TABLE OF CONTENTS Some Housecleaning 1 Q User’s Guide 2 Q Le’s Clean House 3 Q Cheat Sheet 4 * Performance

Some Housecleaning

We have a lot of ground to cover in this issue of the Internet Review. I'm going to continue my countdown of the seven mistakes I made as a venture capitalist, but first I’d like to take a look at the model portfolio, now that the newsletter has been around for one year, and stress some important guidelines for readers. And while we’re looking back, I’d also like do some housekeeping and close some of the picks.

First off, let’s look at the model portfolio’s performance. On the one hand, it is solidly beating a benchmark of Internet stocks, the Internet Holders index (HHH). I should be happy about this, and about the fact that the newsletter is making money for readers. If the Internet Holders index starts to move up and catch the rest of the market, the model portfolio should be catapulted higher accordingly. Yet I must admit I’m less than happy about the performance.

Don't get me wrong. The newsletter has quite a few winners. Provide Commerce (PRVD) was an early one; it was bought by Liberty Media Interactive (LINTA) for 53% more than its cost basis in the model portfolio. Some of the much more recent picks have performed phenomenally well too:

ƒ I recommended Liquidity Services (LQDT) on Aug. 28, less than two months ago, and it’s already up 64%.

ƒ Last week’s pick, Websense (WBSN), is up 13%.

ƒ My personal favorite is J.C. Penney (JCP), which is up 18% since I picked it June 5.

ƒ OptionsXpress (OXPS), which I added the same day as Liquidity Services (I must've had a strong brand of coffee that day), is up 24% since then.

I'm also happy that at last the market is starting to see some value in the stocks I've been pounding the table on, like Time Warner (TWX), which is up 10% since it was added to the model portfolio Oct. 10, 2005, and Microsoft (MSFT), which is up 16.5% since I recommended it Oct. 13, 2005.

Yet the reason for my unhappiness is the poor performance of some of the early picks. For example, Yahoo! (YHOO), which I picked last November, is down 33%, as the company has disappointed the Street with numbers, guidance and the delay of its ad system. For the reasons why I still like Yahoo!, revisit last week’s edition of the newsletter. Also, TOM Online (TOMO), picked the same day as Yahoo!, is down 34%.

Yet, even though the performance of these stocks has been disappointing so far, remember that my outlook on the Internet sector is long term. This continues to be a dynamic sector.

October 30, 2006 TheStreet.com Internet Review October 30, 2006

User’s Guide I’d also like to provide the following observations and suggestions, which I’ll call a “Guide to the Newsletter.”

• This is a long-term effort. I'm a believer in the underlying demographics of the Internet. As such, I do believe in the long run that the Internet Review model portfolio is going to end up being way ahead of the market. This is not a cash portfolio, so it’s hard to keep track of the "return" since each one of these stocks would be played differently by people. That said, I do expect the average return (now about 5%) will significantly outpace the market over time.

• I still like value. Large-cap value has done very well recently, but micro-cap and small-cap value have not done so well. Keep in mind, however, that these sectors cycle over time, and I expect some of small-cap efforts will catch up in the long run.

• Please view each pick as a starting point for your own research. If you have any questions or concerns about a pick, please let me know.

• And finally, I'm a firm believer in what Chris Anderson (author of The Long Tail, a book about the future of business) calls the "Economy of Abundance." One of the characteristics of this theory is that it’s cheap to build a business right now, or try out an idea. So you might as well build as many businesses as you can to see what succeeds. How much did it really cost to build YouTube? Almost nothing. How much did it cost to build or MySpace?

Just to find out, I put up a project description on ScriptLance.com, a reverse auction Web site where programmers and developers (usually from Bangalore, , or Romania) bid on proposed projects (the lowest bid wins). I wrote, “I want a complete clone of MySpace: dating services, home pages with layouts, video embedding and uploading, message boards. … " I received about a dozen bids from different shops, ranging from $500 to $5,000. One of the bids, for $1,200, pointed me to a Web site this particular developer had already built. It was an exact replica of MySpace, down to “Tom.” For $1,200!

So I put up another project request saying I wanted an exact clone of YouTube, including all the community features, the ability to upload in multiple formats and have all the videos converted to a common Flash format, etc. The average bid I received was $2,500. I got several links to other completed projects that were all very YouTube-like. And sometimes, people wanted to give away an entire site for free, thinking they could then charge for support later. Here’s an example (not mine) of someone asking for a YouTube clone: http://www.scriptlance.com/projects/1160751619.shtml

There are other project sites like ScriptLance.com. You can try Elance.com or RentACoder.com, for instance.

I'm not recommending you go out and build a MySpace clone or even a YouTube clone, despite the obvious success of these models. All I'm saying is that now the means for creating just about any Web site or Web business are within anyone’s reach. If you have an idea, even a bad one, just build it. Once you get to know me better, I might even share a few of the horror flicks I've created over the past year (some of which I hope will be successes).

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Lessons Learned as a Venture Capitalist: No. 3 My final point in the above “Guide” brings me to my No. 3 mistake in my countdown of errors I made as a venture capitalist. This one is short and sweet.

I wish I had tried out a few more ideas I had instead of waiting for nonsense business plans to hit my desk. I was almost more reactive than proactive. Now at this stage in my career, I’m reversing that. You don’t have to make this mistake.

In next week’s issue of the Internet Review, I'll talk a little more about how to market and monetize an Internet idea and will continue with the countdown.

Let’s Clean House Now, on to the model portfolio cleanup. I'm removing the following stocks:

NetEase.com (NTES): Unfortunately, I didn't recommend selling this pick when it was 40% higher. But now I believe the other Chinese Internet stocks are going to come back strong, and I believe NetEase.com has some risk if it doesn’t come up with more hits from here on out. I'm more bullish on Hurray! (HRAY) and KongZhong (KONG) in the China Internet space.

Technology Investment Capital (TICC): The model portfolio tracker on TheStreet.com doesn't reflect the full gain on this one. The stock itself is up 2%, but it has paid $1.32 in dividends since I recommended it about a year ago. So, in reality, the stock has gained about 10%. I believe it still is going to do fine, but I'm a little concerned about all the turnover in the executive suite over the past year. I also worry that Jonathan Cohen, the CEO, may be getting distracted with all the projects he is managing. That said, I have nothing bad to say about the company; I just feel it’s time to step back and watch it for a while.

Greenfield Online (SRVY): I love the company and love the space. But the stock is up 34% since I picked it on May 30, and it’s not cheap here. So let’s take a step back and watch.

J.C. Penney (JCP): This stock has just shot up 18% in the past few weeks. Let’s take it out of the model portfolio but keep an eye on it. It’s quite possibly the best company on the entire list. But with Christmas coming up and all the media whispering about recession, it’s a decent bet that we can get back in this one cheaper.

News Corp. (NWS): Shares are up 11% since I recommended them Sept. 11, which beats the broader market’s 9% return over the same period. Can it go up more? Sure. But I think the next "media cycle" on MySpace is going to be negative as people start sniffing around the 100 million users number and competition gets tough between YouTube and MySpace. In any case, the model portfolio still holds Liberty Media Capital (LCAPA), which owns 20% of News Corp.

Liquidity Services (LQDT): C'mon, it’s up 64% in less than two months! Let’s give it a break for a little while and get back into it after the next pullback. I only wish they would let the winners stay on the page you see when you look at the portfolio for the Internet Review.

If this were a cash-based portfolio (i.e., if it was simulating a real investing environment), I'd recommend raising cash here in anticipation of a pullback. Instead, take the "model portfolio" for what it is -- a list of ideas. I’ll offer more cleanup suggestions next week.

As always, please send me emails with feedback, questions or concerns. I’d like to know more about the makeup of the newsletter’s readership, so feel free to just drop me a line and say “hello.”

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Internet Review Cheat Sheet Chinese Stocks Rise To my surprise, the Chinese stocks saw a solid bounce on Friday. The model portfolio’s Chinese names -- Global Sources (GSOL), Hurray!, TOM Online and KongZhong -- saw gains, while NetEase.com was down a few cents. Global Sources rose 5.95%, Hurray! rose 2.6%, TOM Online rose 10.4% and KongZhong rose 6.2%.

The key catalyst for this rise was the numbers from Sohu.com (SOHU). The company’s third- quarter results and fourth-quarter outlook were both solid, reminding Wall Street of the tremendous growth potential in a variety of Chinese names. While I have been early on these stocks so far, I am convinced I wasn’t wrong.

Now for specific company news and earnings reminders:

APTM Aptimus (APTM) plans to announce financial results Tuesday, Nov. 7.

AV Avaya (AV) had a solid week, rising 80 cents after an excellent earnings report Tuesday night. Adjusted earnings per share came in at 17 cents, topping the consensus estimate of 13 cents. Revenue also beat estimates. In addition, gross margins started to recover from last quarter's weakness, gaining 130 basis points.

GIB CGI Group (GIB) plans to report quarterly results Tuesday, Nov. 14.

GSOL Global Sources (GSOL) announced before the market opened Thursday that sales inquiries hit a record 934,426, more than doubling year over year. The company’s CEO said, “This increased buyer activity points to the sourcing synergy between the Internet, and traditional sourcing fairs and trade magazines." Although the company is clearly maintaining a solid growth profile, I’d be hesitant to purchase the stock at its current level, which is 58% higher than when I picked it. The company plans to report financial results Wednesday, Nov. 8.

HRAY Hurray! (HRAY) plans to report results Thursday, Nov. 16.

LQDT Liquidity Services (LQDT): Analysts have been jumping on this company’s bandwagon since early September. On Sept. 6, investment bank RBC upgraded shares to outperform. On Oct. 4, Lazard initiated coverage with a buy. On Oct. 13, FBR initiated coverage with an outperform. And on Monday, Ryan Beck also initiated coverage with an outperform. Because the Internet Review “beat” the analysts to this stock, it’s been possible to reap a magnificent return of 64%.

MSFT Microsoft (MSFT): My Microsoft thesis is starting to be vindicated, as the company released another solid quarterly report Friday. Earnings per share were 35 cents, vs. the consensus estimate for 29 cents. Revenue of $10.81 billion beat the consensus estimate for $10.75 billion.

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While Microsoft certainly has begun to turn around its numbers, my thesis hasn’t been fully realized, as the Vista operating system and the Office upgrade haven't yet been released. Yet it would be considered “chasing” to purchase a stock when it’s up 17% -- as this stock is since I recommended it – even though one must remember that the Nasdaq has gained 15.6% over the same period. We also have to keep in mind that the market is still not fully baking in the fact that the two major factors in Microsoft’s earnings, Windows and Office, will have multiyear new releases next year. These are the two largest components of the company’s earnings and its first major release of these projects in more than five years next year.

NTES NetEase.com (NTES) plans to report financial results Tuesday, Nov. 6.

NWS News Corp. (NWS): According to tech blogger Michael Arrington of Techcrunch.com, News Corp. has been in acquisition discussions with .com. Arrington claims Digg would fetch at least $150 million. While Digg has solid traffic, I don’t believe it’s worth $150 million. I think it still lacks a real brand (as opposed to YouTube).

RNWK RealNetworks’ (RNWK) acquisition of WiderThan received approval from the Korean government last week. This acquisition will deplete the company's hefty cash balance of $350 million. This is another pick I'd be hesitant to add new money to, especially considering the stock doesn't hold the "obvious" value it did when it traded at $7.50 share (vs. its current level of $11).

SRVY Greenfield Online (SRVY) formed an alliance with Turnkey Sports & Entertainment this past week. The press release says it will allow sports marketers to have "global, real-time access to the opinions of millions of sports fans and other consumers for the purpose of measuring the effectiveness of sponsorship and building audience." This alliance should help Greenfield’s market share in the sports-marketing space, where the company’s online research technology could be very useful.

TEAM TechTeam Global (TEAM) plans to report financial results Thursday, Nov. 2.

TOMO TOM Online (TOMO) plans to report financial results Thursday, Nov. 9.

TWX Time Warner (TWX): According to a recent Fortune magazine article, Yahoo! recently approached Time Warner about buying AOL. While I don’t think this report is accurate, it reminds us of an important point: AOL has value. It’s somewhere between $10 billion and $30 billion, in my opinion. The $30 billion figure is probably high, given that (GOOG) essentially valued it at $20 billion less than one year ago. I figure the most likely acquisition value is $25 billion. If this is the case, Time Warner would be ridiculously cheap at current levels. This is the primary reason for holding onto the stock right now.

WBSN Websense (WBSN): Following solid earnings and guidance this week, shares moved up 13% from the level at which they were added to the model portfolio just one week ago. Excluding options expenses, the company earned 25 cents a share, beating the 23 cent-a-share consensus.

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INTERNET REVIEW MODEL PORTFOLIO OPEN POSITIONS Coding System: SB, for strong buy; B, for buy; SP, for speculative buy; N, for neutral and S, for sell.

Date Initiation Current Simple NASDAQ at NASDAQ Company Name/Ticker Initiated Rating Code Price Price Return Initiation Date Return Aptimus 03/20/2006 SB $ 5.22 $ 7.61 45.79% 2,311.80 1.68% APTM Avaya 03/20/2006 B $ 11.90 $ 12.82 7.73% 2,311.80 1.68% AV Collectors Universe 12/06/2005 B $ 14.67 $ 13.97 -4.77% 2,267.09 3.68% CLCT Copart 01/06/2006 B $ 23.98 $ 28.45 18.64% 2,289.87 2.65% CPRT EarthLink 04/11/2006 SB $ 9.16 $ 6.92 -24.45% 2,336.52 0.60% ELNK E-Trade Financial 10/16/2006 SB $ 22.77 $ 23.83 4.66% 2,358.23 -0.32% ET E-Trade Financial 10/14/2005 SB $ 16.28 $ 23.83 46.38% 2,055.78 14.34% ET CGI Group 10/09/2006 SB $ 6.67 $ 7.06 5.85% 2,297.76 2.30% GIB Global Sources 11/21/2005 B $ 7.45 $ 11.76 57.85% 2,225.74 5.61% GSOL Hurray! 04/25/2006 B $ 9.40 $ 6.40 -31.91% 2,338.06 0.54% HRAY Intersections 03/06/2006 SB $ 9.19 $ 9.67 5.22% 2,306.42 1.92% INTX iPass 10/17/2005 B $ 5.48 $ 5.24 -4.38% 2,064.90 13.84% IPAS InfoUsa 02/22/2006 SB $ 11.32 $ 10.89 -3.80% 2,265.59 3.75% IUSA J.C. Penney 06/05/2006 B $ 64.35 $ 76.25 18.49% 2,211.28 6.30% JCP Keynote 10/10/2005 SB $ 13.05 $ 10.72 -17.85% 2,092.03 12.36% KEYN KongZhong 02/13/2006 SB $ 11.91 $ 7.52 -36.86% 2,251.14 4.42% KONG Liberty Media 05/15/2006 B $ 78.88 $ 87.33 10.71% 2,234.03 5.22% LCAPA Liberty Media 05/10/2006 B $ 20.25 $ 22.19 9.58% 2,332.24 0.79% LINTA Liquidity Services 08/28/2006 B $ 10.93 $ 17.88 63.59% 2,140.17 9.83% LQDT Marchex 10/16/2006 SP $ 17.01 $ 16.05 -5.64% 2,358.23 -0.32% MCHX Marchex 11/14/2005 SP $ 20.00 $ 16.05 -19.75% 2,203.10 6.70% MCHX Microsoft 10/13/2005 B $ 24.31 $ 28.34 16.58% 2,033.28 15.61% MSFT NetEase.com 11/14/2005 N $ 15.63 $ 16.70 6.86% 2,203.10 6.70% NTES News Corp. 09/11/2006 SB $ 19.41 $ 21.71 11.85% 2,152.14 9.22% NWS OptionsXpress 08/28/2006 B $ 25.20 $ 31.24 23.97% 2,140.17 9.83% OXPS RealNetworks 10/18/2005 B $ 7.52 $ 10.91 45.08% 2,068.61 13.63% RNWK Greenfield Online 05/30/2006 SB $ 7.76 $ 10.45 34.66% 2,202.17 6.74% SRVY E.W. Scripps 10/20/2005 B $ 46.34 $ 49.30 6.39% 2,087.80 12.59% SSP

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TechTeam Global 02/03/2006 B $ 9.90 $ 8.84 -10.71% 2,268.46 3.62% TEAM Technology Investment 10/19/2005 B $ 14.73 $ 15.06 2.24% 2,048.46 14.75% TICC TOM Online 11/14/2005 B $ 20.74 $ 13.66 -34.14% 2,203.10 6.70% TOMO Time Warner 10/10/2005 SB $ 18.01 $ 19.91 10.55% 2,092.03 12.36% TWX United Online 01/03/2006 SB $ 14.20 $ 13.63 -4.01% 2,216.60 6.05% UNTD United Online 10/16/2006 SB $ 13.02 $ 13.63 4.69% 2,358.23 -0.32% UNTD VeriSign 10/11/2005 SP $ 20.62 $ 20.90 1.36% 2,084.90 12.74% VRSN Websense 10/23/2006 B $ 23.79 $ 26.92 13.16% 2,335.47 0.65% WBSN Yahoo! 11/14/2005 SP $ 38.04 $ 25.34 -33.39% 2,203.10 6.70% YHOO

INTERNET REVIEW PERFORMANCE

Average Return Open Positions 6.68% Performance results listed here reflect values of stocks as of the close of the most recently completed trading day. They do not factor in dividends paid, interest earned and actual commissions Average Return Closed Positions -1.90% paid. Results are updated overnight and posted prior to the market open the following business day. The YTD Return figures reflect Total Average Return 4.75% changes since the first trading day of the current year. The Total Average Return figures reflect changes since inception on 2006 YTD Return 1.83% 10/10/2005.

NASDAQ COMPOSITE Portfolio % Gain/Loss Since 2006 YTD Open Level Current Level Inception Portfolio Inception Return Nasdaq Composite (COMP) 10/10/2005 2,092.03 2,350.62 12.36% 6.05%

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CONTACT INFORMATION

Reader Feedback and Questions Subscription/Account Info Please email James Altucher directly. Please email [email protected] or call

Please direct all account-related 1-866-321-TSCM (8726) Mon. - Fri. 8 a.m. to inquiries to customer service. 6 p.m. ET; or outside the U.S. and in Canada, call 1-212-321-5200

LEGAL INFORMATION

James Altucher, writer of TheStreet.com Internet Review, is a managing partner at Formula Capital, an alternative asset management firm, and a contributor to TheStreet.com’s RealMoney. TheStreet.com is a publisher and is registered as an investment advisor with the U.S. Securities and Exchange Commission. Mr. Altucher is restricted from transacting for his own benefit in securities discussed in TheStreet.com Internet Review. Formula Capital and its affiliates may, from time to time, have long or short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in TheStreet.com Internet Review and may take positions inconsistent with the views expressed.

TheStreet.com Internet Review contains Mr. Altucher’s own opinions, and none of the information contained therein constitutes a recommendation by Mr. Altucher, Formula Capital, or TheStreet.com that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Past results are not necessarily indicative of future performance.

Investing in the stocks chosen for TheStreet.com Internet Review model portfolio is risky and speculative. The companies may have limited operating histories and little available public information, and the stocks they issue may be volatile and illiquid. Trading in such securities can result in immediate and substantial losses of the capital invested. You should use only risk capital, and not capital required for other purposes, such as retirement savings, student loans, mortgages or education.

TheStreet.com Internet Review portfolio is a model portfolio of stocks chosen by Mr. Altucher in accordance with his stated investment strategy. Your actual results may differ from results reported for the model portfolio for many reasons, including, without limitation: (i) performance results for the model portfolio do not reflect actual trading commissions that you may incur; (ii) performance results for the model portfolio do not account for the impact, if any, of certain market factors, such as lack of liquidity, that may affect your results; (iii) the stocks chosen for the model portfolio may be volatile, and although the “purchase” or “sale” of a security in the model portfolio will not be effected in the model portfolio until confirmation that the email alert has been sent to all subscribers, delivery delays and other factors may cause the price you obtain to differ substantially from the price at the time the alert was sent; and (iv) the prices of stocks in the model portfolio at the point in time you begin subscribing to TheStreet.com Internet Review may be higher than such prices at the time such stocks were chosen for inclusion in the model portfolio.

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