsibilities and their prior relevant background, training and experience, taking into account competitive market compensation paid by the companies represented in the compensation data we review for similar positions and the overall market demand for such executives at the time of hire. As with total executive compensation, we believe that executive base salaries should generally target the fiftieth to seventy-fifth percentile of the range of salaries for executives in similar positions and with similar responsibilities in the companies that are similar to us represented in the compensation data we review. An executive’s base salary is also evaluated together with other components of the executive’s other compensation to ensure that the executive’s total compensation is in line with our overall compensation philosophy.

Base salaries are reviewed annually as part of our performance management program and increased for merit reasons, based on the executive’s success in meeting or exceeding individual performance objectives and an assessment of whether significant corporate goals were achieved. If necessary, we also realign base salaries with market levels for the same positions in the companies that are similar to us represented in the compensation data we review, if we identify significant market changes in our data analysis. Additionally, we adjust base salaries as warranted throughout the year for promotions or other changes in the scope or breadth of an employee’s role or responsibilities.

Annual Bonus

Our compensation program includes eligibility for an annual performance-based cash bonus in the case of all executives and many non-executive employees. The amount of the cash bonus depends on the level of achievement of the stated corporate, department and individual performance goals, with a target bonus generally set as a percentage of base salary. Currently, all employees, other than our Executive Chairman, Chief Executive Officer and Chief Financial Officer, are eligible for annual performance-based cash bonuses in

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amounts up to 30% of their base salaries, as set forth in their written performance reviews. As provided in their employment agreements, our Executive Chairman, Chief Executive Officer, and Chief Financial Officer are eligible for annual performance-based bonuses, the amount of which, if any, is determined by our Board of Directors or the compensation committee in their sole discretion.

Long-Term Incentives

We believe that long-term performance is achieved through an ownership culture that encourages long-term participation by our executives and employees in equity-based awards. Our 2007 Equity Incentive Plan allows the grant to employees of stock options, restricted stock and other equity-based awards. We typically make an initial equity award of stock options to new employees and annual equity grants as part of our overall compensation program. An option committee, which consists of the Executive Chairman and the Chief Executive Officer, each as appointed by our Board of Directors, is currently authorized to make initial equity grants within certain parameters, beyond which compensation committee approval is required. Annual grants of options to all of our employees are approved by the compensation committee. All equity awards to our executives will be approved by the compensation committee or our Board of Directors.

Initial stock option awards. Executives who join us are awarded initial stock option grants. These grants have an exercise price equal to the fair market value of our common stock on the grant date and a four (4) year vesting schedule of 25% on the first anniversary of the date of hire and either quarterly or annually thereafter for the next three (3) years. The amount of the initial stock option award is determined based on the executive’s position with us and analysis of the competitive practices of the companies similar in size to us represented in the compensation data that we review. The initial stock option awards are intended to provide the executive with incentive to build value in the organization over an extended period of time. The amount of the initial stock option award also is reviewed in light of the executive’s base salary and other compensation to ensure that the executive’s total compensation is in line with our overall compensation philosophy.

Restricted stock awards. In the future, we may make grants of restricted stock to executives and certain high ranking non-executive employees to provide additional long-term incentive to build stockholder value. Restricted stock awards are made in anticipation of contributions that will create value in the company and are subject to a lapsing repurchase right by the company over a period of time. Because the shares have a defined value at the time the restricted stock grants are made, restricted stock grants are often perceived as having more immediate value than stock options, which have a less calculable value when granted. However, we generally grant fewer shares of restricted stock than the number of stock options we would grant for a similar purpose.

Annual stock option awards. Our practice is to make annual stock option awards as part of our overall performance management program. The compensation committee believes that stock options provide management with a strong link to long-term corporate performance and the creation of stockholder value. We intend that the annual aggregate value of these awards will be set near competitive levels for companies represented in the compensation data we review. As is the case when the amounts of base salary and initial equity awards are determined, a review of all components of the executive’s or non-executive employee’s compensation is conducted when determining annual equity awards to ensure that an executive’s or non-executive employee’s total compensation conforms to our overall philosophy and objectives. A pool of options is reserved for executives and non-executive employees based on setting a target grant level for each employee category, with the higher ranked employees being eligible for a higher target grant.

Conclusion

Our compensation policies are designed to attract, retain and motivate both our executives and all our employees and ultimately to reward them for outstanding individual and corporate performance.

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Summary Compensation Table

The following table shows the compensation paid or accrued during the fiscal year ended December 31, 2006 to (1) our Chief Executive Officer, (2) our Chief Financial Officer and (3) our most highly compensated executive officer, other than our Chief Executive Officer and our Chief Financial Officer, who earned more than $100,000 during the fiscal year ended December 31, 2006. As such individuals did not exist during and at the end of the fiscal year ended December 31, 2006, this table does not include two other most highly compensated executive officers and no additional executives who would have been among the three most highly compensated executive officers, other than our Chief Executive Officer and our Chief Financial Officer, except for the fact that they were not serving as executive officers of the Company as of the end of December 31, 2006.