STUDENT ADVANTAGE INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-26173

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STUDENT ADVANTAGE, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 04-3263743
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)

280 SUMMER STREET
BOSTON, MASSACHUSETTS 02210
(Address of principal executive offices, including zip code)

(617) 912-2000
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

The aggregate market value of the Common Stock held by non-affiliates of
the Registrant on June 28, 2002, was approximately $7,465,180 based upon the
closing sale price of the common stock on the NASDAQ National Market of $2.50.
On that date, the number of shares of Common Stock outstanding was approximately
5,346,872 and no shares were held as treasury shares. On February 13, 2003, the
common stock began trading on the OTC Bulletin Board and was no longer quoted on
the Nasdaq National Market.

On April 11, 2003, there were 5,374,019 shares of the Registrant's common
stock outstanding.
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STUDENT ADVANTAGE, INC.
FORM 10-K

TABLE OF CONTENTS

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements. Any statements contained herein (including
without limitation statements to the effect that the Company or its management
"believes," "expects," "anticipates," "plans," and similar expressions) that
relate to future events or conditions should be considered forward-looking
statements. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in these forward-looking statements. Factors that might cause such a
difference include, but are not limited to those discussed in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Factors That May Affect Future Results."
Discussions containing forward-looking statements may be found in the materials
set forth under "Item 1. Business", "Item 2. Properties" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations." Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's opinions only as of the
date hereof. The Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements, whether as a
result of new information, future events or otherwise.

PART I

ITEM 1. BUSINESS

Student Advantage, Inc. is an integrated media and commerce company focused
on the higher education market. We work with approximately 1,100 colleges and
universities, student organizations and alumni associations, and more than
15,000 participating national and local business locations to develop products
and services that enable students to make less expensive and more convenient
purchases on and around campus. Our exclusive university and business
relationships allow us to sell campus specific products and services and
licensed collegiate sports memorabilia directly to parents, students and alumni.

We reach consumers offline through Student Advantage Campus Services, which
includes the Student Advantage Membership Program and OCM Direct, and online
through our highly trafficked websites studentadvantage.com, CollegeClub.com and
our Official College Sports Network ("OCSN"). The Student Advantage Membership
Program is a national fee-based membership program that provides its student
members with exclusive benefits including ongoing discounts on products and
services currently offered by more than 15,000 participating national and local
business locations. Discounts are made available to students both through our
studentadvantage.com website and at sponsors' retail and online locations. OCM
Direct is our direct mail marketing business that provides college and
university-endorsed products, including residence hall linens, and related
accessories, care packages, and diploma frames to students and their parents.
OCSN is the largest, most trafficked network on the web devoted exclusively to
college sports, providing online brand management and content delivery to more
than 135 schools and athletic conferences. Until January 2003, we also reached
our consumers through our SA Cash programs. The SA Cash programs enable students
to use their college ID cards as a method of payment (stored-value card) for
off-campus dining, shopping and other purchase needs. In January 2003, we sold
the portion of our assets relating to our SA Cash brand to Blackboard, Inc. In
connection with the sale, we entered into a limited licensing agreement with
Blackboard under which we will continue to offer the SA Cash product line to a
set of designated colleges and universities, but otherwise will not compete with
Blackboard in the SA Cash business other than in connection with schools
operating on the Diebold payments platform until January 2010. We do not
anticipate that the SA Cash product will be a significant source of revenue in
the future.

We were incorporated in the State of Delaware on October 20, 1998. We began
operations in 1992 as a sole proprietorship, converted to a general partnership
in 1995, converted to a limited liability company in 1996 and became a C
Corporation in 1998. From inception through December 1997, our revenue was
derived primarily from annual membership fees generated by our Student Advantage
Membership program. Since that time, we have expanded our product and service
offerings through internal growth as well as acquisitions. However, despite the
expansion of products and service offerings, we operate as one business segment.
Our

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principal executive offices are located at 280 Summer Street, Boston,
Massachusetts 02210, and our telephone number is (617) 912-2000.

In February 2002, our subsidiary, OCM Direct and its two subsidiaries,
CarePackages, Inc. and Collegiate Carpets, Inc., entered into a revolving loan
agreement with Bank of America providing for a $5.0 million loan facility, which
is referred to as the OCM loan. The interest rate under the OCM loan is LIBOR
plus 2.5 percent and the facility is secured by all of the assets of OCM Direct
and its two subsidiaries. We provided an unsecured guaranty of the obligations
of our three subsidiaries to Bank of America. The original maturity date of the
loan was January 31, 2003. On January 24, 2003, the OCM loan agreement was
amended to provide that the maturity date of the loan will be April 30, 2003.
The agreement required that OCM Direct repay all amounts outstanding under the
loan for a period of 30 consecutive days between August 1 and October 1, 2002.
OCM Direct met this requirement by maintaining a zero balance on the facility
from August 9, 2002 through October 1, 2002. As of March 31, 2003, $3.6 million
is outstanding under the OCM loan. We are currently in discussions with the
lender to extend the maturity date and borrowing period of the loan until August
30, 2003.

In connection with the Bank of America borrowings in February 2002,
Reservoir Capital Partners and its two affiliate senior lenders (collectively,
"Reservoir Capital") consented to our guaranty of the obligations of OCM Direct
and its subsidiaries (collectively, the "Subsidiaries") to Bank of America and
released the Subsidiaries from their guaranty of our obligations to Reservoir
Capital and Reservoir Capital's lien on the Subsidiaries' assets. The parties
also agreed that in the event that the Bank of America loan went into default,
that default would also constitute an event of default under the agreements with
Reservoir Capital and that, under such circumstances, Reservoir Capital could
purchase that loan from Bank of America and the borrowings would be deemed
borrowings under the Reservoir Capital agreements.

Effective April 1, 2002, we entered into a two year Sales Agency Agreement
with Alloy, Inc., appointing Alloy as the primary, non-exclusive agent for the
purpose of selling our CollegeClub.com media inventory. Under the agreement, we
received an agent fee of $4.9 million, must make quarterly payments to Alloy for
agent performance and base commissions and may make additional variable
commission payments to Alloy based on CollegeClub.com media revenues over the
two-year term of the agreement. For each quarter for the first twelve months of
the agreement, the payments for agent performance are $0.2 million per quarter.
For each quarter during the term of the agreement, the base commission payments
are $0.1 million per quarter. Prior to the termination date of the agreement,
under certain circumstances, including the sale of College Club assets, we may
be required to provide Alloy with payments of $3.0 million to $3.5 million from
any proceeds, less amounts previously paid by us to Alloy during the agreement's
term.

On May 6, 2002, we issued 360,000 shares of our common stock to three
investors for an aggregate purchase price of $2.7 million. We also granted these
investors the right, exercisable at any time prior to November 1, 2002, to
purchase in the aggregate an additional 45,000 shares of common stock for a
purchase price of $7.50 per share and an additional 45,000 shares of common
stock with a purchase price of $10.00 per share. On November 1, 2002, the right
to purchase additional shares expired unexercised.

Effective May 8, 2002, we sold the assets relating to our SA Marketing
Group brand to Triple Dot, Inc., a subsidiary of Alloy, Inc., for a cash payment
of $6.5 million and an opportunity to earn up to an additional $1.5 million
based on the performance of certain pending proposals. In June 2002, Triple Dot
prepaid to us $1.0 million of the potential earn-out. This amount was deferred
and as of December 31, 2002 remains classified as other advances since per the
agreement, the earn-out calculation will be calculated in August 2003. At the
time of the agreement, the parties entered into a non-compete agreement under
which we agreed to certain restrictions regarding our events and promotions
activities until November 2005. In addition, the parties entered into a
marketing services agreement providing for payments made by us in May 2002 to
Alloy of $2.2 million for future marketing services. The Company has expired the
$2.2 million in 2002.

On June 26, 2002, we issued 200,000 shares of Student Advantage common
stock to former shareholders of OCM Enterprises (now OCM Direct, Inc.) as final
payment for the acquisition of OCM Direct.

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On July 15, 2002, we agreed to a lease termination regarding our facility
in San Diego, CA. The facility was acquired during the October 2000 acquisition
of certain assets of CollegeClub and at that time we identified our intention to
vacate the facility.

On September 30, 2002, we announced that a Special Committee of our Board
of Directors, formed to consider strategic alternatives, was in discussions
regarding a proposal for the acquisition of the Company made by a group of
stockholders, including Raymond V. Sozzi, Jr., the Company's President and Chief
Executive Officer, and Atlas II, L.P., at a price between $1.50 and $1.75 per
share. The proposal was subject to, among other things, the receipt of
sufficient financing and the negotiation of a definitive agreement. From time to
time since September 2002, the Special Committee and the group of stockholders
have engaged in subsequent discussions regarding an acquisition of the Company
and alternative strategic transactions, each of which continues to be subject
to, among other things, the receipt of sufficient financing and the negotiation
of a definitive agreement. During these subsequent discussions, the group of
stockholders indicated that any future proposal that might be made for the
Company's shares would likely be for a price significantly less than $1.50 per
share. There can be no assurance as to if and when discussions will recommence,
and, if so, whether such discussions will result in the consummation of a
transaction.

On September 30, 2002, we agreed to borrow $3.5 million from Scholar, Inc.,
an entity formed by Raymond V. Sozzi, Jr., our President and Chief Executive
Officer, an affiliate of Atlas II, L.P. and certain other of our stockholders.
The loan is referred to as the Scholar loan, has an annual interest rate of 8%,
matures on July 1, 2003 and, otherwise has the same terms as the Reservoir
Capital credit facility. See footnote 13 for further details.

During 2002, we entered into several agreements with Reservoir Capital to
modify the credit facility. On May 6, 2002, we agreed with Reservoir Capital to
delete from the Reservoir loan agreement our obligation to comply with the
financial covenants. On September 30, 2002, Reservoir Capital agreed, absent
future defaults, not to demand payment for principal, interest and fees due
under the credit facility prior to the July 1, 2003 maturity date for the credit
facility. Reservoir Capital also agreed to cancel the warrants previously issued
under the credit facility and the associated right to require us to repurchase
the warrants for cash in exchange for a $4.2 million increase in the principal
amount outstanding under the credit facility.

On December 30, 2002, Reservoir Capital agreed to further amend the terms
of the credit facility to reduce our total indebtedness to them from
approximately $15.7 million to $9.5 million in exchange for a guarantee by Mr.
John Katzman, a member of our Board of Directors who resigned at the time the
amendment was consummated. In exchange for his guarantee, we agreed to pay Mr.
Katzman a $1.0 million fee payable at the time of certain loan repayments. In
addition, Reservoir Capital agreed to lend us an additional $2.0 million, which
is not secured by Mr. Katzman. The debt obligations to Reservoir Capital and Mr.
Katzman carry an annual interest rate of 12% and required payments of $3.5
million on January 31, 2003, $4.0 million on March 31, 2003 and the remaining
balance on the July 1, 2003 loan maturity date.

This repayment schedule was amended on January 31, 2003, to reduce the $3.5
million payment due on January 31, 2003 to $1.5 million, which was paid on that
date. On March 31, 2003 and April 14, 2003, the repayment schedule was further
amended to change the date on which we are required to repay $4.0 million of
borrowings under the loan agreement from March 31, 2003 to April 14, 2003 and
then to April 28, 2003.

On March 14, 2003 and March 31, 2003, Reservoir Capital agreed to lend us
an additional $0.5 and $1.5 million, respectively.

"Student Advantage", "CollegeClub", "U-WIRE", "FANSonly", "OCSN", "Edu.com"
and "SA Cash", are trademarks and service marks of Student Advantage. All other
trademarks, service marks or trade names referred to in this prospectus are the
property of their respective owners.

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STRATEGY

Our objective is to set the standard for commerce in higher education by
working with universities and businesses to make what students need easily
available to them, by making it less expensive and helping them pay for it more
conveniently. We intend to achieve these objectives through the following:

Enhance Student Commerce Through University-Endorsed Relationships. We
intend to continue our focus on increasing the volume and average value of
transactions in our core Membership Program, OCM Direct and OCSN businesses by
enhancing our value to students, their parents and alumni through new products
and services marketed offline and online in conjunction with our university and
business partners.

Continue to Build the Student Advantage Brand. We believe that in order to
attract and expand our membership base and our service offerings to colleges and
universities, and corporate partners, we must continue to build strong brands.
By partnering with leading national and local sponsors and universities, we work
to integrate commerce opportunities into the student experience. Student
Advantage remains our most important consumer brand. We will also continue to
enhance our branding both directly and through co-marketing arrangements with
our sponsors.

Aggressively Grow Student Reach. We intend to continue to grow the number
of paid participants in the Student Advantage Membership Program, as well as the
number of registered users on our network of websites through a variety of
initiatives including:

- increasing the frequency of new paid memberships through OCM Direct
sales, online membership sales on studentadvantage.com and
CollegeClub.com, through corporate sponsored distributions and through
university and college sales, and

- increasing our number of corporate sponsors, and therefore, the content
on our network of websites and the benefits of our Membership Program.

Consider a complete or partial divestiture of one or more properties. We
believe that it may be to our interest to consider the continued divestiture of
those parts of the business that may no longer be central to our mission. In
addition, we may agree to minority investments in one or more of our
subsidiaries to both attract capital and be able to avail ourselves of certain
other benefits. These transactions will likely require the approval of one or
more of our lenders.

Continue to Pursue Strategic Alliances. Since inception, we have acquired
and integrated a number of complementary businesses and entered into strategic
alliances in order to expand and strengthen our offerings to students, their
parents, universities and corporate partners. We plan to continue to enter into
alliances that offer opportunities to increase our product and service offerings
and to obtain new technologies.

PRODUCTS AND SERVICES

We work with colleges and universities and in cooperation with businesses
to develop products and services that are easily available to students, their
parents and alumni. Our Student Services division offers students a broad range
of products and services, through our Student Advantage Membership Program and
OCM Direct, as well as services and content on our websites specifically created
for their unique needs. Our Corporate and University Services division offers
corporate customers marketing services and offers universities content, commerce
and data management services.

The Student Advantage(R) Membership Program and studentadvantage.com. The
Student Advantage Membership Program is an annual fee-based program, providing
students with exclusive discounts and partner benefits at nearly 15,000
participating retail locations serving college campuses nationwide. Companies
such as Amtrak(R), Greyhound, Tower Records, 1800 Flowers, Dollar Rent-a-Car, US
Airways, Foot Locker and BarnesandNoble.com utilize our membership platform as a
customer relationship management program for acquisition, activation and usage
of their products and services. By aggregating and communicating with students
through the Membership Program, we offer our partners a single point-of-contact
to access, influence and reward student-purchasing behaviors. Memberships are
distributed in several ways. We sell memberships directly to parents and
students for an annual membership fee that is currently $20, distribute
memberships at

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no cost to certain qualified students and sell memberships to certain of our
corporate partners and universities for resale to students at their retail
locations and campuses. Complementing the membership program is
studentadvantage.com, an online resource of commerce relationships, proprietary
information and services developed exclusively for students. In addition, our
online technology store, formerly Edu.com, gives verified college students,
faculty and staff access to academic pricing on name-brand computer hardware and
software.

OCM Direct. The OCM Direct programs supply students and their parents with
a variety of products, including residence hall linens and related accessories,
care packages and diploma frames. OCM Direct has endorsed relationships with
more than 900 colleges, universities, and on-campus and alumni organizations for
its direct mail marketing circulation of approximately six million. OCM Direct
is the only corporate partner of the National Association of College and
University Residence Halls, and also has relationships with the Association of
College and University Housing Officers -- International and the National
Orientation Directors Association.

Official College Sports Network ("OCSN"). Through its official athletic
sites, OCSN provides online brand management, content delivery and e-commerce
services to more than 135 university athletic departments and athletic
conferences throughout the country. CollegeSports.com serves as the network hub
for individual official athletic sites.

CollegeClub. CollegeClub.com is an integrated online property that has
attracted over 4.7 million registered users since 1996. The website reaches
college students across the U.S., providing them with services and content
specifically created for their unique needs. The site provides a platform for
corporate clients that want to present their brands and services to college
students. CollegeClub.com has executed promotions for companies that include
General Motors, Mastercard, Nextel, Visa, Honda and Sony Pictures.

U-WIRE. U-WIRE is a newswire service, which is free for college newspaper
media and which distributes student-produced content to more than 600 U-WIRE
member publications, professional media outlets and syndication partners such as
Yahoo! Sports, NYTimes.com and Lexis-Nexis. Our sponsors and business partners
can utilize U-WIRE to send press releases directly to the student editors at
member college newspapers.

CUSTOMERS

Our primary customers are consumers -- college students, their parents and
alumni -- who purchase products and services we make available to them offline
and online. Also crucial to our success are the approximately 1,100 colleges and
universities, campus organizations, and alumni associations with which we work
to develop and market valuable and highly-relevant products and services. These
relationships provide us with assistance in reaching our primary customers and
often provide certain content and commerce rights that give us a strong
competitive advantage and differentiate us in the marketplace. Our corporate
customers are the third essential element of our customer base. They are
important to us for two reasons: many of them serve as our marketing partners by
adopting our Student Advantage Membership Program as the platform by which they
extend student discounts, thereby increasing the value of our program to
students, while other corporate clients pay us advertising and related
promotional fees to gain access to our customer base. Here are examples of some
of our corporate customers.

General Motors Corporation. Through our CollegeClub.com business, we have
an agreement with General Motors Corporation that is in effect through May 2003.
The Strategic Alliance agreement provides that we will develop and conduct a
multi-faceted promotional campaign, and will provide certain advertising,
promotional and e-commerce opportunities for General Motors. The agreement
includes both on-line and off-line productions targeted to the college student
demographic.

Tower Records. We have an agreement with Tower Records, which is in effect
through August 2003. Tower Records will offer an exclusive discount of 10% off
purchases made in store and online to Student Advantage members. Students can
also purchase Student Advantage Membership cards online at TowerRecords.com. The
Student Advantage and Tower Records partnership is marketed online at
studentadvantage.com via banner advertisements and a dedicated splash page, as
well as through e-mail

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communication. Student Advantage marketing communication is integrated
throughout Tower Records stores via banners and posters. Student Advantage
Community Managers will often work together with Tower Records managers to bring
events, contests, and promotions on to the local campus or into the local store.

SALES AND MARKETING

As of December 31, 2002, we had a direct sales organization consisting of
29 professionals, who are engaged in a variety of sales functions, including
selling banner advertising and sponsorships, enlisting additional national
sponsors for our Membership Program, seeking opportunities for
corporate-sponsored events and promotions targeted at college students and
managing existing sponsor relationships.

We use a variety of online and traditional marketing programs to increase
brand recognition. Our marketing strategy for our brands contains a mix of
online advertising, programs which drive members to our websites, in-store
advertising in local retail locations, on-campus direct solicitation of
students, outbound e-mail, co-marketing with colleges and universities through
on-campus posters and student mailbox drops, print advertising, new media banner
campaigns and direct mail. We employed 19 marketing professionals as of December
31, 2002.

TECHNOLOGY

We have implemented a broad array of site management, advertising
management, customer interaction, registration systems, transaction-processing
and fulfillment systems using a combination of our own proprietary technologies
and commercially available, licensed technologies. Our current strategy is to
license commercially available technology whenever possible rather than seek
internally developed solutions. We use internal resources to develop the
specialized software necessary for our business, such as the software required
to register members online.

Consistent with our preference for off-the-shelf software components, the
hardware systems that we utilize also consist of commercially available
components. We believe that this architecture provides the ability to increase
scale quickly and reliably, and at a relatively low cost. Our existing
infrastructure currently exceeds present demand, and as such, we have no plans
for additional upgrades.

Our Student Advantage and CollegeClub membership databases and the related
system hardware are currently hosted at Navisite, Inc. in Massachusetts. Our
Student Advantage membership database utilizes Oracle 8i database software
running in a primary/standby mode on Sun Microsystems hardware. Our production
web/application servers utilize Compaq hardware running Apache web server and
Tomcat JSP software. Our CollegeClub membership database environment utilizes
Oracle 8i, running in a primary/standby mode on a Sun Microsystems and Network
Appliance hardware platform. The front-end web environment runs on Compaq
hardware running the Linux operating system, Apache web server and Resin JSP
software. Site applications run on Compaq and Sun hardware utilizing the Linux,
Windows 2000 and Solaris operating systems.

The Official College Sports Network web environment is currently hosted at
Cable & Wireless in Irvine, Calif. The front-end web and application environment
runs on Dell hardware, running the Linux operating system and Apache web server.
The database environment utilizes Oracle 8i, running on a Sun Microsystems and
EMC hardware platform. The Ecommerce environment runs on Dell hardware, running
the Windows NT and Windows 2000 operating systems and Microsoft Internet
Information Services web server.

A group of systems administrators and network managers at the company
operate the web sites and network operations and monitor our systems 24 hours a
day. Navisite and Cable & Wireless manage our data centers and Internet
connectivity operations.

Our operations are dependent upon the ability of Navisite and Cable &
Wireless to maintain their systems in effective working order and to protect
their systems against damage from fire, natural disaster, power loss,
telecommunications failure or similar events. Our servers are powered by an
uninterruptible power supply to provide a safeguard against unexpected power
loss and are equipped with redundant file systems,

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which allows for prompt replacement of defective disks without interruption of
service. Our systems are copied to backup tapes each night and stored at an
off-site storage facility for one year.

COMPETITION

We compete with other companies targeting the student population, such as:

- publishers and distributors of traditional offline media, particularly
those targeting college students, such as campus newspapers, other print
media, television and radio; and

- vendors of college student information, merchandise, products and
services distributed through online and offline means, including retail
stores, direct mail and schools.

We compete for client marketing budget dollars, with other marketing
activities and, in particular, other forms of direct marketing activities, such
as direct mail. In recent years, there have been significant advances in new
forms of direct marketing, such as the development of interactive shopping and
data collection through television, the Internet and other media. Many industry
experts predict that electronic interactive commerce, such as shopping and
information exchange through the Internet will proliferate in the foreseeable
future. To the extent such proliferation occurs, it could have a material
adverse effect on the demand for membership programs.

Competition for online users and advertisers is intense and is expected to
increase over time, as barriers to entry are relatively low. We compete for
visitors, traffic, sponsors and online merchants with web directories, search
engines, content sites, online service providers and traditional media
companies. We also face competition from other companies maintaining websites
dedicated to college students as well as high-traffic websites sponsored by
companies such as AOL Time Warner, CBS, Disney, Terra Lycos, Microsoft, MTV and
Yahoo!.

Many of our competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. In addition, substantially all of
our current advertising customers have established collaborative relationships
with other high-traffic websites. As a result, our advertising customers might
conclude that other Internet businesses, such as search engines, commercial
online services and sites that offer professional editorial content are more
effective sites for advertising than we are. Moreover, we may be unable to
maintain either the level of traffic on our web sites or a stable membership
base, which would make our sites less attractive than those of our competitors.
Increased competition from these and other sources could require us to respond
to competitive pressures by establishing pricing, marketing and other programs
or seeking out additional strategic alliances or acquisitions that may be less
favorable to us than we could otherwise establish or obtain.

In May 2002, we sold the assets relating to our SA Marketing brand to
Triple Dot, Inc., a subsidiary of Alloy, Inc. In connection with the sale, we
agreed not to compete in certain events and promotions businesses until November
2005. In January 2003, we sold the portion of our assets relating to our SA Cash
brand to Blackboard, Inc. In the connection with the SA Cash sale, we agreed
with Blackboard that we would not compete with Blackboard in the SA Cash
business other than in connection with schools operating on the Diebold payments
platform until January 2010. These restrictions on our ability to compete may
prevent us from taking advantage of available business opportunities in the
future, which could hinder our ability to gain new corporate sponsors, build the
Student Advantage brand and increase the number of members in our Membership
Program.

INTELLECTUAL PROPERTY AND PROPERTY RIGHTS

We regard our patents, copyrights, service marks, trademarks, trade dress,
trade secrets, proprietary technology and similar intellectual property as
important to our success, and rely on patent, trademark and copyright law, trade
secret protection and confidentiality and/or license agreements with our
employees, customers, independent contractors, sponsors and others to protect
our proprietary rights. We strategically pursue the registration of our
trademarks and service marks. However, effective patent, trademark, service
mark, copyright and trade secret protection may not be available in all
instances. There can be no assurance

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that the steps taken by us to protect our proprietary rights will be adequate or
that third parties will not infringe or misappropriate our patents, copyrights,
trademarks, trade secrets, trade dress and similar proprietary rights. In
addition, there can be no assurance that other parties will not independently
develop substantially equivalent intellectual property. A failure by us to
protect our intellectual property in a meaningful manner could have a material
adverse effect on our business, financial condition and results of operations.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of financial and managerial resources,
which could have a material adverse effect on our business.

We have been subject to claims and expect to be subject to legal
proceedings and claims from time to time in the ordinary course of our business,
including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. On March 2, 2002, CARE, the
international human rights and relief agency, requested in writing that our Care
Packages subsidiary phase out the use of the mark "CarePackages." We do not
believe that the two marks would raise a risk of confusion and have continued
using the mark. Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources. Further, if such
claims are successful, we may be required to change our trademarks, alter
content and pay financial damages. There can be no assurance that such changes
of trademarks, alteration of content or payment of financial damages will not
adversely affect our business.

We may be required to obtain licenses from others to refine, develop,
market and deliver new products and services. There can be no assurance that we
will be able to obtain any such license on commercially reasonable terms or at
all or that rights granted pursuant to any licenses will be valid and
enforceable.

GOVERNMENT REGULATION

We are subject to various laws and regulations relating to our business.
Although there are currently few laws or regulations directly governing access
to or commerce on the internet, due to the increasing popularity and use of the
internet, a number of laws and regulations may be adopted regarding user
privacy, pricing, acceptable content, taxation and quality of products and
services. In addition, several telecommunications providers have petitioned the
Federal Communications Commission to regulate and impose fees on internet
service providers and online service providers in a manner similar to long
distance telephone carriers. The adoption of any such laws or regulations could
adversely affect our product and service offerings, adversely affect the growth
in use of our products and services, decrease the acceptance of the internet as
a communications and commercial medium or restrict our ability to introduce new
products. Moreover, it may take years to determine the extent to which existing
laws relating to issues such as property ownership, libel and personal privacy
are applicable to the internet. Any new laws or regulations relating to the
internet could decrease demand for our products and services or otherwise have a
material adverse effect on our business.

EMPLOYEES

As of December 31, 2002, we employed approximately 258 full-time employees.
We also hire temporary employees, particularly at the beginning of each school
semester, and contract service providers as necessary. None of our employees are
represented by a labor union or is the subject of a collective bargaining
agreement. We believe that relations with our employees are generally good.
Competition for qualified personnel in our industry is intense, particularly
among sales, online product development and technical staff. We believe that our
future success will depend in part on our continued ability to attract, hire and
retain qualified personnel.

All share and per share amounts in this Item 1 have been adjusted to
reflect the one-for-ten reverse split of our Common Stock effected on June 28,
2002.

ITEM 2. PROPERTIES

Our principal executive offices are located at 280 Summer Street in Boston,
Massachusetts, where we presently lease an aggregate of approximately 25,000
square feet. Our current leases for this facility expire at various times
through 2005. We also maintain regional offices in Carlsbad, California;
Atlanta, Georgia;

8

Bethesda, Maryland; Trenton, New Jersey and Chambersburg, Pennsylvania. In
total, our leased office and warehouse space aggregates approximately 192,000
square feet.

We believe that our current facilities and other facilities that will be
available to us will be adequate to accommodate our needs for the foreseeable
future. There can be no assurance that we will be successful in obtaining or
disposing of additional space, if required, or if such transactions to lease or
dispose of the space will be on terms acceptable to us.

ITEM 3. LEGAL PROCEEDINGS

In November 2002, we were named as a defendant in a lawsuit filed against
us and General Motors by Richard M. Kipperman, Liquidating Trustee of the
bankruptcy estate of CollegeClub.com, Inc., Campus24, Inc. and
CollegeStudent.com, Inc., in the U.S. Bankruptcy Court for the Southern District
of California. The suit seeks damages of $2.25 million and interest and costs
relating to payments received by us under an agreement with General Motors that
we acquired from CollegeClub.com. The trustee alleges that the payments were
earned by CollegeClub.com prior to our acquisition of the agreement and were not
sold to us as part of the agreement. We believe that the trustee's allegations
are factually incorrect and are inconsistent with the terms of the acquisition
agreement with CollegeClub.com and intend to defend the matter vigorously. If,
however, we are found to have significant liability to the liquidating trustee
or incur significant costs in connection with the litigation, our financial
condition and liquidity would suffer significant harm.

We are periodically a party to contractual disputes, litigation and
potential claims arising in the ordinary course of our business. We do not
believe that the resolution of these matters will have a material adverse effect
on our financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted for vote of security holders of the Company
during the three months ended December 31, 2002.

9

EXECUTIVE OFFICERS OF THE COMPANY

Below are the name, age and principal occupations for the last five years
of our executive officers as of April 11, 2003. All such persons have been
elected to serve until their successors are elected and qualified or until their
earlier registration or removal:

Raymond V. Sozzi, Jr. founded Student Advantage in 1992 and has served as
Chairman of the Board of Directors, President and Chief Executive Officer of
Student Advantage since its inception.

Heather L. Lourie has served as Vice President, Corporate Development of
Student Advantage since January 2000 and as Director, Corporate Development
since May 1999. From 1993 to April 1999, Ms. Lourie was a member and a manager
in the Transaction Services Division of PricewaterhouseCoopers LLP, a public
accounting firm.

Kevin M. Roche has served as Vice President of Human Resources since
January 2000. From September 1995 to January 2000 Mr. Roche was the Director of
International Human Resources and from July 1998 to January 2000 he was also the
Corporate Director of Human Resources at Reebok International Ltd., a producer
of athletic apparel, where he was responsible for directing and implementing
corporate human resources policies and procedures within Reebok's Global
Operating Regions of Europe, Asia, Latin America, North America and emerging
markets. Before joining Reebok, Mr. Roche held positions at Praxis
International, an enterprise data movement solutions company, and Raytheon
Service Company, a field engineering company. Mr. Roche has resigned from the
Company, effective in April 2003.

Michael J. Phelan has served as Vice President, Corporate Marketing &
Partnerships of Student Advantage since February 2001. Prior to joining Student
Advantage, Mr. Phelan was General Manager and Category Director at Reebok
International, a producer of athletic apparel, responsible for developing
Reebok's youth consumer segment from July 1999 to February 2001. From 1989
through July 1999, he served as the Executive Director of Marketing at Polaroid
Corporation, a company which designs, develops, manufactures and markets digital
and instant imaging and related products.

Sevim M. Perry has served as Vice President, Finance and Assistant
Treasurer since February 2002. From February 2000 to February 2002, Ms. Perry
served as Corporate Controller of HighGround Systems, a network storage company.
Before joining Highground Systems, Ms. Perry was the Assistant Corporate
Controller and Assistant Treasurer of Marcom Solutions, an international
software and services business, from January 1999 to February 2000. From January
1998 to January 1999, she was a member of the finance organization at USWest.
From 1993 to February 1998, Ms. Perry was a member in the audit division of
Coopers and Lybrand LLP, a public accounting firm.

10

PART II

ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock began trading on the Nasdaq National Market on June 18,
1999 under the symbol "STAD". Prior to that time there had been no market for
our common stock. On June 28, 2002, we effected a one-for-ten reverse split of
our Common Stock and all share and per share amounts in this Item 5 have been
adjusted to reflect this one-for-ten reverse split. On February 13, 2003, our
securities were delisted from the Nasdaq National Market and commenced trading
on the OTC Bulletin Board under the symbol "STAD.OB". The table below sets forth
the high and low closing sales prices per share for our common stock on the
Nasdaq National Market for the periods indicated:

As of March 31, 2003 there were 363 holders of record of our common stock.
Because many of the shares are held by brokers and other institutions on behalf
of stockholders we are unable to estimate the total number of individual
stockholders represented by these holders of record.

We have never paid or declared any cash dividends on our Common Stock. Our
loan agreement with Reservoir Capital prohibits the payment of both cash and
stock dividends.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data are derived from the
financial statements of Student Advantage, Inc. The historical results presented
are not necessarily indicative of future results. The selected consolidated
financial data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our Consolidated Financial Statements and the related Notes. All amounts for all
periods presented have been restated to reflect the acquisition of University
Netcasting, Inc. in June 1999, which was accounted for as a pooling of
interests.

Effective June 18, 1999, the date we acquired University Netcasting, Inc.,
University Netcasting, Inc.'s fiscal year end was changed from March 31 to
December 31 to conform to our fiscal year end. University Netcasting, Inc.'s
results of operations for the years ended March 31, 1999 have been included in
our results of operations for the years ended December 31, 1998. University
Netcasting's results of operations for the twelve months ended December 31, 1999
have been included in our twelve months ended December 31, 1999. Accordingly,
University Netcasting's results of operations for the three months ended March
31, 1999 have been included in our results for both the years ended December 31,
1998 and 1999. Total revenue and net loss for University Netcasting for the
three months ended March 31, 1999 were $0.7 million and $1.6 million,
respectively. This net loss amount has been reported as an adjustment to the
consolidated accumulated deficit.

11

- ---------------

* restatement pertains to Edu.com step acquisition accounting

** All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the Common Stock effected on June 28, 2002

12

- ---------------

* restatement pertains to Edu.com step acquisition accounting

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

BUSINESS OVERVIEW

We are an integrated media and commerce company focused on the higher
education market. We work with colleges and universities and in cooperation with
businesses to develop products and services that enable students to make less
expensive and more convenient purchases on and around campus. We operate in two
operating segments which qualify for aggregation as one reporting segment. (See
footnote 2).

We reach consumers offline through Student Advantage Campus Services, which
includes the Student Advantage Membership Program and OCM Direct, and online
through our highly trafficked websites studentadvantage.com, CollegeClub.com and
our Official College Sports Network ("OCSN"). The Student Advantage Membership
Program is a national fee-based membership program that provides student members
with exclusive benefits including ongoing discounts on products and services
currently offered by more than 15,000 participating local and national business
locations. Discounts are made available to students both through our
studentadvantage.com website and at sponsors' retail and online locations. OCM
Direct is a direct mail marketing business that provides college and
university-endorsed products, including residence hall linens and related
accessories, care packages and diploma frames to students and their parents.
OCSN is the most-trafficked network on the web devoted exclusively to college
sports, providing online brand management and content delivery to more than 135
top schools and athletic conferences. We also reached our consumers through our
SA Cash programs. The SA Cash programs enable students to use their college ID
cards as a method of payment (stored-value card) for off-campus dining, shopping
and other purchase needs. In January 2003, we sold the portion of our assets
relating to our SA Cash brand to Blackboard, Inc. In connection with the sale,
we entered into a limited licensing agreement with Blackboard under which we
will continue to offer the SA Cash product line to a set of designated colleges
and universities, but otherwise will not compete with Blackboard in the SA Cash
business other than in connection with schools operating on the Diebold payments
platform until January 2010. We do not anticipate that the SA Cash product will
be a significant source of revenue in the future.

On September 30, 2002, we announced that a Special Committee of our Board
of Directors, formed to consider strategic alternatives, was in discussions
regarding a proposal for the acquisition of the Company made by a group of
stockholders, including Raymond V. Sozzi, Jr., the Company's President and Chief
Executive Officer, and Atlas II, L.P., at a price between $1.50 and $1.75 per
share. The proposal was subject to, among other things, the receipt of
sufficient financing and the negotiation of a definitive agreement. From time to
time since September 2002, the Special Committee and the group of stockholders
have engaged in subsequent discussions regarding an acquisition of the Company
and alternative strategic transactions, each of which has been subject to, among
other things, the receipt of sufficient financing and the negotiation of a

13

definitive agreement. During these subsequent discussions, the group of
stockholders indicated that any future proposal that might be made for the
Company's shares would likely be for a price significantly less than $1.50 per
share. There can be no assurance as to if and when discussions will recommence,
and, if so, whether such discussions will result in the consummation of a
transaction.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amount of assets, liabilities,
revenues and expenses.

On an on-going basis management evaluates its estimates and judgments,
including those related to revenue recognition, bad debts, intangible assets,
contingencies and litigation. Management bases its estimates on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. However, results may differ from these estimates
under different assumptions or conditions. Our significant accounting policies
are described in Note 2 to the consolidated financial statements included in
Item 8 of this Annual Report on Form 10-K. Critical accounting policies are
those that are reflective of significant judgments and uncertainties, and could
potentially result in materially different results under different assumptions
and conditions. Our most critical accounting polices are described below.

ACCOUNTS RECEIVABLE

We evaluate the collectibility of our accounts receivable based on a
combination of factors. In circumstances where we become aware of a specific
customer's inability to meet its financial obligations to us, such as a
bankruptcy filing or a substantial down-grading of a customer's credit rating,
we record a specific reserve to reduce our net receivable to the amount we
reasonably expect to collect. We also record reserves for bad debts based on the
length of time our receivables are past due, the payment history of our
individual customers and the current financial condition of our customers based
on obtainable data and historical payment and loss trends. Our allowance for
doubtful accounts was $0.7 million and $0.3 million at December 31, 2001 and
December 31, 2002, respectively. The decrease in our estimate during 2002
resulted from the write-off of previously reserved accounts receivables.
Uncertainties affecting our estimates include future industry and economic
trends and the related impact on the financial condition of our customers, as
well as the ability of our customers to generate cash flows sufficient to pay us
amounts due. If circumstances change, such as higher than expected defaults or
an unexpected material adverse change in a customer's ability to meet its
financial obligations to us, our estimates of the recoverability of the
receivables due us could be reduced by a material amount.

REVENUE RECOGNITION

We report revenues in two categories: student services revenue and
corporate and university solutions revenue. Student services revenue is
attributable to the parts of our business focused primarily on providing goods
and services to students, their parents and alumni. We derive student services
revenue from commerce, subscription and advertising. Commerce revenue is derived
primarily from transaction-based revenue earned for reselling products and
services, processing stored value transactions and acquiring student customers
on behalf of other businesses. To date, commerce revenue has primarily included
revenue that we receive from the sale of residence hall linens and related
accessories, care packages and diploma frames through direct mail marketing,
fees from SA Cash transactions and e-commerce revenue from our network of
websites. Commerce revenue is recognized upon the completion of the related
contractual obligations. Subscription revenue is derived from membership fees
related to enrolling students in the Student Advantage Membership Program.
Subscription revenue is recognized ratably from the date of subscription to the
end of the annual membership period, which ends on July 31 of each year.
Advertising revenue consists primarily of fees for banner advertisements and
sponsorships on our network of websites. Website advertising revenue is
recognized

14

as the related impressions are displayed, provided that no significant
obligations remain and collection of the related receivable is assured. Certain
advertising arrangements include guarantees of a minimum number of impressions.
For arrangements with guarantees, revenue is recognized based upon the lesser
of: (1) ratable recognition over the period the advertising is displayed,
provided that no significant Company obligations remain and collection of the
receivable is assured, or (2) a pro-rata portion of contract revenue based upon
impressions delivered relative to minimum guaranteed impressions to be
delivered. In the past, we also derived revenue from advertisements placed in
SAM, Student Advantage Magazine. Revenue from fees related to advertisements
placed in SAM were recognized when the magazine was shipped to members. The
revenues related to SAM are only applicable to the year 2000 as no issues were
produced during 2001 or 2002.

Corporate and university solutions revenue is attributable to the parts of
our business focused primarily on providing goods and services to corporations
and universities and consists of marketing services revenue from corporate
clients and licensing, management and consulting fees from universities.
Marketing services revenue is derived primarily from providing tailored event
management and execution services to businesses seeking to market their products
and services to college students. This revenue is recognized upon the completion
of the related contractual obligations. Fees from marketing services are
recognized as the related services are rendered, provided that no significant
obligations remain and collection of the related receivable is assured. Payments
received in advance of revenue being earned are recorded as deferred revenue.

In accordance with the EITF Issue No. 99-17 "Accounting for Advertising
Barter Transactions," we have recorded barter revenue and expense based upon the
fair value of the advertising surrendered in the transaction. Fair value is
established by reference to comparable cash transactions during the six-month
period preceding the barter transaction. Generally, barter transactions involve
exchanges of banner advertising. For the years ended December 31, 2000, 2001 and
2002, we recorded $1.2 million, $4.1 million and $2.9 million, respectively, of
barter revenue and $1.2 million, $4.1 million and $2.9 million of barter expense
recorded as sales and marketing expense, respectively.

In accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition
in Financial Statements" and EITF Issue No. 99-19 "Reporting Revenue Gross as a
Principal versus Net," we have evaluated our revenue and determined that it is
being reported in accordance with the guidance. We have recorded certain of our
commerce revenue at gross, as we are considered the primary obligor in the
transaction.

In November 2001, the Emerging Issues Task Force concluded its discussions
on EITF Issue 01-9 "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)". This guidance requires that an
entity account for consideration given to a customer as a reduction of revenue
unless it can demonstrate an identifiable benefit that can be sufficiently
separable from the sale of the products or services to the customer, and can
reasonably estimate the fair value of the benefit identified. We adopted EITF
Issue 01-9 effective January 1, 2002. In accordance with EITF 01-9, we have
offset amortization of consideration given to certain vendors against revenue
(for the year ended 2002, this approximated $0.8 million). While consideration
given and received by us are carried at the gross value of the amounts on the
balance sheet, any revenue recognized is reflected on a net basis in the
accompanying statement of operations.

GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
As of January 1, 2002, we adopted SFAS No. 142. This Standard eliminates
goodwill amortization from the Statement of Income and requires an evaluation of
goodwill for impairment upon adoption of this Standard, as well as subsequent
evaluations on an annual basis, and more frequently if circumstances indicate a
possible impairment. For these evaluations, we are using an implied fair value
approach, which uses a discounted cash flow analysis and other valuation
methodologies. These evaluations use many assumptions and estimates in
determining an impairment loss, including certain assumptions and estimates
related to future earnings to be derived from our turnaround initiatives.

Intangible assets include the excess of the purchase price over
identifiable tangible net assets acquired in acquisitions. Such assets include
goodwill, completed technology, workforce, customer lists, non-compete

15

agreements, websites and other intangible assets, which are being amortized on a
straight-line basis over their estimated economic lives ranging from two to
fifteen years. As a result of the application of SFAS 142 in 2002, we stopped
amortizing the remaining goodwill related to the acquisition of OCM Direct in
the first quarter of 2002. We are continuing to amortize the remaining value of
our intangible assets related to completed technology, workforce, customer
lists, non-compete agreements and contracts. We periodically evaluate our
intangible assets for potential impairment. In 2001, in connection with our
impairment of long-lived assets, we wrote down $1.6 million of remaining
goodwill associated with our acquisitions of asset purchases from Edu.com,
College411, Collegiate Advantage and Campus Agency. On July 15, 2002, we agreed
to a lease termination regarding our facility in San Diego, CA. The lease
obligation was acquired during the October 2000 acquisition of College Club and
at that time we identified our intentions to vacate the facility. As a result,
we had provided for an accrual on unused space for the future lease obligation
as part of the purchase price. At the time of the lease termination, we carried
a $2.4 million accrual related to the purchase price accrual. In accordance with
EITF 95-3, we reversed the accrual against a portion of the remaining goodwill
related to the acquisition. Accumulated amortization was $11.1 million and $13.1
million at December 31, 2001 and December 31, 2002, respectively.

LONG-LIVED ASSETS

We assess the realizability of long-lived assets in accordance with SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." We
review our long-lived assets for impairment if events and circumstances indicate
the carrying amount of an asset may not be recoverable. Due to our announced
restructuring in the fourth quarter of 2001 and our continued restructuring in
2002, we evaluated the realizability of our long-lived assets based on
profitability and cash flow expectations for the related assets. As a result of
our review, we recorded asset impairment charges of $1.9 and $0.2 million for
the years ended December 31, 2001 and December 31, 2002, respectively. (See Note
2)

ACCOUNTING FOR STOCK-BASED COMPENSATION

We account for stock-based awards to employees using the intrinsic value
method as prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to employees
in fixed amounts and with fixed exercise prices at least equal to the fair
market value of our common stock at the date of grant. We have adopted the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," through
disclosure only (Note 9). All stock-based awards to non-employees are accounted
for at their fair value in accordance with SFAS No. 123.

During 1998 and 1999, we granted stock options to purchase 231,300 and
4,755 shares of our common stock with exercise prices of $3.30 and $18.70 per
share, respectively. We recorded deferred compensation of $4.2 and $0.2 million
in 1998 and 1999, respectively, representing the difference between estimated
fair market value of the common stock on the date of grant and the exercise
price. These amounts were offset by reductions of $0.3, $0.7 and $0.2 million,
in 1999, 2000 and 2001, respectively, due to stock option cancellations as a
result of employee terminations. Of the remaining $3.2 million deferred, the
full amount had been amortized to expense as of March 31, 2002, of which $0.8
million, $0.5 million and $49,000 was recorded as an expense in 2000, 2001 and
2002, respectively. The stock based compensation charges have been included in
the individual operating expense line items in the financial statements.

RESULTS OF OPERATIONS

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2002 WITH THE YEAR ENDED DECEMBER
31, 2001

Revenue. Total revenues decreased to $57.3 million for 2002 from $65.4
million for 2001 due to a decrease in corporate and university solutions revenue
of $9.3 million, which was offset in part by an increase in student services
revenue of $1.2 million.

Student Services Revenue. Student services revenue increased to $52.8
million in 2002 from $51.6 million in 2001. The increase in revenue was
primarily due to revenue from OCM Direct, which we acquired in

16

June 2001. The increase was partially offset by the one time recognition of $1.0
million in revenue related to Edu.com in the first quarter of 2001, divestitures
of eStudentLoan and Rail Connection in 2001 and a decrease in advertising
revenue resulting from decreased online advertising on our network of web sites
during 2002.

Corporate and University Solutions Revenue. Corporate and university
solutions revenue decreased to $4.5 million in 2002 from $13.8 million in 2001.
The decrease in revenue was primarily due to the sale of our Voice FX assets on
December 31, 2001, the sale of our SA Marketing Group assets on May 8, 2002 and
the reduction in fees related to the restructuring of the AT&T agreement under
which we did not earn any fees from AT&T after August 31, 2001. The decrease was
also a result of the reduction in marketing spending by several of our corporate
customers. The reduction in marketing spending is attributable to the continued
overall slow-down in the economy and more specifically, the advertising and
marketing sectors.

For the twelve month period ended December 31, 2002 there were no
individual customers that accounted for more than 10% of total revenue. For the
twelve-month period ended December 31, 2001, General Motors Corp. accounted for
11% of total revenue.

Cost of Student Services Revenue. Cost of student services revenue
consists of the costs associated with subscriptions, commerce and advertising
revenue. Subscription costs consist of the costs associated with the fulfillment
of membership subscriptions and customer service. Commerce costs include costs
of goods sold paid to third parties in connection with selling products, and
personnel-related costs associated with acquiring customers for us and our
corporate clients. Advertising costs consist primarily of certain university
commissions paid to colleges for the use of organizational names and logos and
for supplying sports activity content for our network of websites, and fees paid
to partners in exchange for the right to place media inventory on such partners'
websites. Cost of student services revenue increased to $20.8 million in 2002
from $16.4 million in 2001. The increase was primarily due to an increase in
commerce costs consisting of cost of goods paid to third parties in connection
with selling products related to OCM Direct, a direct mail business, which we
acquired in June 2001.

Cost of Corporate and University Solutions Revenue. Cost of corporate and
university solutions revenue consists primarily of the costs of marketing
services and the costs of acquiring customers on behalf of our corporate
clients. Marketing services costs primarily include the direct and indirect
costs associated with planning and implementing events and promotions. Cost of
corporate and university solutions revenue decreased to $2.1 million in 2002
from $7.1 million in 2001, consistent with decreases in revenues for marketing
services, decreases in revenues due to the sale of our Voice FX assets on
December 31, 2001 and the sale of our SA Marketing Group assets on May 8, 2002.

Product Development. Product development expenses consist primarily of
personnel-related and consulting costs associated with the development and
enhancement of our suite of products, which includes the Student Advantage
Membership Program and our network of websites. Product development expenses
decreased to $7.7 million in 2002 from $17.2 million in 2001. The decrease was
primarily due to the reduction in number of employees engaged in product
development throughout 2002, an overall reduction in technology spending, the
sale of our eStudentLoan and Voice FX assets in the fourth quarter of 2001 and
the sale of our SA Marketing Group assets on May 8, 2002.

Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and other costs related to our sales and marketing programs. Sales and
marketing expenses decreased to $27.2 million in 2002 from $27.6 million in
2001. The decrease was primarily related to $3.4 million of non-cash expense for
television advertising recorded in the second quarter of 2001, the sale of our
Voice FX assets on December 31, 2001 and the sale of our SA Marketing Group
assets in May 2002. The decrease was partially offset by additional sales and
marketing expenses associated with the OCM Direct business, which was acquired
in June 2001 and the $2.2 million expense relating to the marketing agreement
with Alloy in May 2002.

General and Administrative. General and administrative expenses consist
primarily of costs related to general corporate functions, including executive
management, finance, human resources, facilities, accounting and legal. General
and administrative expenses increased to $11.8 million in 2002 from $11.3
million in 2001. The increase was primarily due to general and administrative
costs associated with OCM Direct, which was

17

acquired in June 2001, and offset by decreases related to the sale of our Voice
FX and SA Marketing Group assets on December 31, 2001 and May 8, 2002,
respectively.

Depreciation and Amortization. Depreciation expense remained consistent at
$6.7 million in 2002 in relation to $6.7 million at December 31, 2001, due
primarily to an increase as a result of our acquisition of OCM Direct in June
2001 offset by reductions due to the sale of assets, impairment of remaining
assets and an overall decline in capital spending. Amortization expense
decreased to $2.3 million in 2002 from $7.3 million in 2001 as a result of the
application of SFAS 142 in 2002. In accordance with SFAS 142, we are continuing
to amortize the value of acquired customer contracts, customer lists, technical
intangibles and trademarks attributable to the acquisition of OCM Direct and
College Club. The remaining goodwill attributable to OCM Direct will not be
amortized, but will be subject to an annual impairment test. On July 15, 2002,
we agreed to a lease termination regarding our facility in San Diego, CA. The
facility was acquired during the October 2000 acquisition of CollegeClub and at
that time we stated our intention to vacate the facility. As a result, we
provided for an accrual on unused space for the future lease obligation as part
of the purchase price. At the time of the lease termination, we carried a $2.4
million accrual related to the purchase price accrual. In accordance with EITF
95-3, we reversed the accrual against a portion of the remaining goodwill
related to the acquisition during the quarter ended September 30, 2002.

Stock-Based Compensation. During 1998 and 1999, we granted stock options
to purchase 231,300 and 4,755 shares of our common stock with exercise prices of
$3.30 and $18.70 per share, respectively. We recorded deferred compensation of
$4.2 and $0.2 million in 1998 and 1999, respectively, representing the
difference between estimated fair market value of the common stock on the date
of grant and the exercise price. These amounts were offset by reductions of
$0.3, $0.7 and $0.2 million, in 1999, 2000 and 2001, respectively, due to stock
option cancellations as a result of employee terminations. Of the remaining $3.2
million deferred, the full amount had been amortized to expense as of March 31,
2002, of which $0.8 million, $0.5 million and $49,000 was recorded as an expense
in 2000, 2001 and 2002, respectively. The stock based compensation charges have
been included in the individual operating expense line items in the financial
statements.

Interest (Income) Expense, Net. Interest (income) expense, net, was $3.9
million in 2002 compared to $1.7 million in 2001. The increase in interest
expense was partially a result of the September 2002 amendment to our credit
facility with Reservoir Capital. Reservoir Capital agreed to cancel warrants
previously issued under the credit facility and the associated right to require
us to repurchase the warrants for cash in exchange for a $4.2 million increase
in the amount of principal indebtedness under the Reservoir Capital credit
facility. Prior to the amendment, we had previously recorded warrant liability
and deferred financing costs of $2.5 million and had amortized $1.5 million of
the deferred financing as interest expense since the inception of the loan in
June 2001. Consequently, we reclassified the $2.5 million of warrant liability
to notes payable and recorded an additional $1.7 million to notes payable and
deferred financing costs. The remaining balance of $2.7 million in deferred
financing costs was being amortized to interest expense over the remaining nine-
month term of the loan. On December 30, 2002, the credit facility with Reservoir
Capital was again amended resulting in an overall decrease of approximately $6.2
million to our debt balance. In accordance with SFAS 15 "Accounting by Debtors
and Creditors Regarding Troubled Debt Restructuring," we recorded the $3.0
million gain on forgiveness of debt net of expenses, including $0.5 million of
anticipated interest expense based on the payment schedule and remaining
deferred financing costs of $1.8 million. Both of these amounts were recorded
against the gain on forgiveness of debt and not as interest expense. The $0.9
million deferred financing charge for the three-months ended December 31, 2002
was appropriately recorded as interest expense. The increase in interest expense
from 2002 to 2001 is also a result of borrowings under the $5.0 million
revolving loan facility entered into by OCM Direct in February 2002 and the
Scholar loan entered into in September 2002.

Impairment of Long-Lived Assets. We recorded a charge of $0.2 million for
the impairment of long-lived assets during 2002 related to a write-down of
certain fixed assets. We also recorded a charge of $1.9 million for the
impairment of long-lived assets in the fourth quarter of 2001 relating in part
to a write-down of $1.6 million of goodwill associated with our acquisitions of
or asset purchases from Edu.com, College411, Collegiate Advantage and Campus
Agency. The remaining $0.3 million was a write-down of

18

certain fixed assets that were acquired from Edu.com. We performed an evaluation
of long-lived assets in accordance with FAS 121 as a result of the restructuring
activity in the fourth quarter of 2001 and our continued restructuring during
2002.

Restructuring Charges. In the fourth quarter of 2001, we announced a
restructuring, which included a reduction in staff of approximately 15% of our
total employees and charges related to operating leases for office space no
longer utilized in our current operations. The costs associated with this
restructuring charge aggregated approximately $4.9 million and were recorded in
2001.

Equity Interest in Edu.com. In the second quarter of 2001, we purchased
substantially all of the assets of Edu.com, Inc. Prior to the acquisition, we
held a minority interest in Edu.com, which was accounted for under the cost
method of accounting. The resulting treatment of the additional investment in
the second quarter of 2001 was in accordance with Accounting Principles Board
Opinion 18: The Equity Method for Accounting for Investments in Common Stock
("APB 18"), which requires the application of step accounting in accordance with
Accounting Research Bulletin 51: Consolidated Financial Statements Elimination
of Intercompany Investment ("ARB 51"). Accordingly, we retroactively restated
our investment in Edu.com on the equity method of accounting and recorded our
ownership percentage of Edu.com's net loss. As a result of applying the equity
method to the Edu.com investment, we recorded an equity interest in Edu.com's
net loss of $0.5 million for the twelve months ended December 31, 2001.

Realized Gain (Loss), on Sale of Assets, Net. On May 8, 2002, we sold our
SA Marketing Group assets to Triple Dot, Inc., a subsidiary of Alloy, Inc., for
a cash payment of $6.5 million, assumption by Triple Dot, of negative working
capital of $0.5 million and an opportunity to earn up to an additional $1.5
million based on the performance of certain pending proposals. In relation to
the sale of the SA Marketing Group assets, we recorded a gain of $7.0 million.
For the twelve-month-period ended December 31, 2002, the gain was partially
offset by the sale of certain fixed assets at a price lower than the net book
value. For the twelve-month-period ended December 31, 2002, we recorded a net
gain of $6.8 million. The gain of $1.5 million in 2001 was a result of the sales
of our Rail Connection, Voice FX and eStudentLoan assets during 2001.

Realized Gain on Debt Restructuring. On December 30, 2002, Reservoir
Capital agreed to amend the terms of the Reservoir Capital credit facility to
reduce our total indebtedness to them from approximately $15.7 million to $9.5
million in exchange for a guarantee from Mr. John Katzman, a member of our Board
of Directors who resigned at the time the amendment was consummated. In exchange
for his guarantee, we agreed to pay Mr. Katzman a $1.0 million fee payable at
the time of certain loan repayments. The debt obligations to Reservoir Capital
and Mr. Katzman carry an annual interest rate of 12% and as of December 31,
2002, required payments of $3.5 million on January 31, 2003, $4.0 million on
March 31, 2003 and the remaining balance on the July 1, 2003 loan maturity date.
(See discussion of subsequent amendments to the Reservoir Capital credit
facility under "Item 1. Business.") In accordance with SFAS 15 "Accounting by
Debtors and Creditors Regarding Troubled Debt Restructuring," we recorded the
$3.0 million gain on forgiveness of debt net of expenses, including $0.5 million
of anticipated interest expense based on the payment schedule, remaining
deferred financing costs of $1.8 million, and the $1.0 million guarantee fee
paid to Mr. Katzman.

COMPARISON OF THE YEAR ENDED DECEMBER 31, 2001 WITH THE YEAR ENDED DECEMBER
31, 2000

Revenue. Total revenues increased to $65.4 million for 2001 from $48.0
million for 2000, due to an increase in student services revenue of $23.5
million, which was offset in part by a decrease in corporate and university
solutions revenue of $6.1 million. The increase in student services revenue was
primarily due to the addition of the direct mail product line of OCM Direct and
organic growth in our Official College Sports Network and CollegeClub brands.
The decrease in corporate and university solutions revenue is primarily due to a
decrease in marketing services revenue resulting from decreased marketing
spending by corporate customers.

Student Services Revenue. Student services revenue increased to $51.6
million in 2001 from $28.1 million in 2000. The increase in student services
revenue was primarily due to the acquisition of OCM Direct, in the second
quarter of 2001, and organic growth in our Official College Sports Network and
CollegeClub
19

brands. A significant portion of the direct mail business revenue is recognized
during the third fiscal quarter due to the seasonality of the business, which
relates to the back-to-school retail season. Additionally, online advertising on
our network of websites increased primarily as a result of increased advertising
from CollegeClub.com, which we acquired in the fourth quarter of 2000, and
online campaigns provided to General Motors Corp. Transaction-based commerce
revenues from our SA Cash programs also contributed to the increase. These
increases were offset, in part, by significant decreases in fees from AT&T as a
result of the restructuring of the AT&T agreements in June 2000.

Corporate and University Solutions Revenue. Corporate and university
solutions revenue decreased to $13.8 million in 2001 from $19.9 million in 2000.
Decreases in marketing services revenues resulted from decreased marketing
spending by several of our corporate customers. This decrease is attributed to
the overall slow-down in the economy and the events of September 11, 2001 and
more specifically, the declines in spending by the advertising and marketing
industries. Revenues related to our Voice FX business decreased as a result of a
lower volume in mailings by our corporate customers, which has a direct effect
on the volume of transactions.

General Motors Corp. accounted for approximately 11% and 3% of total
revenue in 2001 and 2000, respectively. Additionally, General Motors accounted
for approximately 13% and 5% of student services revenue and 4% and 0% of
corporate and university solutions revenue, in 2001 and 2000, respectively.
Capital One, accounted for approximately 9% and 16% of total revenue and 42% and
36% of corporate and university solutions revenue for 2001 and 2000,
respectively. AT&T accounted for approximately 4% and 34% of total revenue for
2001 and 2000, respectively. Additionally, AT&T accounted for approximately 3%
and 46% of student services revenue and 5% and 17% of corporate and university
solutions for 2001 and 2000, respectively.

Cost of Student Services Revenue. Cost of student services revenue
consists of the costs associated with subscriptions, commerce and advertising
revenue. Subscription costs consists of the costs associated with the
fulfillment of membership subscriptions and customer service. Commerce costs
include costs of goods sold paid to third parties in connection with selling
products, and personnel-related costs associated with acquiring customers for
the Company and our corporate clients. Advertising costs consist primarily of
production and mailing costs for SAM, Student Advantage Magazine, certain
university commissions paid to colleges for the use of organizational names and
logos and for supplying sports activity content for our network of websites, and
fees paid to partners in exchange for the right to place media inventory on such
partners' websites. The costs related to SAM are only applicable to the year
2000 as no issues were produced during 2001. Cost of student services revenue
increased to $16.4 million in 2001 from $10.3 million in 2000. This increase was
primarily due to the increase in costs as a result of the acquisition of OCM
Direct and costs related to the restructured AT&T agreement. The increases were
partially offset due to no costs being incurred for the production of SAM in
2001.

Cost of Corporate and University Solutions Revenue. Cost of corporate and
university solutions revenue consists primarily of the costs of marketing
services and the costs of acquiring customers on behalf of our corporate
clients. Marketing services costs primarily include the direct and indirect
costs associated with planning and implementing events and promotions. Cost of
corporate and university solutions revenue decreased to $7.1 million in 2001
from $9.9 million in 2000. This decrease is primarily due to the decrease in
costs consistent with the decrease in both marketing services and revenues
provided by the Voice FX business.

Product Development. Product development expenses consist primarily of
personnel-related and consulting costs associated with the development and
enhancement of our suite of products, which includes the Student Advantage
Membership Program, the SA Cash Programs and our network of websites. Product
development expenses decreased to $17.2 million in 2001 from $18.4 million in
2000. The decrease is due in part to the capitalization of internally developed
software costs in 2001 and the impact of the restructuring charge taken in the
fourth quarter of 2001. The decrease was offset in part by the acquisitions of
substantially all the assets of CollegeClub.com in 2000, and of OCM Direct and
certain assets of Edu.com in 2001.

Sales and Marketing. Sales and marketing expenses consist primarily of
personnel and other costs related to our sales and marketing programs. Sales and
marketing expenses increased to $27.6 million in 2001 from $17.9 million in
2000. The increase in sales and marketing expenses was due to increased
expenditures

20

related to the expansion of our sales force, expanding and servicing our
corporate and university base of partners, university commissions paid to
colleges for the use of organizational names and logos, building brand
awareness, supporting the marketing services business and as a result of our
acquisitions of certain assets of CollegeClub.com during 2000 and certain of
Edu.com's assets and OCM Direct in 2001. In addition, the increase was due, in
large part, to a non-cash expense of $3.4 million for television advertising
relating to CollegeClub.

General and Administrative. General and administrative expenses consist
primarily of costs related to general corporate functions, including executive
management, finance, human resources, facilities, accounting and legal. General
and administrative expenses increased to $11.5 million in 2001 from $11.2
million in 2000. Increases in general and administrative expenses were primarily
due to higher facilities, legal, accounting and personnel related costs
associated with our continued growth, as well as our acquisitions of businesses
over the past year, including certain assets of CollegeClub.com during 2000, and
certain of Edu.com's assets and OCM Direct in 2001. The increase was offset, in
part, by the impact of the restructuring charge taken in 2001.

Depreciation and Amortization. Depreciation expense increased to $6.7
million in 2001 from $2.9 million in 2000 primarily as a result of fixed asset
purchases during the latter part of 2000 and 2001, amortization of capital
leases and as a result of assets acquired through the acquisitions of OCM Direct
in June 2001. Amortization expense increased to $7.3 million in 2001 from $3.5
million in 2000, primarily as a result of the acquisition of OCM Direct in the
second quarter of 2001 and the acquisitions of ScholarAid, College411 and
certain assets of eStudentLoan and CollegeClub.com during the second and third
quarters of 2000.

Stock-Based Compensation. We recorded deferred compensation charges of
$4.2 and $0.2 million in 1998 and 1999, respectively, which were offset by
reductions of $0.3, $0.7 and $0.2 million, during 1999, 2000 and 2001,
respectively, due to stock option cancellations as a result of employee
terminations. The remaining $3.2 million was mostly amortized as of December 31,
2001, of which $0.8 and $0.5 million were recorded as expense in 2000 and 2001,
respectively. The remaining amount of deferred compensation of $49,000 will be
amortized in 2002. The stock based compensation charges have been included in
the individual operating expense line items in the financial statements.

Interest (Income) Expense, Net. Interest (income) expense, net, includes
interest income from cash balances and interest expense related to our financing
obligations. Interest (income) expense, net, was $1.7 million in 2001 compared
to $(1.4) million in 2000. The increase in our interest expense during 2001 was
a result of the $10.2 million term loan and $5.0 million revolving loan entered
into in June 2001 with Reservoir Capital.

Impairment of Long-Lived Assets. We recorded a charge of $1.9 million for
the impairment of long-lived assets in the fourth quarter of 2001 relating in
part to a write-down of $1.6 million of goodwill associated to our acquisitions
of or asset purchases from Edu.com, College411, Collegiate Advantage and Campus
Agency. The remaining $0.3 million was a write-down of certain fixed assets that
were acquired from Edu.com. We performed an evaluation of long-lived assets in
accordance with FAS 121 as a result of the restructuring activity in the fourth
quarter of 2001.

Restructuring Charges. In the fourth quarter of 2001, we announced a
restructuring, which included a reduction in staff of approximately 15% of our
total employees and charges related to operating leases for office space no
longer utilized in our current operations. The costs associated with the
restructuring charge aggregated approximately $4.9 million.

Equity Interest in Edu.com. In the second quarter of 2001, we purchased
substantially all assets of Edu.com, Inc. Prior to the acquisition we held a
minority interest in Edu.com, which was accounted for under the cost method of
accounting. The resulting treatment of the additional investment in the second
quarter of 2001, was in accordance with Accounting Principles Bulletin: The
Equity Method for Accounting for Investments in Common Stock ("APB 18"), which
requires the application of step accounting in accordance with Accounting
Research Bulletin 51: Consolidated Financial Statements Elimination of
Intercompany Investment ("ARB 51"). Accordingly, we retroactively restated our
investment in Edu.com on the equity method of accounting and recorded our
ownership percentage of Edu.com's net loss. As a result of applying

21

the equity method to the Edu.com investment, we recorded an equity interest in
Edu.com's net loss of $3.8 and $0.5 million for the years ended December 31,
2000 and 2001, respectively.

Realized Gain (Loss). Realized gain (loss) was $1.5 million in 2001
compared to $(0.4) million in 2000. The gain of $1.5 million in 2001 was a
result of the sales of our Rail Connection, Voice FX and eStudentLoan assets
during 2001. Realized loss on investment in 2000 represented the write-off of
our investment in alumnipride.com, Inc.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations primarily through the
private placement and public offering of securities, cash from operations,
borrowings under our term loan, credit facilities, loans from equity holders,
sales of accounts receivable and dispositions of businesses. During the
twelve-month period ended December 31, 2002 Raymond V. Sozzi, Jr., our President
and Chief Executive Officer, advanced an aggregate of $1.1 million to us, all of
which was repaid as of December 31, 2002. Our liquidity needs arise primarily
from our operating losses, our working capital requirements, debt service on the
indebtedness to Reservoir Capital, which we refer to as the Reservoir Capital
credit facility, debt service on the Scholar loan incurred by us in September
2002, and debt service on the revolving loan incurred by OCM Direct in February
2002, which we refer to as the OCM loan. In addition, we expect to have
additional liquidity needs as a result of required repayments of the Reservoir
Capital credit facility, the OCM loan and the Scholar loan and the guarantee fee
to Mr. Katzman. We paid $1.5 million to Reservoir Capital on January 31, 2003
and borrowed an additional $2.0 million as of March 31, 2003. As of December 31,
2002 and March 31, 2003, we had $18.2 and $20.7 million of total indebtedness,
consisting of $13.0 and $13.5 million in principal borrowings and interest under
the Reservoir Capital credit facility, $3.5 and $3.6 million in principal
borrowings and interest under the Scholar loan and $1.7 and $3.6 million in
borrowings under the OCM loan, respectively. The debt obligations to Reservoir
Capital require payments of $4.0 million on April 28, 2003 and the remaining
balance on the July 1, 2003 loan maturity date and Mr. Katzman's $1.0 million
guarantee fee must also be paid by the July 1, 2003 maturity date. The debt
obligation to Scholar, Inc. is due on July 1, 2003. The OCM loan is due on April
30, 2003. See footnote 14 for a schedule of our operating and capital lease
commitments.

As of December 31, 2002, we had cash and cash equivalents of $2.8 million.
In addition, we had restricted cash of $0.5 million, which represents amounts
held by our third party credit card processor and amounts held in escrow
pursuant to the terms of acquisition agreements we entered into relating to the
sale of certain of our assets and businesses.

Net cash used for operating activities was $11.4 million for 2002, a
decrease of $2.8 million compared to net cash used for operating activities of
$14.2 million for 2001. Net cash used for operating activities in 2002 was
primarily a result of a net loss of $15.9 million, a net gain on sale of assets
of $6.5 million, a net gain on forgiveness of debt of $3.0 million, a decrease
in accrued compensation of $1.2 million, and a decrease in other accrued
expenses of $5.1 million. The net loss was partially offset by depreciation and
amortization of $9.0 million, deferred financing amortization of $2.1 million, a
decrease in accounts and notes receivable of $3.5 million, and an increase in
deferred revenue and other advances of $4.8 million.

Net cash provided by investing activities was $5.2 million for 2002. Net
cash used for investing activities was $10.6 million for 2001. Net cash provided
by investing activities 2002 was primarily a result of the $6.8 million in
proceeds received for the sale of the SA Marketing Group assets in May 2002 and
from the sale of notes and certain fixed assets, which was partially offset by
purchases of fixed assets of $1.5 million. Net cash used in 2001 was due to the
acquisition of OCM Direct in June 2001 and purchases of fixed assets.

Net cash provided by financing activities was $3.8 million and $17.1
million for 2002 and 2001, respectively. The net cash provided by financing
activities in 2002 was primarily the result of borrowings of $3.5 million under
the Scholar loan, $2.0 million under the Reservoir Capital credit facility, $1.7
million under the OCM loan and net proceeds of $2.7 million from the sale of
equity securities in a private placement in May 2002, which were partially
offset by the repayment of $5.2 million under the Reservoir Capital credit
facility. The net cash provided by financing activities in 2001 was primarily
related to net proceeds of

22

$20.0 million from the sale of equity securities in a private placement in May
2001 and net proceeds from the debt financing consisting of a term loan and a
revolving loan from Reservoir Capital.

In February 2002, our subsidiary, OCM Direct, and its subsidiaries,
CarePackages and Collegiate Carpets, entered into a revolving loan agreement
(the "OCM loan") with Bank of America providing for a $5.0 million revolving
loan, which is secured by all of the assets of OCM Direct and its two
subsidiaries. We provided an unsecured guaranty of the obligations of OCM Direct
and its subsidiaries to Bank of America. The interest rate under the OCM loan is
LIBOR plus 2.5 percent and the original maturity date of the loan was January
31, 2003. On January 24, 2003, the OCM loan was amended to provide that the
maturity date of the loan will be April 30, 2003. At December 31, 2002 and March
31, 2003, $1.7 and $3.6 million was outstanding under the OCM loan,
respectively. We are currently in discussions with the lender to extend the
maturity date and borrowing period of the loan until August 30, 2003.

On September 30, 2002, we agreed to borrow $3.5 million from Scholar, Inc.,
an entity formed by Raymond V. Sozzi, Jr., our President and Chief Executive
Officer, an affiliate of Atlas II, L.P. and certain other of our stockholders.
The loan is referred to as the Scholar loan, has an interest rate of 8% per
annum, matures on July 1, 2003 and otherwise has the same terms as the Reservoir
Capital credit facility.

As of December 31, 2002, we had $13.0 million of total indebtedness under
the Reservoir Capital credit facility, which is secured by substantially all of
our assets and all of the assets of our subsidiaries other than OCM Direct and
its subsidiaries. On December 30, 2002, Reservoir Capital agreed to reduce our
total indebtedness to them from approximately $15.7 million to $9.5 million in
exchange for a guarantee from Mr. John Katzman, a member of our Board of
Directors who resigned at the time the amendment was consummated. In exchange
for his guarantee, we agreed to pay Mr. Katzman a $1.0 million fee payable at
the time of certain loan repayments. In addition, Reservoir Capital agreed to
lend us an additional $2.0 million, which was not secured by Mr. Katzman's
guarantee. The debt obligations to Reservoir Capital and Mr. Katzman carry an
annual interest rate of 12% and required payments, as of December 31, 2002, of
$3.5 million on January 31, 2003, $4.0 million on March 31, 2003 and the
remaining balance on the July 1, 2003 loan maturity date. Under the terms of the
Reservoir Capital credit facility, we are required to make mandatory prepayments
of the value of the net proceeds of equity financings and certain agreed upon
amounts in the event of certain asset dispositions and are subject to
significant restrictions on our ability to obtain additional financing.

On January 31, 2003, Reservoir Capital agreed to reduce the $3.5 million
payment due on January 31, 2003 to $1.5 million. The remaining payment terms of
the December 30, 2002 amendment remained unchanged.

On March 14, 2003, March 31, 2003 and April 14, 2003 we further amended the
terms of the credit facility. On March 14, 2003, Reservoir Capital agreed to
lend us an additional $0.5 million. On March 31, 2003, Reservoir Capital agreed
to lend us an additional $1.5 million and to change the date on which we are
required to repay $4.0 million of borrowings under the loan agreement from March
31, 2003 to April 14, 2003. On April 14, 2003, the repayment date for the $4.0
million was again amended to become April 28, 2003.

We have experienced substantial net losses since our inception and, as of
December 31, 2002, had an accumulated deficit of $124.8 million. Such losses and
accumulated deficit resulted primarily from significant costs incurred in the
development of our products and services and the establishment of our
infrastructure. We have also experienced a reduction in revenue and an increase
in net losses as a result of the economic downturn, in particular, the downturn
in the media and advertising sector, and due to the sale of various assets.
During 2002, we continued to reduce our operating costs, in continuation of the
restructuring that we announced in October 2001 and plan to further reduce
operating costs in 2003. Our cash requirements for debt service, primarily the
repayment of debt, and continued operations are substantial and our available
resources are not sufficient to fund such obligations, requiring us to obtain
additional financing.

Our available cash resources are not sufficient to meet our repayment
obligations under the Reservoir Capital and Scholar loans, which require
payments in the aggregate amount of $4.0 million on April 28, 2003, and our OCM
loan, which requires payments on April 30, 2003. However, if we are able to
restructure or

23

extend our loans for no less than one year, realize an anticipated increase in
revenue for the remainder of 2003, proceeds from sales of assets, and cost
savings through significant reductions in our net cash loss, we currently
anticipate that our available cash resources will be sufficient to meet our
anticipated needs for working capital and capital expenditures through April
2004. Our expectations regarding available cash resources through April 2004 are
based in part on the renewal and continued availability of the OCM loan (which
currently expires on April 30, 2003), proceeds from possible sales of our assets
and our ability to further restructure or refinance our debt obligations with
Reservoir Capital and Scholar. There can be no assurance that the OCM loan will
be available beyond the current maturity date of April 30, 2003 or that we can
reduce costs or sell assets. We will require additional financing in order to
pay the amounts due under the OCM loan in April 2003, the Reservoir Capital
credit facility in April and July of 2003 and the Scholar loan in July 2003.
Failure to generate sufficient revenues, reduce certain discretionary spending
or obtain additional capital or financing prior to April 28, 2003 because we
have been unable to restructure or refinance our debt obligations would have a
material adverse effect on our assets, properties, operations, our ability to
achieve our intended business objectives and our ability to continue as a going
concern. There can be no assurance that new or additional sources of financing
will be available or will be available upon terms acceptable to us. To the
extent that we finance our requirements through the issuance of additional
equity securities, any such issuance would result in dilution to the interests
of our stockholders. Furthermore, to the extent that we incur indebtedness in
connection with financing activities, we will be subject to all of the risks
associated with incurring substantial indebtedness, including the risk that
interest rates may fluctuate and cash flow may be insufficient to pay principal
and interest on any such indebtedness. These conditions raise substantial doubt
about the Company's ability to continue as a going concern and our auditors have
reflected this in their audit opinion.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- amendment of SFAS 123", "SFAS 148".
SFAS 148 amends Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", "SFAS 123" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, this statement amends the disclosure
requirements for SFAS 123, to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. We
have elected to continue to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", "APB 25", and related
interpretations. Accordingly, compensation cost for stock options and restricted
stock awards is measured as the excess, if any, of the quoted market price of
our stock at the date of the grant over the exercise price an employee must pay
to acquire the stock. We have adopted the annual disclosure provisions of SFAS
148 in our financial statements for the year ended December 31, 2002 and will
adopt the interim disclosure provisions in our financial statements for the
quarter ended March 31, 2003. Since the adoption of SFAS 148 involves disclosure
only, we do not expect a material impact on our earnings or on our financial
position.

The requirements of FASB Interpretation No. 45 Guarantor's Accounting and
Disclosure Requirements for Guarantees, is effective for financial statements of
interim or annual periods after December 15, 2002. The Company does not believe
that the adoption of this standard will have an impact on these financial
statements.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

WE HAVE EXPERIENCED LOSSES IN THE PAST AND EXPECT FUTURE LOSSES

We have not achieved profitability and have incurred significant operating
losses to date. We incurred net losses of $28.7, $35.8 and $15.9 million in
2000, 2001 and 2002, respectively. As of December 31, 2002, our accumulated
deficit was $124.8 million. We expect to continue to incur significant operating
and capital expenditures and, as a result, we will need to generate significant
revenue to achieve and maintain profitability. We may also need to further
reduce our expenses in order to achieve and maintain profitability. We may not

24

be able to reduce our expenses without affecting our ability to generate
revenues, consummate transactions or achieve and sustain profitability. We
cannot assure you that we will achieve sufficient revenue for profitability. We
have experienced a reduction in revenue and continued net losses in connection
with the economic downturn and, in particular, the downturn in the media and
advertising sector and due to the sales of various assets. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenue grows
more slowly than we anticipate, or if operating expenses exceed our expectations
or cannot be adjusted accordingly, our business, results of operations and
financial condition will be materially and adversely affected.

WE HAVE INCURRED A SUBSTANTIAL AMOUNT OF DEBT AND NEED ADDITIONAL CAPITAL, AND
THE FUTURE FUNDING OF OUR CAPITAL NEEDS IS UNCERTAIN

We require substantial working capital to fund our business and service our
outstanding debt obligations. Our available cash resources are not sufficient to
meet our repayment obligations under our existing loans. As of March 31, 2003,
we had $20.7 million of total indebtedness, consisting of $13.3 million in
principal borrowings and interest under the Reservoir Capital credit facility,
$3.6 million in principal borrowings and interest under the Scholar loan and
$3.6 million in principal borrowings and interest under the OCM loan. We are
required to make a payment under the Reservoir Capital credit facility of $4.0
million on April 28, 2003 and to pay the entire outstanding balance on July 1,
2003. We are required to pay the entire outstanding balance of the OCM loan on
April 30, 2003. We are required to pay the entire outstanding balance of the
Scholar loan on July 1, 2003.

Our ability to continue as a going concern is dependent on our ability to
defer repayment of amounts owed to our lenders, to realize proceeds from asset
sales, to make required payments on our loans in a timely manner and to fund our
operations until we can generate sufficient revenue to sustain our operations.
If we are not able to do so, our business will be materially adversely affected
and we may not be able to continue as a going concern.

Due in part to the spending patterns of students and universities and our
need to acquire inventory for our OCM Direct business, we experience seasonal
variations in our receipts and expenditures of cash. We have experienced and
expect to continue to experience periodic cash demands that exceed our cash flow
and will require additional external financing through credit facilities, sale
of debt or equity securities or by obtaining other financing facilities to
support our operations and repay our outstanding debt. Failure to generate
sufficient revenues, obtain additional capital or financing, and reduce certain
discretionary spending would have a material adverse effect on our assets,
properties, operations and our ability to achieve our intended business
objectives.

Based on our current expectations, we will be required to raise additional
financing and sell additional assets in order to repay our outstanding
indebtedness as it comes due beginning on April 28, 2003 and we cannot assure
you that we will be able to do so. Our loan agreement with Reservoir Capital
imposes significant restrictions on our ability to raise funds through the sale
of equity, make investments and acquisitions, restructure our operations, obtain
other financing and realize proceeds from sales of assets or equity financings.
In addition, funds raised through the issuance of equity securities or
securities convertible into stock may have negative effects on our stockholders,
such as a dilution in percentage of ownership in Student Advantage, and the
rights, preferences or privileges of the new security holders may be senior to
those of the common stockholders.

Our total debt may have important consequences to us, including but not
limited to the following:

- our ability to obtain additional financing for any working capital,
repayment of debt, capital expenditures, future acquisitions or other
purposes may be impaired or any such financing may not be on terms
favorable to us;

- we will remain subject to covenants imposed by our lenders which restrict
our ability to make investments and acquisitions, obtain other financing,
and realize proceeds from sales of business units;

25

- a substantial decrease in net operating cash flows or increase in
expenses could make it difficult for us to meet our debt service
requirements or force us to modify our operations or sell assets; and

- our debt structure may place us at a competitive disadvantage and affect
our ability to adjust rapidly to market conditions or may make us
vulnerable to a downturn in our business or the economy generally or
changing market conditions and regulations.

Our ability to repay or to refinance our obligations with respect to our
indebtedness will depend on our future financial and operating performance,
which, in turn, may be subject to prevailing economic and competitive conditions
and other factors, many of which are beyond our control. We have experienced a
reduction in revenue and increase in net losses as a result of the economic
downturn and, in particular, the downturn in the media and advertising sector.
Our ability to meet our debt service and other obligations and our ability to
re-borrow under revolving credit facilities may depend in significant part on
the extent to which we can successfully implement our business and growth
strategy. There can be no assurance that we will be able to successfully
implement our strategy or that the anticipated results of our strategy will be
realized. These conditions raise substantial doubt about the Company's ability
to continue as a going concern and our auditors have reflected this in their
audit opinion.

OUR INDEPENDENT AUDITORS HAVE EXPRESSED A GOING CONCERN MODIFICATION IN THEIR
AUDIT REPORT.

The report of Ernst & Young LLP, our current independent auditors, with
respect to our financial statements and the related notes for the year ended
December 31, 2002, indicates that, at the date of their report, we had suffered
recurring losses from operations and that our current cash position raised
substantial doubt about our ability to continue as a going concern. Our
financial statements do not include any adjustments that might result from this
uncertainty.

OUR COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ NATIONAL MARKET.

On February 12, 2003, we received notification from the Nasdaq Listing
Qualifications Panel stating that the Panel determined to delist our common
stock from The Nasdaq National Market. The Panel based its decision on our
inability to meet the requirements for continued listing on the Nasdaq National
Market or the Nasdaq SmallCap Market. Our common stock commenced trading on the
OTC Bulletin Board on February 13, 2003.

The delisting could result in a number of negative implications, including
reduced liquidity in our common stock as a result of the loss of market
efficiencies associated with the Nasdaq National Market as well as the potential
loss of confidence by suppliers, customers and employees, the loss of
institutional investor interest, fewer business development opportunities and
greater difficulty in obtaining financing.

In addition, the delisting may make it more difficult for an investor to
dispose of, or obtain accurate quotations as to the market value of our stock.
This delisting may negatively impact the value of our stock as stocks trading on
the over-the-counter market are typically less liquid and trade with larger
variations between the bid and ask price. In addition, there are additional
sales practice requirements on broker-dealers who sell such securities, such as
determining the suitability of the purchaser and receiving the purchaser's
written consent to the transaction prior to sale. While the trading price of our
stock is below $5.00 per share, trading in the common stock is also subject to
certain other securities laws requirements, which require additional disclosure
by broker-dealers in connection with any trades involving a stock defined as a
"penny stock," such as delivery of a disclosure schedule explaining the penny
stock market and the risks associated with it. The additional burdens imposed
upon broker-dealers by such requirements may discourage broker-dealers from
effecting transactions in our stock, which could severely limit the market price
and liquidity of our stock.

GENERAL MARKET CONDITIONS COULD ADVERSELY AFFECT OUR BUSINESS.

We believe that general economic conditions and the financial difficulties
that many companies have experienced have caused a slowdown in consumer and
business spending and in companies' budgets for marketing services and have
reduced the perceived urgency by companies to begin or to continue marketing

26

initiatives. In addition, recent acts of terrorism and subsequent geopolitical
uncertainties have materially and adversely affected travel and tourism
spending, and as a result our revenues for student-related travel services have
been adversely affected. As a result, our current customers may cancel or delay
spending on marketing and other initiatives and there may be a decrease in
demand for our services from potential customers. If companies continue to delay
or reduce their marketing initiatives because of the current economic climate,
or for other reasons, our business, financial condition and results of
operations could be materially adversely affected. Moreover, the current market
conditions have decreased the demand for online advertising, and have put
downward pressure on the cost per thousand impressions which we can charge for
such advertising and have increased the likelihood that, despite our best
efforts and written agreements supporting such efforts, certain of our customers
may be unable to pay for such advertising services we have provided to them.

WE MAY BE SUBJECT TO LITIGATION WHICH COULD HAVE A MATERIAL ADVERSE EFFECT UPON
OUR BUSINESS

Our industry has been the subject of litigation regarding intellectual
property and contractual rights. Consequently, there can be no assurance that
third parties will not allege claims against us with respect to current or
future trademarks, advertising or marketing strategies, our syndication of
content to third parties offering archived database service, business processes
or other proprietary rights, or that we will counterclaim against any such
parties in such actions. Any such claims or counterclaims could be time
consuming, result in costly litigation, diversion of management's attention,
require us to redesign our products or marketing strategies or require us to
enter into royalty or licensing agreements, any of which could have a material
adverse effect upon our business, results of operations and financial condition.
Such royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all.

In November 2002, we were named as a defendant in a lawsuit filed against
us and General Motors by Richard M. Kipperman, Liquidating Trustee of the
bankruptcy estate of CollegeClub.com, Inc., Campus24, Inc. and
CollegeStudent.com, Inc., in the U.S. Bankruptcy Court for the Southern District
of California. The suit seeks damages of $2.25 million and interest and costs
relating to payments received by us under an agreement with General Motors that
we acquired from CollegeClub.com. The trustee alleges that the payments were
earned by CollegeClub.com prior to our acquisition of the agreement and were not
sold to us as part of the agreement. We believe that the trustee's allegations
are factually incorrect and are inconsistent with the terms of the acquisition
agreement with CollegeClub.com and intend to defend the matter vigorously. If,
however, we are found to have significant liability to the liquidating trustee
or incur significant costs in connection with the litigation, our financial
condition and liquidity would suffer significant harm.

WE HAVE A LIMITED OPERATING HISTORY AND MAY FACE DIFFICULTIES ENCOUNTERED BY
EARLY STAGE COMPANIES IMPLEMENTING AN ONLINE AND OFFLINE STRATEGY

We have a limited operating history on which an investor can evaluate our
business. An investor in our common stock must consider the risks and
difficulties frequently encountered by early stage companies implementing an
online and offline strategy. These risks include, without limitation, our
possible inability to:

- sustain historical revenue growth rates,

- generate sufficient revenue to achieve and maintain profitability,

- generate or raise sufficient capital to operate and expand our business,

- implement our business model,

- maintain the satisfaction of our members and users, and our university
and corporate partners,

- introduce new and enhanced web and offline products, content, and
services and avail ourselves of current opportunities, and

- respond to current opportunities, competitive developments and market
conditions.

27

If we do not successfully manage these risks, our business, results of
operations and financial condition will be materially adversely affected. We
cannot assure you that we will successfully address these risks or that our
business strategy will be successful.

WE MAY NOT SUCCESSFULLY IMPLEMENT OUR BUSINESS STRATEGY

In order to successfully implement our business strategy, we must:

- maintain our network of university-endorsed relationships as our primary
access point to students, their parents and alumni for delivery of our
Membership Program, and OCM Direct products and services, and our online
Official College Sports Network website,

- maintain our network of corporate sponsors,

- continue to aggressively build the Student Advantage brand,

- continue to increase our student reach and grow the number of paid
participants in our Membership Program through OCM Direct sales, online
membership sales, corporate sponsored distributions, and university and
college sales, and

- continue to establish our network of websites as part of our integrated
approach for delivering our products and services, including licensed
college sports products, member registration and renewal, information
regarding national and local sponsors, and customer service.

We are dependent on maintaining college and university relationships to
market and sell our products and services. Our ability to maintain these
alliances and relationships and to develop new alliances and relationships is
critical to our ability to maintain our members, our direct mail customers, our
remaining SA Cash university partners and our Official College Sports Network
university partners. A failure to acquire or maintain alliances and
relationships with colleges and universities could have a material adverse
effect on our business. We are also dependent upon our sponsors, both national
and local, to provide our members and SA Cash participants with discounts on
their products and services. However, our agreements with a number of our
sponsors preclude us from entering into similar arrangements with their
competitors. This restriction may prevent us in some cases from offering
attractive additional discounts to our members. We may encounter difficulties in
establishing or maintaining our network of web sites. Several companies that
provide content to our web sites have discontinued operations or filed for
bankruptcy protection. We may be forced to procure services from other
suppliers, and cannot assure you that we will be able to do so in a timely and
cost-effective manner, and may be required to alter certain of our offerings to
reflect such events. In addition, our members and customers may perceive our web
sites to be lacking certain content or attributes due to the failure of certain
business partners. Finally, we cannot guarantee that Internet users will
maintain interest in our network of websites. A decline in membership or usage
of our network of websites would decrease revenue.

OUR ABILITY TO GENERATE SIGNIFICANT REVENUES AND PROFITS FROM CERTAIN
ESTABLISHED AND NEW PRODUCTS AND SERVICES IS UNCERTAIN

Our business model depends, in part, on increasing the amount of revenues
and profits derived from certain established and new products and services. Our
ability to generate significant revenues and profits from these products and
services will depend, in part, on the implementation of our strategy to generate
significant transaction commerce and user traffic. Our strategy includes using
our membership card to achieve a significant presence in university and college
communities, and to develop and expand on sponsor relationships to include
revenue sharing agreements based on transaction volume. During the second
quarter of 2001, AT&T completed its obligation to purchase Student Advantage
memberships in bulk. In prior periods, the majority of student memberships were
obtained through AT&T or other corporate partners' promotional offers of Student
Advantage memberships. These promotional offers typically included a free
one-year membership in the Student Advantage Membership Program. Our corporate
partners purchased Student Advantage memberships in bulk to fulfill these
promotional offers. We have focused our efforts to change the marketing model
for the sale of memberships from a primarily bulk sale model to a more balanced
model which includes the sale of memberships to both corporate partners in bulk
and direct sales to individuals. We continue to sell
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memberships under this new model through our corporate partners, the Student
Advantage network of websites, our direct mail marketing business and other
related marketing channels. We have experienced and anticipate continuing to
experience a decline in the overall number of memberships sold through bulk sale
arrangements, although this decline has been partially offset by an increase in
the number of individual memberships sold at a higher per unit price. The
inability to successfully develop this marketing model or the related sales
channels could have a materially adverse effect on the business and our ability
to attract and retain corporate partners. It is difficult for us to project
future levels of subscription, transaction-related and advertising revenues and
profits.

A LIMITED NUMBER OF CUSTOMERS HAVE HISTORICALLY ACCOUNTED FOR A SIGNIFICANT
PERCENTAGE OF OUR TOTAL REVENUES

In the past, a limited number of customers have accounted for a significant
percentage of our total revenues. In 2002, there was no single customer that
accounted for more than 10% of total revenue. In 2001, three customers, in the
aggregate, accounted for approximately 23% of our total revenue. While we
anticipate that revenue from this limited number of customers will decline as a
percentage of total revenues, a limited number of customers may account for a
significant percentage of total revenues in the future, and we believe that we
must continue to acquire additional customers to be successful. The loss of any
one of these customers, or a material decrease in the services provided to these
customers, could have a materially adverse effect on our business. In addition,
many of our customers have slowed their payment cycles and the non-payment or
late payment of amounts due from customers could have a material adverse effect
on our business, financial condition and results of operations.

COLLEGES AND UNIVERSITIES ARE INCREASINGLY RELUCTANT TO PERMIT BUSINESSES TO
MARKET PRODUCTS AND SERVICES ON CAMPUS

Colleges and universities are becoming increasingly wary of businesses that
market products and services to their students. Recent proposed and enacted laws
may restrict how companies can market products and services to students. Many
colleges and universities are seeking to decrease or eliminate such marketing.
In particular, colleges and universities are concerned that many students have
incurred substantial levels of credit card debt. As a result, colleges and
universities often attempt to prevent credit card companies and other companies
that offer credit from marketing to their students. In the past, we have been
mistaken for a credit card company because we give students a plastic card and a
unique identification number to represent their membership. This sometimes makes
it difficult for us to gain access to college and university students, as we
have been denied access to certain college and university campuses in the past.

OUR ABILITY TO EXECUTE ON OUR SUPPLY CHAIN MANAGEMENT PLAN IN OUR DIRECT
MARKETING BUSINESS IS DEPENDENT UPON A LIMITED NUMBER OF SUPPLIERS THAT MAY BE
SUBJECT TO INTERNATIONAL SHIPPING OR TRADE LIMITATIONS

Our direct marketing business requires reasonably accurate execution of our
supply chain management plan. We are dependent on third parties to supply us
with products for resale to our customers. These third party suppliers may be
subject to international shipping or trade limitations, which may impact the
timing of the delivery and/or cost of these products. If we are unable to
successfully procure adequate quantities of goods from our suppliers on a timely
basis, we may not be able to fulfill the orders of our customers. Furthermore,
if customer demand does not materialize based on our projections, it may result
in excess inventory of certain products. Either of these circumstances may have
a materially adverse effect on our business.

OUR STATUS UNDER STATE AND FEDERAL FINANCIAL SERVICES REGULATION IS UNCLEAR.
VIOLATION OF ANY PRESENT OR FUTURE REGULATION COULD EXPOSE US TO LIABILITY,
FORCE US TO CHANGE OUR BUSINESS PRACTICE OR FORCE US TO CEASE OR ALTER OUR
OFFERINGS

Our remaining SA Cash offerings involve an industry potentially subject to
government regulation. In the future, we might be subjected to federal or state
banking laws or regulations. If we are deemed to be in
29

violation of any current or future regulations, we could be exposed to financial
liability or forced to change our business practices or offerings. As a result,
we could face significant legal fees, delays in extending our product offerings,
a curtailing of current or contemplated offerings and damage to our reputation
that could adversely affect our financial results. One or more governmental
agencies that regulate or monitor banks or other types of providers of
electronic commerce services, including the Office of the Comptroller of the
Currency and the Federal Reserve Board, may conclude that, under its statutes
and licensing requirements, we are engaged in an unauthorized banking business.
In that event, we might be subject to monetary penalties and adverse publicity
and might be required to cease doing business with residents of those states. A
number of states have enacted legislation regulating check sellers, money
transmitters or service providers as banks. This uncertainty regarding the scope
and application of these regulations has slowed our ability to market our
offerings. Such liability or changes could have a material adverse effect on our
business, results of operations and financial condition. Even if we are not
forced to change our business practices, we could be required to obtain licenses
or regulatory approvals that could cause us to incur substantial costs.

OUR BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS, WHICH MAY AFFECT OUR REVENUES
AND OPERATING RESULTS

We tend to sell most of our memberships in the beginning of each academic
term. All of these memberships expire on July 31st of each year. Because the
aggregate number of memberships within a school year increases as new members
are added and because we recognize revenue from memberships ratably over the
period from the time of subscription until the end of our membership year, our
subscription revenue will typically be higher in the first and second quarters
than in the fourth quarter of each fiscal year. It is difficult to determine how
the third quarter will typically compare, since it includes two calendar months
from the end of a membership year and the first month of the subsequent
membership year. In addition, a significant portion of the direct mail business
revenue is recognized during the third quarter. The revenue on these sales is
generally recognized when the products are shipped to our customers. These
seasonal factors could have a material adverse effect on our business, financial
condition and results of operations.

OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE NOT INDICATIVE OF FUTURE
PERFORMANCE AND ARE DIFFICULT TO FORECAST

In addition to the seasonal fluctuations described above, our revenues and
operating results may vary from quarter to quarter for a variety of other
reasons, such as the timing of revenues from corporate sponsors or non-recurring
revenues or charges. You should not rely on quarter-to-quarter comparisons of
our operating results or our operating results for any particular quarter as
indicative of our future performance. It is possible that in some future periods
our operating results may be below the expectations of public market analysts
and investors. In this event, the price of our common stock might fall. A
significant portion of our revenue is derived from our membership and direct
mail business. A significant percentage of our members graduate each year and,
therefore, do not renew their memberships. Furthermore, substantially all of our
memberships expire annually and require our members to renew the membership
subscription. Our revenue growth is highly dependent upon our ability to market
the value of our Membership Program to college students and to retain members on
a yearly basis. To date, we have not maintained sufficient data to determine the
specific number of members who renew on a yearly basis. Through our direct mail
business, a disproportionate share of our revenue is recorded in the second and
third quarter of each calendar year as a result of the timing of our mailings
and customer demand. A failure to acquire new members, renew current members or
to predict customer demand in our direct mail business could have a material
adverse effect on our business.

WE FACE SIGNIFICANT COMPETITION, WHICH COULD ADVERSELY AFFECT OUR BUSINESS

We compete with other companies targeting the student population, such as:

- publishers and distributors of traditional offline media, particularly
those targeting college students, such as campus newspapers, other print
media, television and radio; and

- vendors of college student information, merchandise, products and
services distributed through online and offline means, including retail
stores, direct mail and schools.

30

We compete for client marketing budget dollars with other marketing
activities and, in particular, other forms of direct marketing activities, such
as direct mail. In recent years, there have been significant advances in new
forms of direct marketing, such as the development of interactive shopping and
data collection through television, the Internet and other media. Many industry
experts predict that electronic interactive commerce, such as shopping and
information exchange through the Internet will proliferate in the foreseeable
future. To the extent such proliferation occurs, it could have a material
adverse effect on the demand for membership programs.

Competition for online users and advertisers is intense and is expected to
increase over time as barriers to entry are relatively low. We compete for
visitors, traffic, sponsors and online merchants with web directories, search
engines, content sites, online service providers and traditional media
companies. We also face competition from other companies maintaining websites
dedicated to college students as well as high-traffic websites sponsored by
companies such as AOL Time Warner, CBS, Disney, Terra Lycos, Microsoft, MTV and
Yahoo!.

Many of our competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. In addition, substantially all of
our current advertising customers have established collaborative relationships
with other high-traffic websites. As a result, our advertising customers might
conclude that other Internet businesses, such as search engines, commercial
online services and sites that offer professional editorial content are more
effective sites for advertising than we are. Moreover, we may be unable to
maintain either the level of traffic on our web sites or a stable membership
base, which would make our sites less attractive than those of our competitors.
Increased competition from these and other sources could require us to respond
to competitive pressures by establishing pricing, marketing and other programs
or seeking out additional strategic alliances or acquisitions that may be less
favorable to us than we could otherwise establish or obtain.

In May 2002, we sold the assets of our SA Marketing Group to Triple Dot,
Inc., a subsidiary of Alloy, Inc. In connection with the sale, we agreed not to
compete with Alloy in certain events and promotions businesses until November
2005. In January 2003, we sold the majority of out assets relating to our SA
Cash business to Blackboard, Inc. In the connection with the SA Cash sale, we
agreed not to compete with Blackboard in the SA Cash business other than in
connection with schools operating on the Diebold payments platform until January
2010. This restriction on our ability to compete may prevent us from taking
advantage of available business opportunities in the future, which could hinder
our ability to gain new corporate sponsors, build the Student Advantage brand
and increase the number of members in our Membership Program.

WE MAY UNDERTAKE ADDITIONAL ACQUISITIONS OR DIVESTITURES THAT MAY LIMIT OUR
ABILITY TO MANAGE AND MAINTAIN OUR BUSINESS AND MAY BE DIFFICULT TO INTEGRATE
INTO OUR BUSINESS

From January 1, 1999 to date, we acquired fifteen businesses and, since
January 1, 2000, have sold five others. In the future, we may undertake
additional acquisitions and sales of certain businesses or operations. These
transactions involve a number of risks, including:

- diversion of management attention and transaction costs associated in
negotiating and closing the transaction;

- under-performance of an acquired business relative to our expectations;

- inability to retain the customers, management, key personnel and other
employees of the acquired business;

- inability to establish uniform standards, controls, procedures and
policies;

- inability to fully utilize all intellectual property of the acquired
company;

- exposure to legal claims for activities and obligations of the acquired
business arising from events occurring prior to the acquisition; and

- inability to realize the benefits of divestitures and collect monies owed
to us.

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Integrating the operations of an acquired business can be a complex process
that requires integration of service personnel, sales and marketing groups,
technological infrastructure and service offerings, and coordination of our
development efforts. Customer satisfaction or performance problems with an
acquired business could affect our reputation as a whole. If we are unable to
effectively fully manage these risks in connection with our acquisitions or
dispositions, our business, operating results and financial condition could be
adversely affected.

WE MUST MANAGE OUR GROWTH AND CONSOLIDATION SUCCESSFULLY, INCLUDING THE
INTEGRATION OF ACQUIRED COMPANIES, IN ORDER TO ACHIEVE OUR DESIRED RESULTS

In previous years we experienced dramatic growth in personnel and expect to
continue to hire additional personnel in selected areas. We reduced our
workforce in 2001 and 2002 to decrease our costs and create greater operational
efficiency. Ongoing growth and consolidation requires significant time and
resource commitments. Further, as a result in part of our acquisitions,
approximately 76% of our employees are based outside of our Boston headquarters.
If we are unable to effectively manage a large and geographically dispersed
group of employees, anticipate our future growth or manage our consolidations
effectively, our business will be adversely affected.

OUR MANAGEMENT TEAM HAS LIMITED EXPERIENCE IN RUNNING A PUBLIC COMPANY

Our management team has had limited significant experience in a leadership
role in a public company. We have recently experienced losses in or changes in
our management team, including in IT, HR, marketing and finance and our chief
operating officer. We cannot assure you that the management team as currently
configured will be able to continue to successfully lead a public company. The
failure of the management team to continue to adequately handle this challenge
could have a material adverse effect on our business.

WE MUST ATTRACT AND RETAIN KEY MANAGEMENT AND OTHER HIGHLY QUALIFIED PERSONNEL
IN A COMPETITIVE LABOR MARKET

Our success depends largely upon the continued service of our executive
officers, including Raymond V. Sozzi, Jr., our President and Chief Executive
Officer, and other key management and technical personnel, and our ability to
continue to attract, retain and motivate other qualified personnel. We have
recently experienced losses in or changes in our IT, HR, marketing and finance
executives and in our chief operating officer. Competition for such personnel is
high. We have experienced, and we expect to continue to experience in the
future, difficulty in hiring highly skilled employees with the appropriate
qualifications. Furthermore, our business is labor intensive. If our ability to
assemble a qualified work force were impaired, or if we do not succeed in
attracting new personnel and retaining and motivating our current personnel, our
business could be adversely affected.

OUR SYSTEMS MAY FAIL OR EXPERIENCE A SLOWDOWN

Substantially all of our communications hardware and certain of our other
computer hardware operations are located at third-party locations such as
Navisite, Inc. in Andover, Massachusetts and Cable & Wireless in Irvine,
California. Fire, floods, earthquakes, power loss (whether through brown-outs or
the like) or distribution issues, telecommunications failures, break-ins, acts
of terrorism, and similar events could damage these systems. Computer viruses,
electronic break-ins or other similar disruptive problems could also adversely
affect our websites. Our business could be adversely affected if our systems
were affected by any of these occurrences. Our insurance policies may not
adequately compensate us for any losses that may occur due to any failures or
interruptions in our systems. We do not presently have any secondary "off-site"
systems or a formal disaster recovery plan. Our network of websites must
accommodate a high volume of traffic and deliver frequently updated information.
Our websites have in the past and may in the future experience slower response
times or decreased traffic for a variety of reasons. These types of occurrences
could cause users to perceive our websites as not functioning properly and
therefore cause them to use another website or other methods to obtain
information. In addition, our users depend on Internet service providers, online
service providers and other website operators for access to our network of
websites. Many of them have experienced
32

significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems.

OUR NETWORKS MAY BE VULNERABLE TO UNAUTHORIZED ACCESS, COMPUTER VIRUSES AND
OTHER DISRUPTIVE PROBLEMS

A party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations.
Internet and online service providers have in the past experienced, and may in
the future experience, interruptions in service as a result of the accidental or
intentional actions of Internet users, current and former employees or others.
Moreover, any well-publicized compromise of security could deter people from
using the Internet or from using it to conduct transactions that involve
transmitting confidential information. We may be required to expend significant
capital or other resources to protect against the threat of security breaches or
to alleviate problems caused by such breaches. Although we intend to continue to
implement industry-standard security measures, there can be no assurance that
the measures we implement will not be circumvented in the future. Our recent
reductions in our technology staff may make it more difficult for us to react to
these threats in the future. Eliminating computer viruses and alleviating other
security problems may require interruptions, delays or cessation of service to
users accessing web pages that deliver our content and services, any of which
could harm our business, our financial condition and the results of our
operations.

WE MAY BE SUED FOR INFORMATION RETRIEVED FROM THE INTERNET

We may be subjected to claims for defamation, invasion of privacy,
negligence, copyright or trademark infringement, personal injury or other legal
theories relating to the information we publish on our network of websites or in
our publications or in the form of web crawling or framing. These types of
claims have been brought, sometimes successfully, against online services as
well as other print publications in the past, particularly in connection with
archive services. Our syndication of content, including U-WIRE content, to such
archive services could expose us to indemnification claims in the event
copyright holders assert their rights, and a request for indemnification for
legal fees incurred is pending. We could also be subjected to claims based upon
the content that is accessible from our network of websites through links to
other websites or through content and materials that may be posted by members in
chat rooms or bulletin boards including those located on the CollegeClub.com
website. Our insurance may not adequately protect us against these types of
claims.

WE MAY LOSE MEMBERS AND OUR REPUTATION MAY SUFFER BECAUSE OF UNSOLICITED BULK
EMAIL OR SPAM

Unsolicited bulk e-mail, or Spam (including the dissemination of
pornographic links), and our attempts and others' attempts to control such Spam
could harm our business and our reputation, particularly with respect to
CollegeClub.com. To the extent our efforts to block Spam are not effective, our
systems may become unavailable or may suffer from reduced performance.
Spam-blocking efforts by others may also result in others blocking our members'
legitimate messages. Additionally, our reputation may be harmed if e-mail
addresses with our domain names are used in this manner. Any of these events may
cause members to become dissatisfied and discontinue their use of our network of
websites, including CollegeClub.com.

CONSUMER PROTECTION, PRIVACY CONCERNS AND REGULATIONS COULD IMPAIR OUR ABILITY
TO OBTAIN AND USE INFORMATION ABOUT OUR MEMBERS AND USERS AND MAY SUBJECT US TO
LITIGATION

We collect and our network of websites captures information regarding our
members and users in order to provide information to them, enable them to access
the services offered on our websites, tailor content to them or assist
advertisers in targeting their advertising campaigns to particular demographic
groups. However, privacy concerns may cause users to resist providing the
personal data necessary to support this tailoring capability. Even the
perception of security and privacy concerns, whether or not valid, may
indirectly inhibit market acceptance of our network of websites. Our network of
websites currently uses "cookies" to track demographic information and user
preferences. A cookie is information keyed to a specific server, file pathway or
directory location that is stored on a user's hard drive, possibly without the
user's knowledge, but is generally removable by the user. Germany has imposed
laws limiting the use of cookies, and a number of
33

internet commentators, advocates and governmental bodies in the United States
and other countries have urged the passage of laws limiting or abolishing the
use of cookies. If these laws are passed, our business, financial condition and
results of operations could be materially harmed. Legislative or regulatory
requirements may heighten privacy concerns if businesses must notify Internet
users that the data may be used by marketing entities to direct product
promotion and advertising to the user. The Federal Trade Commission and state
agencies have been investigating various Internet companies regarding their use
of personal information. In 1998, the United States Congress enacted the
Children's On-line Privacy Protection Act of 1998. In addition, the
Gramm-Leach-Bliley Act ("GLB"), which governs privacy issues related to
financial institutions, went into effect on July 1, 2001. If our programs are
determined to be of a nature covered by the GLB, we may be required to undertake
certain notices to our members and users and/or modify the membership program
and other services. We depend upon collecting personal information from our
customers, and the regulations promulgated under this act have made it more
difficult for us to collect personal information from some of our customers. If
third parties are able to penetrate our network security or otherwise
misappropriate our users' personal information, we could be subject to
liability. We could also be liable for claims based on unauthorized purchases
with credit card information, impersonation or other similar fraud claims. We
could also be held responsible for disclosing personal information or images,
such as our disclosing such information for unauthorized marketing purposes or
for including it in our photo gallery and web cam section on CollegeClub.com.
These claims could result in litigation. In addition, we could incur additional
expenses if new regulations regarding the use of personal information are
introduced or if our privacy practices are investigated. Other countries and
political entities, such as the European Economic Community, have adopted such
legislation or regulatory requirements. If consumer privacy concerns are not
adequately addressed, our business, financial condition and results of
operations could be materially harmed. Although we carry general liability
insurance, this insurance may not be available to cover a particular claim or
may be insufficient. Additionally, our user community on CollegeClub.com exists
in part because of our members' willingness to provide information about
themselves. If claims, litigation, regulation or the acts of third parties
reduce our members' willingness to share this information or our ability to use
it, the attractiveness of the website will decline, which would reduce our
ability to generate revenue through the affected website.

WE MAY BE UNABLE TO RESPOND TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRIES

Rapidly changing technologies, frequent new product and service
introductions and evolving industry standards characterize our market. To
achieve our goals, we need to integrate effectively the various software
programs and tools required to enhance and improve our product offerings and
manage our business. Our future success will depend on our ability to adapt to
rapidly changing technologies by continually improving the performance features
and reliability of our products and services. We may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of new products and services. In addition, our new enhancements must
meet the requirements of our current and prospective members and must achieve
significant market acceptance. We could also incur substantial costs if we need
to modify our service or infrastructures to adapt to these changes or comply
with new regulations and our recent reductions in our technology staff may make
it more difficult to respond to these challenges.

OUR INTELLECTUAL PROPERTY RIGHTS MAY BE VIOLATED OR SUBJECT TO LITIGATION AND WE
MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS

We believe that protection of our patents, copyrights, service marks,
trademarks, trade secrets, proprietary technology and similar intellectual
property is important to the success of some of our services. We rely on the
following mechanisms to protect such intellectual property:

- patent, trademark and copyright law,

- trade secret protection, and

- confidentiality agreements with employees, customers, independent
contractors, sponsors and others.

34

Despite our best efforts, we cannot assure you that our intellectual
property rights will not be infringed, violated or legally imitated. Failure to
protect our intellectual property could have a material adverse effect on our
business. We have been, and may be, sued or named as a defendant in the future
for infringement of the trademark and other intellectual property rights of
third parties. Any such claims or counterclaims could be time-consuming, result
in costly litigation, diversion of management's attention, require us to
redesign our products or marketing strategies or require us to enter into
royalty or licensing agreements, any of which could have a material adverse
effect on upon our business, results of operations and financial condition. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all.

CERTAIN CURRENT STOCKHOLDERS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK

As of March 31, 2003, our executive officers, directors and affiliated
entities, together own approximately 49% of our outstanding common stock.
Therefore, these stockholders are able to significantly influence all matters
requiring stockholder approval and, thereby, our management and affairs. Matters
that typically require stockholder approval include: election of directors,
merger or consolidation, and sale of substantially all of our assets. This
concentration of ownership may delay, deter or prevent acts that would result in
a change of control, which in turn could reduce the market price of our common
stock.

OUR STOCK PRICE COULD BE EXTREMELY VOLATILE AND MAY RESULT IN LITIGATION AGAINST
US

The stock market has experienced significant price and volume fluctuations,
and our market price has been in the past and could continue to be volatile. In
the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted.
Litigation could result in substantial costs and a diversion of management's
attention and resources.

OUR CHARTER DOCUMENTS MAY INHIBIT A TAKEOVER

Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that a stockholder
might consider favorable. These provisions include, among others:

- the division of the Board of Directors into three separate classes,

- the right of the Board to elect a director to fill a vacancy created by
the expansion of the Board, and

- the requirement that a special meeting of stockholders be called by the
Chairman of the Board, President or Board of Directors.

This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not believe that it has any material market risk exposure
with respect to derivative or other financial instruments.

35

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

36

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Student Advantage, Inc:

We have audited the accompanying consolidated balance sheet of Student
Advantage, Inc. as of December 31, 2002, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The financial statements of the Company as of and
for the year ended December 31, 2001 were audited by other auditors who have
ceased operations and whose report dated March 29, 2002, expressed an
unqualified opinion on those statements. The financial statements of the Company
as of and for the year ended December 31, 2000 were audited by other auditors
whose report dated February 7, 2001, expressed an unqualified opinion on those
statements.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

As discussed above, the financial statements of Student Advantage, Inc. as
of December 31, 2001 and for the year then ended were audited by other auditors
who have ceased operations. As described in Note 1, in 2002 the Company's Board
of Directors approved a one-for-ten reverse stock split, and all references to
number of shares and per share information in the financial statements have been
adjusted to reflect the reverse stock split on a retroactive basis. We audited
the adjustments that were applied to restate the number of shares and per share
information reflected in the 2001 financial statements. Our procedures included
(a) agreeing the authorization for the one-for-ten reverse stock split to the
Company's underlying records obtained from management, and (b) testing the
mathematical accuracy of the restated number of shares, basic and diluted
earnings per share (and other applicable disclosures such as stock options). In
our opinion, such adjustments are appropriate and have been properly applied.
However, we were not engaged to audit, review, or apply any procedures to the
2001 financial statements of the Company other than with respect to such
adjustments and, accordingly, we do not express an opinion or any other form of
assurance on the 2001 financial statements taken as a whole.

As discussed above, the financial statements of Student Advantage, Inc. as
of December 31, 2001 and for the year then ended were audited by other auditors
who have ceased operations. As described in Note 2, these financial statements
have been revised to include the transitional disclosures required by Statement
of Financial Accounting Standards (Statement) No. 142, Goodwill and Other
Intangible Assets, which was adopted by the Company as of January 1, 2002. Our
audit procedures regarding the disclosures in Note 2 with respect to 2001
included (a) agreeing the previously reported net loss to the previously issued
financial statements and the adjustments to reported net loss representing
amortization expense (including any related tax effects) recognized in those
periods relating to goodwill, intangible assets that are no longer being
amortized, deferred credits related to an excess over cost, equity method
goodwill, and changes in amortization periods for intangible assets that will
continue to be amortized as a result of initially applying Statement No. 142
(including any related tax effects) to the Company's underlying records obtained
from management, and (b) testing the mathematical accuracy of the reconciliation
of adjusted net loss to reported net loss, and related loss-per-share amounts.
In our opinion, the disclosures for 2001 in Note 2 are appropriate. However, we
were not engaged to audit, review, or apply any procedures to the 2001 financial
statements of the Company other than with respect to such disclosures and,
accordingly, we do not express an opinion or any other form of assurance on the
2001 financial statements taken as a whole.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Student
Advantage, Inc. at December 31, 2002, and the consolidated results

37

of its operations and its cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that
Student Advantage, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has incurred significant operating losses and
has a working capital deficiency. In addition, the Company may not be able to
meet its 2003 debt payment obligations. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.

/s/ Ernst & Young LLP

Boston, Massachusetts
March 31, 2003
Except as to the matter discussed in Note 6
as to which the date is April 14, 2003

38

THE FOLLOWING REPORT OF ARTHUR ANDERSEN LLP (ANDERSEN) IS A COPY OF THE REPORT
PREVIOUSLY ISSUED BY ANDERSEN ON MARCH 27, 2002. THE REPORT OF ANDERSEN IS
INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO RULE 2-02(E) OF
REGULATION S-X. AFTER REASONABLE EFFORTS THE COMPANY HAS NOT BEEN ABLE TO OBTAIN
A REISSUED REPORT FROM ANDERSEN. ANDERSEN HAS NOT CONSENTED TO THE INCLUSION OF
ITS REPORT IN THIS ANNUAL REPORT ON FORM 10-K. BECAUSE ANDERSEN HAS NOT
CONSENTED TO THE INCLUSION OF ITS REPORT IN THIS ANNUAL REPORT, IT MAY BE
DIFFICULT TO SEEK REMEDIES AGAINST ANDERSEN AND THE ABILITY TO SEEK RELIEF
AGAINST ANDERSEN MAY BE IMPAIRED.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Student Advantage, Inc.

We have audited the accompanying consolidated balance sheets of Student
Advantage, Inc. and subsidiaries (a Delaware Corporation) ("the Company") as of
December 31, 2001, and the related consolidated statements of operations,
changes in redeemable convertible preferred stock and stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express the
opinion on these financial statements based on our audits.

We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Student Advantage, Inc. and
subsidiaries as of December 31, 2001, and the results of their operations and
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States.

/s/ Arthur Andersen LLP
Boston, Massachusetts
March 29, 2002

39

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Student Advantage, Inc.

In our opinion, the consolidated statements of operations, of changes in
stockholders equity (deficit) and of cash flows present fairly, in all material
respects, the results of operations and cash flows of Student Advantage, Inc.
and its subsidiaries for the year December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

As discussed in Note 2, the accompanying consolidated financial statements
for the year ended December 31, 2000 have been restated to reflect the
application of the equity method of accounting for the Company's investment in
Edu.com, Inc.

/s/ PricewaterhouseCoopers, LLP

Portland, Maine
February 7, 2001
Except as to the restatement described in Note 2,
as to which the date is May 10, 2001

40

STUDENT ADVANTAGE, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

- ---------------

* All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the common stock effected on June 28, 2002

The accompanying notes are an integral part of these consolidated financial
statements.
41

STUDENT ADVANTAGE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

- ---------------

* All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the common stock effected on June 28, 2002

The accompanying notes are an integral part of these consolidated financial
statements.

42

STUDENT ADVANTAGE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)

- ---------------

* All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the common stock effected on June 28, 2002
The accompanying notes are an integral part of these consolidated financial
statements.

43

STUDENT ADVANTAGE, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
44

STUDENT ADVANTAGE, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
45

STUDENT ADVANTAGE, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
46

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION

Student Advantage, Inc. is an integrated media and commerce company focused
exclusively on the higher education market. The Company works with colleges and
universities and in cooperation with businesses to develop products and services
that are easily available to students and alumni.

The Company is subject to the risks and uncertainties common to growing
companies, including reliance on certain customers, dependence on principal
products and services and third-party technology, activities of competitors,
dependence on key personnel such as Raymond V. Sozzi, Jr., Student Advantage's
President and Chief Executive Officer, and limited operating history.

The Company has experienced substantial net losses since its inception and,
as of December 31, 2002, had an accumulated deficit of $124.8 million. Such
losses and accumulated deficit resulted primarily from significant costs
incurred in the development of the Company's products and services and the
establishment of the Company's infrastructure. The Company has taken significant
steps through the restructuring that it announced in October 2001 to reduce
operating costs for 2002. However, the Company's operating and financing plan
for 2003 reflects the following assumptions:

- The Company will be able to achieve significant reductions in net cash
loss through the end of 2003 and the first quarter of 2004.

- The Company will be able to defer repayment of amounts owed to Reservoir
Capital and Scholar, Inc. (see Note 6) under the terms of the loan
agreement, assuming successful renegotiation with the debtors which will
result in the outstanding amounts being refinanced.

- The Company will be able to extend the termination date of the revolving
loan with Bank of America entered into by OCM Direct, a subsidiary of the
Company. This revolving loan is scheduled to terminate on April 30, 2003.

- The Company will be able to sell a significant amount of its assets and
realize proceeds from such sales.

If any of the foregoing assumptions are not realized, including if the
Company is unable to restructure or extend its debt obligations, if the
Company's revenue and expense projections do not materialize as anticipated, if
the Company is required to repay the amounts outstanding under the Company's
credit facility with Reservoir Capital and Scholar in July 2003, as required by
the terms of the loan agreement, or the Company is not able to sell a
significant amount of assets and realize the proceed from such sales, the
Company will be required to obtain additional financing. Failure to generate
sufficient revenues, reduce certain discretionary spending and obtain additional
capital or financing if needed, would have a material adverse effect on the
Company's ability to achieve its intended business objectives. These and other
factors raise concerns about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments to
reflect this uncertainty.

The 2000 financial statements have been retroactively restated to reflect
the investment in Edu.com on the equity method of accounting due to step
acquisition accounting. See Note 2 for further discussion.

All share and per share items in these Notes to the Consolidated Financial
Statements have been adjusted to reflect the one-for-ten reverse split of the
Company's Common Stock effected on June 28, 2002.

47

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Student
Advantage, Inc. and its wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash and cash equivalents. The
Company invests its excess cash in money markets and certificates of deposit,
which are subject to minimal credit and market risk. The Company's cash
equivalents are classified as "available for sale" and are recorded at cost,
which approximates fair value. As of December 31, 2001 and 2002, the Company had
cash and cash equivalents of $5.1 and $2.8 million, respectively. In addition to
the Company's restricted cash of $0.7 and $0.5 million at December 31, 2001 and
2002, respectively which is being held by our third party credit card processor
and in an escrow account as agreed in certain acquisitions.

INVESTMENTS

The Company's investments have historically not had readily determinable
fair values and were, therefore, accounted for using the cost method. The
Company periodically reviews the value of its investments to consider whether an
"other than temporary" decline in market value, below the related carrying
amount, has occurred. Factors considered include the current estimated fair
value of the investment, the length of time and extent to which market value has
been less than cost and the financial condition and near-term prospects of the
issuer. When appropriate an impairment loss is recognized related to a decline
in investment value.

On November 12, 1999, the Company made an equity investment in Edu.com,
Inc. ("Edu.com"), a privately held e-commerce company. The Company paid
approximately $4.3 million in exchange for approximately 922,000 shares of
Series B preferred stock of Edu.com. In January 2000, the Company invested an
additional $1.0 million in exchange for approximately 217,000 shares of Series B
preferred stock of Edu.com. On May 10, 2001, the Company acquired certain assets
of Edu.com in exchange for 9,000 shares of Student Advantage common stock and a
warrant to purchase 22,500 shares of common stock, with an exercise price of
$22.80 and a warrant to purchase 22,500 shares of common stock with an exercise
price of $34.20, and assumed certain liabilities of Edu.com. In addition, the
Company canceled the $1.0 million secured promissory note previously issued to
the Company by Edu.com in exchange for the assets securing the note. This
consideration and the Company's previous investment in preferred stock of
Edu.com was accounted for under the purchase method of accounting. The
accounting treatment of the additional investment was in accordance with
Accounting Principles Bulletin: The Equity Method for Accounting for Investments
in Common Stock ("APB 18"), which requires the application of step accounting in
accordance with Accounting Research Bulletin 51: Consolidated Financial
Statements Elimination of Intercompany Investment ("ARB 51"). Accordingly, the
Company retroactively restated its investment in Edu.com on the equity method of
accounting and recorded its ownership percentage of Edu.com's net loss for the
year ended December 31, 2000. As a result of applying the equity method in
Edu.com, a portion of the cost of the Company's investment was allocated to the
equity in the net assets of Edu.com, amounting to approximately $0.2 and $0.5
million for the transactions occurring in 2000 and 2001 respectively. During the
fourth quarter of 2001, the Company evaluated the value of the acquisition under
FAS 121, due to the announced restructuring of the Company. As a result, the
Company determined that the remaining balance of goodwill was permanently
impaired and accordingly recorded a loss on investment of $0.9 million. In
addition to the loss, the Company had amortized $0.7 million of goodwill as of
December 31, 2001.

On July 12, 2000, the Company made an investment in alumnipride.com, Inc.,
("alumnipride.com"), a privately held company providing customized websites to
national alumni associations. The Company paid

48

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately $0.4 million in exchange for approximately 97,000 shares of Series
B preferred stock of alumnipride.com. In October 2000, alumnipride.com was
acquired by UConnections.com, Inc. ("Uconnections.com"), and the shares of
preferred stock of alumnipride.com were exchanged for 270,569 shares of common
stock of UConnections.com. At December 31, 2000 the Company evaluated the
investment and determined that the fair value had been permanently impaired and
accordingly recorded a realized loss in the amount of $0.4 million.

INVENTORY

The Company's inventories are carried at the lower of cost or market. Cost
is determined by the first-in, first-out or commonly known as the FIFO method.
The entire inventory of the Company is finished goods.

ACCOUNTS RECEIVABLE

Our consolidated accounts receivable balance is net of allowances for
doubtful accounts of $0.7 and $0.3 million at December 31, 2001 and December 31,
2002, respectively. A rollforward of the allowance for doubtful accounts is as
follows.

- ---------------

(a) Includes recoveries and amounts charged to costs and expense.

(b) Includes accounts deemed uncollectible.

REVENUE RECOGNITION

The Company reports revenues in two categories: student services revenue
and corporate and university solutions revenue. Student services revenue is
attributable to the parts of its business, which are focused primarily on
providing goods and services to students, their parents and alumni. The Company
derives student services revenue from commerce, subscription and advertising.
Commerce revenue is derived primarily from transaction-based revenue earned for
reselling products and services, processing stored value transactions and
acquiring student customers on behalf of other businesses. To date, commerce
revenue has primarily consisted of revenue that the Company receives from the
sale of residence hall linens and related accessories, care packages and diploma
frames through direct mail marketing, fees from SA Cash transactions and
e-commerce revenue from its network of websites. Commerce revenue is recognized
upon the completion of the related contractual obligations. Subscription revenue
is derived from membership fees related to enrolling students in the Student
Advantage Membership Program. Memberships are distributed in several ways. The
Company sells memberships directly to students and parents of students for an
annual membership fee, distributes memberships at no cost to certain qualified
students and sells memberships to certain of its corporate partners for resale
to students at their retail locations. Subscription revenue is recognized
ratably from the date of subscription to the end of the annual membership
period, which ends on July 31 of each year. Advertising revenue consists
primarily of fees for banner advertisements and sponsorships on the Company's
network of

49

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

websites. Website advertising revenue is recognized as the related impressions
are displayed, provided that no significant obligations remain and collection of
the related receivable is assured. Certain advertising arrangements include
guarantees of a minimum number of impressions. For arrangements with guarantees,
revenue is recognized based upon the lesser of: (1) ratable recognition over the
period the advertising is displayed, provided that no significant Company
obligations remain and collection of the receivable is assured, or (2) a
pro-rata portion of contract revenue based upon impressions delivered relative
to minimum guaranteed impressions to be delivered.

Corporate and university solutions revenue is attributable to the parts of
the Company's business which are focused primarily on providing goods and
services to corporations and universities and is made up of marketing services
revenue from corporate clients and licensing, management and consulting fees
from universities. Marketing services revenue is derived primarily from
providing tailored event management and execution services to businesses seeking
to market their products and services to college students. This revenue is
recognized upon the completion of the related contractual obligations. Fees from
marketing services are recognized as the related services are rendered, provided
that no significant obligations remain and collection of the related receivable
is assured. Payments received in advance of revenue being earned are recorded as
deferred revenue.

In accordance with the EITF Issue No. 99-17 "Accounting for Advertising
Barter Transactions," the Company has appropriately recorded barter revenue and
expense based upon the fair value of the advertising surrendered in the
transaction. Fair value is established by reference to comparable cash
transactions during the six-month period preceding the barter transaction.
Generally, barter transactions involve exchanges of banner advertising. For the
year ended December 31, 2000, 2001 and 2002, the Company recorded $1.2, $4.1 and
$2.9 million, respectively, of barter revenue and $1.2, $4.1 and $2.9 million of
barter expense recorded as sales and marketing expense, respectively.

In accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition
in Financial Statements" and EITF Issue No. 99-19 "Reporting Revenue Gross as a
Principal versus Net," the Company has evaluated our revenue and determined that
it is being reported in accordance with the guidance. The Company records
certain of its commerce revenue at gross, as it is considered the primary
obligor in the transaction.

In November 2001, the Emerging Issued Task Force concluded its discussions
on EITF Issue 01-9 "Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products)". This guidance requires that an
entity account for consideration given to a customer as a reduction of revenue
unless it can demonstrate an identifiable benefit that can be sufficiently
separable from the sale of the products or services to the customer, and can
reasonably estimate the fair value of the benefit identified. The Company
adopted EITF 01-9 effective January 1, 2002. In accordance with EITF 01-9, the
Company has offset amortization of consideration given to certain vendors
against revenue. While consideration given and received by the Company is
carried at the gross value of the amounts on the balance sheet, the transaction
is reflected on a net basis in the accompanying statement of operations.

USE OF ESTIMATES

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

50

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of the Company's financial instruments, which include
cash equivalents, investments, notes receivable, accounts payable, accrued
expenses and notes payable, approximate their fair values at December 31, 2001
and 2002.

CONCENTRATIONS OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

SFAS No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk", requires disclosure of any significant off-balance sheet risk and
concentrations of credit risk. The Company does not have any significant
off-balance sheet risk. Financial instruments, which potentially expose the
Company to concentration of credit risk, are comprised primarily of cash, cash
equivalents and trade accounts receivable. The Company places its cash and cash
equivalents with financial institutions that have high credit ratings.
Management believes its credit policies are prudent and reflect normal industry
terms and business risk. The Company does not anticipate non-performance by the
counter parties and, accordingly, does not require collateral. Concentration of
credit risk with respect to accounts receivable is limited to certain customers
to whom the Company makes substantial sales. To reduce risk, the Company
routinely assesses the financial strength of its customers and, as a
consequence, believes that its accounts receivable credit risk exposure is
limited. The Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management's expectations. For the
year ended December 31, 2000 and 2001, two customers accounted for 50% of total
revenue, and three customers accounted for 23% of total revenue, respectively.
For the year ended December 31, 2002 no single customer accounted for 10% or
more of total revenue. At December 31, 2000 and 2001, two customers accounted
for 36% of accounts receivable, and one customer accounted for 33% of accounts
receivable, respectively. At December 31, 2002, no single customer accounted for
10% or more of accounts receivable.

PRODUCT DEVELOPMENT

Costs incurred in product development are expensed as incurred.

PROPERTY AND EQUIPMENT

Fixed assets are recorded at cost. Depreciation is recorded using the
straight-line method over estimated useful lives as follows:

Amortization of capitalized leased assets and leasehold improvements is
recorded using the straight-line method over the shorter of the lease term or
the useful life. Repair and maintenance costs are expensed as incurred. When
fixed assets are retired or otherwise disposed of, the asset cost and
accumulated depreciation and amortization are removed from the accounts and any
resulting gain or loss is reflected in income.

CAPITALIZED COMPUTER SOFTWARE COSTS

The Company records expenditures for computer software in accordance with
the provision of Statement of Position 98-1, "Accounting for the Cost of
Computer Software Developed or Obtained for Internal Use". In accordance with
this statement, costs incurred for data conversion, training and maintenance are
expensed as incurred. Once the preliminary project stage is completed, direct
costs incurred during the application

51

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

development stage are capitalized and amortized over the estimated useful life
of the asset. The Company capitalized $1.6 and $1.1 million in 2001 and 2002,
respectively. Amortization of software cost is provided on a straight-line basis
over the estimated useful life, which is approximately two or three years.

WEB SITE DEVELOPMENT COSTS

The Company records expenditures for website development in accordance with
the provision of the Emerging Issues Task Force Issue No. 00-2, "Accounting for
Web Site Development Costs." In accordance with this statement, costs incurred
for data conversion, training and maintenance are expensed as incurred. Once the
preliminary project stage is completed, direct costs incurred during the
application development stage are capitalized and amortized over the estimated
useful life of the asset. The Company capitalized $0.6 million in 2001 and zero
in 2002, respectively. Amortization of website development cost is provided on a
straight-line basis over the estimated useful life, which is approximately two
years.

SEGMENT DISCLOSURE

In accordance with SFAS 131, the Company believes that although it has two
operating segments, OCM Direct and the remainder of the business, the Company
reports as one reporting segment in accordance with the aggregation provisions
inherent in SFAS 131.

GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective for fiscal years beginning after December 15, 2001.
As of January 1, 2002, the Company adopted SFAS No. 142. This Standard
eliminates goodwill amortization from the Statement of Income and requires an
evaluation of goodwill for impairment upon adoption of this Standard, as well as
subsequent evaluations on an annual basis, and more frequently if circumstances
indicate a possible impairment. For these evaluations, the Company is using an
implied fair value approach, which uses a discounted cash flow analysis and
other valuation methodologies. These evaluations use many assumptions and
estimates in determining an impairment loss, including certain assumptions and
estimates related to future earnings to be derived from the Company's turnaround
initiatives.

Intangible assets include the excess of the purchase price over
identifiable tangible net assets acquired in acquisitions. Such assets include
goodwill, completed technology, workforce, customer lists, non-compete
agreements, websites and other intangible assets, which are being amortized on a
straight-line basis over their estimated economic lives ranging from two to
fifteen years. Accumulated amortization was $11.1 million and $13.1 million at
December 31, 2001 and 2002, respectively. As a result of the application of SFAS
142 in 2002, the company stopped amortizing the remaining goodwill related to
the acquisitions of OCM Direct in the first quarter of 2002. The Company is
continuing to amortize the remaining value of our intangible assets related to
completed technology, workforce, customer lists, non-compete agreements and
contracts. The Company periodically evaluates its intangible assets for
potential impairment. On July 15, 2002, the Company agreed to a lease
termination regarding its facility in San Diego, CA. The lease obligation was
acquired during the October 2000 acquisition of College Club and at that time
the Company identified its intentions to vacate the facility. As a result, the
Company provided for an accrual on unused space for the future lease obligation
as part of the purchase price. At the time of the lease termination, the Company
carried a $2.4 million accrual related to the purchase price accrual. In
accordance with EITF 95-3, the company reversed the accrual against a portion of
the remaining goodwill related to the acquisition.

A reconciliation of previously reported net income and earnings per share,
to the amounts adjusted for the exclusion of goodwill follow (in thousands,
except per share amounts). These amounts are adjusted for each of the periods
presented in the Form 10-K. In the fourth quarter of 2002, the Company performed
an analysis to assess the carrying value of the remaining goodwill amounts and
determined there was no impairment.

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STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has completed an impairment evaluation using these assumptions
as of December 31, 2002 and has concluded that no impairment exists relative to
the carrying value of the goodwill. The estimated fair value of the OCM
reporting unit exceeds the carrying value of its book value of the equity.

LONG-LIVED ASSETS

The Company assesses the realizability of long-lived assets in accordance
with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." The Company reviews its long-lived assets for impairment if events and
circumstances indicate the carrying amount of an asset may not be recoverable.
Due to the announced restructuring in the fourth quarter of 2001 and the
Company's continued restructuring in 2002, the Company evaluated the
realizability of its long-lived assets based on profitability and cash flow
expectations for the related asset. As a result of its review, the Company
recorded asset impairment charges of $1.9 and $0.2 million for the year ended
December 31, 2001 and 2002, respectively. The impairment for 2001 related to
$1.6 million of goodwill associated to the Company's acquisitions of or asset
purchases from Edu.com, College411, Collegiate Advantage and Campus Agency. The
remaining $0.3 million in 2001 was related to certain fixed assets acquired from
Edu.com. The $0.2 million impairment for 2002 related to certain fixed assets
acquired from CollegeClub.

ACCOUNTING FOR STOCK-BASED COMPENSATION

The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of the Company's common stock at the date of
grant. The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (Note 9). All stock-based
awards to non-employees are accounted for at their fair value in accordance with
SFAS No. 123.

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STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation cost for the Company's option grants been determined based
on the fair value at the date of grant consistent with the method prescribed by
SFAS No. 123, the Company's net loss and net loss per share would have increased
to the pro forma amounts indicated below:

INCOME TAXES

The Company applies Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, which requires the Company to recognize
deferred tax assets and liabilities for expected future tax consequences of
events that have been recognized in the financial statements or tax returns.
Under this method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using the enacted tax rates and laws that will be in effect for the
year in which the differences are expected to reverse. SFAS No. 109 requires
deferred tax assets and liabilities to be adjusted when the tax rates or other
provisions of the income tax laws change.

ADVERTISING EXPENSE

The Company recognizes advertising expense as incurred. Advertising expense
was approximately $1.0 million, $4.7 million and $6.3 million for the years
ended December 31, 2000, 2001 and 2002, respectively.

NET LOSS PER SHARE

In accordance with SFAS No. 128, "Earnings per Share", basic and diluted
net loss per share is computed by dividing the net loss available to common
stockholders for the period by the weighted average basic and diluted number of
shares of common stock outstanding during the period. The calculation of diluted
net loss per share excludes potential common stock, as their effect is
anti-dilutive. All share and per share amounts have been adjusted to reflect the
one-for-ten reverse split of the Company's Common Stock on June 28, 2002.

All outstanding options and warrants to purchase common stock in 2002
totaling 397,456 were excluded from the calculation of diluted earnings per
share for all periods presented because their inclusion would have been
anti-dilutive.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation- Transition and Disclosure -- amendment of SFAS 123", "SFAS 148".
SFAS 148 amends Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation", "SFAS 123" to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, this statement amends the disclosure
requirements for SFAS 123, to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and
54

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the effect of the method used on reported results. The Company has elected to
continue to account for stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", "APB 25", and related interpretations. Accordingly,
compensation cost for stock options and restricted stock awards is measured as
the excess, if any, of the quoted market price of our stock at the date of the
grant over the exercise price an employee must pay to acquire the stock. The
Company has adopted the annual disclosure provisions of SFAS 148 in our
financial statements for the year ended December 31, 2002 and will adopt the
interim disclosure provisions in our financial statements for the quarter ended
March 31, 2003. Since the adoption of SFAS 148 involves disclosure only, the
Company does not expect a material impact on our earnings or on our financial
position.

The requirements of FASB Interpretation No. 45 Guarantor's Accounting and
Disclosure Requirements for Guarantees, is effective for financial statements of
interim or annual periods after December 15, 2002. The Company does not believe
that the adoption of this standard will have an impact on these financial
statements.

3. ACQUISITIONS

For acquisitions accounted for under the purchase method, the purchase
price of each transaction has been allocated to the assets acquired and
liabilities assumed based on the fair value of such assets and liabilities at
the respective acquisition dates.

On May 17, 2000, the Company acquired College411.com, Inc. ("College411"),
a provider of web-based college and university student-focused content. In
connection with the acquisition, the Company issued 19,384 shares of common
stock, assumed all of College411's outstanding common stock options, which were
converted into options to purchase a total of 3,616 shares of the Company's
common stock, and forgave a loan of approximately $0.3 million. The acquisition
was accounted for as a purchase business combination in accordance with APB
Opinion No. 16, "Business Combinations", and the Company has consolidated the
operations of College411 beginning on the date of acquisition. Goodwill and
other intangible assets in the aggregate amount of $1.5 million have been
recorded in connection with the acquisition and are being amortized on a
straight-line basis over two years. At December 31, 2001, due to the company
restructuring in the fourth quarter, the company evaluated the value of its
intangible assets in accordance with FAS 121. As a result, in 2001 the Company
wrote down $0.3 million related to the remaining goodwill of College411.

On May 18, 2000, the Company acquired ScholarAid.com, Inc. ("ScholarAid"),
a provider of web-based scholarship and educational research tools. In
connection with the acquisition, the Company issued 13,164 shares of common
stock, assumed all of ScholarAid's outstanding common stock options, which were
converted into options to purchase a total of 2,130 shares of the Company's
common stock, and forgave a loan of approximately $0.5 million. The acquisition
was accounted for as a purchase business combination in accordance with APB
Opinion No. 16, "Business Combinations", and the Company has consolidated the
operations of ScholarAid beginning on the date of acquisition. Goodwill and
other intangible assets in the aggregate amount of $1.4 million have been
recorded in connection with the acquisition and are being amortized on a
straight-line basis over three years. On November 26, 2001, in relation to the
sale of eStudentLoan, the remaining $0.7 million of goodwill was written off
against the gain on the eStudentLoan transaction.

On July 28, 2000, the Company acquired from CollegeClub.com, Inc.
("CollegeClub"), certain assets of its eStudentLoan, LLC ("eStudentLoan")
subsidiary relating to its student loan search engine business, in exchange for
approximately $0.9 million in cash. The acquisition was accounted for as a
purchase business combination in accordance with APB Opinion No. 16, "Business
Combinations", and the Company has consolidated the operations of eStudentLoan
beginning on the date of acquisition. An intangible asset in the approximate
amount of $1.1 million was recorded in connection with the acquisition and is
being amortized on a straight-line basis over three years. On November 26, 2001,
the Company completed the sale of its eStudentLoan business to a third-party. As
consideration for the transaction the Company received net

55

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

proceeds of $2.3 million in cash. The Company has recognized $0.9 million as a
gain in their statement of operations related to this transaction during the
year ended December 31, 2001. The recorded gain was net of $1.2 million of
remaining goodwill related to the acquisitions of eStudentLoan and ScholarAid.

On October 31, 2000, the Company acquired substantially all of the assets
of CollegeClub, an integrated communications and media internet company for
college students, and certain of its subsidiaries that had filed for protection
under Chapter 11 of the federal Bankruptcy Code, in exchange for approximately
$8.3 million in cash, 132,476 shares of common stock and the assumption of
certain liabilities. The sale was approved by the federal Bankruptcy Court in
Southern California. The acquisition was accounted for as a purchase business
combination in accordance with APB Opinion No. 16, "Business Combinations", and
the Company has consolidated the operations of College Club beginning on the
date of acquisition. An intangible asset, related to a contract with a customer
that was acquired through the acquisition, in the approximate amount of $4.6
million was recorded in connection with the acquisition and is being amortized
on a straight-line basis over thirty months. As of December 31, 2002, $3.9
million had been amortized. The remaining $0.7 million will be amortized during
the first two quarters of 2003.

The acquired assets and assumed liabilities associated with the purchase of
CollegeClub have been allocated as follows (in thousands):

Working capital, net........................................ $ 2,359
Long-term obligation under capital leases................... (2,045)
Fixed assets................................................ 8,769
Contracts................................................... 4,649
-------
Total purchase price...................................... $13,732

The following unaudited pro forma data summarizes the results of operations
for the year ended December 31, 2000 as if the acquisition of CollegeClub had
been completed on the first day of the period. The pro forma data gives effect
to actual operating results prior to the acquisition and adjustments to reflect
amortization of goodwill and other intangible assets. These pro forma amounts do
not purport to be indicative of the results that would have actually been
obtained if the acquisition had occurred on January 1, 2000, or that may be
obtained in the future. The pro forma amounts below do not include amounts
related to insignificant acquisitions that occurred during 2000.

On May 10, 2001, the Company acquired certain assets of Edu.com, Inc., a
privately held e-commerce company specializing in sales of consumer electronics,
hardware and software to students. Prior to the acquisition, the Company was a
stockholder of Edu.com and a party to a marketing and distribution agreement
with Edu.com. On November 12, 1999, the Company made an equity investment in
Edu.com of approximately $4.3 million in exchange for approximately 92,200
shares of Series B preferred stock and entered into a marketing and distribution
agreement with Edu.com providing for payments of $2.0 million to the Company
over the term of the agreement. In January 2000, the Company invested an
additional $1.0 million in exchange for approximately 21,700 shares of Series B
preferred stock. At December 31, 2000, $1.0 million remained payable under the
agreement. In satisfaction of this obligation, the Company accepted a secured
promissory note, which was payable on December 31, 2001, from Edu.com. In
connection with the

56

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's acquisition of certain assets of Edu.com in May 2001, the Company
issued 9,000 shares of its common stock and a warrant to purchase 22,500 shares
of common stock with an exercise price of $22.80 and a warrant to purchase
22,500 shares of common stock with an exercise price of $34.20, and assumed
certain liabilities of Edu.com. In addition, the Company canceled the $1.0
million secured promissory note previously issued to it by Edu.com in exchange
for the transfer of assets securing the note. This consideration, including the
Company's previous investment in Edu.com was accounted for as a purchase
business combination in accordance with APB Opinion No. 16, "Business
Combinations". The resulting treatment of the additional investment is in
accordance with Accounting Principles Board Opinion No. 19: The Equity Method
for Accounting for Investments in Common Stock ("APB 18"), which requires the
application of step accounting in accordance with Accounting Research Bulletin
51: Consolidated Financial Statements Elimination of Intercompany Investment
("ARB 51"). Accordingly, the Company retroactively restated its investment in
Edu.com on the equity method of accounting and recorded its ownership percentage
of Edu.com's net loss for the year ended December 31, 2000. As a result of
applying the equity method in Edu.com, a portion of the cost of the Company's
investment has been allocated to the equity in the net assets of Edu.com,
amounting to approximately $0.2, and $0.5 million for the transactions occurring
in 2000 and 2001 respectively. Goodwill and other intangible assets aggregated
approx. $1.6 million in connection with the acquisition of Edu.com. During the
fourth quarter of 2001, the Company evaluated the value of the acquisition under
FAS 121, due to the announced restructuring of the Company. As a result, the
Company determined that the remaining balance of goodwill was permanently
impaired and accordingly recorded a loss on investment of $0.9 million. In
addition to the loss, the Company had amortized $0.7 million of goodwill as of
December 31, 2001.

On June 25, 2001, the Company entered into an Agreement and Plan of Merger
(the "OCM Acquisition Agreement"), by and among the Company, Orion Acquisition
Corp., a wholly owned subsidiary of the Company ("Orion"), OCM Enterprises, Inc.
("OCM") and Devin A. Schain, Michael S. Schoen, Howard S. Dumhart, Jr., Paul D.
Bogart and Steven L. Matejka (the "OCM Stockholders"). Pursuant to the OCM
Acquisition Agreement, OCM was merged with and into Orion, which survived the
merger and changed its name to OCM Direct, Inc. ("OCM Direct"). The aggregate
consideration paid by the Company to the OCM Stockholders in connection with the
acquisition of OCM was (i) $8.0 million in cash paid at the closing, (ii)
243,333 shares of the Company's common stock, issued at the closing, (iii)
shares of common stock to be issued not later than June 25, 2002 with a value of
$1.25 million at the time of issuance based on the average of the last reported
sales prices per share of common stock over the ten trading days ending on the
trading day that is three days prior to the date of issuance, provided that the
number of shares will not be less than 20,833 or greater than 125,000, and (iv)
in the event that OCM Direct attains certain revenue performance goals described
in the OCM Acquisition Agreement after the closing, up to $1.5 million payable
at the Company's option in either shares of common stock or a combination of
shares of common stock and cash, with the shares of common stock valued at the
time of issuance based on the average of the last reported sales prices per
share over the ten trading days ending on the trading day that is three days
prior to the date of issuance or $1.00, whichever is greater, subject to
adjustment under certain circumstances described in the OCM Acquisition
Agreement. In June 2002, the Company and the OCM Stockholders agreed to an
issuance of 200,000 shares of common stock in satisfaction of the deferred
payment and the revenue performance goals. Under certain circumstances, the
Company agreed to register with the Securities and Exchange Commission the
shares of common stock issued in connection with the acquisition of OCM for
resale by the OCM Stockholders. The acquisition was accounted for as a purchase
business combination in accordance with APB Opinion No. 16, "Business
Combinations", and the Company has consolidated the operations of OCM Direct
beginning on the date of acquisition. Goodwill and other intangible assets
aggregated $18.5 million in connection with the acquisition of OCM Direct.

57

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The acquired assets and assumed liabilities associated with the purchase of
OCM Direct have been allocated as follows (in thousands):

Working capital, net........................................ $ 4,921
Long-term obligation under capital leases................... (552)
Fixed assets................................................ 1,633
Contracts................................................... 1,400
Technology.................................................. 300
Goodwill.................................................... 16,818
-------
Total purchase price...................................... $24,520
=======

The following unaudited pro forma data summarizes the results of operations
for the years ended December 31, 2001 as if the acquisition of OCM Direct had
been completed on the first day of the period. The pro forma data gives effect
to actual operating results prior to the acquisition and adjustments to reflect
amortization of goodwill and other intangible assets. These pro forma amounts do
not purport to be indicative of the results that would have actually been
obtained if the acquisition had occurred on January 1, 2001, or that may be
obtained in the future. The pro forma amounts below do not include amounts
related to insignificant acquisitions that occurred during 2001.

On October 1, 2001, the Company and its wholly-owned subsidiary, OCM
Direct, Inc., acquired substantially all of the assets of CarePackages.com, LLC,
a privately held e-commerce company specializing the sale of direct mail gift
packages or care packages to college students. The acquisition was accounted for
as a purchase business combination in accordance with APB Opinion No. 16,
"Business Combinations", and the Company has consolidated the operations of OCM
Direct beginning on the date of acquisition. In connection with the acquisition,
the Company issued 10,000 shares of the Company's common stock, and paid $30,000
in cash to creditors of CarePackages.com, LLC. Goodwill and other intangible
assets aggregated $0.1 million in connection with the acquisition.

4. DISPOSITIONS

On May 31, 2001, the Company completed the sale of its Rail Connection
business to Wandrian, Inc. (Wandrian), for aggregate consideration of $0.6
million, in the form of a secured promissory note for $0.2 million payable over
the next three years and a second promissory note for $0.4 million convertible
into Wandrian's Series B Preferred Stock and maturing on May 31, 2006. As a
result of this transaction, the Company recorded a gain of $0.3 million, which
was net of remaining goodwill of approximately $68,000, in its results for the
period ended December 31, 2001. On September 18, 2002, the Company amended the
promissory note for $0.2 million to provide for early settlement in exchange for
a payment of $0.1 million.

On November 7, 2001, the Company transferred substantially all of the
assets and liabilities relating to its Voice FX business to a newly formed,
wholly owned limited liability company, Voice FX, LLC ("Voice FX"). As of the
same date, two former managers and owners (the "Buyers") of its Voice FX
business, who sold the business to Student Advantage in 1999, entered into a
call option agreement (the "Option") with the Company to purchase all of the
Company's interest in Voice FX. In consideration for the entering into the

58

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Option the Company received $0.9 million, of which $0.6 million was paid in cash
and $0.3 million was in the form of a Promissory Note (the "First Note"),
bearing interest of 12.9%, with an original maturity of December 31, 2002. The
Option was exercised on November 7, 2001 and on December 31, 2001, the Company
sold its interest in Voice FX to the Buyer, for consideration consisting of a
Promissory Note for $3.0 million (the "Second Note"), a Promissory Note for $0.9
million (the "Third Note"), and $1.1 million related to the net working capital
of the Voice FX business, of which $0.2 million was received January 3, 2002 and
$0.9 million was received in March 2002 and potential earn out payments based on
future revenues. The Second Note, bearing interest of 14.5%, requires payments
of interest to begin on March 31, 2003, with the principal and remaining
interest coming due on December 31, 2006. The Third Note, which is non-interest
bearing, requires payments of principal beginning June 30, 2003, with the final
payment coming due on December 31, 2007. The Company recorded the Second Note
and Third Note at their net present value using a discount rate of 8%. As a
result of the transaction, the Company recorded a total gain of $1.0 million,
which was net of $0.3 million in transaction expenses. Of the gain, $0.5 million
was deferred until such time as the outstanding notes are collected. At the time
the Buyers consummated the transaction in December 2001, the Company and the
Buyer entered into two marketing agreements, under which the Company would
provide marketing and promotional services to the Buyer for a cumulative fee of
$2.7 million. The services were to be provided from January 1, 2002 through
March 31, 2006.

In August 2002, the parties amended certain documents executed in
connection with the transaction and the Buyers paid the Company $50,000 in full
satisfaction of obligations potentially due from earn out calculations on Voice
FX's future revenues. The Buyers and the Company amended the marketing services
and card fulfillment agreement executed in December 2001 to provide for payments
totaling $1.0 million in August and September of 2002 as full satisfaction of $2
million in payment obligations under that agreement which would have otherwise
commenced in quarterly payments starting March 2003. The parties also modified
certain financial and operating covenants, modified certain payment terms under
the various promissory notes, and exchanged releases concerning certain
ancillary claims arising under the Option Agreement. The $0.7 million payment
for the promotional services agreement was paid in the first quarter of 2002.

On November 26, 2001, the Company completed the sale of its eStudentLoan
business to a third-party. As consideration for the transaction the Company
received net proceeds of $2.3 million in cash. The Company recognized $0.9
million as a gain in their statement of operations related to this transaction
during the year ended December 31, 2001. The recorded gain was net of $1.2
million of remaining goodwill related to the acquisitions of eStudentLoan and
ScholarAid.

Effective May 8, 2002, the Company sold the assets relating to its SA
Marketing brand to Triple Dot, Inc., a subsidiary of Alloy, Inc., for a cash
payment of $6.5 million and an opportunity to earn up to an additional $1.5
million based on the performance of certain pending proposals. In June 2002,
Triple Dot prepaid to the Company $1.0 million of the potential earn-out. This
amount was deferred and as of December 31, 2002 remains classified as deferred
revenue since per the agreement, the earn-out calculation will be reviewed in
August 2003. At the time of the agreement, the parties entered into a
non-compete agreement under which the Company agreed to certain restrictions
regarding its events and promotions activities until November 2005. In addition,
the parties entered into a marketing services agreement providing for payments
to Alloy of $2.2 million for future marketing services. These payments were made
in May 2002 and recorded as prepaid expenses by the Company. The Company has
expensed the $2.2 million in 2002.

On February 3, 2003, the Company completed the sale of certain assets of
its SA Cash brand to Blackboard Inc. for aggregate consideration of $4.5 million
in cash. As part of the agreement, the Company will become the exclusive
provider of membership and rewards programs to Blackboard's client base. In the
connection with the SA Cash sale, the Company agreed that it would not compete
with Blackboard in the SA Cash business other than in connection with schools
operating on the Diebold payments platform until

59

STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

January 2010. In addition, Blackboard and the Company entered into a limited
licensing agreement whereby it will continue to offer the SA Cash product line
to a set of designated colleges and universities.

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

Depreciation expense with respect to property and equipment and capital
leases for the years ended December 31, 2000, 2001 and 2002 was $2.9 million,
$6.7 million and $6.7 million, respectively. The Company has capitalized
computer software costs of $2.2 million and $1.1 million at December 31, 2001
and December 31, 2002, respectively. Amortization expense with respect to
capitalized software costs were $0.8 million, $1.2 million and $2.6 million for
the years ended December 31, 2000, December 31, 2001 and December 31, 2002,
respectively.

6. BORROWINGS

On June 25, 2001, the Company entered into a loan agreement (the "Loan
Agreement") by and among the Company, the subsidiaries of the Company and
Reservoir Capital Partners, L.P., Reservoir Capital Associates, L.P. and
Reservoir Capital Master Fund, L.P. (collectively the "Lenders") providing for
the establishment of credit facility in the aggregate principal amount of up to
$15.0 million, consisting of a $10.0 million term loan and a $5.0 million
revolving loan. The Company borrowed $10.0 million in the form of a term loan
(the "Term Loan") and $5.0 million in the form of a revolving loan (the
"Revolving Loan"), and used substantially all of these proceeds to pay the cash
portion of the purchase price for the acquisition and existing debt of OCM
Direct (formerly OCM Enterprises), Inc. The remainder of the proceeds from the
credit facility were used for working capital and general corporate purposes of
the Company. The credit facility is secured by a lien against substantially all
of the assets of the Company, and is guaranteed by all the Company's
subsidiaries (excluding OCM Direct and it's subsidiaries), which guarantees are
also secured, excluding OCM Direct and its subsidiaries. From time to time the
terms of the credit facility have been amended.

In February 2002, the Company's subsidiary, OCM Direct and its two
subsidiaries, CarePackages, Inc. and Collegiate Carpets, Inc., entered into a
revolving loan agreement with Bank of America providing for a $5.0 million loan
facility, which is referred to as the OCM loan. The interest rate under the OCM
loan is LIBOR plus 2.5 percent and the facility is secured by all of the assets
of OCM Direct and its two subsidiaries. The Company provided an unsecured
guaranty of the obligations of its three subsidiaries to Bank of America. The
original maturity date of the loan was January 31, 2003, provided that OCM
Direct was required to repay all amounts outstanding under the loan for a period
of 30 consecutive days between August 1 and October 1, 2002. OCM Direct met this
requirement by maintaining a zero balance on the facility from August 9, 2002
through October 1, 2002. As of December 31, 2002, the outstanding principal
balance under the OCM loan was $1.7 million. As of December 31, 2002, the
Company was in compliance with required financial covenants

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related to the OCM loan. In January 2003, Bank of America extended the maturity
date and borrowing period of the loan to April 30, 2003.

On September 30, 2002, Reservoir Capital agreed to amend the credit
facility and, absent future defaults, not to demand payment for principal,
interest and fees due under the credit facility prior to the July 1, 2003
maturity date for the credit facility. Reservoir Capital also agreed to cancel
the warrants previously issued under the credit facility and the associated
right to require the Company to repurchase the warrants for cash in exchange for
a $4.2 million increase in the amount outstanding under the credit facility.
Prior to the amendment, the Company had previously recorded a warrant liability
and deferred financing costs of $2.5 million and had amortized $1.5 million of
the deferred financing cost as interest expense since the inception of the loan
in June 2001. Consequently, the Company reclassified the $2.5 million of warrant
liability to notes payable and recorded an additional $1.7 million to notes
payable and deferred financing costs. The remaining balance of $2.7 million in
deferred financing costs was being amortized to interest expense over the
remaining nine-month term of the loan.

On September 30, 2002 the Company agreed to borrow $3.5 million from
Scholar, Inc., an entity formed by the Company's President and Chief Executive
Officer an affiliate of Atlas II, L.P. and certain other of its stockholders.
The loan is referred to as the Scholar loan, has an annual interest rate of 8%,
matures on July 1, 2003 and otherwise has the same terms as the Reservoir credit
facility. As of December 31, 2002, $3.5 million was outstanding under the
Scholar Loan.

On December 30, 2002, Reservoir Capital agreed to reduce the total
indebtedness to them from approximately $15.7 million to $9.5 million in
exchange for a guarantee by Mr. John Katzman, a member of the Company's Board of
Directors who resigned at the time the amendment was consummated. In addition,
Reservoir Capital agreed to lend the Company an additional $2.0 million. In
exchange for his guarantee, the Company agreed to pay Mr. Katzman a $1.0 million
fee payable at the time of certain loan repayments. In addition, Reservoir
Capital agreed to lend the Company an additional $2.0 million. The debt
obligations to Reservoir Capital and Mr. Katzman carry an annual interest rate
of 12% and, as of December 31, 2002, required payments of $3.5 million on
January 31, 2003, $4.0 million on March 31, 2003 and the remaining balance on
the July 1, 2003 loan maturity date. In accordance with SFAS 15 "Accounting by
Debtors and Creditors Regarding Troubled Debt Restructuring," the Company
recorded the $3.0 million gain on forgiveness of debt net of expenses, including
$0.5 million of anticipated interest expense based on the payment schedule,
remaining deferred financing costs of $1.8 million, and the $1.0 million
guarantee fee paid to Mr. Katzman. As of December 31, 2002, $13.0 million was
outstanding under the Reservoir credit facility.

On January 31, 2003, Reservoir Capital agreed to reduce the $3.5 million
payment due on January 31, 2003 to $1.5 million, which payment was made on that
date. The remaining payment terms of the December 31, 2002 amendment remained
unchanged.

On March 14, 2003, March 31, 2003 and April 14, 2003, the Company further
amended the terms of the credit facility. On March 14, 2003, Reservoir Capital
agreed to lend the Company an additional $0.5 million. On March 31, 2003,
Reservoir Capital agreed to lend the Company an additional $1.5 million and
agreed to change the date on which the Company is required to repay $4.0 million
of borrowings under the loan agreement from March 31, 2003 to April 14, 2002. On
April 14, 2003, the repayment date for the $4.0 million was amended again to
become April 28, 2003.

As of December 31, 2001 and 2002 the Company had total borrowings
outstanding of $15.2 and $18.2 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. PREFERRED STOCK

UNDESIGNATED PREFERRED STOCK

On April 5, 1999, the Company's Board of Directors approved, which the
stockholders approved in May 1999, 5,000,000 shares of undesignated preferred
stock. Issuances of the undesignated preferred stock may be made at the
discretion of the Board of Directors (without stockholder approval), in one or
more series and with such designations, rights and preferences as determined by
the Board. As a result, the undesignated preferred stock may have dividend,
liquidation, conversion, redemption, voting or other rights, which may be more
expansive than the rights of holders of common stock. At December 31, 2001 and
2002 there were no shares of undesignated preferred stock issued or outstanding.

8. STOCKHOLDERS' EQUITY

PRIVATE PLACEMENT

On October 27, 2000, the Company issued 80,000 shares of common stock to At
Home Corporation ("Excite@Home"), a provider of broadband services, and 120,000
shares of common stock to John Hancock Small Cap Value Fund, for an aggregate
purchase price of $10.0 million. The Company also issued to these investors
warrants to purchase a total of 100,000 shares of common stock, half of which
were issued with an exercise price of $50.00 per share and half of which were
issued with an exercise price of $60.00 per share. In connection with the
transaction, the Company entered into an alliance agreement with Excite@Home to
jointly market Excite@Home's broadband service and Student Advantage Network
content to student and university customers.

On May 1, 2001, the Company issued 500,000 shares of common stock to five
investors, for an aggregate purchase price of $10 million. We also issued to
these investors warrants to purchase an additional 230,000 shares of common
stock, including warrants to purchase 150,000 shares of common stock with an
exercise price of $30.00 per share and warrants to purchase 80,000 shares of
common stock with an exercise price of $10.00 per share. The warrants to
purchase 80,000 shares with an exercise price of $10.00 per share are subject to
a final exercise price adjustment on May 1, 2003 based upon volume-weighted
average sales prices (but not less than $10.00 per share). An adjustment
described in the preceding sentence to the exercise price of the warrants shall
not result in an adjustment to the number of shares of common stock issuable
upon exercise of the warrants.

See warrant footnote below for discussion of the valuation of warrants.

On May 6, 2002, the Company issued 360,000 shares of Student Advantage
common stock to three investors for an aggregate purchase price of $2.7 million.
The Company also granted these investors the right, exercisable at any time
prior to November 1, 2002, to purchase in the aggregate an additional 45,000
shares of common stock for a purchase price of $7.50 per share and an additional
45,000 shares of common stock with a purchase price of $10.00 per share. On
November 2002, the right to purchase additional shares expired unexercised. No
additional shares were issued under the agreement.

On June 26, 2002, the Company issued 200,000 shares of Student Advantage
common stock to former shareholders of OCM Direct, Inc. as final payment for the
acquisition of OCM Direct. The shares were valued at the previous days close
price of $2.20 per share or $0.4 million and recorded as additional goodwill
related to the OCM acquisition.

WARRANTS

In July 1999, the Company entered into a marketing agreement with Lycos,
Inc. In connection with the transaction, Lycos was granted a warrant (the "Lycos
warrant") to purchase 55,000 shares of common stock at a purchase price of
$108.80 per share. The Lycos warrant expired unexercised on July 21, 2002. The

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company valued the Lycos warrant, using the Black-Scholes method, at $2.2
million, which was included in other assets and recognized as a sales and
marketing expense. During 2000 and 2001, $0.9 and $0.9 million of the warrants
value was recognized as sales and marketing expense, respectively. As of
December 31, 2001 the Company had completely amortized the asset.

In May 1999, the Company issued a warrant for the purchase of 2,400 shares
of common stock at a purchase price of $110.80 per share in connection with its
acquisition of Mentor Interactive Corp. This warrant was exercisable upon
issuance and expired unexercised on May 27, 2000.

In October 2000, in connection with the private placement, the Company
issued two warrants to Exite@Home. The first warrant for the purchase of 20,000
shares of common stock at an exercise price of $50.00 was exercisable upon
issuance and expired unexercised on October 26, 2002. The second warrant for the
purchase of 20,000 shares of common stock at an exercisable price of $60.00 was
exercisable upon issuance and expires on October 26, 2003. The Company valued
the warrants, using the Black-Scholes method, at $0.8 million.

In October 2000, in connection with the private placement, the Company
issued two warrants to John Hancock Small Cap Value Fund. The first warrant for
the purchase of 30,000 shares of common stock at an exercise price of $50.00 was
exercisable upon issuance and expired unexercised on October 26, 2002. The
second warrant for the purchase of 30,000 shares of common stock at an
exercisable price of $60.00 was exercisable upon issuance and expires on October
26, 2003. The Company valued the warrants, using the Black-Scholes method, at
$1.3 million.

In May 2001, in connection with the Company's private placement, the
Company issued warrants to purchase 192,500 shares of common stock. Of the
warrants issued, 80,000 and 150,000 have exercise prices of $10.00 and $30.00,
respectively. These warrants were exercisable upon issuance and expire on May 1,
2005. The warrants to purchase 80,000 shares with an exercise price of $10.00
per share are subject to a final exercise price adjustment on May 1, 2003, based
upon volume-weighted average sales prices (but not less than $10.00 per share).
The Company valued the warrants, using the Black-Scholes method, at $3.8
million, and recorded the amount as a cost of the private placement.

In May 2001, in connection with the purchase of certain Edu.com assets, the
Company issued a warrant for the purchase of 22,500 shares of common stock with
an exercise price of $22.80 and an additional 22,500 warrant with an exercise
price of $34.20. These warrants were exercisable upon issuance and expire May 9,
2006. The Company valued the warrants, using the Black-Scholes method, at $0.9
million.

In June 2001, in connection with the transaction contemplated by the Loan
Agreement with Reservoir Capital Partners, L.P., Reservoir Capital Associates,
L.P. and Reservoir Capital Master Fund, L.P. (collectively, "Reservoir Capital")
the Company entered into a Warrant Agreement (the "Warrant Agreement"), dated
June 25, 2001, by and among the Company and Reservoir Capital, under which the
Company issued to Reservoir Capital warrants to purchase a number of shares of
common stock based on the outstanding balance of the term loan and revolving
loan with an exercise price of $0.10 per share. These warrants were cancelled
with the December 30, 2002 amendment of the Reservoir Capital credit facility.

In September 2001, the Company issued a warrant for the purchase of 1,750
shares of common stock with an exercise price of $15.00 in connection with
certain services provided. The Company valued the warrant, using the
Black-Scholes method, at $15,000, which was recorded as a sales and marketing
expense.

On November 6, 2001, the Company modified certain provisions and covenants
of its loan agreement with Reservoir Capital Partners, Reservoir Capital
Associates and Reservoir Capital Master Fund (collectively, the "Lenders") and
issued immediately exercisable warrants to purchase an aggregate of 10,000
shares of common stock with an exercise price of $0.10 per share. These warrants
were cancelled in connection with the December 30, 2002 amendment of the
Reservoir Capital credit facility.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2002, the Company has reserved 326,750 shares of its
common stock for the exercise of these warrants.

9. STOCK AWARD PLANS

1995 STOCK OPTION PLAN

In 1995, the Board of Directors of UNI adopted the 1995 Stock Option Plan
(the "1995 Plan") authorizing the issuance of incentive and non-qualified
options and UNI common stock to select employees and non-employees. Options
granted under the 1995 Plan expire in ten years or less. The vesting terms were
set by the 1995 Plan's administrator, and were generally established with cliff
vesting at the end of the first year of 25% followed by monthly vesting over the
remaining three years. Stock option activity under this plan is reflected in the
table below.

1996 STOCK OPTION PLAN

In 1996, the Board of Directors of UNI adopted the 1996 Stock Option Plan
(the "1996 Plan") authorizing the issuance of incentive and non-qualified stock
to eligible employees. Options granted under the 1996 Plan expire in ten years
or less. The vesting terms were set by the 1996 Plan's administrator, and were
generally established with cliff vesting at the end of the first year of 25%
followed by monthly vesting over the remaining three year period . Stock option
activity under this plan is reflected in the table below.

1998 STOCK INCENTIVE PLAN

Under the 1998 Incentive Stock Plan, the Board of Directors may award
options and restricted stock or other stock-based awards. Incentive stock
options may not be granted at less than the fair market value of the Company's
common stock at the date of grant, for a term not to exceed ten years and
generally vesting over a four-year period. The exercise price under each
non-qualified stock option shall be specified by the Board of Directors. Awards
made under the 1998 Stock Plan may be made at the discretion of the Board of
Directors with terms to be defined therein.

On April 5, 1999, the Board approved an amendment to the 1998 Stock Plan,
which the stockholders approved in May 1999, providing for the issuance of up to
an aggregate 750,000 shares of the Company's common stock to eligible employees,
officers, the Board of Directors with terms to be defined therein.

On May 19, 2000, the Board approved an amendment to the 1998 Stock Plan,
which the stockholders approved in May 2000, providing for an increase in the
number of shares of common stock issuable under the plan from 750,000 to 950,000
shares.

On May 21, 2001, the Board approved an amendment to the 1998 Stock Plan,
which the stockholders approved in May 2001, providing for an increase in the
number of shares of common stock issuable under the plan from 950,000 shares to
1,200,000 shares.

During 1998 and 1999, the Company granted stock options to purchase 231,300
and 4,755 shares of its common stock with exercise prices of $3.30 and $18.70
per share, respectively. During 1998 and 1999, the Company recorded deferred
compensation of $4.2 million and $0.2 million, respectively, representing the
differences between the estimated fair market value of the common stock on the
date of grant and the exercise price. In 2000 and 2001, as a result of employee
terminations, deferred compensation related to certain of these options was
reduced by approximately $0.7 million and $0.2 million, respectively. During
2000 and 2001 the Company recorded compensation expense relating to these
options totaling, $0.8 million and $0.5 million, respectively. Compensation
relating to options which vested immediately upon grant was expensed in full at
the date of grant, while compensation related to options which vest over time
was recorded as a component of stockholders' equity (deficit) and is being
amortized over the vesting periods of the related options. Had

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

compensation cost for the Company's option grants been determined based on the
fair value at the date of grant consistent with the method prescribed by SFAS
No. 123, the Company's net loss and net loss per share would have increased to
the pro forma amounts indicated below:

Because additional option grants are expected to be made subsequent to
December 31, 2002 and because most options vest over several years, the pro
forma effects of applying the fair value method may be material to the results
of operations in future years. The weighted average grant date fair values of
options granted during 2000, 2001 and 2002 were $19.60, $20.80 and $9.55,
respectively.

Under SFAS No. 123, the fair value of each employee option grant is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants made during the years
ended December 31, 2000, 2001 and 2002: no dividend yield; risk free interest
rates of 5.35%, 5.10% and 5.00%, respectively; 100%, 88% and 100% volatility in
2000, 2001 and 2002, respectively, and an expected option term of 6, 6 and 5
years, respectively.

Stock option activity under the Company's option plans since January 1,
2000 is as follows:

As of December 31, 2002, 404,619 shares were available for grant under the
1998 Stock Plan.

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STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
at December 31, 2002:

1999 EMPLOYEE STOCK PURCHASE PLAN

On April 5, 1999, the Board of Directors authorized, which the stockholders
approved in May 1999, the 1999 Employee Stock Purchase Plan (the "Purchase
Plan"). The Purchase Plan provided for the issuance of up to 45,000 shares of
the Company's common stock to eligible employees. Under the Purchase Plan, the
Company is authorized to make one or more offerings during which employees may
purchase shares of common stock through payroll deductions made over the term of
the offering. The per-share purchase price at the end of each offering is equal
to 85% of the closing price of the common stock at the beginning or end of the
offering period (as defined by the Purchase Plan) whichever is lower. During
2000, 6,396 shares of the Company's common stock were purchased under the
Purchase Plan at $26.00 per share and 8,167 shares of the Company's common stock
were purchased under the Purchase Plan at $30.30 per share. During 2001, 8,792
shares of the Company's common stock were purchased under the Purchase Plan at
$21.30 per share and 8,053 shares of the Company's common stock were purchased
under the Purchase Plan at $10.20 per share. During 2002, 30,431 shares of the
Company's common stock were purchased under the Purchase Plan at $1.62 per share
and 15,735 shares of the Company's common stock were purchased under the
Purchase Plan at $0.60 per share. On May 16, 2002, the board approved an
amendment to the 1999 Employee stock Purchase Plan, providing for an increase in
the number of shares of common stock issuable under the plan from 45,000 shares
to 100,000 shares.

10. LOSS PER SHARE

Basic loss per share excludes dilution and is computed by dividing net
earnings available to common stockholders by the weighted average number of
common shares outstanding for the period. For all periods, diluted net loss per
share does not differ from basic net loss per share since potential common
shares from exercise of stock options and warrants are anti-dilutive. Options to
purchase 649,083, 640,915 and 397,456 shares of common stock were outstanding at
December 31, 2000, December 31, 2001 and December 31, 2002, respectively, but
were not included in the computation of diluted earnings per share, as the
effect would have been anti-dilutive.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the computation of basic and diluted
earnings per share (amounts in thousands, except per share data):

11. INCOME TAXES

The Company accounts for income taxes in accordance with the provisions of
SFAS 109, "Accounting for Income Taxes". Under SFAS 109, a deferred tax asset or
liability is recorded for all temporary differences between book and tax
reporting of assets and liabilities. A deferred tax valuation allowance is
required if it is more likely than not that all or a portion of any deferred tax
assets will not be realized. At December 31, 2002, the Company has available net
operating losses (NOL's) of approximately $93.3 million that are available to
offset future taxable income through 2020. It is likely that the Company
experienced an ownership change as defined by Section 382 of the Internal
Revenue Code, during the current year. Under this section of the IRC, there
could be substantial annual limitations on the Company's ability to carryforward
these losses to offset taxable income in future years. Due to the uncertainty
surrounding the Company's ability to realize these NOL's and the Company's other
deferred tax assets, a full valuation allowance has been placed against the
otherwise recognizable tax asset.

The approximate income tax effect of each type of temporary difference and
carryforwards is as follows:

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STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the federal statutory rate to the effective rate as of
December 31, 2002 is as follows:

12. EMPLOYEE SAVINGS PLAN

During 1998, the Company adopted an employee retirement savings plan under
Section 401(k) of the Internal Revenue Code, which covers substantially all
employees. Under the terms of the 401(k) Plan, employees may contribute a
percentage of their salary, up to a maximum of 20%. For the year ended December
31, 2000, 2001, and 2002, the Company provided for employer match funds to the
401(k) Plan on behalf of its employees of $0.2, $0.2 million and zero,
respectively. The employer match for 2001 was partially funded in 2002. The
remaining $0.1 million will be funded in the second quarter of 2003.

13. RELATED PARTY AND OTHER TRANSACTIONS

Effective May 15, 2000, the Company entered into an Affiliate and
E-Commerce Agreement with Princeton Review Publishing, LLC, and The Princeton
Review Management, LLC ("TPR"). Princeton Review Publishing, LLC is a
stockholder of the Company and one of its officers and equity holders was a
member of the Company's Board of Directors until September 2002. Under the
agreement, TPR paid the Company a fee to participate in the Student Advantage
network by placing the Student Advantage logo and content on The Princeton
Review's review.com website. In addition, TPR provided discounts as part of the
Student Advantage Membership Program and marketed the discount to high school,
college and university students. Additionally, under the agreement the Company
paid TPR a fee in exchange for exclusive advertising sales responsibilities for
the review.com website. The agreement expired on March 31, 2002. The Company
recorded revenues of $0.6 million, $0.8 million and $0.2 million, and expenses
of $0.7 million, $0.7 million and $0.2 million related to this agreement for the
year ended December 31, 2000, 2001 and 2002, respectively. Additionally, the
Company recorded revenue and expenses of approximately $0.5 million and $0.5
million, respectively, related to additional work performed by both parties for
the twelve month period ended December 31, 2002.

On December 30, 2002, Reservoir Capital agreed to reduce the total
indebtedness to them from approximately $15.7 million to $9.5 million in
exchange for a guarantee from Mr. John Katzman, a member of the Company's Board
of Directors who resigned at the time the amendment was consummated. In
addition, Reservoir Capital agreed to lend the Company an additional $2.0
million. In exchange for his guarantee, the Company agreed to pay Mr. Katzman a
$1.0 million fee payable at the time of certain loan repayments. The debt
obligations to Reservoir Capital and Mr. Katzman carry an annual interest rate
of 12% and require payments of $3.5 million on January 31, 2003, $4.0 million on
March 31, 2003 and the remaining balance on the July 1, 2003 loan maturity date.

For the year ended December 31, 2002, Raymond V. Sozzi, Jr., the Company's
President and Chief Executive Officer, advanced an aggregate of $1.1 million to
the Company, all of which was repaid during the year ended December 31, 2002.
There were no advances for the year ended December 31, 2001.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On September 30, 2002, the Company entered into a $3.5 million loan
agreement with Scholar, Inc., an entity formed by Raymond V. Sozzi, Jr., the
Company's President and Chief Executive Officer, Atlas II, L.P. and certain
other stockholders. The loan is referred to as the Scholar loan, has an interest
rate of 8% per annum, matures on July 1, 2003 and otherwise has the same terms
as the Reservoir Capital credit facility.

14. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company leases its operating facility and certain office equipment
under noncancelable operating lease agreements. Rent expense under these leases
for the years ended December 31, 2000, 2001 and 2002 totaled approximately $1.9,
$2.1 and $2.4 million, respectively.

As a result of the Company's acquisitions of ScholarAid and CollegeClub
during 2000 and OCM Direct, CarePackages.com and certain assets of Edu.com in
2001, the Company assumed certain capital leases of computer equipment. Initial
lease terms range from 3 to 5 years.

Future minimum lease payments under noncancelable operating and capital
leases at December 31, 2002 are as follows (in thousands):

On July 15, 2002, the Company agreed to a lease termination regarding its
facility in San Diego, CA. The facility was acquired during the October 2000
acquisition of CollegeClub and at that time the Company identified its intention
to vacate the facility. As a result, the Company provided for an accrual on
unused space for the future lease obligation as part of the original accounting
of the purchase price. At the time of the termination of the lease, the Company
had $2.4 million accrual remaining related to unused space. In accordance with
EITF 95-3 "Recognition of Liabilities in Connection with a Purchase Business
Combination", the Company reversed the accrual against the goodwill related to
the acquisition during the quarter ended September 30, 2002.

LEGAL PROCEEDINGS

The Company is from time to time subject to legal proceedings and claims
that arise in the normal course of its business. In the opinion of management,
the amount of ultimate liability with respect to these actions will not have a
material adverse effect on the Company's financial position or results of
operations.

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In November 2002, the Company was named as a defendant in a lawsuit filed
against it and General Motors by Richard M. Kipperman, Liquidating Trustee of
the bankruptcy estate of CollegeClub.com, Inc., Campus24, Inc. and
CollegeStudent.com, Inc., in the U.S. Bankruptcy Court for the Southern District
of California. The suit seeks damages of $2.25 million and interest and costs
relating to payments received by the Company under an agreement with General
Motors that the Company acquired from CollegeClub.com. The trustee alleges that
the payments were earned by CollegeClub.com prior to the Company's acquisition
of the agreement and were not sold to the Company as part of the agreement. The
Company believes that the trustee's allegations are factually incorrect and are
inconsistent with the terms of the acquisition agreement with CollegeClub.com
and intends to defend the matter vigorously. If, however, the Company is found
to have significant liability to the liquidating trustee or incurs significant
costs in connection with the litigation, its financial condition and liquidity
would suffer significant harm.

15. RESTRUCTURING CHARGE

For the year ended December 31, 2001, the Company recorded a $4.9 million
charge in connection with a restructuring of the Company's operations. Included
in the $4.9 million charge was $1.3 million related to a reduction in staff of
approximately 15% of the Company's total employees and $3.6 million in charges
related to operating leases for office space no longer utilized in our current
operations. The balance of the severance and related charges were incurred in
association with the Company's decision to restructure certain of its operations
in order to improve workflow efficiencies.

As of December 31, 2002, $0.3 million in restructuring charges related to
the facility lease costs are accrued and unpaid.

A rollforward of the restructuring accrual is as follows:

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth unaudited quarterly statement of operations
data for each of the four quarters in the years ended December 31, 2001 and
2002. In the opinion of management, the unaudited financial statements have been
prepared on a basis consistent with the audited financial statements and include
all adjustments, which are only normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for the
unaudited periods. The results of operations for any quarter are not necessarily
indicative of the results of operations for any future period.

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STUDENT ADVANTAGE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All revenue for the Company has been generated in the United States,
therefore no geographic disclosure is required.

- ---------------

* All share and per share items have been adjusted to reflect the one-for-ten
reverse split of the Common Stock effected on June 28, 2002

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Our consolidated financial statements as of and for the fiscal year ended
December 31, 2001 were audited by Arthur Andersen LLP, independent accountants.
On August 31, 2002, Arthur Andersen ceased practicing before the SEC. Therefore,
Arthur Andersen did not participate in the preparation of this Annual Report on
Form 10-K, did not reissue its audit report with respect to the financial
statements included in this Annual Report on Form 10-K and did not consent to
the inclusion of its audit report in this Annual Report on Form 10-K. As a
result, holders of our securities, and investors evaluating offers and
purchasing securities pursuant to a prospectus incorporating by reference this
Annual Report on Form 10-K, may have no effective remedy against Arthur Andersen
in connection with a material misstatement or omission in the financial
statements to which its audit report relates. In addition, even if such holders
or investors were able to assert such a claim, because it has ceased operations,
Arthur Andersen may fail or otherwise have insufficient assets to satisfy claims
made by such persons that might arise under federal securities laws or otherwise
with respect to Arthur Andersen's audit report.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information regarding directors and compliance with Section 16(a) of
the Securities and Exchange Act of 1934, as amended, required by Item 10 shall
be provided by an amendment to this Annual Report on Form 10-K filed on or
before April 30, 2003. The information regarding executive officers of the
Company is included in Part I of this Annual Report on Form 10-K under the
section captioned "Executive Officers of the Registrant".

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 shall be provided by an amendment to
this Annual Report on Form 10-K filed on or before April 30, 2003.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by Item 12 shall be provided by an amendment to
this Annual Report on Form 10-K filed on or before April 30, 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 shall be provided by an amendment to
this Annual Report on Form 10-K filed on or before April 30, 2003.

ITEM 14. CONTROLS AND PROCEDURES

1. Evaluation of disclosure controls and procedures. Based on their evaluation
of the Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a
date within 90 days of the filing date of this Annual Report on Form 10-K,
the Company's chief executive officer and vice president finance and
assistant treasurer have concluded that the Company's disclosure controls
and procedures are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms and are operating in an
effective manner.

2. Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their most recent
evaluation.

72

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)(1) LIST OF FINANCIAL STATEMENTS

The following are the consolidated financial statements of Student
Advantage, Inc. and its subsidiaries appearing elsewhere herein:

Reports of Independent Auditors and Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2001 and 2002
Consolidated Statements of Operations for the years ended December 31,
2000, 2001 and 2002
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 2000, 2001 and 2002
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 2001 and 2002

(A)(2) LIST OF SCHEDULES

All schedules to the consolidated financial statements are omitted because
they are not applicable, not required, or the information required is included
in the financial statements or notes thereto.

(A)(3) EXHIBITS

The Exhibits that are filed with this report or that are incorporated by
reference herein are set forth in the Exhibit Index hereto.

(B) REPORTS ON FORM 8-K

The Company filed a Current Report on Form 8-K dated September 30, 2002
with the Securities and Exchange Commission on October 1, 2002 reporting an
amendment to its loan agreement and warrant agreement with Reservoir Capital
Partners, a loan from Scholar, Inc. and the receipt of an acquisition proposal
from Scholar, Inc.

The Company filed a Current Report on Form 8-K dated December 11, 2002 with
the Securities and Exchange Commission on December 11, 2002 reporting the
receipt of various correspondence from the Nasdaq regarding the listing of the
Company's Common Stock on the Nasdaq National Market and the institution of
legal proceedings against the Company and General Motors by the liquidating
trustee of the CollegeClub.com bankruptcy estate.

73

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on April 15, 2003.

STUDENT ADVANTAGE, INC.

By: /s/ RAYMOND V. SOZZI, JR.
------------------------------------
Raymond V. Sozzi, Jr.
Chairman of the Board of Directors,
President and Chief Executive
Officer

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

74

CERTIFICATIONS

I, Raymond V. Sozzi, Jr., certify that:

1. I have reviewed this annual report on Form 10-K of Student Advantage,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

/s/ RAYMOND V. SOZZI, JR.
--------------------------------------
Raymond V. Sozzi, Jr.
Chairman of the Board of Directors,
President and Chief Executive Officer

Dated: April 15, 2003

75

CERTIFICATIONS

I, Sevim M. Perry, certify that:

1. I have reviewed this annual report on Form 10-K of Student Advantage,
Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

/s/ SEVIM M. PERRY
--------------------------------------
Sevim M. Perry
Vice President Finance and Assistant
Treasurer

Dated: April 15, 2003

76

EXHIBIT INDEX

- ---------------

* Management contract or compensatory plan or arrangement filed as an Exhibit to
this form pursuant to Items 15 of Form 10-K.

The consolidated financial statements for the year ended December 31, 2001,
included in this Form 10-K were audited by the Registrant's former independent
auditors, Arthur Andersen LLP ("Andersen"). Effective June 26, 2002, the
Registrant's Board of Directors engaged Ernst & Young LLP as its independent
auditors and dismissed Andersen. The Registrant would ordinarily be required to
obtain the consent of Andersen to the inclusion into this Form 10-K and the
incorporation by reference into the Registrant's registration statements on Form
S-8 and Form S-3 of Andersen's report with respect to its consolidated financial
statements for the year ended December 31, 2001. However, Andersen was indicted
and found guilty of federal obstruction of justice charges and is no longer able
to provide such consent. Under these circumstances, Rule 437a promulgated under
the Securities Act of 1933, as amended, permits the Registrant to file this Form
10-K without a written consent from Andersen. The absence of Andersen's consent
may limit a security holder's recovery on certain claims. In particular, and
without limitation, a person who acquires shares of the Registrant will not be
able to assert claims against Andersen under Section 11 of the Securities Act of
1933 if this Form 10-K or such registration statements on Form S-8 and Form S-3
contain financial statements audited by Andersen that include an untrue
statement of material fact or omit to state a material fact necessary to make
other disclosure in those financial statements not misleading. In addition, the
ability of Andersen to satisfy any claims (including claims arising from
Andersen's provision of auditing and other services to the Registrant) may be
limited as a practical matter due to recent events regarding Andersen.

81