##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K







|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended January 31, 2009

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: 000-26023





Alloy, Inc.

Exact name of registrant as specified in charter







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 04-3310676                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

151 WEST 26TH STREET, 11TH FLOOR

NEW YORK, NY 10001

(Address of principal executive office)

(212) 244-4307

(Registrants telephone number, including area code)





SECURITIES REGISTERED PURSUANT
TO SECTION 12(b) OF THE ACT:



|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of each class           |  | Name of each exchange on which registered
|Common Stock, par value $0.01 |  | The NASDAQ Stock Market LLC              

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Preferred Stock Purchase Rights





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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to 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.  x

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                           |  |                      |  |                                               |  |                             
|-------------------------- |  | -------------------- |  | --------------------------------------------- |  | ----------------------------
|Large accelerated filer   ̈ |  | Accelerated filer  x |  | Non-accelerated filer   ̈                      |  | Smaller Reporting company   ̈
|                           |  |                      |  | (Do not check if a smaller reporting company)

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

The aggregate market value, based upon the closing sale price of the shares as reported by The NASDAQ Stock Market LLC, of voting and non-voting common equity held by non-affiliates as of July 31, 2008 was
$94,824,620 (excludes shares held by executive officers, directors, and beneficial owners of more than 10% of the registrants common stock). Exclusion of shares held by any person should not be construed to indicate that such person possesses
the power, direct or indirect, to direct or cause the direction of management or policies of the registrant or that such person is controlled by or under common control with the registrant.

The number of shares of the registrants common stock outstanding as of March 31, 2009 was 15,639,228 or 12,777,283 excluding treasury shares.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the registrants definitive proxy statement for its 2009 Annual Meeting of Stockholders, which is expected to be filed with the Securities and Exchange Commission within 120 days of
the registrants fiscal year end, is incorporated by reference into Part III of this Report.









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INDEX



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                              |  | Page
|           |  | PART I                                                                                                       |  |     
|           |  |                                                                                                             
|Item 1.    |  | Business                                                                                                     |  | 1   
|           |  |                                                                                                             
|Item 1A.   |  | Risk Factors                                                                                                 |  | 10  
|           |  |                                                                                                             
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 17  
|           |  |                                                                                                             
|Item 2.    |  | Properties                                                                                                   |  | 17  
|           |  |                                                                                                             
|Item 3.    |  | Legal Proceedings                                                                                            |  | 18  
|           |  |                                                                                                             
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 18  
|           |  |                                                                                                             
|           |  | PART II                                                                                                      |  |     
|           |  |                                                                                                             
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 19  
|           |  |                                                                                                             
|Item 6.    |  | Selected Financial Data                                                                                      |  | 22  
|           |  |                                                                                                             
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 23  
|           |  |                                                                                                             
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 38  
|           |  |                                                                                                             
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 39  
|           |  |                                                                                                             
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 72  
|           |  |                                                                                                             
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 72  
|           |  |                                                                                                             
|Item 9B.   |  | Other Information                                                                                            |  | 74  
|           |  |                                                                                                             
|           |  | PART III                                                                                                     |  |     
|           |  |                                                                                                             
|Item 10.   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 75  
|           |  |                                                                                                             
|Item 11.   |  | Executive Compensation                                                                                       |  | 75  
|           |  |                                                                                                             
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 75  
|           |  |                                                                                                             
|Item 13.   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 75  
|           |  |                                                                                                             
|Item 14.   |  | Principal Accountant Fees and Services                                                                       |  | 75  
|           |  |                                                                                                             
|           |  | PART IV                                                                                                      |  |     
|           |  |                                                                                                             
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                   |  | 76  
|           | 
|SIGNATURES |  | 82                                                                                                          



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PART I

Unless the context otherwise requires, references to Alloy, Company, Registrant, we, our, and
us in this Annual Report on Form 10-K refers to Alloy, Inc. and our subsidiaries. In this document, fiscal 2008 refers to the fiscal year ended January 31, 2009, fiscal 2007 refers to the fiscal year ended
January 31, 2008 and fiscal 2006 refers to the fiscal year ended January 31, 2007.



|Item 1. | Business
|------- | --------

Overview

Alloy (NASDAQ: ALOY) is one of the countrys largest providers of media and marketing programs offering advertisers the ability to reach
youth and non-youth targeted consumer segments through a diverse array of assets and marketing programs, including interactive, display, direct mail, content production and educational programming. Collectively, our businesses operate under the
umbrella name Alloy Media + Marketing, but the division brand names continue to receive recognition, such as Alloy Education, Alloy Entertainment, Alloy Marketing and Promotions (AMP), Alloy Access and On Campus Marketing
(OCM).

Each of our businesses falls in one of three operating segmentsPromotion, Media and Placement. The Promotion
segment is comprised of businesses whose products and services are promotional in nature and includes our AMP, OCM and sampling divisions. The Media segment is comprised of company-owned and represented media assets, including our display board,
Internet, database, specialty print, educational programming and entertainment businesses. The Placement segment is made up of our businesses that aggregate and market third party media properties owned by others primarily in the college, military
and multicultural markets. These three operating segments utilize a wide array of owned and represented online and offline media and marketing assets, such as websites, magazines, college and high school newspapers, on-campus message boards,
satellite delivered educational programming, and specialty print publications, giving us significant reach into the targeted demographic audience and providing our advertising clients with significant exposure to the intended market.

We are a leading media company primarily focused on the youth and young adult market. Our media and marketing assets provide us with a deep understanding
of the youth market and give us a significant reach to millennial consumers. According to United States Census projections, as of January 2009, about 18% of the United States population is 12 to 24 years old. Teen and college students comprise the
majority of this demographic and represent powerful consumer groups accounting for $127 billion (as is indicated in the TRU 2009Report) and $70 billion (as reported in Harris Interactives 2008 Alloy College Explorer)
respectively, in annual discretionary spending power in 2008. In addition, according to the Profile of the Military Community: 2006 DoD Demographics Report, the military market is comprised of young, family-oriented consumers with high rates
of disposable income with approximately 46% of active duty personnel under the age of 25.

We were incorporated in January 1996 and
launched our www.alloy.com website in August 1997. Since then, we have grown rapidly, both organically and through the completion of strategic acquisitions. Our Corporate website is www.alloymarketing.com.

Current Business Developments

On August 1,
2008, we acquired the operating assets of Fulgent Media Group, Inc. (Fulgent), a full-service media agency which provides media, advertising, research and consulting services. The Company paid cash of $0.6 million to acquire
Fulgents assets and is subject to a potential earn-out provision. Fulgent is part of the AMP division of our Promotion segment.

On
November 5, 2008, we sold the CCS domain name and related trademarks to dELiA*s, Inc. for $5.8 million in cash.



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On November 21, 2008, we acquired gURL.com (www.gurl.com) for approximately $0.7 million.
gURL.com is an online community and content site for teenage girls, featuring stories, games and interactive content. gURL is part of the Interactive division of our Media segment.

On January 26, 2009, we acquired the operating assets of TAKKLE.com (www.takkle.com), a prominent online resource and college
recruitment website for high school sports. We paid approximately $0.3 million in cash and assumed $0.4 million in liabilities and is subject to a potential earn-out provision. Takkle is part of the Alloy Education division of our Media segment.

Our Segments

We have three reportable
operating segments, as follows:



| |  |  | Promotionincludes our AMP, on-campus marketing and sampling divisions;
| | - |  | -----------------------------------------------------------------------



| |  |  | Mediaincludes display media board, Internet, database, specialty print, intellectual property, entertainment and education network businesses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Placementaggregates and markets third-party niche media properties, including specialty newspapers and broadcast media.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

PROMOTION

Our Promotion segment is designed to help
clients achieve their promotional marketing objectives with their target consumers. We generate Promotion segment revenue through the following businesses:



| |  | Alloy Marketing and Promotions, or AMP, is our promotional marketing unit specializing in event and field marketing, sampling and customer acquisition
programs, Internet design services and consumer research. AMP clients represent a wide array of industries such as health and beauty, wireless, consumer products and retail.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On Campus Marketing, or OCM, is our collegiate marketing and merchandise provider. Through multi-channel marketing, our products include college living
essentials, gift packages, diploma frames, student data security and other merchandise or services especially for the college market.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | SamplingOur sampling business reaches targeted consumers by distributing product samples in youth and non-youth venues, such as elementary schools,
high schools, college campuses, bookstores, dining halls, and student organizations and fitness clubs.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

MEDIA

Our media business provides media advertising solutions for marketers targeting a particular consumer segment both online and offline, with most of our
media assets targeting the youth market. We work with Fortune 500 and other companies to help them reach millions of consumers through a comprehensive mix of programs incorporating our proprietary, company-owned and represented media assets, such as
display media boards, websites and specialty print assets. Our Media segment includes the following businesses:

Interactive

Our websites are designed to be an effective
advertising medium for youth-focused marketers. We reach a high concentration of young adults online through integrated social platforms with measurable results. The TEEN.com network is home to Alloy Media + Marketings websites and a growing
list of third party owned websites who attract a coveted youth audience. The network provides brand marketers display and integrated advertising programs to reach highest high concentration of teens online in a narrowly targeted and highly scalable
way. In fiscal 2008, our Teen.com network was ranked as the #1 community for teens as measured by



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comScore Media Metrix. The number of unique visitors varies each month depending on various factors, including the distribution of various related
merchandise catalogs and other print publications which drive consumers to these websites as well as the websites overall popularity. Our marketing data shows that our websites are a popular destination for teens and college students seeking
social networking, entertainment, and popular culture content.

Recently, we launched TEEN.com TV, a premium digital
entertainment network delivering original, short-form video programming tailored expressly for the youth audience. We expect this network to continue to build widely populated environments that appeal to the evolving teen preferences, while also
offering marketers highly targeted and effective channels to connect with that audience.

Some of our website properties available to
advertisers targeting the youth market include:



| |  |  | Alloy (www.alloy.com) and dELiA*s (www.delias.com)These websites are among the leading online style destinations providing teen
girls with vibrant community, content and commerce.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | gURL.com (www.gurl.com)Gurl.com is an online community and content site for teenage girls. It contains stories, games and interactive content
produced with an independent editorial voice. We acquired Gurl.com in November 2008.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SugarLoot (www.sugarloot.com)Sugarloot.com is a contest-focused social networking website which we launched in fiscal 2007. SugarLoot is the
place where members go to show off, rate the talents of their peers and compete for prizes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition to the above
websites, our Interactive group also has access to other Alloy owned websites complementing our other media assets used in our Alloy Entertainment, Alloy Education and Channel One businesses.

We act as a sales representative for various third party owned websites, including Rock You (www.rockyou.com) and Meez
(www.meez.com). These websites offer a place where teens can meet other teens, play a variety of games, connect with famous singers, bands and celebrities and create their own online space.

Alloy Entertainment

Our Alloy Entertainment business, formerly called 17thStreet Productions, originates unique, commercial entertainment propertiesmostly geared toward teens, young adults and familiesand partners with the leading book
publishers, television networks and movie studios to deliver these properties to world audiences.



| |  |  | Alloy Entertainment produced 33 new books during fiscal 2008 and currently has over one thousand titles in its library. Its books are published in more than 34
languages around the world. 23 of Alloy Entertainments books reached the New York Times Childrens Paperback bestseller list during fiscal 2008. Alloy Entertainment maintains longstanding relationships with Americas leading
publishing houses, including Random House, Little Brown, HarperCollins, Hyperion, Scholastic, Simon & Schuster and Penguin Putnam. Some of our properties include The Sisterhood of the Traveling Pants, Gossip Girl, The
A-List, The Clique, The Luxe and The Vampire Diaries.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Major film studios may acquire from Alloy Entertainment the right to develop motion pictures based on Alloy Entertainment books, such as The Sisterhood of the
Traveling Pants Part 2 (Warner Bros. Pictures), sequel to the 2005 feature film The Sisterhood of the Traveling Pants, the feature film Sex Drive (Summit Entertainment) and the DVD-premiere film The Clique (Warner Premiere)
all of which were released during fiscal 2008. Alloy Entertainment receives both rights payments and producers fees and has ongoing profit participation in each such property. Alloy Entertainment is developing several other film projects with
Summit Entertainment, Universal and Warner Bros.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Basic and cable television networks may acquire from Alloy Entertainment the right to develop television shows based on Alloy Entertainment books, such as Gossip
Girl(The CW Television Network) and Samurai Girl (ABC Family). Gossip Girlis in its second season and has been renewed for a third; a pilot for a Gossip Girlspin-off is scheduled to air in May 2009. The first
season of Privileged aired on The CW Television Network and several other series and made-for-television movies are in development at The CW Television Network, ABC, Nickelodeon and ABC Family. The Company is in the second year of a two-year
first look deal with Warner Bros. Television.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Channel One

Our Channel One Network is the producer of Channel One News a pre-eminent news and public affairs program which is broadcast to teens
in secondary schools throughout the United States. Channel One News program is delivered as a 12-minute daily news which includes two minutes of advertising and/or public service announcements. This program is broadcast during the school year
directly to schools free of charge via digital satellite and reaches one in four American teens. Channel One is aligned with EdGate Correlation Services, LLC to correlate its educational content offering to national and state-level teaching
standards. As well, the complementing website of Channel One, www.channelone.com, features in-depth news and breaking stories, games, music, contests, advice, volunteering guides and interactive opportunities for voting, feedback and
user generated content submissions.

 Alloy Education

Our Alloy Education business is considered an innovator of educational related products and services to create information connections for
teens and young adults. This business also includes our Direct Marketing division that provides targeted marketing lists to and generates leads for advertisers.

Specialty Print Publications

Our specialty print publications are a venue for
schools and/or advertisers to reach targeted students, employees or professionals. These publications also serve to drive traffic to our websites named after these publications. Some of our specialty print properties include:



| |  |  | Private Colleges & UniversitiesWith 36 editions reaching over 1.9 million homes per year, the Private Colleges & Universities magazine
series has been a leading recruitment media for higher education since 1985. Our international edition, American Colleges & Universities, reaches over 2,300 schools and organizations in over 175 countries throughout six continents. Our
editions target students based on academic achievement, geography and special interests and provide them, their parents and high-school guidance counselors with information about private colleges and universities and the admissions process. The
newest edition reaches students in over 2,000 two-year colleges and community colleges looking to transfer to four-year institutions.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Careers and CollegesOur Careers and Colleges publication offers unique advertising opportunities. Careers and Colleges magazine is an award-winning
publication reaching approximately three million students and distributed to 1.26 million homes in the Summer and more than 10,000 high schools in the Spring and Fall each year. Directed to students and guidance professionals, the topical
issues address getting into and paying for college, career opportunities, life after high school, and transitioning to college life.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Graduating Engineer & Computer Careers and Minority NurseWith a combined annual distribution of 360,000, these magazines provide employers with
access to the career-minded individuals they want to attract and hire.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Websites

We also offer advertising opportunities on several websites targeting college-bound high school students, high-tech college students and
minority students, as well as practicing professionals in nursing and allied health fields, including:



| |  |  | Career specific websites (www.GraduatingEngineer.com and www.MinorityNurse.com)These websites provide career and educational
resources for professionals.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Private Colleges & Universities (www.privatecolleges.comand www.acuinfo.com)These websites provide information on
colleges and universities to college-bound high school students. Colleges and universities use these websites to advertise their programs to prospective students.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Find Tuition (www.findtuition.com)This website provides an online scholarship search tool and matching service that combines features from
college search and student loan sites. The website also includes a job search feature focusing on internships and part-time jobs for college students with content supplied by www.CareerBuilder.com.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Careers and Colleges (www.careersandcolleges.com)This website hosts one of the largest databases of education-related content on the Internet.
Designed for students, parents, and school counselors, the website also includes college and scholarship search engines.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | WinterGreen Orchard House (www.wintergreenorchardhouse.com)This website offers a complete, up-to-date college and scholarship database that is
available for lease or co-branding. Wintergreen Orchard Houses products serve students, counselors, educators, libraries and corporate clients.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | TAKKLE.com (www.takkle.com)This website is a prominent online resource and college recruitment website for high school sports. We acquired
takkle.com in January 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

Direct Marketing

We have a database containing information on millions of individuals which may include name, postal and email address, as well as a
variety of other information. We believe our database is one of the most comprehensive, response-driven databases available for marketers targeting consumers ages 10 through 24. Utilizing this database, our clients can target specific portions of
the youth demographic and their parents through postal or electronic mail. We constantly strive to grow our database through contests, promotions, sweepstakes, and data enhancement and acquisition activities. Our direct marketing division also
generates leads for advertisers.

 Display Media Boards / Retail Display Networks

Our display media boards and retail display networks are located in high traffic areas and high volume stores throughout the United States, including
colleges and universities, high schools, middle schools, elementary schools, health and fitness centers, barbershops and salons, grocery stores and pharmacies.



| |  |  | Our In-School network offers third-party advertisers access to approximately 59,000 display media boards located throughout the United States. The display media
boards often feature full-color, backlit advertising and scrolling electronic messaging. The boards may contain one, two, or three advertising panels, which increase the number of advertising opportunities to approximately 100,000. These display
media boards are located throughout the United States in more than 900 college and university campuses, 6,900 high schools, 2,200 middle schools, 5,600 elementary schools, and 400 health and fitness centers. We plan to continue to identify new
locations and types of venues to expand our reach for display media boards.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Frontline is our retail display network, which markets a unique combination of display and high impact advertising through a nationwide network of more than 7,400
outlets comprising grocery, pharmacy and other high volume stores. Our unique combination of display and high-impact advertising gives
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | shoppers a one of a kind shopping experience at the checkout or a specific location of any store. Our consumer trial program brings products out of
lightly-shopped aisles to the most highly-trafficked areas. Our products include Frontlights, Frontloader, Pharmacy Display Network, and Healthy Living Center that provide advertising and merchandising, brand awareness building, and health
information within a store. We plan to continue to identify new locations to expand our retail display networks.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PLACEMENT

The businesses falling within our Placement segment provide advertising placement solutions for marketers primarily targeting consumers
in the college, multi-cultural and military markets. We offer Fortune 500 and other companies the opportunity to reach millions of consumers each month through a comprehensive mix of programs incorporating college, military base and
multi-cultural newspapers and traditional broadcast properties that we represent targeting similar demographic groups.

Our Sales Organization

Our advertising sales organization includes over 75 sales professionals who are either account managers generally responsible for specific
geographic regions or product sales specialists. Our account managers and product sales specialists work closely together to cross-sell the media assets and marketing capabilities of our various divisions to our existing advertising customers and to
build relationships with new clients. Our account managers are trained and motivated to sell the entire portfolio of our media and advertising services, including:



| |  |  | our custom publications and on websites;
| | - |  | ----------------------------------------



| |  |  | our display media boards;
| | - |  | -------------------------



| |  |  | our education network;
| | - |  | ----------------------



| |  |  | marketing programs such as product sampling, customer acquisition programs and promotional events; and
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | college, high school, military base and multi-cultural newspapers, as well as broadcast properties targeting these demographic groups.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------

Our Alloy Access sales group connects corporate brands with influential multi-cultural and urban consumer groups. With focus on Hispanic and African
American consumers, Alloy Access leverages our unique media assets and market knowledge to provide consumer insights, strategic planning, media buying services and turnkey program execution.

Our clients come from a wide range of industries seeking to target persons principally between the ages of 10 and 24, including consumer goods and
electronics, health and beauty, entertainment, financial services, colleges and universities, government, and food and beverage.

Our Infrastructure,
Operations and Technology

Our operations depend on our ability to maintain our computer and telecommunications systems in effective
working order and to protect our systems against damage from fire, natural disaster, power loss, telecommunications failure, malicious actions or similar events.

Where appropriate, we implemented disaster recovery plans for our various businesses. Critical files are copied to backup tapes each night and regularly stored at secure off-site storage facilities. Our servers
connect to uninterruptible power supplies to provide back-up power at the operations facilities within milliseconds of a power outage. Redundant Internet connections and providers deliver similar protection for our online services.



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We strive for no downtime in our online services. Critical network components of the system are also redundant. We implemented these various redundancies and
backup measures in order to minimize the risk for both advertisers and consumers associated with unexpected component failure, maintenance or upgrades, or damage from fire, power loss, telecommunications failure, break-ins, computer viruses,
distributed denial of service attacks, hacking and other events beyond our control.

We currently license commercially available technology
and services whenever possible instead of dedicating our financial and human resources to developing proprietary online infrastructure solutions. We provide most services related to maintenance and operation of our websites internally, under the
direction of our Chief Technology Officer. SAVVIS Communications Corp., Equinix Inc. and RackSpace, our principal providers located in Sterling, Virginia, Ashburn, Virginia and San Antonio, Texas, respectively, provide us with co-location, power and
bandwidth for our Internet connections. Our infrastructure is scalable, which allows us to adjust quickly as our user base expands and business needs change.

Competition

Competition for the attention of consumers is considerable. We compete with a variety of other companies
serving segments of the market we target, including various promotions and marketing services firms, youth and non-youth-targeted traditional marketers, basic cable and broadcast television networks, radio, online and print media, and online service
providers.

We compete with many media companies both large and small. These companies may offer other forms of media in various markets
that we do not have access to or compete directly with our properties. Other companies that target youth consumers and/or offer alternative media choices attracting the youth audience include focused magazines, such as Seventeen and Teen
Vogue; teen-focused television and cable channels, such as MTV; websites primarily focused on the youth demographic group; and online service providers and social networking sites with a teen audience, such as MySpace.com, Facebook.com and
America Online; and media board competitors such as Clear Channel Communications.

Many of our current and potential competitors have
longer operating histories, larger client bases and significantly greater financial, marketing and other resources than we do. There has also been consolidation in the media industry by our competitors, which include market participants with
interests in multiple media businesses that are often vertically integrated. In addition, competitors could enter into exclusive distribution arrangements with our vendors or advertisers and deny us access to their products or their advertising
dollars. If we face increased competition, our business, operating results and financial condition may be materially and adversely affected.

We believe that our principal competitive advantages are:



| |  |  | our established network of owned and represented media assets;
| | - |  | --------------------------------------------------------------



| |  |  | our relationships with advertisers, marketing partners and school administrations;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | the strength and recognition of our consumer and media brands;
| | - |  | --------------------------------------------------------------



| |  |  | our knowledge of and strong connection with the youth audience and our ability through our marketing franchises to continually analyze the market; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to deliver targeted audiences to advertisers through cost-effective, multi-platform advertising programs.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



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Seasonality

Our revenues have historically been higher during the last half of our fiscal year, coinciding with the start of school and holiday season spending, than in the first half of our fiscal year. In addition, certain of our product offerings,
such as in-school display media boards and educational programming, are perceived to be less valuable to advertisers when school is not in session, such as during the summer months and between semester breaks. In fiscal 2008,
approximately 32% of our revenue was realized in our third fiscal quarter and approximately 52% in the last half of the fiscal year. The majority of our operating income is earned in conjunction with our revenue.

Intellectual Property

We use commercially reasonable
efforts to protect our intellectual property, including trademarks, service marks, copyrights and other intellectual property. With respect to trademarks, we have registered the Alloy name, among other trademarks, with the United States Patent and
Trademark Office covering certain goods and services. Applications for the registration of other trademarks and service marks are currently pending. Regarding copyrights, we own, alone or jointly with third parties, copyrights, including copyrights
to books produced by our Alloy Entertainment division and properties published by our specialty print division. Copyright registrations for Alloy Entertainment books may be filed on our behalf by the publishers of such books. Certain other of our
copyrights are also registered with the Copyright Office.

We sometimes grant to third parties the right to use our intellectual property,
in which case such use is typically governed by a written contractual relationship. Third parties may also grant to us the right to use their intellectual property, such as clients for whom we are carrying out a media or marketing program.

Government Regulation

We are subject
to various federal and state law and regulation relating to our Internet based business. The regulation currently focuses on data collection, privacy, social networking, user generated content, information security and online behavioral marketing.
Because of the increasing popularity of the Internet and the growth of online services, there are regular initiatives at both the federal and state level to expand the scope of regulation as problems and perceived problems arise and develop.
Although much of the regulation is well founded, it does have an impact on how we conduct our business and may have an impact on our financial results if we are limited in our business activities or there are additional costs associated with
compliance.

In the United States, the Federal Trade Commission, or the FTC, enforces rules and regulations enacted pursuant to the
Childrens Online Privacy Protection Act of 1998, or COPPA, imposing restrictions on the ability of online services to collect information from minors under the age of 13. As a part of our efforts to comply with these requirements, we do not
knowingly collect online personally identifiable information from any person under 13 years of age and have implemented age screening mechanisms on certain of our websites in an effort to prohibit persons under the age of 13 from registering.
The restrictions are likely to dissuade some percentage of our potential customers from using such websites, which may adversely affect our business. If it turns out that one or more of our websites is not COPPA compliant, we may face enforcement
actions by the FTC, complaints to the FTC by individuals, or face a civil penalty, any of which could adversely affect our reputation and business. Laws on the state level protecting the identity of personal information of children online have been
enacted or are under consideration. For example, Michigan and Utah have established registries where parents and others may register instant messenger IDs, mobile text messaging and fax numbers in addition to e-mail addresses to prevent certain
types of messages from reaching children in those states. Such laws could have an adverse impact on how we will be able to conduct our business in the future and may limit access to an important segment of the target markets our clients seek.

A number of government authorities, both in the United States and abroad, and private parties are increasing their focus on privacy issues
and the use of personal information. Well-publicized breaches of data privacy and consumer personal information have caused state legislatures to enact data privacy legislation. At least 42 states,



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including New York, California and Pennsylvania, have enacted data privacy legislation, including data breach notification laws, and laws penalizing the
misuse of personal information in violation of published privacy policies. Certain states have also enacted legislation requiring certain encryption technologies for the storage of personally identifiable information, including credit card
information, and more states are considering enactment of information security regulations. Data privacy and information security legislation is also being considered at the federal level, which if enacted, could adversely affect our business. In
addition to the specific data privacy and data breach statutes, the FTC and attorneys general in several states have investigated the use of personal information by some Internet companies under existing consumer protection laws. In particular, an
attorney general or the FTC may examine privacy policies to ensure that a company fully complies with representations in the policies regarding the manner in which the information provided by consumers and other visitors to a website is used and
disclosed by the company and the failure to do so could give rise to a complaint under state or federal unfair competition or consumer protection laws. We review our privacy policies on a regular basis, and currently, we believe we are in material
compliance with applicable U.S. federal and state laws. Our business could be adversely affected if new regulations or decisions regarding the storage, use and/or disclosure of personal information are implemented in such ways that impose new or
additional technology requirements on us, limit our ability to collect, store and use the information, or if government authorities or private parties challenge our privacy practices that result in restrictions on us, or we experience a significant
data or information breach which would require public disclosure under existing notification laws and for which we may be liable for damages or penalties.

The United States Congress enacted the Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or CAN-SPAM, regulating commercial electronic mail messages (i.e., e-mail), the
primary purpose of which is to promote a product or service. The FTC has promulgated various regulations applying CAN-SPAM and has enforcement authority for violations of CAN-SPAM. Any entity that sends commercial e-mail messages, such as Alloy and
our various subsidiaries for itself and clients, and those who re-transmit such messages, must adhere to the CAN-SPAM requirements. Violations of its provisions may result in civil money penalties and criminal liability. Although the FTC has
publicly announced that it does not at the present time intend to do so, CAN-SPAM further authorizes the FTC to establish a national Do Not E-Mail registry akin to the Do Not Call Registry relating to telemarketing. The
Federal Communications Commission has also promulgated CAN-SPAM regulations prohibiting the sending of unsolicited commercial electronic e-mails to wireless e-mail addresses and has released a Do Not E-Mail registry applicable to
wireless domain addresses, some of which may be in our databases. Compliance with these provisions may limit our ability to send certain types of e-mails on our own behalf and on behalf of several of our advertising clients, which may adversely
affect our business. While we intend to operate our businesses in a manner that complies with the CAN-SPAM provisions, we may not be successful in so operating. If it turns out we have violated the provisions of CAN-SPAM we may face enforcement
actions by the FTC or FCC or face civil penalties, either of which could adversely affect our business.

In addition to the federal
CAN-SPAM regulations, many states have comparable legislation. There have been a number of cases brought as class actions based on the federal and state statutes. At the state level the courts have tended to decide in favor of the plaintiffs and
awarded substantial damages. An award of damages, at either the federal or state level could have a detrimental impact on our financial results.

Social networking websites are under increased scrutiny. Legislation has been introduced on the state and federal level that could regulate social networking websites. Some of the proposed rules call for more stringent age-verification
techniques, attempt to mandate data retention or data destruction by Internet providers, and impose civil and/or criminal penalties on owners or operators of social networking websites. For example, the United States Congress may consider once again
the Deleting Online Predators Act which, if enacted in the form introduced in 2007, would require certain schools and libraries to protect minors from online predators in the absence of parental supervision when using commercial networking websites
and chatrooms. Such law could potentially limit user access to our websites. Similar bills to ban or restrict access to social networking sites are also being introduced and considered on the state level. Dozens of state attorneys general in late
2008 and early



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2009 have served subpoenas on certain social networking sites relating to known predators and if any such actions become more widespread, similar actions
could potentially have an adverse effect on our reputation or our business.

The Federal Trade Commission has been considering a number of
issues relating to online behavioral advertising and has most recently issued a report containing a new set of guidelines for industry self-regulation. The FTCs report may result in future regulation of the collection and use of
online consumer data, which could potentially place restrictions on our ability to utilize our database and other marketing data on our own behalf and on behalf of our advertising clients, which may adversely affect our business.

Legislation concerning the above described online activities has either been enacted or is in various stages of development and implementation in other
countries around the world and could affect our ability to make our websites available in those countries as future legislation is made effective. It is possible that state and foreign governments might also attempt to regulate our transmissions of
content on our website or prosecute us for violations of their laws.

Governments of states or foreign countries might attempt to regulate
our transmissions or levy sales or other taxes relating to our activities even though we do not have a physical presence and/or operate in those jurisdictions. As our products and advertisements are available over the Internet anywhere in the world,
and we conduct marketing programs in numerous states, multiple jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each of those jurisdictions and pay various taxes in those jurisdictions.

Employees

As of January 31, 2009, we had 619
full-time employees, including a sales and marketing force of approximately 99 persons. During fiscal 2008, we employed approximately 2,237 part-time/temporary employees who primarily worked for us in connection with our promotional and marketing
events.

A small number of our employees engaged by certain of our subsidiaries in connection with entertainment related activities
may be subject to collective bargaining arrangements. We consider relations with our employees to be good.

Access to SEC Reports

Our corporate website is www.alloymarketing.com. Our periodic and current reports, and any amendments to those reports,
are available free of charge through the Investor Relations section of our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission
(SEC). The items and information on our website are not a part of this Annual Report on Form 10-K.



|Item 1A. | Risk Factors
|-------- | ------------

You should
carefully consider the following risks and uncertainties that we currently believe may materially affect our company. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties not presently known to us may also
become important factors that impact our business operations. If any of the following risks actually occur, our business, financial condition or results of operations could be materially and adversely affected.



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Risks Related to Our Businesses

Changes in Advertising and Credit Markets Could Cause Our Revenues and Operating Results to Decline Significantly

We derive substantial revenues from the sale of advertising through a variety of platforms. Challenging economic conditions in the latter part of 2008 and continuing into 2009 have resulted in a slowdown in the
economy. As a result, our customers may experience budgetary restrictions and modify their spending behavior, resulting in the softening of demand for our media, advertising and entertainment assets and accordingly, possibly lower revenues. The
current economic conditions also may delay or wholly negate the ability of our customers to pay for products and services they have purchased or may cause customers to seek early termination of their agreements with us. As a result, reserves for
uncertain accounts and write-offs of accounts receivable may increase. In addition, current conditions in the credit markets, if they persist, may limit our ability to carry out our share repurchase program or pursue other opportunities, and our
expenses could increase if volatility in the credit and insurance markets results in an increase in interest rates on bank financings or prices on insurance products. Our results of operations may be negatively affected as a result of all or some of
the above factors.

We have incurred significant operating losses in the past and may incur significant operating losses in the future. We may never
achieve sustained profitability.

Since our inception in January 1996, we have incurred significant net losses and, as of
January 31, 2009, we have an accumulated deficit of approximately $317 million. We have not historically been profitable and were not profitable for fiscal 2007 or fiscal 2006. We cannot provide any assurances that we will not incur similar
charges in the future. Even if we were to become profitable, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to achieve and sustain profitability may negatively impact the market price of our
common stock.

A lack of future earnings or future stock issuances by us may limit our ability to use our net operating loss carryforwards.

As of January 31, 2009, we had net operating loss (NOL) carryforwards of approximately $28.7 million to offset future
taxable income, which expire in various years through 2027, if not utilized. The deferred tax asset representing the benefit of these NOLs has been offset completely by a valuation allowance due to our history of operating losses and the uncertainty
of future taxable income. A lack of future earnings would adversely affect our ability to utilize these NOLs. In addition, under the provisions of the Internal Revenue Code, substantial changes in our ownership may limit the amount of NOLs that can
be utilized annually in the future to offset taxable income. Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382, imposes limitations on a companys ability to use NOLs if a company experiences a
more-than-50-percent ownership change over a three-year testing period. We have experienced such ownership changes in the past and it is possible that a change in our ownership will occur in the future. If we are limited in our ability to use our
NOLs in future years in which we have taxable income, we will pay more taxes currently than if we were able to utilize our NOLs.

Our revenues and
income could decline due to general economic trends, declines in consumer spending and seasonality.

Our revenues are largely
generated by discretionary consumer spending or advertising seeking to stimulate that spending. Advertising expenditures and consumer spending all tend to decline during recessionary periods, including the current recession, and may also decline at
other times. Accordingly, our revenues could decline during any general economic downturn, including the current recession. In addition, our revenues have historically been higher during our third and fourth fiscal quarters, coinciding with the
start of the school year and holiday season spending, than in the first half of our fiscal year. Therefore, our results of operations in any given quarter may not be indicative of our full fiscal year performance.



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If our businesses do not grow and become profitable, we may be required to recognize impairment charges.

We are required to perform impairment tests on our identifiable intangible assets with indefinite lives, including goodwill, annually or at
any time when certain events occur, which could impact the value of our business segments. Our determination of whether an impairment has occurred is based on a comparison of the assets fair market values with the assets carrying values.
Significant and unanticipated changes could require a provision for impairment that could substantially affect our reported earnings in a period of such change. As a result of our annual impairment reviews, we were required to record special charges
of approximately $0.1 million and $72.0 million for fiscal 2008 and fiscal 2007 respectively. We had no impairment charges in fiscal 2006.

Additionally, we are required to recognize an impairment loss when circumstances indicate that the carrying value of long-lived tangible and intangible assets with finite lives may not be recoverable. Managements policy in determining
whether an impairment indicator exists, (a triggering event), comprises measurable operating performance criteria as well as qualitative measures. If a determination is made that a long-lived assets carrying value is not recoverable over its
estimated useful life, the asset is written down to at least its estimated fair value. The determination of fair value of long-lived assets is generally based on estimated expected discounted future cash flows, which is generally measured by
discounting expected future cash flows identifiable with the long-lived asset at our weighted-average cost of capital. Pursuant to Statement of Financial Accounting Standards (SFAS) 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144), we perform an analysis of the recoverability of certain long-lived assets and have had to record an asset impairment charge in some periods. As a result of our analysis in fiscal 2007, we reduced
our long-lived assets by $0.8 million. We had no impairment charges in fiscal 2008.

If we are unable to restore Channel One to profitability, we may
incur significant losses.

When we acquired the assets of Channel One, the Channel One business had incurred significant losses due
to a substantial reduction in revenue and a high cost structure. While we have taken steps to reduce Channel Ones costs, we cannot provide any assurances that we will be able to grow revenue to a level where it exceeds the costs of producing
the programming. To date, our Channel One strategy has included spending a significant amount of capital on changing Channel Ones infrastructure and transforming the business. During fiscal 2008 and 2007, we spent approximately $5.0 million
and $12.0 million, respectively in upgrading Channel Ones digital infrastructure. We expect to make significant future investment in the business. We may not generate a return on this investment or achieve profitability in the Channel One
business. In that case, we would have substantial losses in the business.

We may not have access to necessary capital if we are unable to comply
with covenants in our financing instrument.

We have a secured credit facility with Bank of America, N.A. (the Credit
Facility). The Credit Facility contains affirmative and restrictive covenants that require us to meet certain financial, business operations and other criteria. The financial covenants include maintaining certain ratios such as a minimum cash
balance, funded debt to EBITDA, and a minimum EBITDA balance, all as defined in the Credit Facility. Other restrictive covenants and provisions affecting our ability to undertake activities relating to our business include, limitations on
acquisitions and dispositions, taking on additional indebtedness, dealing with collateral and exceeding set limits on intangible write-offs, restructuring charges and goodwill impairment. From time to time, we may not be able to satisfy the
covenants and we may be out of compliance with the provisions of the Credit Facility. In such instances, the Company will attempt to obtain waivers and amendments to the Credit Facility, as necessary, to remain in compliance. We cannot give
assurance, however, that Bank of America will agree to any such waiver or amendment and it could demand that we pay any outstanding amounts and terminate the Credit Facility. In this case, we may not have access to working capital should our
business activities require funds in excess of cash generated by our ongoing operating activities. We currently have no outstanding borrowings under the Credit Facility.



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Our business may not grow in the future.

Since our inception, we have rapidly expanded our business, growing our revenue from approximately $2.0 million for fiscal 1997 to approximately $216.9
million for fiscal 2008. Our continued growth will depend to a significant degree on our ability to maintain existing sponsorship and advertising relationships and develop new relationships, to identify and integrate successfully acquisitions, and
to maintain and enhance the reach and brand recognition of our existing media franchises and any new media franchises that we create or acquire. Our ability to implement our growth strategy will also depend on a number of other factors, many of
which are or may be beyond our control, including the continuing appeal of our media and marketing properties to consumers, the continued perception by participating advertisers and sponsors that we offer an effective marketing channel for their
products and services, our ability to attract, train and retain qualified employees and management and our ability to make additional strategic acquisitions. There can be no assurance that we will be able to implement our growth strategy
successfully.

Competition may adversely affect our business and cause our stock price to decline.

The markets in which we operate are competitive. Many of our existing competitors, as well as potential new competitors in this market, have longer
operating histories, greater brand recognition, larger customer user bases and significantly greater financial, technical and marketing resources than we do. These advantages allow our competitors to spend considerably more on marketing and may
allow them to use their greater resources more effectively than we can use ours. Accordingly, these competitors may be better able to take advantage of market opportunities and be better able to withstand market downturns than us. If we fail to
compete effectively, our business could be materially and adversely affected and our stock price could decline.

Our success depends largely on the
value of our brands, and if the value of our brands were to diminish, our business would be adversely affected.

The prominence with
advertisers of our Alloy, Inc. and Alloy Media + Marketing brands, as well as our other media and marketing brands, such as Alloy Entertainment, Alloy Education, Alloy Marketing and Promotions, and Alloy Access, are key components of our business.
Our websites, such as www.teen.comand www.alloy.com are also well recognized among consumers. If our websites or brands lose their appeal to the targeted demographic group or to advertisers trying to reach such consumers, our business
could be adversely affected. The value of our consumer brands could also be eroded by our failure to keep current with the evolving preferences of our audience. These events would likely also reduce media and advertising sales and adversely affect
our marketing services businesses. Moreover, we intend to continue to increase the number of consumers we reach, through means that could include broadening the intended audience of our existing consumer brands or creating or acquiring new media
franchises or related businesses. Misjudgments by us with respect to these matters could damage our existing or future brands. If any of these developments occur, our business could suffer and we may be required to write-down the carrying value of
our goodwill.

Our success is dependent upon audience acceptance of our programming, motion pictures and other entertainment content which is
difficult to predict.

The publishing of our books and other entertainment content are inherently risky businesses because the
revenues we derive from various sources depend primarily on our contents acceptance by the public, which is difficult to predict. Audience tastes change frequently and it is a challenge to anticipate what offerings will be successful at a
certain point in time. The success of our books and other content also depends upon the quality and acceptance of competing titles and other offerings available or released into the marketplace at or near the same time. Other factors, including the
availability of alternative forms of entertainment and leisure time activities, general economic conditions, piracy, digital and on-demand distribution and growing competition for consumer discretionary spending, the level of which may be decreasing
due to the economic landscape, may also affect the audience for our content.



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Our strategy contemplates strategic acquisitions. Our inability to acquire suitable businesses or to manage their
integration could harm our business.

A key component of our business strategy is to expand our reach by acquiring complementary
businesses, products and services. We compete with other media and related businesses for these opportunities. Therefore, even if we identify targets we consider desirable, we may not be able to complete those acquisitions on terms we consider
attractive or at all. In addition, we could have difficulty in assimilating personnel and operations of the businesses we acquire. These difficulties could disrupt our business, distract our management and employees and increase our expenses.
Furthermore, we may issue additional equity securities in connection with acquisitions, potentially on terms that could be dilutive to our existing stockholders.

We rely on third parties for some essential business operations, and disruptions or failures in service may adversely affect our ability to deliver goods and services to our customers specifically in our OCM and Interactive
businesses.

We currently depend on third parties for important aspects of our business, including our infrastructure, operations
and technology. We have limited control over these third parties, and we are not their only client. In addition, we may not be able to maintain satisfactory relationships with any of these third parties on acceptable commercial terms. Further, we
cannot be certain that the quality of products and services that they provide will remain at the levels needed to enable us to conduct our business effectively. If our relationship with any of these third parties decline, it could have a material
adverse effect on our business and results of operations.

The failure or destruction of satellites and facilities that we depend upon to distribute
our Channel One programming could adversely affect Channel One and our business and results of operations.

We use satellite systems
to transmit our Channel One program services to secondary schools throughout the United States. The distribution facilities include uplinks, communications satellites and downlinks. Notwithstanding back-up and redundant systems, transmissions may be
disrupted as a result of local disasters that impair on-ground uplinks or downlinks, or as a result of an impairment of a satellite. Currently, there are a limited number of communications satellites available for the transmission of programming. If
a disruption occurs, we may not be able to secure alternate distribution facilities in a timely manner. Failure to do so could have a material adverse effect on our business and results of operations.

We may be required to collect sales tax.

Alloy does not collect sales or other similar taxes on shipments of goods into most states. However, various states may seek to impose sales tax obligations on such shipments where the Company believes there is currently no such obligation.
In addition, a number of proposals have been made at the state and local levels that would impose additional taxes on the sale of goods through the Internet and on the performance of services. A successful assertion by one or more states that Alloy
should have collected or be collecting sales taxes could have a material effect on Alloys operations.

Risks Related to Our Intellectual Property

If we are unable to protect the confidentiality of our proprietary information and know-how, our competitive position could be affected.

We rely on the protection of trademarks, trade secrets, know-how, confidential and proprietary information to maintain our competitive
position. To maintain the confidentiality of trade secrets and proprietary information, we generally enter into confidentiality agreements with our employees, consultants, contractors and clients upon the commencement of our relationship with them.
These agreements typically require that all confidential information developed by us or made known to the third party by us during the course of our relationship with such third party be kept confidential and not disclosed. However, we may not
obtain these agreements in all circumstances, and third parties with whom we have these agreements may not comply with their terms. Even if



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obtained, these agreements may not provide meaningful protection for our trade secrets or other proprietary information or an adequate remedy in the event of
their unauthorized use or disclosure. The loss or exposure of our trade secrets or other proprietary information could impair our competitive position.

We may be involved in lawsuits to protect or enforce our intellectual property or proprietary rights that could be expensive and time-consuming.

We may initiate intellectual property litigation against third parties to protect or enforce our intellectual property rights and we may be similarly sued by third parties. The defense and prosecution of intellectual
property suits, interference proceedings and related legal and administrative proceedings, if necessary, would be costly and divert our technical and management personnel from conducting our business. Moreover, we may not prevail in any of these
suits. An adverse determination of any litigation or proceeding could affect our business, particularly in countries where the laws may not protect such rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that disclosure
of some of our confidential information could be compelled and the information compromised. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim
proceedings or developments that, if perceived as negative by securities analysts or investors, could have a substantial adverse effect on the trading price of our common stock.

Our inability or failure to protect our intellectual property or our infringement of others intellectual property could have a negative impact on our operating results.

Our intellectual property, including trademarks and copyrights, are valuable assets that are critical to our success. The unauthorized use or other
misappropriation of our intellectual property, or our inability to continue to use any such intellectual property, could diminish the value of our brands and have a negative impact on our business. We are also subject to the risk that we may
infringe on the intellectual property rights of third parties. Any infringement or other intellectual property claim made against us, whether or not it has merit, could be time-consuming, result in costly litigation, cause product delays or require
us to pay royalties or license fees. As a result, any such claim could have a material adverse effect on our operating results.

We could face
liability for information displayed in our print publication media or displayed on or accessible via our websites.

We may be
subjected to claims for defamation, negligence, copyright or trademark infringement or based on other theories relating to the information we publish in any of our print publication media and on our websites. These types of claims have been brought,
sometimes successfully, against marketing and media companies in the past. We may be subject to liability based on statements made and actions taken as a result of participation in our chat rooms, as a result of materials posted by members on
bulletin boards on our websites or in connection with the collection and posting of user generated content. Based on links we provide to websites, we could also be subjected to claims based upon online content we do not control that are accessible
from our websites.

We could face liability for breaches of security on the Internet.

To the extent that our activities or the activities of contractors involve the storage and transmission of information, such as credit card numbers,
social security numbers or other personal information, security breaches could disrupt our business, damage our reputation and expose us to a risk of loss or litigation and possible liability. We could be liable for claims based on unauthorized
purchases with credit card information, impersonation or other similar fraud claims. We could also be liable for claims relating to security breaches under recently enacted or future data breach legislation. These claims could result in substantial
costs and a diversion of our managements attention and resources.



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Risks Relating to Government Regulations and Litigation

Changing laws, rules and regulations and legal uncertainties could adversely affect our business, financial condition and results of operations.

Unfavorable changes in existing, or the promulgation of new laws, rules and regulations applicable to us and our businesses,
including those relating to the Internet, online commerce, social networking, user-generated content, data security, the regulation of adware and other downloadable applications, broadband and telephony services, consumer protection, privacy, and
sales, use, value-added and other taxes, could decrease demand for our products and services. Such laws could pose additional burdens on us and our businesses generally, including increased compliance costs. There is, and will likely continue to be,
an increasing number of laws and regulations pertaining to these and other areas.

In addition, the application of various domestic and
international sales, use, value-added and other tax laws, rules and regulations to our historical and new products and services is subject to interpretation by the applicable taxing authorities. While we believe that we are generally compliant with
these tax provisions, there can be no assurances that taxing authorities will not take a contrary position, or that such positions will not adversely affect our business, financial condition and results of operations.

We could face liability from, or our ability to conduct business could be adversely affected by, government and private actions concerning privacy and social
networking.

Our business is subject to federal and state regulations regarding the collection, maintenance and disclosure of
personally identifiable information we collect and maintain in our databases. If we do not comply, we could become subject to liability. While these provisions do not currently unduly restrict our ability to operate our business, if those
regulations become more restrictive, they could adversely affect our business. In addition, laws or regulations that could impair our ability to collect and use user names and other information online from persons may adversely affect our business.
For example, COPPA currently limits our ability to collect personal information from website visitors who may be under age 13. Further, claims could also be based on other misuses of personal information, such as for unauthorized marketing purposes.
If we violate any of these laws, we could face civil penalties. In addition, the attorneys general of various states review company websites and their privacy policies from time to time. In particular, an attorney general may examine such privacy
policies to assure that the policies overtly and explicitly inform users of the manner in which the information they provide will be used and disclosed by the company. If one or more attorneys general were to determine that our privacy policies fail
to conform with state law, we also could face fines or civil penalties, any of which could adversely affect our business.

From time to
time, legislation has been introduced on both the state and federal level that would impose some level of regulation on social networking. Such proposed legislation may, among other things, require for more stringent age-verification techniques or
mandate data retention or data destruction by Internet providers. Our business could be adversely affected by such legislation, if passed.

We are a
defendant in class action and other lawsuits and defending these litigations could hurt our business.

We have been named as a
defendant in a securities class action lawsuit relating to the allocation of shares by the underwriters of our initial public offering. For more information on this litigation and other matters, see Part I, Item 3, Legal Proceedings, of this Annual
Report on Form 10-K.

While we believe there is no merit to these lawsuits, defending against them could result in substantial costs and a
diversion of our managements attention and resources, which could hurt our business. In addition, if we lose any of these lawsuits, or settle any of them on adverse terms, or on terms outside of our insurance policy limits, our stock price may
be adversely affected.



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The Company is cooperating with the New York State Attorney General in its investigation into credit card marketing
to college students by the Company which could result in liability or other changes in its marketing programs if it is determined the Company violated applicable laws.

The Company received an information request in late January 2009 from the New York State Attorney General (NYS AG) inquiring about the
Companys activities in marketing credit cards to college students. The Company was subsequently informed that the NYS AG is conducting an investigation into the Companys marketing practices in this area. The Company is cooperating with
the NYS AG in the investigation and is without sufficient information to determine the extent, if any, of potential monetary liability or other restrictions on its activities that may result from the investigation of the NYS AG.

Risks Relating to Our Common Stock

Our stock price has been
volatile, is likely to continue to be volatile, and could decline substantially.

The price of our common stock has been, and is
likely to continue to be, volatile. In addition, the stock market in general, and companies whose stock is listed on The NASDAQ Stock Market LLC, including marketing and media companies, have experienced extreme price and volume fluctuations that
have often been disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance.

In addition, our stock price may fluctuate significantly as a result of many factors. These factors, some or all of which are beyond our control,
include:



| |  |  | actual or anticipated fluctuations in our quarterly and annual operating results;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | changes in expectations as to our future financial performance or changes in financial estimates of security analysts;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | success of our operating and growth strategies;
| | - |  | -----------------------------------------------



| |  |  | realization of any of the risks described in these risk factors; and
| | - |  | --------------------------------------------------------------------



| |  |  | relatively low trading volume of our common stock.
| | - |  | --------------------------------------------------

Delaware law and our organizational documents and stockholder rights plan may inhibit a takeover.

Provisions of
Delaware law, our Restated Certificate of Incorporation, as amended, or our Bylaws, as amended, could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders.

In addition, our board of directors adopted a stockholder rights plan, the purpose of which is to protect stockholders against unsolicited attempts to
acquire control of us that do not offer a fair price to all of our stockholders. The rights will expire on April 14, 2013. The rights plan may have the effect of dissuading a potential acquirer from making an offer for our common stock at a
price that represents a premium to the then current trading price.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

Not applicable.



|Item 2. | Properties
|------- | ----------

We do not own any
real property. The following table sets forth information regarding facilities leased as of January 31, 2009 that we believe to be important to our operations. We believe our facilities are well maintained, in good operating condition and
generally suitable and adequate to meet our current needs. We believe that if



17



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additional or alternative space is needed in the future, such space will be available on commercially reasonable terms as needed.



|                 |  |                                             |  |                          
|---------------- |  | ------------------------------------------- |  | -------------------------
|Location         |  | Use                                         |  | ApproximateSquare Footage
|Chambersburg, PA |  | OCM warehouse                               |  | 160,000                  
|Cranbury, NJ     |  | Advertising and sales office, AMP warehouse |  | 57,500                   
|New York, NY     |  | Corporate, advertising and sales office     |  | 47,500                   
|West Trenton, NJ |  | OCM office and warehouse                    |  | 37,000                   
|Chicago, IL      |  | Advertising and sales office                |  | 16,000                   
|Boston, MA       |  | Advertising and sales office                |  | 14,000                   
|Los Angeles, CA  |  | Advertising and sales office                |  | 10,400                   



|Item 3. | Legal Proceedings
|------- | -----------------

On
or about November 5, 2001, a putative class action complaint was filed in the United States District Court for the Southern District of New York naming as defendants Alloy, specified company officers and investment banks, including James K. Johnson,
Jr., Matthew C. Diamond, BancBoston Robertson Stephens, Volpe Brown Whelan and Company, Dain Rauscher Wessel and Ladenburg Thalmann & Co., Inc. The complaint purportedly was filed on behalf of persons purchasing the Companys stock between
May 14, 1999 and December 6, 2000, and alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. On April 19, 2002, the plaintiffs amended the complaint to
assert violations of Section 10(b) of the Exchange Act. The claims mirror allegations asserted against scores of other issuers. Pursuant to an omnibus agreement negotiated with representatives of the plaintiffs counsel, Messrs. Diamond and
Johnson were dismissed from the litigation without prejudice. By opinion and order dated February 19, 2003, the District Court denied in part and granted in part a global motion to dismiss filed on behalf of all issuers. With respect to Alloy, the
Court dismissed the Section 10(b) claim and let the plaintiffs proceed on the Section 11 claim. In June 2004, as a result of a mediation, a settlement agreement was executed on behalf of the issuers (including Alloy), insurers and plaintiffs and
submitted to the Court. While final approval of the settlement was pending, on December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the District Courts class certification order with respect to nine focus group cases and
remanded the matter for further consideration. On June 25, 2007, as a result of the Second Circuits decision, the settlement agreement was terminated. On August 14, 2007, plaintiffs filed second amended complaints against nine focus group
issuers. By opinion and order dated March 26, 2008, the District Court denied in part and granted in part motions to dismiss the amended complaints. Specifically, the District Court dismissed claims brought under Section 11 of the Securities Act by
those plaintiffs who sold their securities for a price in excess of the initial offering price and claims brought by plaintiffs who purchased securities outside of the previously certified class period and denied the remainder of the motions. After
many months of negotiation, on April 2, 2009, the representative class plaintiffs and the defendants filed a Notice of Motion for Preliminary Approval of Settlement accompanied by a global Stipulation and Agreement of Settlement. The proposed
Settlement provides that all claims against the issuers and underwriters will be dismissed with prejudice in exchange for the aggregate payment of $586 million. Under the terms of the proposed Settlement, neither the Company nor Messrs. Johnson or
Diamond are required to pay any portion of the $586 million payment. The proposed Settlement is subject to numerous contingencies, including, but not limited to, preliminary Court approval, certification of a settlement class and final approval
after providing members of the plaintiff class with notice. At this time, we cannot predict whether the proposed Settlement will be approved or, if approved, the date of final approval.

The Company is involved in additional legal proceedings that have arisen in the ordinary course of business. The Company believes that, apart from the
actions set forth above, there is no claim or litigation pending, the outcome of which could have a material adverse effect on the Companys financial condition or operating results.



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

Not applicable.



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##### Table of Contents

PART II



|Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ------------------------------------------------------------------------------------------------------------

Market Information

Stockholders

As of March 31, 2009, our shares outstanding were 15,639,228 and there were approximately 92 holders of record of our common stock.

Our common stock has traded on The NASDAQ Global Market of The NASDAQ Stock Market LLC under the symbol ALOY since our initial public
offering in May 1999. The last reported sale price for our common stock on March 31, 2009 was $4.20 per share. The table below sets forth the high and low sale prices for our common stock during the periods indicated.



|                                                 |  |                    |      |     |   |     
|------------------------------------------------ |  | ------------------ | ---- | --- | - | ----
|                                                 |  | Common Stock Price
|                                                 |  | High               |      | Low
|Fiscal 2008 (Fiscal year ended January 31, 2009) |  |                    |      |     |   |     
|First Quarter                                    |  | $                  | 8.24 |     | $ | 6.10
|Second Quarter                                   |  |                    | 8.60 |     |   | 6.20
|Third Quarter                                    |  |                    | 7.90 |     |   | 4.64
|Fourth Quarter                                   |  |                    | 5.00 |     |   | 3.19



|                                                 |  |                    |       |     |   |      
|------------------------------------------------ |  | ------------------ | ----- | --- | - | -----
|                                                 |  | Common Stock Price
|                                                 |  | High               |       | Low
|Fiscal 2007 (Fiscal year ended January 31, 2008) |  |                    |       |     |   |      
|First Quarter                                    |  | $                  | 12.84 |     | $ | 10.93
|Second Quarter                                   |  |                    | 12.59 |     |   | 9.36 
|Third Quarter                                    |  |                    | 9.67  |     |   | 7.56 
|Fourth Quarter                                   |  |                    | 9.55  |     |   | 6.42 

These prices represent inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.

Dividends

We have never declared or paid cash dividends on our common stock. Currently, we intend to retain any future earnings to finance the growth and development of our business and we do not anticipate paying cash
dividends in the foreseeable future.

Unregistered Sales of Securities

Not applicable.



19



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##### Table of Contents

PERFORMANCE GRAPH

The following graph compares the annual cumulative total stockholder return (assuming reinvestment of dividends) from investing $100 on January 31, 2004 and plotted at the end of each of our subsequent fiscal
years (January 31, 2005, 2006, 2007, 2008 and 2009), in each of (a) our common stock, (b) the Russell 2000 Index and (c) the NASDAQ Composite Index. We have not paid any cash dividends on our common stock and no such dividends are
included in the representation of our performance. The stock price performance on the graph below is not necessarily indicative of future price performance. The graph lines merely connect quarter-end dates and do not reflect fluctuations between
those dates.

LOGO



|(1) | The Company completed a spinoff of dELiA*s, Inc. on December 19, 2005.
|--- | ----------------------------------------------------------------------

|(2) | The Company effected a one-for-four reverse stock split of our common stock on February 1, 2006.
|--- | ------------------------------------------------------------------------------------------------



20



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##### Table of Contents

The following table assumes $100 invested on January 31, 2004 in our common stock, the Russell 2000
Index and the NASDAQ Composite Index, including reinvestment of dividends, for each fiscal year through the fiscal year ended January 31, 2009.



|                           |  |         |  |         |  |         |  |         |  |         |  |        
|-------------------------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- |  | -------
|Company/Index/Market       |  | 1/31/04 |  | 1/31/05 |  | 1/31/06 |  | 1/31/07 |  | 1/31/08 |  | 1/31/09
|ALLOY, INC.                |  | 100.00  |  | 133.15  |  | 60.75   |  | 64.16   |  | 42.16   |  | 26.92  
|NASDAQ STOCK MARKET (U.S.) |  | 100.00  |  | 101.88  |  | 114.61  |  | 124.99  |  | 120.39  |  | 73.10  
|RUSSELL 2000               |  | 100.00  |  | 108.67  |  | 129.20  |  | 142.69  |  | 128.73  |  | 81.30  

Issuer Purchases of Equity Securities

(Amounts in thousands, except per share amounts)

On January 29, 2003, we adopted a stock
repurchase program authorizing the repurchase of up to $10,000 of our common stock from time to time in the open market at prevailing market prices or in privately negotiated transactions. In December 2008, the board of directors authorized an
additional $7,000 for use in the repurchase of the Companys stock. We repurchased 916 shares under this program during the fourth quarter of fiscal 2008 and have an unused authorization of approximately $6,600.

The following table provides information with respect to purchases by the Company of shares of its common stock during the fourth quarter of fiscal 2008:



|              |  |                                |     |  |                            |      |                                                                              |     |                                                                                      |   |      
|------------- |  | ------------------------------ | --- |  | -------------------------- | ---- | ---------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------------ | - | -----
|              |  | Total Numberof SharesPurchased |     |  | Average PricePaid perShare |      | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans
orPrograms |     | Approximate DollarValue of Shares thatMay Yet bePurchased
Underthe Plans or Programs
|Month of:     |  |                                |     |  |                            |      |                                                                              |     |                                                                                      |   |      
|November 2008 |  | 135                            | (2) |  | $                          | 4.86 |                                                                              | 135 |                                                                                      | $ | 2,970
|December 2008 |  | 11                             | (1) |  | $                          | 4.18 |                                                                              |    |                                                                                      |   | 9,970
|December 2008 |  | 781                            | (2) |  | $                          | 4.36 |                                                                              | 781 |                                                                                      |   | 6,565
|              |  |                                |     |  |                            |      |                                                                              |     |                                                                                      |   |      
|Total         |  | 927                            |     |  |                            |      |                                                                              | 916 |                                                                                      | $ | 6,565
|              |  |                                |     |  |                            |      |                                                                              |     |                                                                                      |   |      



|(1) | Represent shares of common stock surrendered to the Company by employees to satisfy their tax withholding obligations upon the vesting of their restricted stock, valued at the
closing price of the common stock as reported by The NASDAQ Stock Market on the date of the surrender.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In November 2008, we purchased 135 shares in the open market at an average price of $4.86. In December 2008, we repurchased 781 shares in the open market at an average price of
$4.36. These purchases occurred periodically throughout the month.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



21



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##### Table of Contents

|Item 6. | Selected Financial Data
|------- | -----------------------

The
following table sets forth consolidated financial data with respect to the Company for each of the five years in the period ended January 31, 2009. The selected financial data for each of the five years in the period ended January 31, 2009
have been derived from the consolidated financial statements of the Company. The foregoing consolidated financial statements and the information below should be read in conjunction with our audited financial statements (and notes thereon) and
Managements Discussion and Analysis of Financial Condition and Results of Operations, and other financial information included elsewhere in this Annual Report on Form 10-K.

(Amounts in thousands, except per share amounts)



|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|--------------------------------------------------- |  | ----------------------------- | ------- | ------- | - | ------- | ------- |  | - | ------- | - |  | ------- | ------- | - |  | - | ------- | -
|                                                    |  | Fiscal year ended January 31, |        
|                                                    |  | 2009(1)                       |         | 2008(2) |   |         | 2007(3) |  |   | 2006    |   |  | 2005(4) |        
|CONSOLIDATED STATEMENTS OF OPERATIONS DATA:         |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Total revenue                                       |  | $                             | 216,926 |         | $ | 199,096 |         |  | $ | 196,104 |   |  | $       | 195,324 |   |  | $ | 184,208 |  
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Operating (loss) income(5)                          |  |                               | 10,776  |         |   | (70,065 | )       |  |   | 12,686  |   |  |         | (24,248 | ) |  |   | (77,973 | )
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Income (loss) from continuing operations            |  |                               | 10,435  |         |   | (70,072 | )       |  |   | (7,233  | ) |  |         | (27,983 | ) |  |   | (82,407 | )
|Loss from discontinued operations(6)                |  |                               |        |         |   |        |         |  |   |        |   |  |         | (7,525  | ) |  |   | (9,374  | )
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Income (loss) before extraordinary item             |  |                               | 10,435  |         |   | (70,072 | )       |  |   | (7,233  | ) |  |         | (35,508 | ) |  |   | (91,781 | )
|Extraordinary gain(7)                               |  |                               |        |         |   | 5,680   |         |  |   |        |   |  |         |        |   |  |   |        |  
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Net (loss) income                                   |  |                               | 10,435  |         |   | (64,392 | )       |  |   | (7,233  | ) |  |         | (35,508 | ) |  |   | (91,781 | )
|Preferred stock dividends and accretion of discount |  |                               |        |         |   |        |         |  |   |        |   |  |         | (620    | ) |  |   | (1,608  | )
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Net (loss) income                                   |  | $                             | 10,435  |         | $ | (64,392 | )       |  | $ | (7,233  | ) |  | $       | (36,128 | ) |  | $ | (93,389 | )
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Basic net earnings (loss) per share:                |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Continuing operations                               |  | $                             | 0.78    |         | $ | (5.24   | )       |  | $ | (0.58   | ) |  | $       | (2.41   | ) |  | $ | (7.74   | )
|Discontinued operations                             |  |                               |        |         |   |        |         |  |   |        |   |  |         | (0.65   | ) |  |   | (0.88   | )
|Extraordinary gain                                  |  |                               |        |         |   | 0.43    |         |  |   |        |   |  |         |        |   |  |   |        |  
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Basic net earnings (loss) per share                 |  | $                             | 0.78    |         | $ | (4.82   | )       |  | $ | (0.58   | ) |  | $       | (3.06   | ) |  | $ | (8.77   | )
|Weighted average basic shares outstanding           |  |                               | 13,329  |         |   | 13,362  |         |  |   | 12,541  |   |  |         | 11,598  |   |  |   | 10,652  |  
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Diluted net earnings per share:                     |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Continuing operations                               |  | $                             | 0.78    |         | $ |        |         |  | $ |        |   |  | $       |        |   |  | $ |        |  
|Discontinued operations                             |  |                               |        |         |   |        |         |  |   |        |   |  |         |        |   |  |   |        |  
|Extraordinary gain                                  |  |                               |        |         |   |        |         |  |   |        |   |  |         |        |   |  |   |        |  
|                                                    |  |                               |         |         |   |         |         |  |   |         |   |  |         |         |   |  |   |         |  
|Diluted net earnings per share                      |  | $                             | 0.78    |         | $ |        |         |  | $ |        |   |  | $       |        |   |  | $ |        |  
|Weighted average diluted shares outstanding         |  |                               | 13,414  |         |   | 13,362  |         |  |   | 12,541  |   |  |         | 11,598  |   |  |   | 10,652  |  



|(1) | Results for fiscal 2008 include the operations of Fulgent which was acquired on August 1, 2008 and TAKKLE which was acquired on January 26, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Results for fiscal 2007 include the operations of Channel One and Frontline from their respective dates of acquisition. Both entities were acquired on April 20, 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Results for fiscal 2006 include the operations of Sconex from the time it was acquired in March 2006. As a result of adopting SFAS 123R , Accounting for Stock Based
Compensation (SFAS 123R), loss from continuing operations before income taxes for fiscal 2006 was $1,556 greater than if the Company had continued to account for the share-based compensation under APB 25.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Results for fiscal 2004 include the operations of InSite Advertising from the time it was acquired in March 2004.
|--- | -----------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|(5) | In the fourth quarter of fiscal 2008, we sold our CCS domain name for cash, recognizing a gain of $5.8 million. Special charges were recorded for each fiscal year as a result of our
annual goodwill and intangible impairment analysis. These charges are more fully discussed in Note 8 to our consolidated financial statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Represents the discontinued operations of dELiA*s, Inc. which was spun off to Alloy stockholders on December 19, 2005, and DCR which was sold in June 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | In fiscal 2007, we recognized an extraordinary gain of $5,680 related to the acquisition of Channel One. The extraordinary gain was a result of actual liabilities assumed being less
then what was originally estimated. Please refer to Notes 5 and 6 of we consolidated financial statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                            |  |                |         |      |   |         |  |      |         |      |   |         |  |   |        
|------------------------------------------- |  | -------------- | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                            |  | At January 31,
|                                            |  | 2009           |         | 2008 |   | 2007    |  | 2006 |         | 2005
|CONSOLIDATED BALANCE SHEET DATA:            |  |                |         |      |   |         |  |      |         |      |   |         |  |   |        
|Cash and cash equivalents                   |  | $              | 32,116  |      | $ | 12,270  |  | $    | 6,366   |      | $ | 39,631  |  | $ | 18,634 
|Marketable securities                       |  |                |        |      |   | 9,030   |  |      | 21,145  |      |   | 1,200   |  |   | 6,341  
|Working capitalcontinuing operations(1)    |  |                | 28,676  |      |   | 28,935  |  |      | 33,457  |      |   | 45,852  |  |   | 33,320 
|Working capitaldiscontinued operations     |  |                |        |      |   |        |  |      |        |      |   |        |  |   | 1,580  
|                                            |  |                |         |      |   |         |  |      |         |      |   |         |  |   |        
|Working capital(2)                          |  |                | 28,676  |      |   | 28,935  |  |      | 33,457  |      |   | 45,852  |  |   | 34,900 
|Assetscontinuing operations                |  |                | 160,719 |      |   | 148,416 |  |      | 196,566 |      |   | 219,488 |  |   | 232,926
|Assetsdiscontinued operations              |  |                |        |      |   |        |  |      |        |      |   |        |  |   | 121,655
|                                            |  |                |         |      |   |         |  |      |         |      |   |         |  |   |        
|Total assets                                |  |                | 160,719 |      |   | 148,416 |  |      | 196,566 |      |   | 219,488 |  |   | 354,581
|Convertible redeemable preferred stock, net |  |                |        |      |   |        |  |      |        |      |   |        |  |   | 16,042 
|Senior convertible debentures               |  |                |        |      |   | 1,397   |  |      | 1,397   |      |   | 69,300  |  |   | 69,300 
|Total stockholders equity                  |  | $              | 110,467 |      | $ | 103,331 |  | $    | 162,671 |      | $ | 105,184 |  | $ | 192,721

No cash dividends were paid on our common stock during the periods presented above.



|(1) | During the third quarter of fiscal 2008, we reclassified our entire auction rate securities portfolio to long-term assets as we do not believe these securities will liquidate over
the next twelve months.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Working capital is defined as current assets minus current liabilities.
|--- | -----------------------------------------------------------------------



|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

(Amounts in thousands, except per share)

The
following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. Descriptions
of all documents incorporated by reference herein or included as exhibits hereto are qualified in their entirety by reference to the full text of such documents so incorporated or referenced. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including, but not limited to, those in Item 1A of Part I, Risk
Factors and elsewhere in this Annual Report on Form 10-K.

Executive Summary

Alloy (NASDAQ: ALOY) is one of the countrys largest providers of media and marketing programs offering advertisers the ability to reach
youth and non-youth targeted consumer segments through a diverse array of assets and marketing programs, including interactive, display, direct mail, content production and educational programming. Collectively, our businesses operate under the
umbrella name Alloy Media + Marketing, but the division brand names continue to receive recognition, such as Alloy Education, Alloy Entertainment, Alloy Marketing and Promotions (AMP), Alloy Access and On Campus Marketing
(OCM).

Each of our businesses falls in one of three operating segmentsPromotion, Media and Placement. The Promotion
segment is comprised of businesses whose products and services are promotional in nature and includes our AMP, OCM and sampling divisions. The Media segment is comprised of company-owned and



23



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##### Table of Contents

represented media assets, including our display board, Internet, database, specialty print, educational programming and entertainment businesses. The
Placement segment is made up of our businesses that aggregate and market third party media properties owned by others primarily in the college, military and multicultural markets. These three operating segments utilize a wide array of owned and
represented online and offline media and marketing assets, such as websites, magazines, college and high school newspapers, on-campus message boards, satellite delivered educational programming, and specialty print publications, giving us
significant reach into the targeted demographic audience and providing our advertising clients with significant exposure to the intended market.

A variety of factors influence our revenue, including but not limited to: (i) economic conditions and the relative strength or weakness of the United States economy, (ii) advertiser and consumer spending patterns, (iii) the
value of our consumer brands and database, (iv) the continued perception by our advertisers and sponsors that we offer effective marketing solutions, (v) use of our websites, and (vi) competitive and alternative advertising mediums.
In addition, our business is seasonal. Our third quarter has historically been our most significant in terms of revenue and operating income. The majority of our revenues and operating income is earned during the third and fourth quarters of our
fiscal year. Quarterly comparisons are also affected by these factors.

We have expanded our Media segment through acquisitions and
internally generated growth. In this regard, in the fourth quarter of fiscal 2008, we acquired gURL.com, an online community and content site for teenage girls and TAKKLE.com, an online resource and college recruitment website for high school
sports. These acquisitions demonstrate our commitment to developing our media assets. We intend to continue to expand our Media segment as we believe this segment provides the greatest opportunity to increase long-term profitability and shareholder
value. For example, in our Interactive business, we are expanding our Teen.com network to deliver original, short-form video programming. Also, in our Alloy Entertainment business, we are working to monetize our library of book titles through
television, motion picture, and short-form video programming. We also continue to evaluate acquisition opportunities. In our Promotion and Placement segments, we plan to continue to try to maximize profitability through cost management, not
necessarily growth.

We believe our business should continue to grow as we strive to capitalize on the following key assets:



| |  |  | Broad Access. We are able to reach a significant portion of targeted consumers by: (i) producing a wide range of college guides, books and recruitment
publications; (ii) owning and operating over 59,000 display media boards on college and high school campuses throughout the United States; (iii) placing advertising in over 3,000 college and high school newspapers; (iv) distributing
educational programming to approximately 8,000 secondary schools in the United States; (v) maintaining and expanding our ability to execute large scale promotional service programs; and (vi) utilizing our national in-store advertising and
display network comprising approximately 7,400 grocery and other high volume stores.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Established Franchises. Our principal marketing franchises are well known by market consumers and by advertisers. For advertisers, Alloy Media + Marketing,
the umbrella name for all of our media and marketing brands, as well as many of our company-owned brands have a history in creating and implementing advertising and marketing programs primarily targeting the youth market. Our Alloy Entertainment
franchise is widely recognized as a developer of original books, with a number of books developed into television series and feature films.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Strong Relationship with Advertisers and Marketing Partners. We strive to provide advertisers and our marketing partners with highly targeted, measurable and
effective means to reach their target market. Our seasoned advertising sales force has established strong relationships with youth and non-youth marketers.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Content. We are able to successfully develop original, unique, commercial entertainment properties primarily geared toward teens, young adults and families.
These properties typically begin as a book property and are subsequently sold and developed into television series and feature films.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



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##### Table of Contents

Results of Operations and Financial Condition

The principal components of our operating expenses are placement, production and distribution costs (including advertising placement fees, catalog and
signage fees, temporary help and production costs), selling expenses (including personnel costs, commissions, promotions and bad debt expenses), general and administrative expenses, depreciation and amortization and special charges. Our Promotion
and Placement segments have significant variable costs, while the Media segments costs are largely fixed in nature. As a result, an increase or decrease in revenue attributable to the Promotion and Placement segments typically results in
segment operating income increasing or decreasing by a similar percentage. However, because the Media segment has relatively low variable costs, in a period of rising revenue operating income in the Media segment typically grows faster than the
growth of revenue, and conversely, in a period of declining revenue, operating income typically falls faster than the decline in revenue.



|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|------------------------------- |  | ---------------------------------- | ------ | ----- | - | ------- | --------- |  | - | --------- | - |  | ----- | ------- | - |  | - | ------- | -
|                                |  | Fiscal year ended January 31, 2009 |       
|                                |  | Promotion                          |        | Media |   |         | Placement |  |   | Corporate |   |  | Total |        
|Revenues:                       |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Services revenue                |  | $                                  | 42,940 |       | $ | 81,188  |           |  | $ | 52,222    |   |  |       |        |   |  | $ | 176,350 |  
|Product revenue                 |  |                                    | 40,576 |       |   |        |           |  |   |          |   |  |       |        |   |  |   | 40,576  |  
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total revenue                   |  | $                                  | 83,516 |       | $ | 81,188  |           |  | $ | 52,222    |   |  |       |        |   |  | $ | 216,926 |  
|                                |  |                                    |        |       |  
|Cost of goods sold:             |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Cost of goods soldservices     |  | $                                  | 21,512 |       | $ | 24,419  |           |  | $ | 38,261    |   |  |       |        |   |  | $ | 84,192  |  
|Cost of goods soldproduct      |  |                                    | 11,469 |       |   |        |           |  |   |          |   |  |       |        |   |  |   | 11,469  |  
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total cost of goods sold        |  | $                                  | 32,981 |       | $ | 24,419  |           |  | $ | 38,261    |   |  |       |        |   |  | $ | 95,661  |  
|                                |  |                                    |        |       |  
|Expenses:                       |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Operating                       |  | $                                  | 37,035 |       | $ | 45,016  |           |  | $ | 7,341     |   |  | $     | 926     |   |  | $ | 90,318  |  
|General and administrative      |  |                                    | 4,871  |       |   | 1,497   |           |  |   | 2,302     |   |  |       | 10,584  |   |  |   | 19,254  |  
|Depreciation and amortization   |  |                                    | 906    |       |   | 4,550   |           |  |   | 32        |   |  |       | 941     |   |  |   | 6,429   |  
|Special charges                 |  |                                    |       |       |   | 40      |           |  |   | 100       |   |  |       | 148     |   |  |   | 288     |  
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total expenses                  |  | $                                  | 42,812 |       | $ | 51,103  |           |  | $ | 9,775     |   |  | $     | 12,599  |   |  | $ | 116,289 |  
|Gain on sale of operating asset |  |                                    |       |       |   | (5,800  | )         |  |   |          |   |  |       |        |   |  |   | (5,800  | )
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Operating income (loss)         |  | $                                  | 7,723  |       | $ | 11,466  |           |  | $ | 4,186     |   |  | $     | (12,599 | ) |  | $ | 10,776  |  
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|                                | 
|                                |  | Fiscal year ended January 31, 2008 |       
|                                |  | Promotion                          |        | Media |   |         | Placement |  |   | Corporate |   |  | Total |        
|Revenues:                       |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Services revenue                |  | $                                  | 43,438 |       | $ | 62,780  |           |  | $ | 52,911    |   |  |       |        |   |  | $ | 159,129 |  
|Product revenue                 |  |                                    | 39,967 |       |   |        |           |  |   |          |   |  |       |        |   |  |   | 39,967  |  
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total revenue                   |  | $                                  | 83,405 |       | $ | 62,780  |           |  | $ | 52,911    |   |  |       |        |   |  | $ | 199,096 |  
|                                |  |                                    |        |       |  
|Cost of goods sold:             |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Cost of goods soldservices     |  | $                                  | 23,024 |       | $ | 21,965  |           |  | $ | 39,279    |   |  |       |        |   |  | $ | 84,268  |  
|Cost of goods soldproduct      |  |                                    | 11,679 |       |   |        |           |  |   |          |   |  |       |        |   |  |   | 11,679  |  
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total cost of goods sold        |  | $                                  | 34,703 |       | $ | 21,965  |           |  | $ | 39,279    |   |  |       |        |   |  | $ | 95,947  |  
|                                |  |                                    |        |       |  
|Expenses:                       |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Operating                       |  | $                                  | 35,082 |       | $ | 35,195  |           |  | $ | 6,284     |   |  | $     | 451     |   |  | $ | 77,012  |  
|General and administrative      |  |                                    | 3,488  |       |   | 2,927   |           |  |   | 2,421     |   |  |       | 10,658  |   |  |   | 19,494  |  
|Depreciation and amortization   |  |                                    | 904    |       |   | 3,310   |           |  |   | 33        |   |  |       | 833     |   |  |   | 5,080   |  
|Special charges                 |  |                                    |       |       |   | 48,845  |           |  |   | 22,783    |   |  |       |        |   |  |   | 71,628  |  
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total expenses                  |  | $                                  | 39,474 |       | $ | 90,277  |           |  | $ | 31,521    |   |  | $     | 11,942  |   |  | $ | 173,214 |  
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  
|Operating income (loss)         |  | $                                  | 9,228  |       | $ | (49,462 | )         |  | $ | (17,889   | ) |  | $     | (11,942 | ) |  | $ | (70,065 | )
|                                |  |                                    |        |       |   |         |           |  |   |           |   |  |       |         |   |  |   |         |  



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|                              |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        
|----------------------------- |  | ---------------------------------- | ------ | ----- | - | --------- |  | --------- | ------ |  | ----- | ------- | - |  | - | -------
|                              |  | Fiscal year ended January 31, 2007
|                              |  | Promotion                          |        | Media |   | Placement |  | Corporate |        |  | Total
|Revenues:                     |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        
|Services revenue              |  | $                                  | 59,828 |       | $ | 46,287    |  | $         | 53,838 |  |       |        |   |  | $ | 159,953
|Product revenue               |  |                                    | 36,151 |       |   |          |  |           |       |  |       |        |   |  |   | 36,151 
|                              |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        
|Total revenue                 |  | $                                  | 95,979 |       | $ | 46,287    |  | $         | 53,838 |  |       |        |   |  | $ | 196,104
|                              |  |                                    |        |       |  
|Cost of goods sold:           |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        
|Cost of goods soldservices   |  | $                                  | 29,702 |       | $ | 17,929    |  | $         | 39,796 |  |       |        |   |  | $ | 87,427 
|Cost of goods soldproduct    |  |                                    | 11,286 |       |   |          |  |           |       |  |       |        |   |  |   | 11,286 
|                              |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        
|Total Cost of goods sold      |  | $                                  | 40,988 |       | $ | 17,929    |  | $         | 39,796 |  |       |        |   |  | $ | 98,713 
|                              |  |                                    |        |       |  
|Expenses:                     |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        
|Operating                     |  | $                                  | 37,886 |       | $ | 19,498    |  | $         | 6,923  |  | $     | 1,709   |   |  | $ | 66,016 
|General and administrative    |  |                                    | 5,213  |       |   | 471       |  |           | 1,452  |  |       | 8,061   |   |  |   | 15,197 
|Depreciation and amortization |  |                                    | 815    |       |   | 1,751     |  |           | 38     |  |       | 761     |   |  |   | 3,365  
|Special charges               |  |                                    |       |       |   |          |  |           |       |  |       | 127     |   |  |   | 127    
|                              |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        
|Total expenses                |  | $                                  | 43,914 |       | $ | 21,720    |  | $         | 8,413  |  | $     | 10,658  |   |  | $ | 84,705 
|                              |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        
|Operating income (loss)       |  | $                                  | 11,077 |       | $ | 6,638     |  | $         | 5,629  |  | $     | (10,658 | ) |  | $ | 12,686 
|                              |  |                                    |        |       |   |           |  |           |        |  |       |         |   |  |   |        

Revenue

Revenue in fiscal 2008 was $216,926, an increase of $17,830 or 9.0%, from fiscal 2007 revenue of $199,096. This increase was attributable to increases in revenue in our Media segment of $18,408, and our Promotion
segment of $111, offset by a decrease in our Placement segment of $689.

Revenue in fiscal 2007 was $199,096, an increase of $2,992 or
1.5%, from fiscal 2006 revenue of $196,104. This increase was attributable to strength of sales in our Media segment of $16,493, partially offset by a $12,574 and $927 decrease in our Promotion and Placement segments revenue, respectively.

Promotion

Promotion segment
revenue in fiscal 2008 was $83,516, an increase of $111 from fiscal 2007 revenue of $83,405. This increase was primarily due to increased revenue in our sampling ($2,200) and OCM ($600) businesses, offset by decreased revenue in AMP ($2,700).

Promotion segment revenue in fiscal 2007 was $83,405, a decrease of $12,574 or 13.1% from fiscal 2006 revenue of $95,979. This decrease
was primarily due to decreased revenue in AMP ($9,800) and sampling businesses ($2,300) as certain advertising and promotional campaigns were not executed, offset by increased on-campus marketing sales ($3,800).

Media

Media segment revenue in fiscal 2008
was $81,188, an increase of $18,408 or 29.3% from fiscal 2007 revenue of $62,780. This increase was primarily due to revenue increases in our Channel One ($7,000), display board ($6,000), entertainment ($3,000) and interactive businesses ($2,400).

Media segment revenue in fiscal 2007 was $62,780, an increase of $16,493 or 35.6% from fiscal 2006 revenue of $46,287. Channel One and
Frontline, which both were acquired during fiscal 2007, contributed $20,528 in revenue. These contributions and increased revenue in our entertainment business were partially offset by decreases in our interactive, display board businesses ($4,200),
as well as print advertisement business ($1,200).



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Placement

Placement segment revenue in fiscal 2008 was $52,222, a decrease of $689 or 1.3% from fiscal 2007 revenue of $52,911. The decrease was primarily due to decreases in broadcast and military newspaper revenue ($4,900),
partially offset by increases in billboard, college and minority newspaper revenue ($4,200).

Placement segment revenue in fiscal 2007 was
$52,911, a decrease of $927 or 1.7% from fiscal 2006 revenue of $53,838. The decrease was primarily due to decreases in multicultural and college newspaper revenue ($3,100), partially offset by increases in billboard, and military advertising
revenue ($2,200).

Cost of Goods Sold

Promotion

Promotion segment cost of goods sold in fiscal 2008 was $32,981, a decrease of $1,722 or 4.9% from fiscal 2007 cost of goods sold
of $34,703. This decrease was primarily due to lower outside and temporary labor ($570), travel ($790), payroll ($920) in AMP Agency as less advertising campaigns were executed during the fiscal year. The expense decrease was partially offset by an
increase in cost of goods sold expense ($560) primarily in OCM.

Promotion segment cost of goods sold in fiscal 2007 was $34,703, a
decrease of $6,285 or 15.3% from fiscal 2006 cost of goods sold of $40,988. This decrease was primarily due to lower outside and temporary labor and travel and production costs primarily in AMP as less advertising campaigns were executed during the
fiscal year. The expense decrease was partially offset by an increase in cost of goods sold expenses in OCM.

Media

Media segment cost of goods sold in fiscal 2008 was $24,419, an increase of $2,454 or 11.1% from fiscal 2007 cost of goods sold of $21,965. This increase
was primarily due to increases in production costs ($2,800) such as printing, licenses and store commissions. These increases in cost of goods sold were offset by decreases in temporary labor ($200), travel ($100) and payroll ($100).

Media segment cost of goods sold in fiscal 2007 was $21,965, an increase of $4,036 or 22.5% from fiscal 2006 cost of goods sold of $17,929. Channel One
and Frontline, which both were acquired during fiscal 2007, contributed $9,138 in cost of sales expense in fiscal 2007. The increase in cost of goods sold was offset by decreases in our interactive and display board and print advertisement
businesses.

Placement

Placement segment cost of goods sold expense in fiscal 2008 was $38,261, a decrease of $1,018 or 2.6% from fiscal 2007 cost of goods sold of $39,279. The decrease is primarily due to a decrease in marketing fees ($1,000).

Placement segment cost of goods sold expense in fiscal 2007 was $39,279, a decrease of $517 or 1.3% from fiscal 2006 cost of goods sold of $39,796. The
decrease is in direct proportion to the decrease in our revenue for fiscal 2007.

Operating Expenses

Promotion

Promotion segment operating expenses
in fiscal 2008 were $37,035, an increase of $1,953 or 5.6% from fiscal 2007 operating expenses of $35,082. The increase was primarily due to increases in payroll expenses ($2,000) offset by lower general operating expenses ($160).



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Promotion segment operating expenses in fiscal 2007 were $35,082, a decrease of $2,804 or 7.4% from
fiscal 2006 operating expenses of $37,886. The decrease was primarily due to lower mailing, outside labor, and permits and licenses, as fewer campaigns were executed, lower overall payroll related expenses ($940), and lower travel related expense
($280).

Media

Media segment
operating expenses in fiscal 2008 were $45,016, an increase of $9,821 or 27.9% from fiscal 2007 operating expenses of $35,195. The increase was primarily due to increases in payroll ($5,700), maintenance ($1,400), and corporate and facilities costs
($2,700).

Media segment operating expenses in fiscal 2007 were $35,195, an increase of $15,697 or 80.5% from fiscal 2006 operating
expenses of $19,498. Channel One and Frontline, which both were acquired during fiscal 2007, contributed $11,743 in operating expenses in fiscal 2007. These increases, along with increases in marketing ($1,200), travel ($600) and payroll related
expense ($2,100) were the primary reasons for the increase in operating expenses.

Placement

Placement segment operating expenses in fiscal 2008 were $7,341, an increase of $1,057 or 16.8% from fiscal 2007 operating expenses of $6,284. The
increase was primarily due to increases in payroll ($900) and bad debt expense ($520) offset by lower facilities costs ($200).

Placement
segment operating expenses in fiscal 2007 were $6,284, a decrease of $639 or 9.2% from fiscal 2006 operating expenses of $6,923. The decrease was primarily due to a decrease in rent and facilities cost.

Corporate

The Corporate segment operating
expenses in fiscal 2008 were $926, an increase of $475 from fiscal 2007 operating expenses of $451. The increase is primarily due to an increase in rent and facilities cost.

The Corporate segment operating expenses in fiscal 2007 were $451, a decrease of $1,258 or 73.6% from fiscal 2006 operating expenses of $1,709. The
decrease was primarily due to lower payroll related costs and rent and facilities cost.

General and Administrative

Promotion

Promotion segment general and
administrative expenses in fiscal 2008 were $4,871, an increase of $1,383 or 39.6% as compared to fiscal 2007 general and administrative expenses of $3,488. The increase was primarily due to higher general corporate and facilities costs ($1,500)
offset by lower payroll related expenses ($150).

Promotion segment general and administrative expenses in fiscal 2007 were $3,488, a
decrease of $1,725 or 33.1% as compared to fiscal 2006 general and administrative expenses of $5,213. The decrease was primarily due to lower payroll related expenses.

Media

Media segment general and administrative expenses in fiscal 2008 were $1,497, a
decrease of $1,430 or 48.8% as compared to fiscal 2007 general and administrative expenses of $2,927. The decrease is primarily due to a decrease in general corporate costs ($1,700) offset by increases in payroll costs ($200).



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##### Table of Contents

Media segment general and administrative expenses in fiscal 2007 were $2,927, an increase of $2,456 as
compared to fiscal 2006 general and administrative expenses of $471. Channel One and Frontline, which were both acquired during fiscal 2007, contributed $728 to general and administrative expenses for fiscal 2007. These increases, combined with
increases in facilities and consulting costs were the primary reasons for the increase.

Placement

Placement segment general and administrative expenses in fiscal 2008 were $2,302, a decrease of $119 or 4.9% as compared to fiscal 2007 general and
administrative expenses of $2,421. The decrease was primarily due to decreases in general corporate costs.

Placement segment general and
administrative expenses in fiscal 2007 were $2,421, an increase of $969 or 66.7% as compared to fiscal 2006 general and administrative expenses of $1,452. The increase was primarily due to increases in payroll related expenses and general corporate
costs.

Corporate

The Corporate
segment general and administrative expenses in fiscal 2008 were $10,584, remaining consistent with fiscal 2007 general administrative expenses of $10,658.

The Corporate segment general and administrative expenses in fiscal 2007 were $10,658, an increase of $2,597 or 32.2% from fiscal 2006 general administrative expenses of $8,061. The increase was primarily due to
increases in payroll related expenses, stock based compensation, banking and accounting fees, and rent expense.

Depreciation and Amortization

Promotion

Promotion segment
depreciation and amortization in fiscal 2008 was $906, and was consistent with fiscal 2007 depreciation and amortization of $904.

Promotion segment depreciation and amortization in fiscal 2007 was $904, an increase of $89 or 11.0% as compared to fiscal 2006 depreciation and amortization of $815. The increase was primarily due to additional customer mailing lists and
marketing rights that were acquired during fiscal 2007.

Media

Media segment depreciation and amortization in fiscal 2008 was $4,550, an increase of $1,240 or 37.4 %, as compared to fiscal 2007 depreciation and amortization of $3,310. The increase was primarily due to the
amortization of mailing lists and acquired intangible assets related our acquisition of Frontline, and fixed assets related to our digital upgrade of Channel One.

Media segment depreciation and amortization in fiscal 2007 was $3,310, an increase of $1,559 or 89.0%, as compared to fiscal 2006 depreciation and amortization of $1,751. The increase was primarily due to the acquired
intangible and fixed assets related to our acquisitions of Channel One and Frontline.

Placement

Placement segment depreciation and amortization in fiscal 2008 was $32, which is consistent with fiscal 2007 depreciation and amortization of $33.

Placement segment depreciation and amortization in fiscal 2007 was $33, which is consistent with fiscal 2006 depreciation and amortization
of $38.



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Corporate

The Corporate segment depreciation and amortization in fiscal 2008 was $941, an increase of $108 or 12.9% as compared to fiscal 2007 depreciation and amortization of $833. The increase was due to normal monthly
depreciation and amortization.

The Corporate segment depreciation and amortization in fiscal 2007 was $833, an increase of $72 or 9.5% as
compared to fiscal 2006 depreciation and amortization of $761. The decrease was primarily due to fiscal 2007 monthly depreciation and amortization.

Special Charges

In fiscal 2008, we recorded special charges of $288. These special charges related to a trademark
impairment in our Media segment of $40 and our Placement segment of $100. In addition, we recorded an impairment charge on our auction rate securities portfolio of $148 in our Corporate segment.

In fiscal 2007, we recorded special charges of $71,628. These special charges related to goodwill impairment in our Media segment in the amount of
$48,052 and our Placement segment in the amount of $22,783. In addition, the Company recorded an impairment related to its trademarks and long-live assets in our Media segment totaling $120 and $673, respectively. In fiscal 2006, we recorded special
charges in our Corporate segment in the amount of $127 related to the spin-off of dELiA*s, Inc.

Gain on Sale of Operating Asset

In fiscal 2008, we sold our CCS domain name and related assets for cash, recognizing a gain of $5,800. The gain was recorded in our Media segment. There
were no such gains recorded in fiscal 2007 or fiscal 2006.

Income (Loss) from Operations

In fiscal 2008, operating income was $10,776, primarily due to increased revenues, a slightly lower cost structure and lower special items. In fiscal
2008, we recorded special charges in the amount of $288, related to impairments on two of our trademarks and our auction rates securities portfolio.

In fiscal 2007, operating loss was $70,065. In fiscal 2007, we recorded special charges in the amount of $71,628 as a result of goodwill impairments in our Placement and Media segments which along with an increased
cost structure as a result of the Channel One and Frontline acquisitions were the primary factors that impacted our profitability.

In
fiscal 2006, our operating income was $12,686 primarily due to higher program profitability and lower depreciation and amortization, partially offset by higher stock-based compensation expense.

Operating Income (Loss)

Promotion

The Promotion segment operating income in fiscal 2008 was $7,723, a decrease of $1,505, or 16.3% as compared to operating income of $9,228 in fiscal 2007.
Operating income in fiscal 2008 decreased due to higher operating expenses and general and administrative expenses as a percentage of sales.

The Promotion segment operating income in fiscal 2007 was $9,228, a decrease of $1,849, or 16.7%, as compared to operating income of $11,077 in fiscal 2006. Operating income in fiscal 2007 decreased due to decreases in revenue and higher
operating expenses as a percentage of sales.



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##### Table of Contents

Media

The Media segment fiscal 2008 operating income was $11,466 as compared to an operating loss of $49,462 for fiscal 2007. Operating income in fiscal 2008 increased due to increases in revenue, lower production costs, and lower special
charges. In fiscal 2008, we sold our CCS domain name and related assets for $5,800 and recorded special charges related to a trademark impairment of $40. In fiscal 2007, we recorded special charges related to goodwill impairment in the amount of
$48,845, which is the primary reason for the fiscal 2007 operating loss.

The Media segment fiscal 2007 operating loss was $49,462 as
compared to operating income of $6,638 for fiscal 2006. In fiscal 2007, we recorded special charges related to goodwill impairment in the amount of $48,845, which is the primary reason for the fiscal 2007 operating loss. Other factors contributing
to the decrease in operating income from fiscal 2006 were Channel Ones operating loss and increases in depreciation and amortization.

Placement

The Placement segment operating income in fiscal 2008 was $4,186 as compared to operating loss of $17,889
in fiscal 2007. In fiscal 2008, we recorded special charges related to a trademark impairment charge of $100. Our operating cost structure in fiscal 2008 was higher as compared to our operating cost structure fiscal 2007. In fiscal 2007, we recorded
special charges related to goodwill impairment in the amount of $22,783 which the primary reason for the operating loss.

The Placement
segment operating loss in fiscal 2007 was $17,889 as compared to operating income of $5,629 in fiscal 2006. In fiscal 2007, we recorded special charges related to goodwill impairment in the amount of $22,783 which coupled with the impact of lower
revenue as compared to fiscal 2006 were the primary reasons for the operating loss. The Placement segment operating income in fiscal 2006 was $5,629 primarily due to lower depreciation and amortization and a reduction in operating costs in our
newspaper business, partially offset by higher stock-based compensation expense.

Corporate

The Corporate segment operating loss in fiscal 2008 was $12,599, an increase of $657, or 5.5%, from $11,942 in fiscal 2007. The increase in operating loss
for fiscal 2008 as compared to fiscal 2007 was primarily due to increases in stock compensation and payroll, offset by decreases in professional fees.

The Corporate segment operating loss increased $1,284, or 12.0%, to $11,942 in fiscal 2007 from $10,658 in fiscal 2006. The increase in operating loss for fiscal 2007 as compared to fiscal 2006 was primarily due to
increases in stock compensation, banking fees, accounting, legal and regulatory costs and rent expense.

Net Interest Expense

Interest expense in fiscal 2008 was $156 and remained consistent with fiscal 2007 interest expense of $154.

Interest expense in fiscal 2007 was $154 as compared to fiscal 2006 interest expense of $2,917. The primary reason for the decrease in interest expense
was due to the fiscal 2006 conversion of 98% of our Convertible Debentures that occurred in fiscal 2006. We did incur interest expense related to the conversion prior to fiscal 2006.

Extraordinary Gain

During fiscal 2007, we recognized an extraordinary gain of $5,680, net of
alternative minimum tax of $120. Based upon an analysis of our tax provision and the fact that we did not have a federal tax liability we were required to recognize our extraordinary gain net of tax. The extraordinary gain was related to our
acquisition of Channel One and was a result of our estimated liabilities at the time of acquisition being lower than we estimated when they were ultimately settled. We did not recognize such a gain in fiscal 2008.



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Income Taxes

Income tax expense in fiscal 2008 was $484 at an effective rate of 4.4%. Due to our history of incurring operating losses, we have established a valuation allowance on all our deferred tax assets. Accordingly, the tax provision for fiscal
2008 was primarily due to the alternative minimum tax on our pretax income and gain on sale of our CCS domain name and related assets and state income taxes.

Income tax expense in fiscal 2007 was $481 at an effective rate of 0.7%. Due to our history of incurring operating losses, we established a valuation allowance on all our deferred tax assets. Accordingly, the tax
provision for fiscal 2007 was primarily due to the alternative minimum tax and state income taxes.

Income tax expense in fiscal 2006 was
$750 at an effective rate of 11.6%. Due to our history of incurring operating losses, we established a valuation allowance on all of our deferred tax assets. Accordingly, the tax provision for fiscal 2006 was primarily due to alternative minimum tax
and state income taxes.

Liquidity and Capital Resources

Cash from Operations

Cash provided by operating activities was $26,385 for fiscal 2008. Factors contributing to our cash
provided by operations were net income of $10,435, and noncash items totaling $11,208 which included impairment charges, depreciation and amortization, and stock based compensation expense, and changes in working capital of $10,542 mainly
attributable to a decrease in accounts receivable, offset by a gain on the sale of our CCS domain name of $5,800.

Cash provided by
operating activities was $7,881 for fiscal 2007. Factors contributing to our cash provided by operations were net loss of $64,392, and noncash items totaling $75,348 which included impairment charges, extraordinary gain, depreciation and
amortization, loss on disposal of equipment and stock based compensation expense, offset by changes in working capital of $3,075 mainly attributable to an increase in accounts receivable.

Cash provided by operating activities was $7,428 for fiscal 2006. Factors contributing to our cash provided by operations were noncash items totaling
$7,471 which included depreciation and amortization and stock based compensation expense, changes in working capital of $7,190 mainly attributable to an increase in accounts receivable, offset by net loss of $7,233.

Investing Activities

Cash provided by investing
activities was $6,198 in fiscal 2008 as compared to cash used in investing activities of $5,698 and $23,506 for fiscal 2007 and fiscal 2006, respectively.

Capital expenditures were $7,313, $17,087 and $2,403, for fiscal 2008, fiscal 2007, and fiscal 2006, respectively. Capital expenditures for fiscal 2008 and 2006 were primarily for general operating purposes. Capital
expenditures for fiscal 2007 were for a combination of general operating purposes as well as providing a digital upgrade to Channel One existing infrastructure. In fiscal 2008, our net acquisitions resulted in a source of cash of $1,518 primarily as
a result of the Fulgent acquisition. In fiscal 2007, our net acquisitions resulted in a source of cash of $1,011 primarily as a result of the Channel One acquisition. Cash used to fund acquisitions, net of cash acquired was $995 for fiscal 2006.

In fiscal 2008, we sold our CCS domain name and related assets for $5,800.

Our short-term investment portfolio increased by $7,730 for fiscal 2008, decreased $12,115 for fiscal 2007 and increased $19,945 for fiscal 2006.
Fluctuations in our short-term investment portfolio are primarily dependent upon our operating needs and we may liquidate portions of our portfolio for these purposes.



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Financing Activities

Cash used in financing activities was $12,737 for fiscal 2008, as a result of the paydown of our loan of $4,000 under our Credit Facility (as defined below), cash used for debt conversions of $1,255 and repurchases of
our common stock of $7,498. Cash provided by financing related to the exercise of stock options was $16, $638 and $1,015 for fiscal 2008, 2007 and 2006, respectively.

Cash provided by financing activities was $3,721 for fiscal 2007. Cash provided by stock option exercises were $638, offset by repurchases of our common stock of $917. During the third quarter of fiscal 2007, we
received an advance of $4,000 pursuant to our credit agreement with Bank of America N.A. (Credit Facility), as discussed below.

Cash used in financing activities was $17,187 for fiscal 2006. Cash provided by stock option exercises were $1,015, offset by repurchases of our common stock of $10,047 and payments to dELiA*s, Inc. related to the spin off of $8,155.

On August 15, 2007, the Company entered into a credit agreement with Bank of America, N.A. which was amended from time to time during
fiscal 2008 (the Credit Facility). Most recently, it was amended and restated on April 9, 2009. At January 31, 2009, the Company had no outstanding borrowing on the Credit Facility.

The Credit Facility currently consists of a three year term $25,000 revolving loan (the Revolver), which may be drawn upon at any time while
the Company is in compliance with the covenants and other borrowing terms, and a letter of credit facility which has a $2,000 issuance sublimit. Any letters of credit will reduce the available commitment under the Revolver on a dollar-for-dollar
basis.

The loans and other obligations under the Credit Facility are guaranteed by wholly owned direct and indirect operating subsidiaries
of the Company, with a requirement that the Credit Facility be additionally guaranteed by any future subsidiaries of the Company.

Any
borrowings under the Credit Facility and letters of credit will bear interest at annual rates as detailed in the Credit Facility and are based on the Eurodollar rate plus 1.00% - 2.00% depending on the Companys twelve month EBITDA. In
addition, the Company is required to pay quarterly an unused commitment fee and a letter of credit fee if the Company enters into a letter of credit arrangement. Total commitment fees paid by the Company under the Credit Facility before the April
2009 modification totaled $65 and $24 for fiscal 2008 and fiscal 2007, respectively.

The Credit Facility contains affirmative and
restrictive covenants that require the Company to meet certain financial, business operations and other criteria. From time to time, the Company may not be able to satisfy the covenants, and the Company may be out of compliance with the provisions
of the Credit Facility. In past instances, the Company has obtained waivers and amendments to the Credit Facility. In the future, the Company may, as necessary, need to seek waivers or renegotiate the terms and conditions of the Credit Facility to
remain in compliance. The Company cannot give assurance, however, that Bank of America will agree to any such waiver or amendment and it could demand that the Company pay any outstanding amounts and terminate the Credit Facility. In this case, the
Company may not have access to working capital should its business activities require funds in excess of cash generated by the Companys ongoing operating activities.

At January 31, 2009, the Company was in compliance with all the financial ratios and other terms and conditions as stated in the Credit Facility or
as waived by Bank of America. We continually project our anticipated cash requirements, which include our working capital needs, potential acquisitions and interest payments. Funding requirements may be financed primarily through our operations, the
sale of equity, the use of our credit facility, or through equity-linked and debt securities. We believe that cash generated from operations and amounts available under our Credit Facility are adequate to meet our reasonably foreseeable operating
and capital expenditure requirements as well as stock repurchase and acquisition activities.



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We believe our existing cash, cash equivalents and investments balances, together with anticipated cash
flows from operations, should be sufficient to meet our working capital and operating requirements for at least the next twelve months.

If
our current sources of liquidity and cash generated from our operations are insufficient to satisfy our cash needs, we may be required to raise additional capital or utilize our Credit Facility. If we raise additional funds through the issuance of
equity securities, our stockholders may experience significant dilution. If financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our products or services. In addition, we may be
unable to take advantage of business opportunities or respond to competitive pressures. Any of these events could have a material and adverse effect on our business, results of operations and financial condition.

In December 2008, the board of directors authorized $7,000 for use in the repurchase of our common stock. As of January 31, 2009, our unused
repurchase authorization for our common stock was approximately $6,600.

During fiscal 2008, Alloy liquidated $7,730 of its auction rate
securities portfolio. We have been unable to obtain third party pricing for the remaining balance. As a result, we were required to independently value these securities and as result recorded an impairment charge of $148 against the remaining
balance. At January 31, 2009, our auction rates securities balance was $1,152. We do not believe that we will be able to liquidate the securities within the next twelve months and consider these assets long-term in nature.

Contractual Obligations

The following table presents
our significant contractual obligations as of January 31, 2009:



|                                                  |  |                        |        |                 |   |           |  |           |        |                  |   |       |  |   |      
|------------------------------------------------- |  | ---------------------- | ------ | --------------- | - | --------- |  | --------- | ------ | ---------------- | - | ----- |  | - | -----
|                                                  |  | Payments Due By Period
|                                                  |  | Total                  |        | Less than1 Year |   | 1-3 Years |  | 3-5 Years |        | More than5 Years
|Contractual Obligations                           |  |                        |        |                 |   |           |  |           |        |                  |   |       |  |   |      
|Operating lease obligations(a)                    |  |                        | 21,066 |                 |   | 4,254     |  |           | 7,824  |                  |   | 5,708 |  |   | 3,280
|Capital lease obligations (including interest)(b) |  |                        | 35     |                 |   | 17        |  |           | 18     |                  |   |      |  |   |     
|Purchase obligations(c)                           |  |                        | 27,181 |                 |   | 20,190    |  |           | 5,582  |                  |   | 1,313 |  |   | 96   
|Other(d)                                          |  |                        | 1,261  |                 |   |          |  |           | 1,261  |                  |   |      |  |   |     
|                                                  |  |                        |        |                 |   |           |  |           |        |                  |   |       |  |   |      
|Total                                             |  | $                      | 49,543 |                 | $ | 24,461    |  | $         | 14,685 |                  | $ | 7,021 |  | $ | 3,376
|                                                  |  |                        |        |                 |   |           |  |           |        |                  |   |       |  |   |      



|(a) | Our long-term noncancelable operating lease commitments are for office space, warehouse facilities and equipment.
|--- | -----------------------------------------------------------------------------------------------------------------

|(b) | Our long-term noncancelable capital lease commitments are for equipment.
|--- | ------------------------------------------------------------------------

|(c) | Our purchase obligations are primarily related to inventory commitments, service agreements, and capital expenditure purchases.
|--- | -------------------------------------------------------------------------------------------------------------------------------

|(d) | Our adoption of FIN 48 resulted in a liability of $1,261 of which $0 was settled.
|--- | ---------------------------------------------------------------------------------

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet transactions, arrangements, obligations or other
relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

Use of Estimates

The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the



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reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates on an on-going basis, including, but not limited
to, those related to bad debts, asset impairments, income taxes, stock compensation expenses and litigation. The Company bases its estimates on historical experience and on various other assumptions 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. Actual results may differ from these estimates under different assumptions
and conditions.

Revenue Recognition

The Company recognizes revenue in accordance with the Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition (SAB 104), Emerging Issues Task
Force (EITF) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.

Promotion, Media, and Placement segment revenue is generated as a result of the media and marketing services we provide through these segments, including
advertising in Company owned or represented media properties, execution of marketing events, or shipment of products. Revenues for these services are recognized, net of the commissions and agency fees, when the underlying advertisement is published,
broadcast or otherwise delivered pursuant to the terms of each arrangement. Delivery of advertising in other media forms is completed either in the form of the display of an impression or based upon the provision of contracted services in connection
with the marketing event or program. In-catalog print advertising revenues are recognized in the month that the catalog is mailed. The revenues earned in connection with publishing activities are recognized upon publication of such property.
Contract revenue is recognized upon the delivery of the contracted services and when no significant Company performance obligation remains. Service revenue is recognized as the contracted services are rendered. Product revenue from the
Companys college-focused specialty marketing business, OCM, is recognized at the time products are shipped to customers, net of any promotional price discounts and an allowance for sales returns. Revenues from the Companys sampling
business are earned when the products are shipped to venue locations.

When a sales arrangement contains multiple elements, such as
advertising and promotions, revenue is allocated to each element based on its relative fair value. When the fair value of an undelivered element cannot be determined, the Company defers revenue for the delivered elements until the undelivered
elements are delivered.

The Company conducts an analysis of its pricing and collection risk, among other tests, to determine whether
revenue should be reported on a gross or net basis. Payments received in advance of advertising delivery, publication, provision of services, or shipments are deferred until earned.

Accounts Receivable and Allowance for Doubtful Accounts

The Companys accounts
receivables are customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful accounts. The Company determines its allowance for doubtful accounts based on the evaluation of the aging of its accounts
receivable and on a customer-by-customer analysis of its high-risk customers. The Companys reserves contemplate its historical loss rate on receivables, specific customer situations and the economic environments in which the Company operates.

Operating Leases

Rent expense
for operating leases, which may have escalating rates over the term of the lease, is recorded on a straight-line basis over the initial lease term (including any rent abatement period, if applicable, whereby rent payments are abated for
a specific period or periods under the terms of the lease). The difference between rent expense and rent paid is recorded as deferred rent. Construction allowances received from landlords are recorded as a deferred rent credit and amortized to rent
expense over the initial term of the lease.



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Fixed Assets

Certain direct costs incurred for website development are capitalized in accordance with Emerging Issues Task Force 00-02, Accounting for Web Site Development Costs (EITF 00-2), and amortized on a
straight-line basis over the estimated useful life of 3 years.

Fixed assets are recorded at cost and depreciated or amortized using the
straight-line method over the following estimated useful lives:



|                                            |  |                                                    
|------------------------------------------- |  | ---------------------------------------------------
|Computer equipment under capitalized leases |  | Life of the lease                                  
|Leasehold improvements                      |  | Lesser of life of the lease or useful economic life
|Computer software and equipment             |  | 3 to 5 years                                       
|Machinery and equipment                     |  | 3 to 10 years                                      
|Office furniture and fixtures               |  | 5 to 10 years                                      
|Media boards/Headline Newsstands            |  | 3 to 5 years                                       
|Vehicles                                    |  | 3 to 5 years                                       
|School Equipment                            |  | 7 to 10 years                                      
|Front lights                                |  | 3 to 5 years                                       
|Pharmacy Units                              |  | 3 to 5 years                                       

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill is carried at cost. Goodwill is not amortized but is subject to an annual test for impairment at the reporting unit level (operating segment or
one level below an operating segment) and between annual tests in certain circumstances. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of the Companys reporting
units with the reporting units carrying amount, including goodwill. The Company generally determines the fair value of its reporting units using the expected present value of future cash flows, giving consideration to the market valuation
approach. If the carrying amount of a reporting unit exceeds the reporting units fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss, if any. The Company generally
determines the value of other indefinite-lived assets such as trademarks using the income approach. As a result of the Companys impairment testing, the Company recorded an impairment of approximately $140 and $70,955 in fiscal 2008 and fiscal
2007, respectively.

Impairment of Long-Lived Assets

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), long-lived assets such as fixed assets, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the assets. As a result of the Companys impairment testing, the Company recorded an impairment of approximately $673 in fiscal 2007. The Company did not have any impairment charges for fiscal 2008.

Valuation of Stock Options and Warrants

For purposes of computing the value of stock options and warrants, various valuation methods and assumptions can be used. The selection of a different valuation method or use of different assumptions may result in a value that is
significantly different from that computed by the Company. For the calculation of stock-based compensation expense in accordance with SFAS 123R, Accounting for Stock Based Compensation (SFAS 123R), we utilize the Black-Scholes
method to determine the fair value of stock options.



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Recently Adopted Accounting Pronouncements

Fair Value

The Company adopted the provisions of SFAS 157, Fair Value Measurements
(SFAS 157) on February 1, 2008. SFAS 157 defines fair value, establishes a valuation framework for measuring fair value pursuant to generally accepted accounting principles, and expands disclosures about fair value measurements. The
provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements. SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159) provides companies with
an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types
of assets and liabilities. The Company did not elect the fair value measurement option under SFAS 159 for any of its financial assets or liabilities.

As of January 31, 2009, the Companys financial assets consist of $1,152 of auction rate securities that are not material to the Companys overall financial position. These securities are classified as
long-term assets as the Company does not believe that these securities will liquidate over the next twelve months.

Recently Issued Accounting
Pronouncements

In December 2007, the FASB issued SFAS 141(R), Business Combinations (SFAS 141R). SFAS 141R replaces
SFAS 141, Business Combinations and applies to all transactions or other events in which an entity obtains control of one or more businesses. SFAS 141R requires the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose additional information needed
to evaluate and understand the nature and financial effect of the business combination. SFAS 141R is effective prospectively for fiscal years beginning after December 15, 2008 and cannot be applied before that date. The Company adopted the
provisions of SFAS 141(R) on February 1, 2009. The Company is currently assessing what impact, if any, the adoption will have on the Companys consolidated financial statements.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160) which establishes
accounting and reporting standards for all entities that prepare consolidated financial statements that have outstanding noncontrolling interests, sometimes called minority interest. The standards require that ownership interests in subsidiaries
held by outside parties be clearly identified, labeled and presented in equity separate from the parents equity; that the amount of net income attributable to the parent and the noncontrolling interest be separately presented on the
consolidated statement of income; requires consistency in accounting standards applied to changes in a parents interest; fair value measurement upon deconsolidation of a non-controlling interest; and requires sufficient disclosures that
clearly identifies and distinguishes between the interests of the noncontrolling owners.

In April 2008, the FASB issued FASB Staff
Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP No. FAS 142-3). FSP No. FAS 142-3 requires companies estimating the useful life of a recognized intangible asset to consider their
historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for entity-specific factors. FSP No.
FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to intangible assets whether acquired before or after the effective date. The Company adopted the provisions of FSP No.
FAS 142-3 on February 1, 2009. The Company is currently assessing what impact, if any, the adoption will have on the Companys consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162
identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in



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conformity with GAAP (the GAAP hierarchy). SFAS 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight
Board amendments to AU section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The Company is currently evaluating the provisions of SFAS 162 and assessing the impact, if any, on its
consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities. This FSP clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and should
be included in the calculation of basic earnings per share using the two-class method prescribed by SFAS 128, Earnings Per Share. This guidance will be effective for disclosure beginning with our first quarter 2009 Form 10-Q with
retrospective application required. We do not expect the adoption of this guidance to have a material effect on our earnings per share disclosures.

Inflation

In general, our costs are affected by inflation and we may experience the effects of inflation in future periods.
Such effects have not been material to us in the past and we believe will not materially affect us in the future.

Forward-Looking Statements

Statements in this Annual Report on Form 10-K expressing our expectations and beliefs regarding our future results or performance
are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)
that involve a number of substantial risks and uncertainties. When used in this Annual Report on Form 10-K, the words anticipate, may, could, plan, believe, estimate,
expect and intend and similar expressions are intended to identify such forward-looking statements.

Such
statements are based upon managements current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by the forward-looking statements. Actual results may
differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, but not limited to, the risks discussed in Item 1A of Part 1, Risk Factors.

Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the
statements are made, and we cannot assure you that our future results, levels of activity, performance or achievements will meet these expectations. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness
of the forward-looking statements. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as may be required by law.



|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|-------- | ----------------------------------------------------------

We do not own any derivative financial instruments in our portfolio. Accordingly, we do not believe there is any material market risk exposure with respect to derivatives or other financial instruments that require
disclosure under this item.

Credit concerns in the capital markets have significantly reduced our ability to liquidate auction rate
securities, and as a result we have reclassified these securities to long-term assets. At January 31, 2009, we were unable to obtain market values on our portfolio. As a result, we were required to obtain a valuation of these securities. In
conjunction with this valuation, we recorded $148 of impairment charges on our portfolio. As of January 31, 2009, we held auction rate securities with a fair value of approximately $1,152. These securities are interest-bearing debt obligations
of third parties. We do not believe that we will be able to liquidate these securities over the next twelve months.



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|Item 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

ALLOY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                    |  |     
|--------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                    |  | Page
|Report of Independent Registered Public Accounting Firm                                             |  | 40  
|Consolidated Balance Sheets at January 31, 2009 and 2008                                            |  | 41  
|Consolidated Statements of Operations for the years ended January 31, 2009, 2008 and 2007           |  | 42  
|Consolidated Statements of Stockholders Equity for the years ended January 31, 2009, 2008 and
2007 |  | 43  
|Consolidated Statements of Cash Flows for the years ended January 31, 2009, 2008 and 2007           |  | 44  
|Notes to Consolidated Financial Statements                                                          |  | 45  



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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Alloy, Inc.

New York, New York

We have audited the accompanying
consolidated balance sheets of Alloy, Inc. and its subsidiaries (the Company), as of January 31, 2009 and 2008, and the related consolidated statements of operations, stockholders equity, and cash flows for each of the three
years in the period ended January 31, 2009. In connection with our audits of the financial statements, we have also audited the financial statement schedule included in Part IV, Item 15 of the Companys Form 10K. These consolidated
financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 also 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, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Alloy, Inc. and its subsidiaries at January 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2009, in conformity with
accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of January 31, 2009, based
on criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 13, 2009 expressed an unqualified opinion thereon.



|                    
|--------------------
|/s/ BDO Seidman, LLP
|New York, New York  
|April 13, 2009      



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ALLOY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)



|                                                                                                                 |  |             |          |   |      |   |          |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------- | -------- | - | ---- | - | -------- | -
|                                                                                                                 |  | January 31, |         
|                                                                                                                 |  | 2009        |          |   | 2008 |  
|ASSETS                                                                                                           |  |             |          |   |      |   |          |  
|Current assets:                                                                                                  |  |             |          |   |      |   |          |  
|Cash and cash equivalents                                                                                        |  | $           | 32,116   |   |      | $ | 12,270   |  
|Marketable securities                                                                                            |  |             |         |   |      |   | 9,030    |  
|Accounts receivable, net of allowance for doubtful accounts of $1,757 and $1,971, respectively                   |  |             | 29,693   |   |      |   | 32,530   |  
|Unbilled accounts receivable                                                                                     |  |             | 6,341    |   |      |   | 8,164    |  
|Inventory                                                                                                        |  |             | 3,163    |   |      |   | 3,242    |  
|Other current assets                                                                                             |  |             | 5,122    |   |      |   | 4,987    |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total current assets                                                                                             |  |             | 76,435   |   |      |   | 70,223   |  
|Fixed assets, net                                                                                                |  |             | 23,180   |   |      |   | 20,199   |  
|Goodwill                                                                                                         |  |             | 50,335   |   |      |   | 50,111   |  
|Intangible assets, net                                                                                           |  |             | 9,065    |   |      |   | 7,389    |  
|Other assets                                                                                                     |  |             | 1,704    |   |      |   | 494      |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total assets                                                                                                     |  | $           | 160,719  |   |      | $ | 148,416  |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|                                                                                                                 |  |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                             |  |             |          |   |      |   |          |  
|Current liabilities:                                                                                             |  |             |          |   |      |   |          |  
|Accounts payable                                                                                                 |  | $           | 14,255   |   |      | $ | 10,717   |  
|Deferred revenue                                                                                                 |  |             | 15,822   |   |      |   | 11,956   |  
|Bank loan payable                                                                                                |  |             |         |   |      |   | 4,000    |  
|Accrued expenses and other current liabilities                                                                   |  |             | 17,682   |   |      |   | 14,615   |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total current liabilities                                                                                        |  |             | 47,759   |   |      |   | 41,288   |  
|Senior convertible debentures                                                                                    |  |             |         |   |      |   | 1,397    |  
|Other long-term liabilities                                                                                      |  |             | 2,493    |   |      |   | 2,400    |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total liabilities                                                                                                |  |             | 50,252   |   |      |   | 45,085   |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Stockholders equity:                                                                                            |  |             |          |   |      |   |          |  
|Common stock; $.01 par value: authorized 200,000 shares; issued and outstanding: 15,582 and 15,377, respectively |  |             | 155      |   |      |   | 152      |  
|Additional paid-in capital                                                                                       |  |             | 449,602  |   |      |   | 445,406  |  
|Accumulated deficit                                                                                              |  |             | (316,663 | ) |      |   | (327,098 | )
|                                                                                                                 |  |             |          |   |      |   |          |  
|                                                                                                                 |  |             | 133,094  |   |      |   | 118,460  |  
|Less treasury stock, at cost: 2,699 and 1,243 shares, respectively                                               |  |             | (22,627  | ) |      |   | (15,129  | )
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total stockholders equity                                                                                       |  |             | 110,467  |   |      |   | 103,331  |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                       |  | $           | 160,719  |   |      | $ | 148,416  |  
|                                                                                                                 |  |             |          |   |      |   |          |  



See accompanying notes
to consolidated financial statements



41



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ALLOY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share
amounts)



|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|----------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                          |  | Year Ended January 31, |        
|                                          |  | 2009                   |         |   | 2008 |   |         | 2007 | 
|Revenues:                                 |  |                        |         |   |      |   |         |      |  |   |         |  
|Services revenue                          |  |                        | 176,350 |   |      |   | 159,129 |      |  |   | 159,953 |  
|Product revenue                           |  |                        | 40,576  |   |      |   | 39,967  |      |  |   | 36,151  |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Total revenue                             |  | $                      | 216,926 |   |      | $ | 199,096 |      |  | $ | 196,104 |  
|                                          |  |                        |        
|Costs of revenue:                         |  |                        |         |   |      |   |         |      |  |   |         |  
|Costs of services                         |  |                        | 84,192  |   |      |   | 84,268  |      |  |   | 87,427  |  
|Costs of products sold                    |  |                        | 11,469  |   |      |   | 11,679  |      |  |   | 11,286  |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Total costs of revenue:                   |  |                        | 95,661  |   |      |   | 95,947  |      |  |   | 98,713  |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Expenses:                                 |  |                        |         |   |      |   |         |      |  |   |         |  
|Operating                                 |  |                        | 90,318  |   |      |   | 77,012  |      |  |   | 66,016  |  
|General and administrative                |  |                        | 19,254  |   |      |   | 19,494  |      |  |   | 15,197  |  
|Depreciation and amortization**           |  |                        | 6,429   |   |      |   | 5,080   |      |  |   | 3,365   |  
|Special charges                           |  |                        | 288     |   |      |   | 71,628  |      |  |   | 127     |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Total expenses                            |  |                        | 116,289 |   |      |   | 173,214 |      |  |   | 84,705  |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Gain on sale of operating assets          |  |                        | 5,800   |   |      |   |        |      |  |   |        |  
|                                          |  |                        |        
|Operating (loss) income                   |  |                        | 10,776  |   |      |   | (70,065 | )    |  |   | 12,686  |  
|Interest expense                          |  |                        | (156    | ) |      |   | (154    | )    |  |   | (2,917  | )
|Interest income                           |  |                        | 317     |   |      |   | 1,122   |      |  |   | 1,655   |  
|Debt conversion expense                   |  |                        |        |   |      |   |        |      |  |   | (17,904 | )
|Other items, net                          |  |                        | (18     | ) |      |   | (494    | )    |  |   | (3      | )
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes         |  |                        | 10,919  |   |      |   | (69,591 | )    |  |   | (6,483  | )
|Income taxes                              |  |                        | (484    | ) |      |   | (481    | )    |  |   | (750    | )
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Income (loss) before extraordinary item   |  |                        | 10,435  |   |      |   | (70,072 | )    |  |   | (7,233  | )
|Extraordinary gain (net of tax)           |  |                        |        |   |      |   | 5,680   |      |  |   |        |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                         |  | $                      | 10,435  |   |      | $ | (64,392 | )    |  | $ | (7,233  | )
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|                                          |  |                        |        
|Basic net earnings (loss) per share:      |  |                        |         |   |      |   |         |      |  |   |         |  
|Earnings (loss) before extraordinary item |  | $                      | 0.78    |   |      | $ | (5.24   | )    |  | $ | (0.58   | )
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Extraordinary gain                        |  | $                      |        |   |      | $ | 0.43    |      |  | $ |        |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Basic net earnings (loss) per share       |  | $                      | 0.78    |   |      | $ | (4.82   | )    |  | $ | (0.58   | )
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Diluted net earnings per share:           |  |                        |         |   |      |   |         |      |  |   |         |  
|Earnings before extraordinary item        |  | $                      | 0.78    |   |      | $ | (5.24   | )    |  | $ |        |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Extraordinary gain                        |  | $                      |        |   |      | $ | 0.43    |      |  | $ |        |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Diluted net earnings per share            |  | $                      | 0.78    |   |      | $ | (4.82   | )    |  | $ |        |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Weighted average shares outstanding:      |  |                        |         |   |      |   |         |      |  |   |         |  
|Basic                                     |  |                        | 13,329  |   |      |   | 13,362  |      |  |   | 12,541  |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  
|Diluted                                   |  |                        | 13,414  |   |      |   | 13,362  |      |  |   | 12,541  |  
|                                          |  |                        |         |   |      |   |         |      |  |   |         |  



|** | Includes amortization of intangibles of $2,073, $1,739 and $1,294 for the year ended January 31, 2009, 2008, and 2007, respectively.
|-- | ------------------------------------------------------------------------------------------------------------------------------------



See accompanying notes to consolidated financial statements



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ALLOY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands)



|                                                              |        |              |        |                          |     |  |                             |         |   |                |   |          |       |  |        |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------- | ------ | ------------ | ------ | ------------------------ | --- |  | --------------------------- | ------- | - | -------------- | - | -------- | ----- |  | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                              |        | Common Stock |        | AdditionalPaid-inCapital |     |  | AccumulatedIncome (Deficit) |         |   | Treasury Stock |   |          | Total | 
|                                                              | Shares |              | Amount |                          |     |  | Shares                      |         |   | Amount         |   |         
|Balance at January 31, 2006                                   |        | 11,874       |        | $                        | 119 |  | $                           | 363,689 |   |                | $ | (254,459 | )     |  | (194   | ) |  | $ | (4,165  | ) |  | $ | 105,184 |  
|Net loss                                                      |        |             |        |                          |    |  |                             |        |   |                |   | (7,233   | )     |  |       |   |  |   |        |   |  |   | (7,233  | )
|Issuance of common stock for:                                 |        |              |        |                          |     |  |                             |         |   |                |   |          |       |  |        |   |  |   |         |   |  |   |         |  
|Conversion of debentures                                      |        | 2,026        |        |                          | 20  |  |                             | 67,883  |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 67,903  |  
|Acquisitions                                                  |        | 273          |        |                          | 3   |  |                             | 3,497   |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 3,500   |  
|Stock option plans                                            |        | 121          |        |                          | 1   |  |                             | 1,014   |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 1,015   |  
|Restricted grants                                             |        | 404          |        |                          | 4   |  |                             | (4      | ) |                |   |         |       |  |       |   |  |   |        |   |  |   |        |  
|Purchase of treasury stock                                    |        |              |        |                          |     |  |                             |         |   |                |   |         |       |  | (957   | ) |  |   | (10,047 | ) |  |   | (10,047 | )
|Share based compensation                                      |        |             |        |                          |    |  |                             | 2,825   |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 2,825   |  
|Distribution to stockholders for spinoff of dELiA*s           |        |             |        |                          |    |  |                             | (476    | ) |                |   |         |       |  |       |   |  |   |        |   |  |   | (476    | )
|                                                              |        |              |        |                          |     |  |                             |         |   |                |   |          |       |  |        |   |  |   |         |   |  |   |         |  
|Balance at January 31, 2007                                   |        | 14,698       |        | $                        | 147 |  | $                           | 438,428 |   |                | $ | (261,692 | )     |  | (1,151 | ) |  | $ | (14,212 | ) |  | $ | 162,671 |  
|Adoption of FIN 48                                            |        |             |        |                          |    |  |                             |        |   |                |   | (1,014   | )     |  |       |   |  |   |        |   |  |   | (1,014  | )
|Net loss                                                      |        |             |        |                          |    |  |                             |        |   |                |   | (64,392  | )     |  |       |   |  |   |        |   |  |   | (64,392 | )
|Issuance of common stock for:                                 |        |              |        |                          |     |  |                             |         |   |                |   |          |       |  |        |   |  |   |         |   |  |   |         |  
|Acquisitions                                                  |        | 150          |        |                          | 1   |  |                             | 1,810   |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 1,811   |  
|Sconex earnout                                                |        | 68           |        |                          | 1   |  |                             | 788     |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 789     |  
|Stock option plans                                            |        | 77           |        |                          | 1   |  |                             | 637     |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 638     |  
|Restricted grants                                             |        | 319          |        |                          | 2   |  |                             | (2      | ) |                |   |         |       |  |       |   |  |   |        |   |  |   |        |  
|Sconex shares subject to restriction                          |        | 65           |        |                          |    |  |                             |        |   |                |   |         |       |  |       |   |  |   |        |   |  |   |        |  
|Purchase of treasury stock                                    |        |             |        |                          |    |  |                             |        |   |                |   |         |       |  | (92    | ) |  |   | (917    | ) |  |   | (917    | )
|Share based compensation                                      |        |             |        |                          |    |  |                             | 3,745   |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 3,745   |  
|                                                              |        |              |        |                          |     |  |                             |         |   |                |   |          |       |  |        |   |  |   |         |   |  |   |         |  
|Balance at January 31, 2008                                   |        | 15,377       |        | $                        | 152 |  | $                           | 445,406 |   |                | $ | (327,098 | )     |  | (1,243 | ) |  | $ | (15,129 | ) |  | $ | 103,331 |  
|Net income                                                    |        |             |        |                          |    |  |                             |        |   |                |   | 10,435   |       |  |       |   |  |   |        |   |  |   | 10,435  |  
|Issuance of common stock for:                                 |        |              |        |                          |     |  |                             |         |   |                |   |          |       |  |        |   |  |   |         |   |  |   |         |  
|Stock option plans                                            |        | 3            |        |                          |    |  |                             | 16      |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 16      |  
|Restricted grants                                             |        | 202          |        |                          | 3   |  |                             | (3      | ) |                |   |         |       |  |       |   |  |   |        |   |  |   |        |  
|Conversion of debentures                                      |        |             |        |                          |    |  |                             | 142     |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 142     |  
|Purchase of treasury stockbuyback, shares withheld for taxes |        |             |        |                          |    |  |                             |        |   |                |   |         |       |  | (1,456 | ) |  |   | (7,498  | ) |  |   | (7,498  | )
|Share based compensation                                      |        |             |        |                          |    |  |                             | 4,041   |   |                |   |         |       |  |       |   |  |   |        |   |  |   | 4,041   |  
|                                                              |        |              |        |                          |     |  |                             |         |   |                |   |          |       |  |        |   |  |   |         |   |  |   |         |  
|Balance at January 31, 2009                                   |        | 15,582       |        | $                        | 155 |  | $                           | 449,602 |   |                | $ | (316,663 | )     |  | (2,699 | ) |  | $ | (22,627 | ) |  | $ | 110,467 |  
|                                                              |        |              |        |                          |     |  |                             |         |   |                |   |          |       |  |        |   |  |   |         |   |  |   |         |  



See accompanying notes
to consolidated financial statements



43



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##### Table of Contents

ALLOY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                           |  | Fiscal Year Ended January 31, |        
|                                                                                                           |  | 2009                          |         |   | 2008 |   |         | 2007 | 
|Cash Flows from Operating Activities                                                                       |  |                               |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                                          |  | $                             | 10,435  |   |      | $ | (64,392 | )    |  | $ | (7,233  | )
|Adjustments to reconcile net income to net cash provided by operating activities:                          |  |                               |         |   |      |   |         |      |  |   |         |  
|Extraordinary gain                                                                                         |  |                               |        |   |      |   | (5,680  | )    |  |   |        |  
|Gain on sale of assets                                                                                     |  |                               | (5,800  | ) |      |   |         |      |  |   |         |  
|Depreciation and amortization of fixed assets                                                              |  |                               | 4,356   |   |      |   | 3,341   |      |  |   | 2,072   |  
|Amortization of debt issuance costs and other                                                              |  |                               |        |   |      |   |        |      |  |   | 1,280   |  
|Amortization of intangible assets                                                                          |  |                               | 2,073   |   |      |   | 1,739   |      |  |   | 1,294   |  
|Loss on disposition of fixed assets                                                                        |  |                               |        |   |      |   | 575     |      |  |   |        |  
|Impairment charges attributable to goodwill, indefinite-lived assets and long-lived assets and investments |  |                               | 288     |   |      |   | 71,628  |      |  |   |        |  
|Provision for losses on accounts receivable                                                                |  |                               | 450     |   |      |   | (375    | )    |  |   | 1,034   |  
|Compensation charge for restricted stock and issuance of options                                           |  |                               | 4,041   |   |      |   | 3,745   |      |  |   | 2,825   |  
|Changes in operating assets and liabilities:                                                               |  |                               |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                                        |  |                               | 8,398   |   |      |   | (4,650  | )    |  |   | 11,915  |  
|Inventory and other assets                                                                                 |  |                               | (100    | ) |      |   | 587     |      |  |   | 19      |  
|Accounts payable, accrued expenses, and other                                                              |  |                               | 2,244   |   |      |   | 1,363   |      |  |   | (5,778  | )
|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                                  |  |                               | 26,385  |   |      |   | 7,881   |      |  |   | 7,428   |  
|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Investing Activities                                                                       |  |                               |         |   |      |   |         |      |  |   |         |  
|Capital expenditures                                                                                       |  |                               | (7,313  | ) |      |   | (17,087 | )    |  |   | (2,403  | )
|Acquisition of companies, net of cash acquired                                                             |  |                               | 1,518   |   |      |   | 1,011   |      |  |   | (995    | )
|Proceeds from sale of assets                                                                               |  |                               | 5,800   |   |      |   |        |      |  |   |        |  
|Purchases of marketable securities                                                                         |  |                               |        |   |      |   | (20,675 | )    |  |   | (33,111 | )
|Proceeds from the sales and maturity of marketable securities                                              |  |                               | 7,730   |   |      |   | 32,790  |      |  |   | 13,166  |  
|Purchase of domain name / mailing list / marketing rights                                                  |  |                               | (1,537  | ) |      |   | (1,737  | )    |  |   | (163    | )
|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) investing activities                                                        |  |                               | 6,198   |   |      |   | (5,698  | )    |  |   | (23,506 | )
|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  
|Cash Flows from Financing Activities                                                                       |  |                               |         |   |      |   |         |      |  |   |         |  
|Cash payment to dELiA*s, Inc. pursuant to spinoff                                                          |  |                               |        |   |      |   |        |      |  |   | (8,155  | )
|Proceeds from line of credit                                                                               |  |                               |        |   |      |   | 4,000   |      |  |   |        |  
|Issuance of common stock                                                                                   |  |                               | 16      |   |      |   | 638     |      |  |   | 1,015   |  
|Repurchase of common stock                                                                                 |  |                               | (7,498  | ) |      |   | (917    | )    |  |   | (10,047 | )
|Debt conversion                                                                                            |  |                               | (1,255  | ) |      |   |        |      |  |   |        |  
|Payment of bank loan payable                                                                               |  |                               | (4,000  | ) |      |   |        |      |  |   |        |  
|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by financing activities                                                        |  |                               | (12,737 | ) |      |   | 3,721   |      |  |   | (17,187 | )
|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  
|Net change in cash and cash equivalents                                                                    |  |                               | 19,846  |   |      |   | 5,904   |      |  |   | (33,265 | )
|Cash and cash equivalents:                                                                                 |  |                               |         |   |      |   |         |      |  |   |         |  
|Beginning of period                                                                                        |  |                               | 12,270  |   |      |   | 6,366   |      |  |   | 39,631  |  
|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  
|End of period                                                                                              |  | $                             | 32,116  |   |      | $ | 12,270  |      |  | $ | 6,366   |  
|                                                                                                           |  |                               |         |   |      |   |         |      |  |   |         |  



See accompanying notes
to consolidated financial statements



44



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share
amounts)



|1. | Business
|-- | --------

Alloy, Inc. (the Company or
Alloy) is one of the countrys largest providers of media and marketing programs offering advertisers the ability to reach youth and non-youth targeted consumer segments through a diverse array of assets and marketing programs,
including interactive, display, direct mail, content production and educational programming. Collectively, our businesses operate under the umbrella name Alloy Media + Marketing, but the division brand names continue to receive recognition, such as
Alloy Education, Alloy Entertainment, Alloy Marketing and Promotions (AMP), Alloy Access and On Campus Marketing (OCM).

Each of the Companys businesses falls in one of three operating segmentsPromotion, Media and Placement. The Promotion segment is comprised of businesses whose products and services are promotional in nature and includes our AMP,
OCM and sampling divisions. The Media segment is comprised of company-owned and represented media assets, including our display board, Internet, database, specialty print, educational programming and entertainment businesses. The Placement segment
is made up of our businesses that aggregate and market third party media properties owned by others primarily in the college, military and multicultural markets. These three operating segments utilize a wide array of owned and represented online and
offline media and marketing assets, such as websites, magazines, college and high school newspapers, on-campus message boards, satellite delivered educational programming, and college guides, giving us significant reach into the targeted demographic
audience and providing our advertising clients with significant exposure to the intended market.



|2. | Summary of Significant Accounting Policies
|-- | ------------------------------------------

Fiscal Year

Alloys fiscal year ends on January 31. All references herein to a particular fiscal year refer to the year ended
January 31 following the particular year (e.g., fiscal 2008 refers to the fiscal year ended January 31, 2009).

Principles of
Consolidation

The consolidated financial statements include the accounts of Alloy and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated.

Revenue Recognition

The Company recognizes revenue in accordance with the SEC Staff Accounting Bulletin (SAB) 104, Revenue Recognition
(SAB 104), Emerging Issues Task Force (EITF) 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables.

Promotion, Media, and Placement segment revenue is generated as a result of the media and marketing services we provide through these segments,
including advertising in Company owned or represented media properties, execution of marketing events, or shipment of products. Revenues for these services are recognized, net of the commissions and agency fees, when the underlying advertisement is
published, broadcast or otherwise delivered pursuant to the terms of each arrangement. Delivery of advertising in other media forms is completed either in the form of the display of an impression or based upon the provision of contracted services in
connection with the marketing event or program. In-catalog print advertising revenues are recognized in the month that the catalog is mailed. The revenues earned in connection with publishing activities are recognized upon publication of such
property. Contract revenue is recognized upon the delivery of the contracted services and when no significant Company performance obligation remains. Service revenue is recognized as the



45



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



contracted services are rendered. Product revenue from the Companys college-focused specialty marketing business, OCM, is recognized at the time
products are shipped to customers, net of any promotional price discounts and an allowance for sales returns. Revenues from the Companys sampling business are earned when the products are shipped to venue locations.

When a sales arrangement contains multiple elements, such as advertising and promotions, revenue is allocated to each element based on its relative fair
value. When the fair value of an undelivered element cannot be determined, the Company defers revenue for the delivered elements until the undelivered elements are delivered.

The Company conducts an analysis of its pricing and collection risk, among other tests, to determine whether revenue should be reported on a gross or net
basis. Payments received in advance of advertising delivery, publication, provision of services, or shipment are deferred until earned.

Critical
Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. The Company evaluates its estimates on an on-going basis, including, but not limited to, those related to bad debts, asset impairments, income taxes, stock compensation expenses and litigation. The
Company bases its estimates on historical experience and on various other assumptions 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. Actual results may differ from these estimates under different assumptions and conditions.

Cash and Cash Equivalents

Cash equivalents consist of highly liquid investments with original maturities of three
months or less.

Marketable Securities

The Company accounts for investments in marketable securities in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) 115, Accounting for Certain Investments in Debt and Equity
Securities. Alloy has evaluated its investment policies and determined that all of its investment securities are to be classified as available-for-sale. Available-for-sale securities are reported at fair value, with the unrealized gains and
losses reported on the accompanying Consolidated Statements of Stockholders Equity and Comprehensive Loss, under the caption other comprehensive gain (loss). Realized gains and losses and declines in value judged to be
other-than-temporary are recognized on the specific identification method in the period in which they occur.

On an ongoing basis, Alloy
evaluates its investment in debt and equity securities to determine if a decline in fair value is other-than-temporary. When a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in
the investment is established. These charges would be recorded to the Companys Consolidated Statements of Operations.



46



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Accounts Receivable and Allowance for Doubtful Accounts

The Companys accounts receivables are customer obligations due under normal trade terms, carried at their face value less an allowance for doubtful
accounts. The Company determines its allowance for doubtful accounts based on the evaluation of the aging of its accounts receivable and on a customer-by-customer analysis of its high-risk customers. The Companys reserves contemplate its
historical loss rate on receivables, specific customer situations and the economic environments in which the Company operates.

Unbilled Accounts
Receivable

Unbilled accounts receivable are a normal part of the Companys business. Generally, Placement segment receivables
and Media segment display board receivables are normally invoiced in the month following the receipt of the proof-of-performance documentation. At January 31, 2009 and 2008, accounts receivable included approximately $6,341 and $8,164,
respectively, of unbilled receivables.

Operating Leases

Rent expense for operating leases, which may have escalating rates over the term of the lease, is recorded on a straight-line basis over the initial lease term (including any rent abatement period, if
applicable, whereby rent payments are abated for a specific period or periods under the terms of the lease). The difference between rent expense and rent paid is recorded as deferred rent. Construction allowances received from landlords are recorded
as a deferred rent credit and amortized to rent expense over the initial term of the lease.

Concentration of Credit Risk

The Companys cash and cash equivalents are held in U.S. institutions and consist of operating cash, a prime money market and a U.S. Treasury money
market fund. The Company periodically reviews its money market portfolios and the financial stability of the respective U.S. institutions to ensure that is investments continue to be highly liquid and secure. The Company does not believe that is
current portfolios or the financial institutions that hold these investments pose a credit risk.

Alloy provides media, marketing,
advertising placement and event promotion services to over one thousand clients who operate in a variety of industry sectors. Alloy extends credit to qualified clients in the ordinary course of its business. Due to the diversified nature of its
client base, Alloy does not believe that it is exposed to a concentration of credit risk based upon its customer base.

The Company owns
auction rate securities with a book value of $1,152 which is not material to the Companys overall financial position.

During fiscal
2008, Alloy reclassified its auction rate securities portfolio balance to long-term assets, as Alloy does not believe that these securities will liquidate over the next twelve months.

Fair Value of Financial Instruments

The Company believes that the carrying amounts for cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities and obligations under capital leases approximate their fair value due to the short maturities of these instruments. Marketable securities are
carried at their fair values in the accompanying Consolidated Balance Sheets. Alloy uses quoted market prices whenever available to calculate these fair values. When quoted market prices are not available, Alloy uses standard pricing models for
various types of financial instruments which take into account the present value of estimated future cash flows.



47



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



On an ongoing basis, Alloy evaluates its investment in debt and equity securities to determine if a
decline in fair value is other-than-temporary. When a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. The Company performed a review of its total
portfolio at January 31, 2009 and evaluated the portfolio for other then temporary impairment. The Company concluded that the portfolio was impaired by $148.

Fixed Assets

Certain direct costs incurred for website development are capitalized in accordance with Emerging
Issues Task Force 00-02, Accounting for Web Site Development Costs (EITF 00-2), and amortized on a straight-line basis over the estimated useful life of 3 years.

Fixed assets are recorded at cost and depreciated or amortized using the straight-line method over the following estimated useful lives:



|                                            |  |                                                    
|------------------------------------------- |  | ---------------------------------------------------
|                                            | 
|Computer equipment under capitalized leases |  | Life of the lease                                  
|Leasehold improvements                      |  | Lesser of life of the lease or useful economic life
|Computer software and equipment             |  | 3 to 5 years                                       
|Machinery and equipment                     |  | 3 to 10 years                                      
|Office furniture and fixtures               |  | 5 to 10 years                                      
|Media boards/Headline Newsstands            |  | 3 to 5 years                                       
|Vehicles                                    |  | 3 to 5 years                                       
|School Equipment                            |  | 7 to 10 years                                      
|Front lights                                |  | 3 to 5 years                                       
|Pharmacy Units                              |  | 3 to 5 years                                       

Inventory

Inventory is recorded on the balance sheet, net of reserves, at the lower of cost or market value. Cost is principally determined using the first-in, first-out method (or average cost). The inventory relates to our
OCM business and consists primarily of merchandise goods.

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill is carried at cost. Goodwill is not amortized but is subject to an annual test for impairment at the reporting unit level (operating segment or
one level below an operating segment) and between annual tests in certain circumstances. The performance of the test involves a two-step process. The first step of the impairment test involves comparing the fair value of the Companys reporting
units with the reporting units carrying amount, including goodwill. The Company generally determines the fair value of its reporting units using the expected present value of future cash flows, giving consideration to the market valuation
approach. If the carrying amount of a reporting unit exceeds the reporting units fair value, the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss, if any. The Company generally
determines the value of other indefinite-lived assets such as trademarks using the income approach. As a result of the Companys impairment testing, the Company recorded an impairment of approximately $140 and $70,955 in fiscal 2008 and fiscal
2007, respectively.



48



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Impairment of Long-Lived Assets

In accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), long-lived assets
such as fixed assets, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an
impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. As a result of the Companys impairment testing, the Company recorded an impairment of approximately $673 in fiscal
2007. The Company did not have any impairment charges in fiscal 2008.

Valuation of Stock Options and Warrants

For purposes of computing the value of stock options and warrants, various valuation methods and assumptions can be used. The selection of a different
valuation method or use of different assumptions may result in a value that is significantly different from that computed by the Company. For the calculation of stock-based compensation expense in accordance with SFAS 123R, Accounting for Stock
Based Compensation (SFAS 123R), we utilize the Black-Scholes method to determine the fair value of stock options.

Income Taxes

The Company accounts for deferred income taxes using the asset and liability method of accounting. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Valuation
allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Deferred tax assets and liabilities are measured using rates expected to be in effect when those assets and liabilities are recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in that period that includes the enactment date.

Net Earnings (Loss) Per Share

The Company calculates its earnings (loss) per share under the provisions of SFAS 128,
Earnings Per Share (SFAS 128). SFAS 128 requires dual presentation of basic income (loss) and diluted income per share on the face of the statement of operations. In accordance with SFAS 128, basic income
(loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding during each period.

Diluted earnings per share is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding and all dilutive
potential common shares that were outstanding during the period. The Company excludes outstanding stock options, and warrants to purchase common stock, common stock issuable upon conversion of the 5.375% Senior Convertible Debentures due
August 1, 2023 (Convertible Debentures or Debentures) and common stock subject to repurchase or which has been issued, but has not vested, from the calculation of diluted earnings per common share in cases where the
inclusion of such securities would be antidilutive.



49



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



The following table sets forth the computation of basic and diluted earnings (loss) per share for
fiscal 2008, 2007 and 2006:



|                                                          |  |                               |        |      |   |         |      |  |   |        |  
|--------------------------------------------------------- |  | ----------------------------- | ------ | ---- | - | ------- | ---- |  | - | ------ | -
|                                                          |  | Fiscal year ended January 31, |       
|                                                          |  | 2009                          |        | 2008 |   |         | 2007 | 
|Basic                                                     |  |                               |        |      |   |         |      |  |   |        |  
|Numerator:                                                |  |                               |        |      |   |         |      |  |   |        |  
|Income (loss) before extraordinary item                   |  | $                             | 10,435 |      | $ | (70,072 | )    |  | $ | (7,233 | )
|Extraordinary gain (See Note 6)                           |  |                               |       |      |   | 5,680   |      |  |   |       |  
|                                                          |  |                               |        |      |   |         |      |  |   |        |  
|Income (loss)                                             |  | $                             | 10,435 |      | $ | (64,392 | )    |  | $ | (7,233 | )
|Denominator:                                              |  |                               |        |      |   |         |      |  |   |        |  
|Weighted-average common shares                            |  |                               | 13,329 |      |   | 13,362  |      |  |   | 12,541 |  
|                                                          |  |                               |        |      |   |         |      |  |   |        |  
|Weighted-average basic shares outstanding                 |  |                               | 13,329 |      |   | 13,362  |      |  |   | 12,541 |  
|Earnings (loss) per basic share before extraordinary item |  | $                             | 0.78   |      | $ | (5.24   | )    |  | $ | (0.58  | )
|Extraordinary item per share                              |  |                               |       |      |   | 0.43    |      |  |   |       |  
|                                                          |  |                               |        |      |   |         |      |  |   |        |  
|Earnings (loss) per basic share                           |  | $                             | 0.78   |      | $ | (4.82   | )    |  | $ | (0.58  | )
|                                                          |  |                               |        |      |   |         |      |  |   |        |  
|                                                          |  |                               |       
|Diluted                                                   |  |                               |        |      |   |         |      |  |   |        |  
|Numerator:                                                |  |                               |        |      |   |         |      |  |   |        |  
|Income (loss) before extraordinary item                   |  | $                             | 10,435 |      | $ | (70,072 | )    |  | $ | (7,233 | )
|Extraordinary gain (See Note 6)                           |  |                               |       |      |   | 5,680   |      |  |   |       |  
|                                                          |  |                               |        |      |   |         |      |  |   |        |  
|Income (loss)                                             |  | $                             | 10,435 |      | $ | (64,392 | )    |  | $ | (7,233 | )
|Denominator:                                              |  |                               |        |      |   |         |      |  |   |        |  
|Weighted-average common shares                            |  |                               | 13,329 |      |   | 13,362  |      |  |   | 12,541 |  
|Weighted-average common shares subject to repurchase      |  |                               | 85     |      |   |        |      |  |   |       |  
|                                                          |  |                               |        |      |   |         |      |  |   |        |  
|Weighted-average diluted shares outstanding               |  |                               | 13,414 |      |   | 13,362  |      |  |   | 12,541 |  
|Earnings per diluted share before extraordinary item      |  | $                             | 0.78   |      | $ | (5.24   | )    |  | $ |       |  
|Extraordinary item per share                              |  |                               |       |      |   | 0.43    |      |  |   |       |  
|                                                          |  |                               |        |      |   |         |      |  |   |        |  
|Earnings per diluted share                                |  | $                             | 0.78   |      | $ | (4.82   | )    |  | $ |       |  
|                                                          |  |                               |        |      |   |         |      |  |   |        |  

Shares of unvested restricted stock outstanding are subject to repurchase by the Company in
certain circumstances and are therefore not included in the calculation of the weighted-average shares outstanding for basic earnings per share.

The total number of potential common shares with an anti-dilutive impact excluded from the calculation of diluted net earnings per share are detailed in the following table for the fiscal year ended January 31, 2009:



|                                               |  |                                  
|---------------------------------------------- |  | ---------------------------------
|                                               |  | Fiscal year endedJanuary 31, 2009
|Options and warrants to purchase common stock* |  | 2,545                            
|Restricted Stock                               |  | 478                              
|                                               |  |                                  
|Total                                          |  | 3,023                            
|                                               |  |                                  



|* | For the fiscal year ended January 31, 2009, all of the Companys outstanding options (with exercise prices per share ranging from ($5.12 - $32.24), were excluded from the
calculation. Also excluded in both periods were warrants to purchase 255 shares of common stock with an average exercise price of $76.52.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Recently Adopted Accounting Pronouncements

Fair Value

The Company adopted the provisions of SFAS 157, Fair Value Measurements
(SFAS 157) on February 1, 2008. SFAS 157 defines fair value, establishes a valuation framework for measuring fair value pursuant to generally accepted accounting principles, and expands disclosures about fair value measurements. The
provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements. SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS 159) provides companies
with an option to report selected financial assets and liabilities at fair value and establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar
types of assets and liabilities. The Company did not elect the fair value measurement option under SFAS 159 for any of its financial assets or liabilities.

As of January 31, 2009, the Companys financial assets consist of $1,152 of auction rate securities that are not material to the Companys overall financial position. These securities are classified as
long-term assets as the Company does not believe that these securities will liquidate over the next twelve months.

Recently Issued Accounting
Pronouncements

In December 2007, the FASB issued SFAS 141(R), Business Combinations (SFAS 141R). SFAS 141R replaces
SFAS 141, Business Combinations and applies to all transactions or other events in which an entity obtains control of one or more businesses. SFAS 141R requires the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose additional information needed
to evaluate and understand the nature and financial effect of the business combination. SFAS 141R is effective prospectively for fiscal years beginning after December 15, 2008 and cannot be applied before that date. The Company adopted the
provisions of SFAS 141(R) on February 1, 2009. The Company is currently assessing what impact, the adoption will have on the Companys consolidated financial statements.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160) which establishes
accounting and reporting standards for all entities that prepare consolidated financial statements that have outstanding noncontrolling interests, sometimes called minority interest. The standards require that ownership interests in subsidiaries
held by outside parties be clearly identified, labeled and presented in equity separate from the parents equity; that the amount of net income attributable to the parent and the noncontrolling interest be separately presented on the
consolidated statement of income; requires consistency in accounting standards applied to changes in a parents interest; fair value measurement upon deconsolidation of a non-controlling interest; and requires sufficient disclosures that
clearly identifies and distinguishes between the interests of the noncontrolling owners.

In April 2008, the FASB issued FASB Staff
Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (FSP No. FAS 142-3). FSP No. FAS 142-3 requires companies estimating the useful life of a recognized intangible asset to consider their
historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for entity-specific factors. FSP No.
FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to intangible assets whether acquired before or after the effective date. The Company adopted the provisions of FSP No.
FAS 142-3 on February 1, 2009. The Company is currently assessing what impact, if any, the adoption will have on the Companys consolidated financial statements.



51



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented
in conformity with GAAP (the GAAP hierarchy). SFAS 162 is effective 60 days following the SECs approval of the Public Company Accounting Oversight Board amendments to AU section 411, The Meaning of Present Fairly in Conformity
With Generally Accepted Accounting Principles. The Company is currently evaluating the provisions of SFAS 162 and assessing the impact, if any, on its consolidated financial statements.

In June 2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating
Securities. This FSP clarifies that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are considered participating securities and should be included in the calculation of basic earnings
per share using the two-class method prescribed by SFAS 128, Earnings Per Share. This guidance will be effective for disclosure beginning with the Companys first quarter 2009 Form 10-Q with retrospective application required. The
Company does not expect the adoption of this guidance to have a material effect on its earnings per share disclosures.

Reclassifications

Certain balances in the prior years have been reclassified to conform to the current year presentation.



|3. | Stock-Based Compensation
|-- | ------------------------

Effective
February 1, 2006, the Company adopted the provisions of SFAS 123R, Share-Based Payment. The Company chose the prospective method of adoption.

Stock Options

As more fully described in Note 12, the Company has granted stock options to employees, directors, and
consultants under various stock incentive plans. Stock option expense for fiscal 2008 and fiscal 2007 was $1,591 and $1,675, respectively, of which $1,202 and $1,230, respectively, was included in operating costs in the Consolidated Statement of
Operations and $389 and $445, respectively, was included in general and administrative expenses in the Consolidated Statement of Operations. As of January 31, 2009, the total unrecognized stock option compensation expense in the aggregate was
$2,865. The unrecognized stock option compensation expense is expected to be recognized over a weighted average period of 1.99 years. At January 31, 2009, the weighted-average remaining contractual term of the outstanding options and fully
vested exercisable options was 6.1 and 4.2 years, respectively. The aggregate intrinsic value of the fully vested exercisable in-the-money shares at January 31, 2009 was approximately $0.



52



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



The following is a summary of Alloys stock option activity for fiscal 2008, fiscal 2007 and
fiscal 2006:



|                                          |  |                               |   |      |                              |      |         |   |  |                              |       |         |       |   |                              |   |      
|----------------------------------------- |  | ----------------------------- | - | ---- | ---------------------------- | ---- | ------- | - |  | ---------------------------- | ----- | ------- | ----- | - | ---------------------------- | - | -----
|                                          |  | Fiscal year ended January 31,
|                                          |  | 2009                          |   | 2008 |                              | 2007
|                                          |  | Options                       |   |      | WeightedAverageExercisePrice |      | Options |   |  | WeightedAverageExercisePrice |       | Options |       |   | WeightedAverageExercisePrice
|Outstanding, beginning of year            |  | 1,778                         |   |      | 13.15                        |      | 1,693   |   |  | $                            | 13.15 |         | 1,542 |   |                              | $ | 13.49
|Options granted                           |  | 564                           |   |      | 7.36                         |      | 309     |   |  |                              | 11.43 |         | 561   |   |                              |   | 11.60
|Options exercised                         |  | (3                            | ) |      | 6.12                         |      | (77     | ) |  |                              | 8.21  |         | (121  | ) |                              |   | 8.37 
|Options forfeited or expired              |  | (49                           | ) |      | 11.88                        |      | (147    | ) |  |                              | 12.18 |         | (289  | ) |                              |   | 14.05
|                                          |  |                               |   |      |                              |      |         |   |  |                              |       |         |       |   |                              |   |      
|Outstanding, end of year                  |  | 2,290                         |   |      | 11.76                        |      | 1,778   |   |  | $                            | 13.15 |         | 1,693 |   |                              | $ | 13.15
|                                          |  |                               |   |      |                              |      |         |   |  |                              |       |         |       |   |                              |   |      
|Fully vested and exercisable, end of year |  | 1,285                         |   |      | 13.88                        |      | 1,077   |   |  | $                            | 14.61 |         | 942   |   |                              | $ | 15.38
|                                          |  |                               |   |      |                              |      |         |   |  |                              |       |         |       |   |                              |   |      
|Available for future grants               |  | 1,111                         |   |      |                              |      |         |   |  |                              |       |         |       |   |                              |   |      
|                                          |  |                               |   |      |                              |      |         |   |  |                              |       |         |       |   |                              |   |      

The total intrinsic value of options exercised during fiscal 2008, fiscal 2007, and fiscal 2006
was $3, $279, and $526, respectively. The total fair value of stock options that vested during fiscal 2008, fiscal 2007, and fiscal 2006 was approximately $1,635, $1,443, and $1,207, respectively.

The weighted-average fair value of each option as of the grant date was $3.02, $5.06, and $5.05 for fiscal 2008, fiscal 2007 and fiscal 2006,
respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



|                               |  |                               |   |  |            |   |  |           |  
|------------------------------ |  | ----------------------------- | - |  | ---------- | - |  | --------- | -
|                               |  | Fiscal year ended January 31, |  
|                               |  | 2009                          |   |  | 2008       |   |  | 2007      |  
|Risk-free interest rates(a)    |  | 1.75                          | % |  | 4.66       | % |  | 4.95      | %
|Expected term of the option(b) |  | 4.50 years                    |   |  | 4.50 years |   |  | 4.6 years |  
|Expected volatility(c)         |  | 51.6                          | % |  | 56.7       | % |  | 52.8      | %
|Expected dividend yields       |  |                              |   |  |           |   |  |          |  



|(a) | The risk-free interest rate is based approximately upon the average rate of the two and five year U.S. Treasury note in effect at the time of the option grant.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The expected term of the option is determined based on the vesting term and contractual life of the option.
|--- | -----------------------------------------------------------------------------------------------------------

|(c) | Expected volatility is calculated based on the daily historical volatility of The NASDAQ Stock Market LLC closing price of the Companys stock using a period consistent with
the expected term of the option.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Forfeitures are estimated on the date of grant. On an annual basis, the forfeiture rate and
compensation expense are adjusted and revised, as necessary, based on actual forfeitures.



53



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Summarized information about Alloys stock options outstanding and exercisable at
January 31, 2009 is as follows:



|                     |                |             |       |             |            |                      |   |         |  |                      |  |   |      
|-------------------- | -------------- | ----------- | ----- | ----------- | ---------- | -------------------- | - | ------- |  | -------------------- |  | - | -----
|                     |                | Outstanding |       | Exercisable
|Exercise Price Range |                | Options     |       | AverageLife |            | AverageExercisePrice |   | Options |  | AverageExercisePrice
|$                    | 5.12  $10.50  |             | 988   |             | 7.56 years |                      | $ | 7.98    |  | 367                  |  | $ | 8.09 
|$                    | 10.50  $21.00 |             | 1,121 |             | 5.50 years |                      |   | 13.00   |  | 737                  |  |   | 13.87
|$                    | 21.00  $32.24 |             | 181   |             | 1.77 years |                      |   | 24.58   |  | 181                  |  |   | 24.58
|                     |                |             |       |             |            |                      |   |         |  |                      |  |   |      
|$                    | 5.12  $32.24  |             | 2,290 |             | 6.09 years |                      | $ | 15.18   |  | 1,285                |  | $ | 15.51
|                     |                |             |       |             |            |                      |   |         |  |                      |  |   |      

Restricted Stock

As more fully described in Note 12, the Company has awarded restricted shares of common stock to directors and certain employees. Restricted stock expense for fiscal 2008, fiscal 2007, and fiscal 2006 was $2,447,
$2,070, and $1,269, respectively, of which $1,188, $1,085, and $559, respectively, was included in operating costs in the Statement of Operations and $1,259, $985, and $710, respectively, was included in general and administrative expenses in the
Statement of Operations. The majority of these awards have restrictions tied to continuing employment and vest over periods of up to seven years. The cost of these awards is calculated based upon the fair market value on the date of grant, net of
estimated forfeitures and is expensed ratably over the vesting period. During fiscal 2008, the Company awarded 29 restricted shares to its CEO and COO, respectively, tied to continuing employment and certain market conditions tied to the
Companys stock appreciation. These awards were valued using the Monte Carlo model and are expensed ratably over a derived service period of two years. During fiscal 2008, the Company awarded 202 restricted shares with a weighted average life
of three years and a fair market value of $1,487.

Unearned compensation expense related to restricted stock grants at January 31,
2009 was $3,716. The expense is expected to be recognized over a weighted-average period of approximately 2.5 years.

The following is a
summary of restricted stock activity for fiscal 2008, 2007 and 2006:



|                       |  |             |   |             |                                      |             |        |     |   |                                      |   |        |  |      |                                      |  |   |      
|---------------------- |  | ----------- | - | ----------- | ------------------------------------ | ----------- | ------ | --- | - | ------------------------------------ | - | ------ |  | ---- | ------------------------------------ |  | - | -----
|                       |  | Fiscal 2008 |   | Fiscal 2007 |                                      | Fiscal 2006
|                       |  | Shares      |   |             | Weighted-AverageFair Value Per Share |             | Shares |     |   | Weighted-AverageFair Value Per Share |   | Shares |  |      | Weighted-AverageFair Value Per Share
|Unvested at February 1 |  | 589         |   |             | $                                    | 11.46       |        | 319 |   |                                      | $ | 12.75  |  | 47   |                                      |  | $ | 23.24
|Granted                |  | 202         |   |             |                                      | 7.34        |        | 324 |   |                                      |   | 10.17  |  | 404  |                                      |  |   | 11.91
|Vested                 |  | (206        | ) |             |                                      | 11.54       |        | (34 | ) |                                      |   | 11.28  |  | (107 | )                                    |  |   | 14.75
|Forfeited              |  | (22         | ) |             |                                      | 10.81       |        | (20 | ) |                                      |   | 11.34  |  | (25  | )                                    |  |   | 11.45
|                       |  |             |   |             |                                      |             |        |     |   |                                      |   |        |  |      |                                      |  |   |      
|Unvested at January 31 |  | 563         |   |             | $                                    | 9.97        |        | 589 |   |                                      | $ | 11.46  |  | 319  |                                      |  | $ | 12.75
|                       |  |             |   |             |                                      |             |        |     |   |                                      |   |        |  |      |                                      |  |   |      

During fiscal 2008, employees surrendered to the Company approximately 68 shares of common stock
to satisfy tax-withholding obligations in connection with the vesting of their restricted stock.



54



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Warrants

The following table summarizes all warrant activity:



|                               |  |                               |   |  |      |   |  |      |  
|------------------------------ |  | ----------------------------- | - |  | ---- | - |  | ---- | -
|                               |  | Fiscal year ended January 31, |  
|                               |  | 2009                          |   |  | 2008 |   |  | 2007 |  
|Outstanding, beginning of year |  | 267                           |   |  | 280  |   |  | 382  |  
|Warrants issued                |  |                              |   |  |     |   |  |     |  
|Warrants exercised             |  |                              |   |  |     |   |  |     |  
|Warrants canceled or expired   |  | (12                           | ) |  | (13  | ) |  | (102 | )
|                               |  |                               |   |  |      |   |  |      |  
|Outstanding, end of year       |  | 255                           |   |  | 267  |   |  | 280  |  
|                               |  |                               |   |  |      |   |  |      |  

At January 31, 2009, there were warrants to purchase 255 shares of our common stock
outstanding and exercisable with an average exercise price of $76.52 per share and a weighted average contractual term of 2.98 years.



|4. | Detail of Certain Balance Sheet Accounts
|-- | ----------------------------------------



|                                               |  |             |         |   |      |   |         |  
|---------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | -
|                                               |  | January 31, |        
|                                               |  | 2009        |         |   | 2008 |  
|Marketable securities                          |  |             |         |   |      |   |         |  
|Auction rate securities                        |  | $           |        |   |      | $ | 9,030   |  
|                                               |  |             |         |   |      |   |         |  
|                                               |  | $           |        |   |      | $ | 9,030   |  
|                                               |  |             |         |   |      |   |         |  
|Fixed assets, at cost                          |  |             |         |   |      |   |         |  
|Computer equipment and software                |  | $           | 12,004  |   |      | $ | 10,709  |  
|Machinery and equipment                        |  |             | 29,656  |   |      |   | 24,570  |  
|Office furniture and fixtures                  |  |             | 2,379   |   |      |   | 2,242   |  
|Leasehold improvements                         |  |             | 2,827   |   |      |   | 2,179   |  
|                                               |  |             |         |   |      |   |         |  
|                                               |  |             | 46,866  |   |      |   | 39,700  |  
|Accumulated depreciation and amortization      |  |             | (23,686 | ) |      |   | (19,501 | )
|                                               |  |             |         |   |      |   |         |  
|                                               |  | $           | 23,180  |   |      | $ | 20,199  |  
|                                               |  |             |         |   |      |   |         |  
|Accrued expenses and other current liabilities |  |             |         |   |      |   |         |  
|Deferred acquisition costs                     |  | $           | 296     |   |      | $ | 308     |  
|Accrued compensation and sales commissions     |  |             | 6,121   |   |      |   | 5,387   |  
|Program accrual(1)                             |  |             | 4,791   |   |      |   | 3,543   |  
|Promotions accrual(2)                          |  |             | 630     |   |      |   | 1,229   |  
|Other                                          |  |             | 5,844   |   |      |   | 4,148   |  
|                                               |  |             |         |   |      |   |         |  
|                                               |  | $           | 17,682  |   |      | $ | 14,615  |  
|                                               |  |             |         |   |      |   |         |  



|(1) | The program accrual consists primarily of program costs including other commissions, labor, supplies, printing, delivery and fulfillment.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

|(2) | The promotion accrual consists primarily of hourly outside labor costs and travel and expense related fees.
|--- | -----------------------------------------------------------------------------------------------------------



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



|5. | Acquisitions
|-- | ------------

Alloy completed acquisitions during
each of fiscal 2008, fiscal 2007 and fiscal 2006. All of the acquisitions have been accounted for under the purchase method of accounting. The assets acquired and liabilities assumed were recorded at estimated fair values as determined by
Alloys management based on available information and on assumptions as to future operations. The results of operations of the acquired businesses are included in the consolidated financial statements from the dates of acquisition. The purchase
price allocations for the fiscal 2007 acquisitions are subject to revision based on the final determination of the fair value of the assets acquired and liabilities assumed as of the date of acquisitions. For all acquisitions that involved escrow
shares, the value of these shares has been included in the initial purchase price allocation. Any subsequent changes are reflected as an adjustment to goodwill. The amounts allocated to goodwill for certain acquisitions may also change in the future
pending the outcome of other contingent arrangements, such as earn-outs, as described below. A description of certain of Alloys acquisitions and their impact in fiscal 2008, fiscal 2007 and fiscal 2006 is as follows:

Fiscal 2008 Acquisitions

Fulgent Media Group, Inc.

On August 1, 2008, the Company acquired the operating assets of Fulgent Media Group, Inc. (Fulgent), a full-service media
agency which provides media, advertising, research and consulting services. The Company paid cash of $596 to acquire Fulgents assets, subject to a working capital adjustment. The Company also agreed to pay an additional potential earn-out
payment of up to approximately $8,000 based on the EBITDA performance of Fulgent over the next three and one-half years. The earn-out payment is payable annually in cash or a combination of cash and shares of Company common stock, with the maximum
number of shares issuable representing 30% of the earn-out amount.

In conjunction with the acquisition, the Company has made a preliminary
allocation of purchase price and estimated client relationships with a fair value of $991 and a useful life of three years.

The results of
operations of Fulgent, since the date of acquisition, have been included in the accompanying consolidated financial statements. Fulgent is a part of the Companys AMP division of its Promotion segment. The acquisition was not considered
significant and, as such, pro forma information is not required.

gURL.com

On November 21, 2008, the Company acquired gURL.com (www.gurl.com) for approximately $700. gURL.com is an online community and content site
for teenage girls, featuring stories, games and interactive content.

In conjunction with the acquisition, the Company has made a
preliminary allocation of purchase price and estimated the website with a fair value of $655 and a useful life of three years.

The results
of operations of gURL.com, since the date of acquisition, have been included in the accompanying consolidated financial statements. gURL.com is a part of the Companys Media segment. The acquisition was not considered significant and, as such,
pro forma information is not required.



56



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



TAKKLE.com

On January 26, 2009, the Company acquired the operating assets of TAKKLE.com (www.takkle.com), a prominent online resource and college recruitment website for high school sports. The Company paid
approximately $317 in cash and assumed $431 in liabilities. The Company agreed to pay an additional potential earn-out payment equal to 1.5x by which gross revenue, as defined in the purchase agreement, exceeds $750 for a period commencing
January 27, 2009 through April 20, 2010, a span of 450 days.

In conjunction with the acquisition, the Company has made a
preliminary allocation of purchase price and identified specific intangible assets consisting of a website with a fair value of $567 and a useful life of 3 years and non-competition agreements with a fair value of $125 and a useful life of one year.

The results of operations of TAKKLE.com since the date of acquisition have been included in the accompanying consolidated financial
statements. TAKKLE.com is a part of the Companys Media segment. The acquisition was not considered significant and, as such, pro forma information is not required.

Fiscal 2007 Acquisitions

Frontline Marketing

On April 20, 2007, the Company acquired the operating assets of Frontline Marketing, Inc. (Frontline), a national in-store advertising
and display network, comprising displays located in approximately 7,100 grocery stores, and certain assets related thereto from Frontlines shareholders. The Company paid $5,986, including transaction costs, to acquire such assets, of which
$1,811 was paid by the issuance of 150 shares of its common stock, subject to a working capital adjustment. The Company also agreed to pay an additional potential earn-out payment of up to $7,200 based on the EBITDA performance of the acquired
assets over the next three years. The earn-out payment is payable at the Companys option in cash or a combination of cash and shares of its common stock, with the maximum number of shares issuable being 50% of the earn-out amount. The results
of Frontlines operations since the date of acquisition have been included in the accompanying consolidated financial statements. Frontline is a part of the Companys Media segment.

During the third quarter of fiscal 2007, the Company made an adjustment to working capital and recorded a $300 increase to Frontlines goodwill. The
Company made a preliminary allocation of purchase price and recorded approximately $3,203 of goodwill representing the excess purchase price over the fair value of the net assets acquired. In addition, the Company identified specific intangible
assets consisting of: trademarks with a fair value of $100 and a useful life of three years, client relationships with a fair value of $300 and a useful life of three years, and non-competition agreements with a fair value of $120 and a useful life
of five years. During the fourth quarter of fiscal 2008, the Company amended the original acquisition agreement and recorded a one-time operating expense item of $500. The acquisition was not considered significant, and, as such, proforma
information is not required.

Channel One

On April 20, 2007, the Company acquired the operating assets of Channel One Communications Corporation (Channel One) from PRIMEDIA, Inc., for which it received $8,600 of working capital, of which $5,000 was cash, and
assumed certain liabilities of Channel One, with an approximate value of $8,600. Accordingly, the fair market value of the assets acquired is approximately the value of the assumed liabilities. Channel One provides news and public affairs content to
secondary schools throughout the United States.



57



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Channel Ones programming is delivered daily during the school year, via satellite, and reaches millions of students. The results of Channel Ones
operations since the date of acquisition have been included in the accompanying consolidated financial statements. During the third and fourth quarter of fiscal 2007, the Company recognized an extraordinary gain of $5,680 (net of taxes), which is
discussed in Note 6. Channel One is a part of the Companys Media segment. The SEC has indicated that the financial reports relating to the Channel One acquisition were complete, and there is no need for the Company to provide separate
financial statements or pro forma financial statements.

Fiscal 2006 Acquisition

Sconex, Inc.

On March 28, 2006, the Company
completed the acquisition of all the outstanding stock of Sconex, Inc., a social networking community for high school students. The Company agreed to pay approximately $6,100 in common stock, including a future minimum earn-out payment of $2,600 at
closing. The Company issued to Sconex shareholders 274 shares of its common stock valued at approximately $12.79 a share, or $3,500. The Company also incurred additional costs directly related to the acquisition of approximately $164 and acquired
net assets with a value of approximately $175.

As per the Sconex acquisition agreement, the Company agreed to an approximate minimum
$2,600 earn-out provision based on a certain EBITDA target. As per the agreement, 61% of the earn-out had no continued service or other conditions associated with it. The Companys obligation to pay the remaining 39% of the earn-out required
the continued employment with the Company for a thirty month period by former shareholders of Sconex, Inc.

During fiscal 2007, the Company
settled the earn-out and paid to all former Sconex shareholders $789 in cash and $788 in common stock and to those former Sconex shareholders who remained in the Companys employ, $109 in Company common stock, which stock is subject to the
Companys right to repurchase under certain conditions. The acquisition was not considered significant, and, as such, proforma information is not required.



|6. | Other Items
|-- | -----------

Gain on Sale of Operating Asset

On November 5, 2008, the Company sold the CCS domain name and related trademarks to dELiA*s, Inc. for $5.8 million in cash. As
a result the Company recorded a gain on sale of operating asset on its Consolidated Statement of Operations.

Extraordinary Gain

In fiscal 2007, in conjunction with the Channel One acquisition, which is more fully described in
Note 5, the Company assumed certain liabilities of Channel One, which had an estimated value of $8,600 at acquisition. The actual fair value of certain assumed contract obligations and severance agreements, after all tax considerations, was
subsequently determined to be $2,800, or $5,800 less than $8,600, the amount originally estimated. As a result, the Company recorded an extraordinary gain of $5,680, net of tax of $120.



58



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



|7. | Goodwill and Intangible Assets
|-- | ------------------------------

Goodwill

The changes in the carrying amount of goodwill for the fiscal years ended January 31, 2009 and January 31, 2008 are as follows:



|                                                                     |  |                               |         |   |      |   |         |  
|-------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                                     |  | Fiscal year ended January 31, |        
|                                                                     |  | 2009                          |         |   | 2008 |  
|Gross balance, beginning of year                                     |  | $                             | 61,728  |   |      | $ | 130,835 |  
|Goodwill acquired during the year                                    |  |                               |        |   |      |   | 2,998   |  
|Net adjustments to purchase price of prior acquisitions(1)           |  |                               | 224     |   |      |   | (1,270  | )
|Impairment of goodwill(2)                                            |  |                               |        |   |      |   | (70,835 | )
|                                                                     |  |                               |         |   |      |   |         |  
|Gross balance, end of the year                                       |  |                               | 61,952  |   |      |   | 61,728  |  
|Accumulated goodwill amortization, prior to the adoption of SFAS 142 |  |                               | (11,617 | ) |      |   | (11,617 | )
|                                                                     |  |                               |         |   |      |   |         |  
|Net balance, end of year                                             |  | $                             | 50,335  |   |      | $ | 50,111  |  
|                                                                     |  |                               |         |   |      |   |         |  



|(1) | In fiscal 2008, the Company recorded contingent earn-out payments in the amount of $224. In fiscal 2007, a previously recorded contingent earn-out in the amount of $1,270 was
reversed out of goodwill because it was not earned.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During the fourth quarter of fiscal 2007, Alloy reviewed its goodwill for impairment, using a discounted cash flow model and a review of general market conditions impacting Alloy to
determine its market value of its reporting units with assigned goodwill. As a result, Alloy recorded an impairment charge totaling $70,835, of which $22,783 related to its Placement reporting unit and $48,052 related to its Media reporting unit.
These charges are included in Alloys Consolidated Statement of Operations as special charges.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Intangible Assets Related to
Businesses Acquired

The acquired intangible assets as of January 31, 2009 and January 31, 2008 are as follows:



|                                    |  |                               |        |                         |   |       |  |                     |       |                         |   |        |  |   |        |  |   |      
|----------------------------------- |  | ----------------------------- | ------ | ----------------------- | - | ----- |  | ------------------- | ----- | ----------------------- | - | ------ |  | - | ------ |  | - | -----
|                                    |  | Fiscal year ended January 31,
|                                    |  | 2009                          |        | 2008                   
|                                    |  | GrossCarryingAmount           |        | AccumulatedAmortization |   | Net   |  | GrossCarryingAmount |       | AccumulatedAmortization |   | Net   
|Amortizable intangible assets:      |  |                               |        |                         |   |       |  |                     |       |                         |   |        |  |   |        |  |   |      
|Client relationships                |  | $                             | 7,210  |                         | $ | 5,265 |  | $                   | 1,945 |                         | $ | 10,373 |  | $ | 8,511  |  | $ | 1,862
|Noncompetition agreements           |  |                               | 1,988  |                         |   | 1,493 |  |                     | 495   |                         |   | 4,196  |  |   | 3,721  |  |   | 475  
|Websites                            |  |                               | 1,837  |                         |   | 620   |  |                     | 1,217 |                         |   | 1,450  |  |   | 1,427  |  |   | 23   
|Mailing lists                       |  |                               | 3,575  |                         |   | 1,534 |  |                     | 2,041 |                         |   | 2,309  |  |   | 685    |  |   | 1,624
|Marketing Rights                    |  |                               | 175    |                         |   | 73    |  |                     | 102   |                         |   |       |  |   |       |  |   |     
|                                    |  |                               |        |                         |   |       |  |                     |       |                         |   |        |  |   |        |  |   |      
|                                    |  |                               | 14,785 |                         |   | 8,985 |  |                     | 5,800 |                         |   | 18,328 |  |   | 14,344 |  |   | 3,984
|Indefinite-lived intangible assets: |  |                               |        |                         |   |       |  |                     |       |                         |   |        |  |   |        |  |   |      
|Trademarks(1)                       |  |                               | 3,265  |                         |   |      |  |                     | 3,265 |                         |   | 3,405  |  |   |       |  |   | 3,405
|                                    |  |                               |        |                         |   |       |  |                     |       |                         |   |        |  |   |        |  |   |      
|Total intangible assets             |  | $                             | 18,050 |                         | $ | 8,985 |  | $                   | 9,065 |                         | $ | 21,733 |  | $ | 14,344 |  | $ | 7,389
|                                    |  |                               |        |                         |   |       |  |                     |       |                         |   |        |  |   |        |  |   |      



|(1) | During the fourth quarters of fiscal 2008 and fiscal 2007, respectively, Alloy reviewed its indefinite-lived assets. Estimates of the indefinite-lived assets value were determined
using the income approach. As a result of its review, a $140 and $120 impairment charge was recorded, respectively, for fiscal 2008 and fiscal 2007. These impairment charges are included in the special charges line item of the Consolidated
Statements of Operations.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



The amortization expense related to fiscal 2008, fiscal 2007 and fiscal 2006 was approximately
$2,073, $1,739, and $1,294, respectively. The estimated remaining amortization expense for each of the next five fiscal years through the fiscal year ending January 31, 2014 is approximately $2,444, $2,106, $908, $64 and $54, respectively.



|8. | Special Charges
|-- | ---------------

The special charges
line item on the Consolidated Statements of Operations is comprised of the following:



|                                      |  |                                    |   |       |   |           |  |           |        |       |   |     |  |   |       
|------------------------------------- |  | ---------------------------------- | - | ----- | - | --------- |  | --------- | ------ | ----- | - | --- |  | - | ------
|                                      |  | Fiscal year ended January 31, 2009
|                                      |  | Promotion                          |   | Media |   | Placement |  | Corporate |        | Total
|Impairment of trademarks              |  | $                                  |  |       | $ | 40        |  | $         | 100    |       | $ |    |  | $ | 140   
|Impairment of auction rate securities |  |                                    |  |       |   |          |  |           |       |       |   | 148 |  |   | 148   
|                                      |  |                                    |   |       |   |           |  |           |        |       |   |     |  |   |       
|Total special charges                 |  | $                                  |  |       | $ | 40        |  | $         | 100    |       | $ | 148 |  | $ | 288   
|                                      |  |                                    |   |       |   |           |  |           |        |       |   |     |  |   |       
|                                      | 
|                                      |  | Fiscal year ended January 31, 2008
|                                      |  | Promotion                          |   | Media |   | Placement |  | Corporate |        | Total
|Impairment of goodwill                |  | $                                  |  |       | $ | 48,052    |  | $         | 22,783 |       | $ |    |  | $ | 70,835
|Impairment of trademarks              |  |                                    |  |       |   | 120       |  |           |       |       |   |    |  |   | 120   
|Impairment of long-lived assets       |  |                                    |  |       |   | 673       |  |           |       |       |   |    |  |   | 673   
|                                      |  |                                    |   |       |   |           |  |           |        |       |   |     |  |   |       
|Total special charges                 |  | $                                  |  |       | $ | 48,845    |  | $         | 22,783 |       | $ |    |  | $ | 71,628
|                                      |  |                                    |   |       |   |           |  |           |        |       |   |     |  |   |       



|9. | Senior Convertible Debentures
|-- | -----------------------------

In August 2003, Alloy issued $69,300 of 20-Year 5.375% Senior Convertible Debentures
(Convertible Debentures or Debentures) due August 1, 2023 in the 144A private placement market. The Convertible Debentures had an annual coupon rate of 5.375%, payable in cash semi-annually on each
February 1stand August 1st.

Convertible Debenture Conversions

From August 30, 2006 through December 7, 2006, Alloy entered into agreements with certain holders of its Debentures, pursuant to which such holders converted approximately $67,903 face amount of their
Debentures, in accordance with their terms, into approximately 2,026 shares of Alloy common stock and 4,054 shares of dELiA*s, Inc. common stock. In addition to Alloy and dELiA*s, Inc. issuing the requisite number of shares required pursuant to the
Indenture under which the Debentures were issued, Alloy also paid each of those holders varying cash premiums for agreeing to convert their Debentures. Accordingly, the Company recorded an expense during fiscal 2006 of approximately $17,904 related
to these conversions. The charge is comprised of the cash premiums paid to holders and other costs of the transactions ($16,965), and the write-off of the unamortized balance of deferred debt issuance costs attributable to the Debentures ($939).
During fiscal 2006, the Companys additional paid-in capital also increased by $67,883 as a result of the conversions.

In July 2008,
Alloy entered into an agreement with a holder of its Debentures, pursuant to which such holder agreed to convert approximately $1,382 face amount of their Debentures, through a combination of cash paid by the Company and 83 shares of dELiA*s, Inc.
common stock. The cash paid by the Company related to the face amount of the Debentures totaled $1,240. Alloy also paid the holder a cash premium for agreeing to



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##### Table of Contents

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



convert their Debentures. Accordingly, the Company recorded an expense during the second quarter of fiscal 2008 of approximately $79 related to this
conversion. The Companys additional paid-in capital also increased by $142 as a result of the conversion, which was determined by using the closing price of the dELiA*s Inc. shares.

In August 2008, Alloy entered into an agreement with a holder of its Debentures, pursuant to which such holder agreed to convert the remaining $15 face
amount of the Debentures. The cash paid by the Company related to the face amount of the Debentures totaled $15.

At January 31, 2009,
the Convertible Debentures were fully converted and none of them remained outstanding.



|10. | Common Stock
|--- | ------------

Common Stock TransactionsStock Repurchase
Program

On January 29, 2003, Alloy adopted a stock repurchase program authorizing the repurchase of up to $10,000 of its
common stock from time to time in the open market at prevailing market prices or in privately negotiated transactions. During fiscal 2007, the Company repurchased 51 shares for approximately $457 under this plan.

In December 2008, the board of directors authorized an additional $7,000 for use in the repurchase of the Companys stock. During fiscal 2008, the
Company repurchased 1,388 shares for approximately $6,990 under this plan. At January 31, 2009, the Company had an unused authorization of approximately $6,600.



|11. | Stockholder Rights Plan
|--- | -----------------------

In April 2003,
Alloys board of directors adopted a Stockholder Rights Plan (the Plan) in which the Company declared a dividend of one preferred stock purchase right (a Right) for each outstanding share of common stock, par value
$0.01 per share, of the Company. As a result of the reverse stock split, there are now four Rights associated with each share of common stock. Each Right entitles the registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a Unit) of Series C Junior Participating Preferred Stock, $0.01 par value per share (the Series C Preferred Stock), at a purchase price of $40.00 per Unit, subject to adjustment.
Until the occurrence of certain events, the Rights are represented by and traded in tandem with Alloy common stock. Rights will be exercisable only if a person or group acquires beneficial ownership of 20% or more of the Companys common
stock or announces a tender offer upon consummation of which such person or group would own 20% or more of the common stock. Alloy is entitled to redeem the Rights at $.001 per right under certain circumstances set forth in the Plan. The Rights
themselves have no voting power and will expire at the close of business on April 14, 2013, unless earlier exercised, redeemed or exchanged. Each one one-hundredth of a share of Series C Preferred Stock has the same voting rights as one
share of Alloy common stock, and each share of Series C Preferred Stock has 100 times the voting power of one share of Alloy common stock.



|12. | Stock-based Compensation Plans
|--- | ------------------------------

Stock Options

Alloys shareholders approved the Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (the
Stock Plan) in June 2007. The Stock Plan authorizes the grant of up to 2,000 shares of the Companys common stock for the issuance of stock options, restricted and unrestricted stock awards and other stock-based



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



awards to employees, directors and consultants of the Company. All of the Companys then-existing stock incentive plans, which in the aggregate as of
June 18, 2007 had approximately 1,300 shares available for issuance, were terminated, resulting in a net increase of approximately 700 shares. However, outstanding options, the exercise of which would allow an aggregate of 504 and 277 shares of
Alloys common stock to be acquired by the holders of such options, were issued in fiscal 2006 and fiscal 2007, respectively, and remain outstanding under the terminated plans.

Stock options granted under the Stock Plan may either be incentive stock options, which are intended to satisfy the requirements of Section 422 of
the Code, or non-qualified stock options, which are not intended to meet those requirements. The exercise price of a stock option may not be less than 100% of the fair market value of our common stock on the date of grant. If an incentive stock
option is granted to an individual who owns more than 10% of the combined voting power of all classes of our capital stock, the exercise price may not be less than 110% of the fair market value of our common stock on the date of grant and the term
of the option may not be longer than five years. Award agreements for stock options include rules for exercise of the stock options after termination of service. Options may not be exercised unless they are vested, and no option may be exercised
after the end of the term set forth in the award agreement, which may not exceed 10 years. Generally, stock options will be exercisable for three months after termination of service for any reason other than death or total and permanent disability,
and for twelve months after termination of service on account of death or total and permanent disability. The Compensation Committee of our Board of Directors administers the Stock Plan. The Compensation Committee may delegate part of its authority
and powers under the Stock Plan to a committee of the Board or one or more of our directors and/or officers, but only the Compensation Committee (or a subcommittee thereof or the full Board) can make awards to participants who are directors or
executive officers of Alloy. In accordance with the provisions of the Stock Plan, our Compensation Committee, or its designee, will determine the terms of awards, including: (i) which employees, directors and consultants will be granted awards;
(ii) the number of shares subject to each award; (iii) the vesting provisions of each award; (iv) the termination or cancellation provisions applicable to awards; and (v) all other terms and conditions upon which each award may
be granted in accordance with the Stock Plan.

In addition, our Compensation Committee may, in its discretion, amend any term or condition
of an outstanding award provided: (i) such term or condition as amended is permitted by our Stock Plan; and (ii) any such amendment shall be made only with the consent of the participant to whom such award was made, if the amendment is
adverse to the participant. The Stock Plan does not allow for the repricing or cancellation and reissuance of stock options or other awards without the prior approval of our shareholders. The Stock Plan expires on April 11, 2017.

Restricted Stock

In fiscal 2008, fiscal 2007,
and fiscal 2006, Alloys board of directors authorized the issuance of 202, 324 and 404, shares of common stock, respectively, as restricted stock under our stock-based compensation plans. The shares issued are subject to restrictions on
transfer, rights of repurchase by the Company and certain other conditions. During the restriction period, plan participants are entitled to vote and receive dividends on such shares. Upon authorization of the shares, deferred compensation expense
equivalent to the market value of the shares on the respective dates of grant is charged to stockholders equity and is then amortized to compensation expense over the vesting periods. Refer to Note 3 for additional information regarding
restricted stock.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



|13. | Income Taxes
|--- | ------------

The components of net income tax
expense consist of the following for fiscal 2008, fiscal 2007, and fiscal 2006:



|                       |  |                               |     |      |   |      |  |   |    
|---------------------- |  | ----------------------------- | --- | ---- | - | ---- |  | - | ---
|                       |  | Fiscal year ended January 31,
|                       |  | 2009                          |     | 2008 |   | 2007
|Current:               |  |                               |     |      |   |      |  |   |    
|State                  |  | $                             | 419 |      | $ | 481  |  | $ | 750
|Federal                |  |                               | 65  |      |   |     |  |   |   
|                       |  |                               |     |      |   |      |  |   |    
|Total current          |  |                               | 484 |      |   | 481  |  |   | 750
|                       |  |                               |     |      |   |      |  |   |    
|Deferred:              |  |                               |     |      |   |      |  |   |    
|State                  |  |                               |    |      |   |     |  |   |   
|Federal                |  |                               |    |      |   |     |  |   |   
|                       |  |                               |     |      |   |      |  |   |    
|Total deferred         |  |                               |    |      |   |     |  |   |   
|                       |  |                               |     |      |   |      |  |   |    
|Net income tax expense |  | $                             | 484 |      | $ | 481  |  | $ | 750
|                       |  |                               |     |      |   |      |  |   |    

For fiscal 2008, fiscal 2007 and fiscal 2006, the difference between the total expected tax
benefit or expense using the statutory rates of 34%, 34% and 34%, respectively, and tax expense is as follows:



|                                        |  |                               |   |  |       |    |  |       |   
|--------------------------------------- |  | ----------------------------- | - |  | ----- | -- |  | ----- | --
|                                        |  | Fiscal year ended January 31, |  
|                                        |  | 2009                          |   |  | 2008  |    |  | 2007  |   
|Computed expected tax (benefit) expense |  | 34.0                          | % |  | (34.0 | )% |  | (34.0 | )%
|State taxes, net of federal benefit     |  | 2.5                           |   |  | 0.4   |    |  | 18.2  |   
|Goodwill impairment                     |  |                              |   |  | 18.4  |    |  |      |   
|ISO stock-based compensation expense    |  | 3.7                           |   |  | 0.7   |    |  | 6.4   |   
|Specialized restructuring costs         |  |                              |   |  |      |    |  | 58.0  |   
|Non-deductible expenses                 |  | 1.6                           |   |  | 0.2   |    |  | 1.6   |   
|Change in valuation allowance           |  | (38.2                         | ) |  | 14.4  |    |  | (38.6 | ) 
|All other individually less than 5%     |  | 0.8                           |   |  | 0.6   |    |  |      |   
|                                        |  |                               |   |  |       |    |  |       |   
|Total effective tax rate                |  | 4.4                           | % |  | 0.7   | %  |  | 11.6  | % 
|                                        |  |                               |   |  |       |    |  |       |   



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



The types of temporary differences that give rise to significant portions of the Companys
deferred tax assets and liabilities are set out as follows:



|                                                  |  |             |         |   |      |   |         |  
|------------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | -
|                                                  |  | January 31, |        
|                                                  |  | 2009        |         |   | 2008 |  
|Deferred tax assets:                              |  |             |         |   |      |   |         |  
|Accruals and reserves                             |  | $           | 2,880   |   |      | $ | 1,892   |  
|Other                                             |  |             | 144     |   |      |   |        |  
|Deferred compensation                             |  |             | 1,297   |   |      |   | 895     |  
|Plant and equipment                               |  |             |        |   |      |   | 840     |  
|Identifiable intangible assets                    |  |             | 1,850   |   |      |   | 1,257   |  
|Goodwill                                          |  |             | 6,946   |   |      |   | 9,444   |  
|Net operating loss and capital loss carryforwards |  |             | 7,551   |   |      |   | 8,372   |  
|                                                  |  |             |         |   |      |   |         |  
|Gross deferred tax assets                         |  |             | 20,668  |   |      |   | 22,700  |  
|Valuation allowance                               |  |             | (17,564 | ) |      |   | (22,578 | )
|                                                  |  |             |         |   |      |   |         |  
|Total deferred tax assets                         |  |             | 3,104   |   |      |   | 122     |  
|                                                  |  |             |         |   |      |   |         |  
|Deferred tax liabilities:                         |  |             |         |   |      |   |         |  
|Plant and Equipment                               |  |             | (3,104  | ) |      |   |        |  
|Other                                             |  |             |        |   |      |   | (122    | )
|                                                  |  |             |         |   |      |   |         |  
|Total deferred tax liabilities                    |  |             | (3,104  | ) |      |   | (122    | )
|                                                  |  |             |         |   |      |   |         |  
|Net deferred tax assets                           |  | $           |        |   |      | $ |        |  
|                                                  |  |             |         |   |      |   |         |  

As a result of certain realization requirements of SFAS 123R, certain deferred tax assets that
arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting are excluded from the total deferred tax assets. As of January 31, 2009, approximately $1,662 of the federal net
operating loss carryforwards are related to the exercise of employee stock options, and the Company will record a tax benefit of approximately of $565 through capital in excess of par value if such losses are realized.

For federal income tax purposes, Alloy has unused NOL carryforwards of approximately $28,660 at January 31, 2009 that will expire at various dates
through 2027.

The U.S. Tax Reform Act of 1986 contains provisions that limit the NOL carryforwards available to be used in any given
year upon the occurrence of certain events, including a significant change of ownership. Alloy experienced at least three such ownership changes since inception. In assessing the realizability of deferred tax assets, management considers whether it
is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary
differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning in making these assessments. As a result of recent historic results and projections of future
taxable income, management believes the future utilization of the Companys deferred tax assets is not more-likely-than-not.

The
Company has fully reserved for the net deferred tax assets at January 31, 2009 and 2008, and as a result, the valuation allowance decreased by $5,014 during fiscal 2008 and increased by $7,210 during fiscal 2007.

Adoption of FIN 48

In the first quarter of fiscal
2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48), an interpretation of FASB Statement No. 109, Accounting for Income



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Taxes . FIN 48 prescribes recognition and measurement standards for a tax position taken or expected to be taken in a tax return. The evaluation of a
tax position in accordance with FIN 48 is a two-step process. The first step is the determination of whether a tax position should be recognized in the financial statements. Under FIN 48, the benefit of a tax position taken or expected to be taken
in a tax return is to be recognized only if the Company determines that it is more-likely-than-not that the tax position will be sustained upon examination by the tax authorities based upon the technical merits of the position. In step two, for
those tax positions which should be recognized, the measurement of a tax position is determined as being the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. FIN 48 was effective for the beginning
of fiscal 2007, with adoption treated as a cumulative effect type reduction to retained earnings. As a result of implementing FIN 48, the Company recognized a $1,314 increase in the long-term liability for unrecognized tax benefits including
interest and penalties of $239. The result of these recognized liabilities was a reduction to beginning retained earnings of $1,014 at February 1, 2007.

As a result of the Companys implementation of FIN 48, the total amount of gross tax benefits, excluding the offsetting full valuation allowance, that became unrecognized, was approximately $7,136. No
accrued interest or penalties resulted from such unrecognized tax benefits. As of January 31, 2009, the total amount of gross unrecognized tax benefits was $7,136, and accrued interest and penalties on such unrecognized tax benefits were $0.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for fiscal 2008:



|                                          |  |             |      
|----------------------------------------- |  | ----------- | -----
|                                          |  | Fiscal 2008
|Beginning of year balance                 |  | $           | 8,283
|Increases in prior period tax positions   |  |             | 114  
|Decreases in prior period tax positions   |  |             |     
|Increases in current period tax positions |  |             |     
|Settlements                               |  |             |     
|Lapse of statute of limitations           |  |             |     
|                                          |  |             |      
|End of year balance                       |  | $           | 8,397
|                                          |  |             |      

For fiscal 2008, the Companys income tax provision included $114 of expense related to
uncertain tax positions, including $114 related to interest and penalties. The net unrecognized tax benefits, that if recognized, would impact the effective tax rate as of January 31, 2009 is $1,261 due to the effect of the full net deferred
tax asset valuation allowance.

At this time, the Company believes that it is reasonably possible that approximately $512 of the estimated
unrecognized tax benefits as of January 31, 2009 will be recognized within the next twelve months based on the expiration of statutory review periods.

The Company is currently undergoing a state income tax audit for the tax years ending January 31, 2005 through January 31, 2007. The Company believes that the results of the current or any prospective audits
will not have a material effect on its financial position or results of operations.



|14. | Credit Facility
|--- | ---------------

On August 15, 2007, the
Company entered into a credit agreement with Bank of America, N.A, which was further amended (the Credit Facility). At January 31, 2009, the Company had no outstanding borrowing on the Credit Facility.

The Credit Facility currently consists of a three year term $25,000 revolving loan (the Revolver), which may be drawn upon at any time while
the Company is in compliance with the covenants and other borrowing



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



terms, and a letter of credit facility which has a $2,000 issuance sublimit. Any letters of credit will reduce the available commitment under the Revolver on
a dollar-for-dollar basis.

The loans and other obligations under the Credit Facility are guaranteed by wholly owned direct and indirect
operating subsidiaries of the Company, with a requirement that the Credit Facility be additionally guaranteed by any future subsidiaries of the Company.

Any borrowings under the Credit Facility and letters of credit will bear interest at annual rates as detailed in the Credit Facility and are based on the Eurodollar rate plus 1.00% - 2.00% depending on the
Companys twelve month EBITDA. In addition, the Company is required to pay quarterly an unused commitment fee and a letter of credit fee if the Company enters into a letter of credit arrangement. Total commitment fees paid by the Company under
the Credit Facility before the April 2009 modification totaled $65 and $24 for fiscal 2008 and fiscal 2007, respectively.

The Credit
Facility contains affirmative and restrictive covenants that require the Company to meet certain financial, business operations and other criteria. From time to time, the Company may not be able to satisfy the covenants, and the Company may be out
of compliance with the provisions of the Credit Facility. In past instances, the Company has obtained waivers and amendments to the Credit Facility. In the future, the Company may, as necessary, the Company need to seek waivers or renegotiate the
terms and conditions of the Credit Facility to remain in compliance. The Company cannot give assurance, however, that Bank of America will agree to any such waiver or amendment and it could demand that the Company pay any outstanding amounts and
terminate the Credit Facility, in which case the Company may not have access to working capital should its business activities require funds in excess of cash generated by the Companys ongoing operating activities.

At January 31, 2009, the Company was in compliance with all the financial ratios and other terms and conditions as stated in the Credit Facility or
as waived by Bank of America.

On April 9, 2009, the Company amended its Credit Facility, which is more fully discussed in Note 19.



|15. | Commitments and Contingencies
|--- | -----------------------------

Leases

Alloy leases office space, warehouse space and certain office equipment under noncancellable leases with various expiration dates through 2014. As of
January 31, 2009, future net minimum lease payments were as follows:



|                               |  |               |    |                 |   |              |  |   |   
|------------------------------ |  | ------------- | -- | --------------- | - | ------------ |  | - | --
|Fiscal year ending January 31, |  | CapitalLeases |    | OperatingLeases |   | SubleaseRent
|2010                           |  | $             | 17 |                 | $ | 4,254        |  | $ | 22
|2011                           |  |               | 15 |                 |   | 4,001        |  |   |  
|2012                           |  |               | 3  |                 |   | 3,823        |  |   |  
|2013                           |  |               |   |                 |   | 3,384        |  |   |  
|2014                           |  |               |   |                 |   | 2,324        |  |   |  
|Thereafter                     |  |               |   |                 |   | 3,280        |  |   |  
|                               |  |               |    |                 |   |              |  |   |   
|Total minimum lease payments   |  | $             | 35 |                 | $ | 21,066       |  | $ | 22
|                               |  |               |    |                 |   |              |  |   |   
|Imputed interest               |  |               | 4  |                 |   |              |  |   |   
|                               |  |               |    |                 |   |              |  |   |   
|Capital lease obligations      |  | $             | 31 |                 |   |              |  |   |   
|                               |  |               |    |                 |   |              |  |   |   

Rent expense was approximately $4,161, $4,202 and $3,911 for fiscal 2008, 2007, and 2006,
respectively, under noncancellable operating leases.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Other

The Company received an information request in late January 2009 from the New York State Attorney General (NYS AG) inquiring about the Companys activities in marketing credit cards to college
students. The Company was subsequently informed that the NYS AG is conducting an investigation into the Companys marketing practices in this area. The Company is cooperating with the NYS AG in the investigation and is without sufficient
information to determine the extent, if any, of potential monetary liability or other restrictions on its activities that may result from the investigation of the NYS AG.

Litigation

On or about November 5, 2001, a putative class action complaint was filed in the
United States District Court for the Southern District of New York naming as defendants Alloy, specified company officers and investment banks, including James K. Johnson, Jr., Matthew C. Diamond, BancBoston Robertson Stephens, Volpe Brown Whelan
and Company, Dain Rauscher Wessel and Ladenburg Thalmann & Co., Inc. The complaint purportedly was filed on behalf of persons purchasing the Companys stock between May 14, 1999 and December 6, 2000, and alleged violations of Sections 11,
12(a)(2) and 15 of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. On April 19, 2002, the plaintiffs amended the complaint to assert violations of Section 10(b) of the Exchange Act. The claims mirror
allegations asserted against scores of other issuers. Pursuant to an omnibus agreement negotiated with representatives of the plaintiffs counsel, Messrs. Diamond and Johnson were dismissed from the litigation without prejudice. By opinion and
order dated February 19, 2003, the District Court denied in part and granted in part a global motion to dismiss filed on behalf of all issuers. With respect to Alloy, the Court dismissed the Section 10(b) claim and let the plaintiffs proceed on the
Section 11 claim. In June 2004, as a result of a mediation, a settlement agreement was executed on behalf of the issuers (including Alloy), insurers and plaintiffs and submitted to the Court. While final approval of the settlement was pending, on
December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the District Courts class certification order with respect to nine focus group cases and remanded the matter for further consideration. On June 25, 2007, as a result of
the Second Circuits decision, the settlement agreement was terminated. On August 14, 2007, plaintiffs filed second amended complaints against nine focus group issuers. By opinion and order dated March 26, 2008, the District Court denied in
part and granted in part motions to dismiss the amended complaints. Specifically, the District Court dismissed claims brought under Section 11 of the Securities Act by those plaintiffs who sold their securities for a price in excess of the initial
offering price and claims brought by plaintiffs who purchased securities outside of the previously certified class period and denied the remainder of the motions. After many months of negotiation, on April 2, 2009, the representative class
plaintiffs and the defendants filed a Notice of Motion for Preliminary Approval of Settlement accompanied by a global Stipulation and Agreement of Settlement. The proposed Settlement provides that all claims against the issuers and underwriters will
be dismissed with prejudice in exchange for the aggregate payment of $586 million. Under the terms of the proposed Settlement, neither the Company nor Messrs. Johnson or Diamond are required to pay any portion of the $586 million payment. The
proposed Settlement is subject to numerous contingencies, including, but not limited to, preliminary Court approval, certification of a settlement class and final approval after providing members of the plaintiff class with notice. At this time, we
cannot predict whether the proposed Settlement will be approved or, if approved, the date of final approval.

The Company is involved in
additional legal proceedings that have arisen in the ordinary course of business. The Company believes that, apart from the actions set forth above, there is no claim or litigation pending, the outcome of which could have a material adverse effect
on the Companys financial condition or operating results.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



|16. | Supplemental Cash Flow and Other Information
|--- | --------------------------------------------

Supplemental information on cash flows is summarized as follows:



|                                                                      |  |                               |     |      |   |       |  |   |       
|--------------------------------------------------------------------- |  | ----------------------------- | --- | ---- | - | ----- |  | - | ------
|                                                                      |  | Fiscal year ended January 31,
|                                                                      |  | 2009                          |     | 2008 |   | 2007 
|Cash paid for:                                                        |  |                               |     |      |   |       |  |   |       
|Interest                                                              |  | $                             | 74  |      | $ | 75    |  | $ | 4,367 
|Income taxes                                                          |  |                               | 351 |      |   | 734   |  |   | 850   
|                                                                      |  |                               |    
|Non-cash investing and financing activities:                          |  |                               |     |      |   |       |  |   |       
|Issuance of common stock in conjunction with conversion of Debentures |  |                               |    |      |   |      |  |   | 67,903
|Issuance of common stock and warrants in connection with acquisitions |  |                               |    |      |   | 1,811 |  |   | 3,500 
|Issuance of common stock pursuant to Sconex earn-out agreement        |  |                               |    |      |   | 788   |  |   |      
|Issuance of restricted stock pursuant to Sconex earn-out agreement    |  |                               |    |      |   | 109   |  |   |      



|17. | Segment Reporting
|--- | -----------------

SFAS 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS 131), establishes standards for reporting information about operating segments. This standard requires segmentation based on internal organization and reporting of revenue and
operating income based upon internal accounting methods. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or
CODM, in deciding how to allocate resources and in assessing performance.

The Company has three operating segmentsPromotion, Media
and Placement. The Promotion segment is comprised of businesses whose products and services are promotional in nature and includes our AMP, OCM and sampling divisions. The Media segment is comprised of Company-owned and represented media assets,
including the display board, Internet, database, specialty print, educational programming and entertainment businesses. The Placement segment is made up of the Companys businesses that aggregate and market third party media properties owned by
others primarily in the college, military and multicultural markets. All information presented below is U.S. based, thus no geographic disclosure is required.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



Alloys management reviews financial information related to these reportable segments and uses
the measure of income from operations to evaluate performance and allocated resources. Reportable data for Alloys segments were as follows as of and for the fiscal years ended January 31, 2009, 2008, and 2007:



|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|----------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                    |  | Fiscal year ended January 31, |        
|                                    |  | 2009                          |         |   | 2008 |   |         | 2007 | 
|Revenue:                            |  |                               |         |   |      |   |         |      |  |   |         |  
|Promotion                           |  | $                             | 83,516  |   |      | $ | 83,405  |      |  | $ | 95,979  |  
|Media                               |  |                               | 81,188  |   |      |   | 62,780  |      |  |   | 46,287  |  
|Placement                           |  |                               | 52,222  |   |      |   | 52,911  |      |  |   | 53,838  |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Total revenue                       |  | $                             | 216,926 |   |      | $ | 199,096 |      |  | $ | 196,104 |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Operating income (loss):            |  |                               |         |   |      |   |         |      |  |   |         |  
|Promotion                           |  | $                             | 7,723   |   |      | $ | 9,228   |      |  | $ | 11,077  |  
|Media                               |  |                               | 11,466  |   |      |   | (49,462 | )    |  |   | 6,638   |  
|Placement                           |  |                               | 4,186   |   |      |   | (17,889 | )    |  |   | 5,629   |  
|Corporate                           |  |                               | (12,599 | ) |      |   | (11,942 | )    |  |   | (10,658 | )
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Total operating income (loss)       |  |                               | 10,776  |   |      |   | (70,065 | )    |  |   | 12,686  |  
|Interest expense, net               |  |                               | 161     |   |      |   | 968     |      |  |   | (1,262  | )
|Debt conversion expense             |  |                               |        |   |      |   |        |      |  |   | (17,904 | )
|Other items, net                    |  |                               | (18     | ) |      |   | (494    | )    |  |   | (3      | )
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes   |  | $                             | 10,919  |   |      | $ | (69,591 | )    |  | $ | (6,483  | )
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization:      |  |                               |         |   |      |   |         |      |  |   |         |  
|Promotion                           |  | $                             | 906     |   |      | $ | 904     |      |  | $ | 815     |  
|Media                               |  |                               | 4,550   |   |      |   | 3,310   |      |  |   | 1,751   |  
|Placement                           |  |                               | 32      |   |      |   | 33      |      |  |   | 38      |  
|Corporate                           |  |                               | 941     |   |      |   | 833     |      |  |   | 761     |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Total depreciation and amortization |  | $                             | 6,429   |   |      | $ | 5,080   |      |  | $ | 3,365   |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Stock-based compensation:           |  |                               |         |   |      |   |         |      |  |   |         |  
|Promotion                           |  | $                             | 652     |   |      | $ | 632     |      |  | $ | 539     |  
|Media                               |  |                               | 1,575   |   |      |   | 1,619   |      |  |   | 1,024   |  
|Placement                           |  |                               | 193     |   |      |   | 159     |      |  |   | 130     |  
|Corporate                           |  |                               | 1,621   |   |      |   | 1,335   |      |  |   | 1,132   |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Total stock-based compensation      |  | $                             | 4,041   |   |      | $ | 3,745   |      |  | $ | 2,825   |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  



|                |  |                |         |      |   |         |  |   |        
|--------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|                |  | At January 31,
|                |  | 2009           |         | 2008 |   | 2007   
|Total assets:   |  |                |         |      |   |         |  |   |        
|Promotion       |  | $              | 34,045  |      | $ | 34,478  |  | $ | 32,945 
|Media           |  |                | 70,332  |      |   | 64,750  |  |   | 88,449 
|Placement       |  |                | 17,711  |      |   | 21,262  |  |   | 42,483 
|Corporate       |  |                | 38,631  |      |   | 27,926  |  |   | 32,689 
|                |  |                |         |      |   |         |  |   |        
|Total assets    |  | $              | 160,719 |      | $ | 148,416 |  | $ | 196,566
|                |  |                |         |      |   |         |  |   |        
|Total goodwill: |  |                |         |      |   |         |  |   |        
|Promotion       |  | $              | 23,509  |      | $ | 23,414  |  | $ | 27,193 
|Media           |  |                | 22,871  |      |   | 22,742  |  |   | 65,287 
|Placement       |  |                | 3,955   |      |   | 3,955   |  |   | 26,738 
|                |  |                |         |      |   |         |  |   |        
|Total goodwill  |  | $              | 50,335  |      | $ | 50,111  |  | $ | 119,218
|                |  |                |         |      |   |         |  |   |        



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



|18. | Quarterly Results (Unaudited)
|--- | -----------------------------

The following table
sets forth unaudited quarterly financial data for each of Alloys last two fiscal years.



|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|--------------------------------- |  | ---------------------------------- | ------ | - | ------------- | - | ------ | ------------ |  | - | ---------------- | - |  | -------------- | ------ | - |  | - | ------- | -
|                                  |  | Fiscal year ended January 31, 2009 |       
|                                  |  | FirstQuarter                       |        |   | SecondQuarter |   |        | ThirdQuarter |  |   | FourthQuarter(1) |   |  | Full YearTotal |       
|Revenue                           |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Promotion                         |  | $                                  | 15,752 |   |               | $ | 27,733 |              |  | $ | 26,139           |   |  | $              | 13,892 |   |  | $ | 83,516  |  
|Media                             |  |                                    | 19,896 |   |               |   | 17,257 |              |  |   | 25,032           |   |  |                | 19,003 |   |  |   | 81,188  |  
|Placement                         |  |                                    | 13,497 |   |               |   | 9,110  |              |  |   | 18,736           |   |  |                | 10,879 |   |  |   | 52,222  |  
|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Total revenue                     |  | $                                  | 49,145 |   |               | $ | 54,100 |              |  | $ | 69,907           |   |  | $              | 43,774 |   |  | $ | 216,926 |  
|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Operating income (loss)           |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Promotion                         |  | $                                  | (675   | ) |               | $ | 3,702  |              |  | $ | 3,669            |   |  | $              | 1,027  |   |  | $ | 7,723   |  
|Media                             |  |                                    | 1,235  |   |               |   | (2,223 | )            |  |   | 5,569            |   |  |                | 6,885  |   |  |   | 11,466  |  
|Placement                         |  |                                    | 518    |   |               |   | 564    |              |  |   | 2,701            |   |  |                | 403    |   |  |   | 4,186   |  
|Corporate(2)                      |  |                                    | (2,511 | ) |               |   | (3,179 | )            |  |   | (2,706           | ) |  |                | (4,203 | ) |  |   | (12,599 | )
|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Total operating income (loss)     |  | $                                  | (1,433 | ) |               | $ | (1,136 | )            |  | $ | 9,233            |   |  | $              | 4,112  |   |  | $ | 10,776  |  
|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Income (loss)                     |  | $                                  | (1,569 | ) |               | $ | (1,425 | )            |  | $ | 9,100            |   |  | $              | 4,329  |   |  | $ | 10,435  |  
|Net income (loss)                 |  | $                                  | (1,569 | ) |               | $ | (1,425 | )            |  | $ | 9,100            |   |  | $              | 4,329  |   |  | $ | 10,435  |  
|Net income (loss) per share from: |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Basic                             |  | $                                  | (0.12  | ) |               | $ | (0.10  | )            |  | $ | 0.68             |   |  | $              | 0.34   |   |  | $ | 0.78    |  
|Diluted                           |  | $                                  | (0.12  | ) |               | $ | (0.10  | )            |  | $ | 0.67             |   |  | $              | 0.34   |   |  | $ | 0.78    |  



|(1) | During the fourth quarter of fiscal 2008, the Company recorded impairment charges of $140 related to two of its trademarks and $148 related to its auction rate securities. These
charges are more fully discussed in Note 8.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | During the fourth quarter of fiscal 2008, the Company recorded a $5.8 million gain on the sale of operating assets related to the sale of its CCS domain name. This is more fully
discussed in Note 6.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share
amounts)



|                                        |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|--------------------------------------- |  | ---------------------------------- | ------ | - | ------------- | ------ | - | ------------ | ------ | - | ---------------- | ------- | - | -------------- | - | ------- | -
|                                        |  | Fiscal year ended January 31, 2008 |       
|                                        |  | FirstQuarter                       |        |   | SecondQuarter |        |   | ThirdQuarter |        |   | FourthQuarter(1) |         |   | Full YearTotal |  
|Revenue                                 |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Promotion                               |  | $                                  | 13,540 |   |               | 28,250 |   |              | 25,928 |   |                  | 15,687  |   |                | $ | 83,405  |  
|Media                                   |  |                                    | 10,416 |   |               | 14,013 |   |              | 21,652 |   |                  | 16,699  |   |                |   | 62,780  |  
|Placement                               |  |                                    | 13,831 |   |               | 9,403  |   |              | 18,938 |   |                  | 10,739  |   |                |   | 52,911  |  
|                                        |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Total revenue                           |  | $                                  | 37,787 |   |               | 51,666 |   |              | 66,518 |   |                  | 43,125  |   |                | $ | 199,096 |  
|                                        |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Operating income (loss)                 |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Promotion                               |  | $                                  | (111   | ) |               | 4,105  |   |              | 4,185  |   |                  | 1,049   |   |                | $ | 9,228   |  
|Media                                   |  |                                    | (325   | ) |               | (3,118 | ) |              | 2,986  |   |                  | (49,005 | ) |                |   | (49,462 | )
|Placement                               |  |                                    | 1,467  |   |               | 797    |   |              | 2,687  |   |                  | (22,840 | ) |                |   | (17,889 | )
|Corporate                               |  |                                    | (2,919 | ) |               | (3,223 | ) |              | (2,820 | ) |                  | (2,980  | ) |                |   | (11,942 | )
|                                        |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Total operating income (loss)           |  | $                                  | (1,888 | ) |               | (1,439 | ) |              | 7,038  |   |                  | (73,776 | ) |                | $ | (70,065 | )
|                                        |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Income (loss) before extraordinary item |  |                                    | (1,708 | ) |               | (1,512 | ) |              | 6,888  |   |                  | (73,740 | ) |                |   | (70,072 | )
|Extraordinary gain(2)                   |  |                                    |       |   |               |       |   |              | 5,500  |   |                  | 180     |   |                |   | 5,680   |  
|                                        |  |                                    |        |   |              
|Net income (loss)                       |  | $                                  | (1,708 | ) |               | (1,512 | ) |              | 12,388 |   |                  | (73,560 | ) |                | $ | (64,392 | )
|                                        |  |                                    |        |   |              
|Net income (loss) per share from:       |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Basic-                                  |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Extraordinary gain                      |  |                                    |       |   |               |       |   |              |       |   |                  | 0.01    |   |                |   | 0.43    |  
|Net income (loss) per share             |  |                                    | (0.13  | ) |               | (0.11  | ) |              | 0.91   |   |                  | (5.44   | ) |                |   | (4.82   | )
|Diluted-                                |  |                                    |        |   |               |        |   |              |        |   |                  |         |   |                |   |         |  
|Extraordinary gain                      |  |                                    |       |   |               |       |   |              |       |   |                  | 0.01    |   |                |   | 0.43    |  
|Net income per share                    |  |                                    |       |   |               |       |   |              | 0.90   |   |                  |        |   |                |   |        |  



|(1) | During the fourth quarter of fiscal 2007, the Company recorded a goodwill impairment charge of $70,955 and an impairment of certain of its long-lived assets of $673. These charges
are more fully discussed in Note 8.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The Company recorded an extraordinary gain related to its Channel One acquisition in the amount of $5,680. The acquisition and the related extraordinary gain are more fully
discussed in Notes 5 and 6, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|19. | Subsequent Event
|--- | ----------------

The Company amended and restated
its Credit Facility on April 9, 2009. Provisions of the amendment include increasing the amount of cash consideration the Company can pay for acquisitions, in addition to increasing the total amount in total consideration permitted for
acquisitions. The provisions also amend the Companys financial covenants and transitions from a debt service coverage ratio to a minimum EBITDA test and from a quick ratio to a minimum liquidity test. The amendment increases both amount by
which the Company can repurchase its own stock and limits the Companys ability to dispose of operating companies or assets using a combination of total assets or EBITDA. We believe that these amendments will allow the Company greater
flexibility in which to do business.



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|Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None.



|Item 9A. | Controls and Procedures
|-------- | -----------------------

Conclusion
Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Annual Report
on Form 10-K. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, January 31, 2009, the Companys disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is made known to management, including our Chief Executive Officer and Chief Financial Officer, and that such information is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms.

In designing and evaluating our
disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management
necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures

Managements
Annual Report on Internal Control Over Financial Reporting

Managements Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal
control system was designed to provide reasonable assurance to the Companys management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well
designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Companys
internal control over financial reporting as of January 31, 2009. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in

Internal ControlIntegrated Framework. Based on our assessment, we believe that, as of January 31, 2009, the Companys internal control over
financial reporting is effective based on those criteria. Our independent registered public accounting firm has issued an audit report on the effectiveness of the Companys internal control over financial reporting as of January 31, 2009.
This report appears below.

April 14, 2009



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Attestation Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Alloy, Inc.

New
York, New York

We have audited Alloy, Inc.s internal control over financial reporting as of January 31, 2009, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Alloy, Inc.s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control Over Financial Reporting appearing under
Item 9A. Our responsibility is to express an opinion on the companys internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.

A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, Alloy, Inc. maintained, in all material respects, effective internal control over financial
reporting as of January 31, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Alloy, Inc. as of January 31, 2009 and 2008, and the related consolidated statements of income, stockholders equity, and cash flows for each of
the three years in the period ended January 31, 2009 and our report dated April 13, 2009 expressed an unqualified opinion thereon.

/s/ BDO
Seidman, LLP

New York, New York

April 13, 2009



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Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter and year ended January 31, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------

Not
applicable.



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PART III



|Item 10. | Directors, Executive Officers and Corporate Governance
|-------- | ------------------------------------------------------

The response to this item is incorporated by reference from the discussion responsive thereto under the captions Management Compliance with Section 16(a) of the Securities Exchange Act of 1934,
Code of Business Conduct and Ethics, and Corporate Governance Matters in our definitive Proxy Statement for our 2009 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the
end of fiscal 2008.



|Item 11. | Executive Compensation
|-------- | ----------------------

The
response to this item is incorporated by reference from the discussion responsive thereto under the caption Executive Compensation, Compensation Committee Interlocks and Insider Participation, and Compensation Committee
Report in our definitive proxy statement for our 2009 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of fiscal 2008.



|Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|-------- | ----------------------------------------------------------------------------------------------

The response to this item is incorporated by reference from the discussion responsive thereto under the captions Information About Alloy Security
Ownership and Equity Compensation Plan Information in our definitive proxy statement for our 2009 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of fiscal 2008.



|Item 13. | Certain Relationships and Related Transactions, and Director Independence
|-------- | -------------------------------------------------------------------------

The response to this item is incorporated by reference from the discussion responsive thereto under the captions Certain Relationships and Related
Transactions and Corporate Governance Matters in our definitive proxy statement for our 2009 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of fiscal 2008.



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

The response to this item is incorporated by reference from the discussion responsive thereto under the caption Independent Public Accountants in our definitive proxy statement for our 2009 Annual Meeting
of Stockholders, which is expected to be filed with the SEC within 120 days after the end of fiscal 2008.



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PART IV



|Item 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------

(1) Consolidated Financial Statements.

The financial statements are set forth under Item 8 of this
Annual Report on Form 10-K.

(2) Financial Statement Schedules.

The following financial statement schedule is included herein. All other financial statement schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or notes thereto.



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SCHEDULE II

ALLOY, INC.

VALUATION AND QUALIFYING ACCOUNTS



|                                             |  |                              |        |           |   |       |                  |  |   |                         |   |  |   |       
|-------------------------------------------- |  | ---------------------------- | ------ | --------- | - | ----- | ---------------- |  | - | ----------------------- | - |  | - | ------
|Description                                  |  | Balance atBeginning ofPeriod |        | Additions |   |       | Usage/Deductions |  |   | Balance atEnd of Period
|Allowance for doubtful accounts:             |  |                              |        |           |   |       |                  |  |   |                         |   |  |   |       
|January 31, 2009                             |  | $                            | 1,971  |           | $ | 450   |                  |  | $ | (664                    | ) |  | $ | 1,757 
|January 31, 2008                             |  |                              | 2,680  |           |   | (267  | )                |  |   | 442                     |   |  |   | 1,971 
|January 31, 2007                             |  |                              | 1,690  |           |   | 1,549 |                  |  |   | 559                     |   |  |   | 2,680 
|Valuation allowance for deferred tax assets: |  |                              |        |           |   |       |                  |  |   |                         |   |  |   |       
|January 31, 2009                             |  |                              | 22,578 |           |   |      |                  |  |   | (5,014                  | ) |  |   | 17,564
|January 31, 2008                             |  |                              | 15,368 |           |   | 7,210 |                  |  |   |                        |   |  |   | 22,578
|January 31, 2007                             |  |                              | 18,879 |           |   |      |                  |  |   | 3,511                   |   |  |   | 15,368



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EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                     
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  |                                                                                                                                                                                                                                                                     
|3.1           |  | Restated Certificate of Incorporation of Alloy, Inc., as amended (incorporated by reference to Alloys 2005 Annual Report on Form 10-K filed May 1, 2006).                                                                                                          
|              | 
|3.2           |  | Amended and Restated Bylaws of Alloy, Inc. (incorporated by reference to Alloys Current Report on Form 8-K/A filed October 18, 2007).                                                                                                                              
|              | 
|4.1           |  | Form of Common Stock Certificate (incorporated by reference to Alloys Registration Statement on Form S-1 filed March 10, 1999 (Registration Number 333-74159)).                                                                                                    
|              | 
|4.2           |  | Warrant to Purchase Common Stock, dated as of January 28, 2002, issued by Alloy, Inc. to Fletcher International Ltd. (incorporated by reference to Alloys Current Report on Form
8-K/A filed February 1, 2002).                                                    
|              | 
|4.3           |  | Stockholder Rights Agreement, dated as of April 14, 2003, between Alloy, Inc. and American Stock Transfer and Trust Company (incorporated by reference to Alloys Current Report of
Form 8-K filed April 14, 2003).                                                 
|              | 
|10.1         |  | Alloy, Inc. Amended and Restated 1997 Employee, Director and Consultant Stock Option and Stock Incentive Plan (incorporated by reference to Alloys 2002 Annual Report on Form 10-K
filed May 1, 2003).                                                             
|              | 
|10.1.1       |  | First Amendment to Alloy, Inc. Amended and Restated 1997 Employee, Director and Consultant Stock Option and Stock Incentive Plan (incorporated by reference to Alloys Proxy Statement
on Schedule 14A filed on June 2, 2003).                                      
|              | 
|10.1.2       |  | Second Amendment to Alloy, Inc. Amended and Restated 1997 Employee, Director and Consultant Stock Option and Stock Incentive Plan (incorporated by reference to Alloys Registration
Statement on Form S-8 filed October 17, 2003 (Registration Number 333-109788)).
|              | 
|10.1.3       |  | Third Amendment to Alloy, Inc. Amended and Restated 1997 Employee, Director and Consultant Stock Option and Stock Incentive Plan (incorporated by reference to Alloys Quarterly
Report on Form 10-Q, filed on December 10, 2004).                                  
|              | 
|10.2         |  | Amended and Restated Alloy, Inc. 2002 Incentive and Non-Qualified Stock Option Plan (incorporated by reference to Alloys 2002 Annual Report on Form 10-K filed May 1,
2003).                                                                                       
|              | 
|10.2.1       |  | First Amendment to Amended and Restated Alloy, Inc. 2002 Incentive and Non-Qualified Stock Option Plan (incorporated by reference to Alloys Registration Statement on Form S-8 filed
June 23, 2003 (Registration Number 333-106382)).                              
|              | 
|10.3         |  | Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (incorporated by reference to Alloys Current Report on Form 8-K filed on June 19, 2007) (File No. 000-26023).                                                                              
|              | 
|10.4         |  | 1999 Employee Stock Purchase Plan (incorporated by reference to Amendment No. 2 to Alloys Registration Statement on Form S-1/ A filed April 22, 1999 (Registration Number
333-74159)).                                                                             
|              | 
|10.5         |  | iTurf Inc. 1999 Amended and Restated Stock Incentive Plan (incorporated by reference to Amendment No. 2 to the iTurf Inc. registration statement on Form S-1/ A filed April 6, 1999
(Registration No. 333-71123)).                                                  
|              | 
|10.5.1       |  | First Amendment to iTurf Inc. Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Alloys Registration Statement on Form S-8 filed October 17, 2003
(Registration Number 333-109788)).                                                     



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|              |  |                                                                                                                                                                                                                                                                                                        
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  |                                                                                                                                                                                                                                                                                                        
|10.6         |  | Form of Nonqualified Stock Option Agreement for Restated 1997 Employee, Director and Consultant Stock Option Plan (incorporated by reference to Alloys Annual Report on Form 10-K
filed April 18, 2005).                                                                                              
|              | 
|10.7         |  | Form of Nonqualified Stock Option Agreement for Amended and Restated 2002 Incentive and Non-Qualified Option Plan (incorporated by reference to Alloys Annual Report on Form 10-K
filed April 18, 2005).                                                                                              
|              | 
|10.8         |  | Form of Incentive Stock Option Agreement for Restated 1997 Employee, Director and Consultant Stock Option Plan (incorporated by reference to Alloys Annual Report on Form 10-K filed
April 18, 2005).                                                                                                 
|              | 
|10.9         |  | Form of Nonqualified Stock Option Agreement for iTurf Inc. Amended and Restated 1999 Stock Incentive Plan. (incorporated by reference to Alloys Annual Report on Form 10-K filed
April 18, 2005).                                                                                                     
|              | 
|10.10        |  | Form of Incentive Stock Option Agreement for iTurf Inc. Amendment and Restated 1999 Stock Incentive Plan. (incorporated by reference to Alloys Annual Report on Form 10-K filed April
18, 2005).                                                                                                      
|              | 
|10.11        |  | Form of Restricted Stock Agreement(1) (incorporated by reference to Alloys Annual Report on Form 10-K filed April 18, 2005).                                                                                                                                                                          
|              | 
|10.12        |  | Form of Restricted Stock Agreement(2) (incorporated by reference to Alloys Annual Report on Form 10-K filed April 18, 2005).                                                                                                                                                                          
|              | 
|10.13        |  | Form of Stock Option Grant Notice and Stock Option Agreement for Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (includes accelerated vesting) (incorporated by
reference to Alloys Quarterly Report on Form 10-Q, filed on September 10, 2007).                             
|              | 
|10.14        |  | Form of Stock Option Grant Notice and Stock Option Agreement for Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (without accelerated vesting) (incorporated by
reference to Alloys Quarterly Report on Form 10-Q, filed on September 10, 2007).                              
|              | 
|10.15        |  | Form of Restricted Stock Grant Notice and Restricted Stock Agreement for Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (includes accelerated lapsing of
repurchase rights) (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on September 10, 2007).
|              | 
|10.16        |  | Employment Agreement, dated December 6, 2007, between Matthew C. Diamond and Alloy, Inc. (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December 7,
2007).                                                                                                              
|              | 
|10.17        |  | Non-Competition and Confidentiality Agreement dated November 24, 1998 between Matthew C. Diamond and Alloy Online, Inc. (incorporated by reference to Alloys Registration Statement
on Form S-1 filed March 10, 1999 (Registration Number 333-74159)).                                                
|              | 
|10.18        |  | Employment Agreement, dated December 6, 2007, between James K. Johnson, Jr. and Alloy, Inc. (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December 7,
2007).                                                                                                           
|              | 
|10.19         |  | Credit Agreement by and among Alloy, Inc., Bank of America, N.A., as Administrative Agent and L/C Issuer, and the Other Lenders Party Thereto, dated as of August 15, 2007 (incorporated by
reference to Alloys Current Report on Form 8-K filed August 16, 2007).                                    
|              | 
|10.19.1       |  | First Amendment and Waiver to Credit Agreement by and among Alloy, Inc., Bank of America, N.A., as Administrative Agent and L/C Issuer, and the Other Lenders Party Thereto, dated as of
January 16, 2008. (incorporated by reference to Alloys 2007 Annual Report on Form 10-K filed April 15, 2008).



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|              |  |                                                                                                                                                                                                                                                                                                 
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  |                                                                                                                                                                                                                                                                                                 
|10.19.2       |  | Second Amendment and Waiver to Credit Agreement by and among Alloy, Inc., Bank of America, N.A., as Administrative Agent and L/C Issuer, and the Other Lenders Party Thereto, dated as of May 22,
2008. (incorporated by reference to Alloys Quarterly Report on Form 10-Q filed June 9, 2008).
|              | 
|10.19.3       |  | Third Amendment and Waiver to Credit Agreement by and among Alloy, Inc., Bank of America, N.A., as Administrative Agent and L/C Issuer, and the Other Lenders Party Thereto, dated as of June 4,
2008. (incorporated by reference to Alloys Quarterly Report on Form 10-Q filed June 9, 2008). 
|              | 
|10.19.4*      |  | Amended and Restated Credit Agreement by and among Alloy, Inc., Bank of America, N.A., as Administrative Agent and L/C Issuer, and the Other Lenders Party Thereto, dated as of April 9, 2009.                                                                                                  
|              | 
|10.20        |  | Non-Competition and Confidentiality Agreement dated November 24, 1998 between James K. Johnson, Jr. and Alloy Online, Inc. (incorporated by reference to Alloys Registration Statement on
Form S-1 filed March 10, 1999 (Registration Number 333-74159)).                                      
|              | 
|10.21        |  | Employment Offer Letter dated March 13, 2000 between Joseph D. Frehe and Alloy Online, Inc. (incorporated by reference to Alloys 2007 Annual Report on Form 10-K filed April 15,
2008).                                                                                                        
|              | 
|10.22        |  | Non-Competition and Confidentiality Agreement dated February 21, 2001 between Joseph D. Frehe and Alloy Online, Inc. (incorporated by reference to Alloys 2007 Annual Report on
Form 10-K filed April 15, 2008).                                                                               
|              | 
|10.23        |  | Revision to Offer Letter, dated December 6, 2007, between Joseph D. Frehe and Alloy, Inc. (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December 7, 2007).                                                                                                      
|              | 
|10.24        |  | Employment Offer Letter dated February 21, 2001 between Gina DiGioia and Alloy Online, Inc. (incorporated by reference to Alloys 2005 Annual Report on Form 10-K filed May 1,
2006).                                                                                                           
|              | 
|10.25        |  | Non-Competition and Confidentiality Agreement dated March 13, 2000 between Gina DiGioia and Alloy Online, Inc. (incorporated by reference to Alloys 2005 Annual Report on Form 10-K filed
May 1, 2006).                                                                                        
|              | 
|10.26        |  | Revision to Offer Letter, dated December 6, 2007, between Gina R. DiGioia and Alloy, Inc. (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December 7, 2007).                                                                                                      
|              | 
|10.27        |  | Employment Offer Letter dated May 24, 2000 between Robert Bell and Alloy Online, Inc. (incorporated by reference to Alloys 2000 Annual Report on Form 10-K filed May 1,
2001).                                                                                                                 
|              | 
|10.28        |  | Non-Competition and Confidentiality Agreement dated March 24, 2000 between Robert Bell and Alloy Online, Inc. (incorporated by reference to Alloys 2000 Annual Report on Form 10-K filed May
1, 2001).                                                                                         
|              | 
|10.29        |  | Non-Competition and Confidentiality Agreement dated February 20, 2006 between Gary Yusko and Alloy, Inc. (incorporated by referenced to Alloys 2005 Annual Report on Form 10-K filed May 1,
2006).                                                                                             
|              | 
|10.30        |  | 2007 Alloy, Inc. Executive Incentive Bonus Plan (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December 7, 2007).                                                                                                                                                
|              | 
|10.31*       |  | Alloy, Inc. Outside Director Compensation Arrangements for fiscal year ending January 31, 2010.                                                                                                                                                                                                 
|              | 
|10.32*       |  | Alloy, Inc. Compensation Arrangements for Named Executive Officers for fiscal year ending January 31, 2010.                                                                                                                                                                                     
|              | 
|21.1*         |  | Subsidiaries of Alloy, Inc.                                                                                                                                                                                                                                                                     



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|              |  |                                                                                                     
|------------- |  | ----------------------------------------------------------------------------------------------------
|EXHIBITNUMBER |  |                                                                                                     
|23.1*         |  | Consent of BDO Seidman, LLP.                                                                        
|              | 
|31.1*         |  | Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|              | 
|31.2*         |  | Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.1*         |  | Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              | 
|32.2*         |  | Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



|* | Filed herewith.
|- | ---------------

| | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



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SIGNATURES

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



|            |  |                                                                     
|----------- |  | --------------------------------------------------------------------
|ALLOY, INC.
|            | 
|By:         |  | /s/     MATTHEW C.
DIAMOND                                          
|            |  | Matthew C. Diamond Chairman of the Board and Chief Executive Officer

Date: April 14, 2009

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 and in the capacity and on the dates indicated.



|                                                    |  |                                                                     |  |               
|--------------------------------------------------- |  | ------------------------------------------------------------------- |  | --------------
|Signature                                           |  | Title                                                               |  | Date          
|                                                    |  |                                                                    
|/s/    MATTHEW C.
DIAMOND Matthew C. Diamond        |  | Chief Executive Officer and Chairman (Principal Executive Officer)  |  | April 14, 2009
|                                                    |  |                                                                    
|/s/    JOSEPH D.
FREHE Joseph D. Frehe              |  | Chief Financial Officer(Principal Financial and Accounting Officer) |  | April 14, 2009
|                                                    |  |                                                                    
|/s/    JAMES K. JOHNSON ,
JR. James K. Johnson, Jr. |  | Director and Chief Operating Officer                                |  | April 14, 2009
|                                                    |  |                                                                    
|/s/    ANTHONY N.
FIORE Anthony N. Fiore            |  | Director                                                            |  | April 14, 2009
|                                                    |  |                                                                    
|/s/    SAMUEL A.
GRADESS Samuel A. Gradess          |  | Director                                                            |  | April 14, 2009
|                                                    |  |                                                                    
|/s/    PETER M.
GRAHAM Peter M. Graham              |  | Director                                                            |  | April 14, 2009
|                                                    |  |                                                                    
|/s/    JEFFREY
HOLLENDER Jeffrey Hollender          |  | Director                                                            |  | April 14, 2009
|                                                    |  |                                                                    
|/s/    EDWARD A.
MONNIER Edward A. Monnier          |  | Director                                                            |  | April 14, 2009
|                                                    |  |                                                                    
|/s/    RICHARD E.
PERLMAN Richard E. Perlman        |  | Director                                                            |  | April 14, 2009



82