<PAGE>
                                  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, 2002

              [ ] 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 (I.R.S. Employer Identification No.)
                         incorporation or organization)

                        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: NONE
           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                          COMMON STOCK, PAR VALUE $0.01

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. [ ]

The aggregate market value, based upon the closing sale price of the shares as
reported by the Nasdaq National Market, of voting stock held by non-affiliates
as of April 15, 2002 was $389,828,391 (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 Registrant's Common Stock outstanding on April 15,
2002 was 39,029,225.

Portions of the Registrant's Definitive Proxy Statement for its 2002 Annual
Meeting of Shareholders are incorporated by reference into Part III of this
Report.
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                                     PART I
ITEM 1.  BUSINESS.



OVERVIEW

We are a media, direct marketing and marketing services company targeting
Generation Y, the more than 60 million boys and girls in the United States
between the ages of 10 and 24. Our business integrates direct mail catalogs,
print media, websites, on-campus marketing programs, and promotional events, and
features a portfolio of brands that are well known among Generation Y consumers
and advertisers. We reach a significant portion of Generation Y consumers
through our various media assets, direct marketing activities and marketing
services programs, and, as a result, we are able to offer advertisers targeted
access to the youth market. Additionally, our assets have enabled us to build a
comprehensive database that includes detailed information about more than 9.6
million Generation Y consumers. We believe we are the only Generation Y-focused
media company that combines significant marketing reach with a comprehensive
consumer database, providing us with a deep understanding of the youth market.
Our revenues have grown rapidly, increasing from $2.0 million for fiscal 1997 to
$165.6 million for the fiscal year ended January 31, 2002 ("fiscal 2001").

Generation Y, our target market, is the fastest growing demographic group in the
United States and is expected to grow 14.7% faster than the overall U.S.
population from 2001 to 2005, according to U.S. Census data. Generation Y
controls significant disposable income and has influence over household
expenditure decisions. According to a study by Teenage Research Unlimited, a
market-research firm focusing on the teen market, U.S. teens spent $172 billion
in 2001. Students aged 18-24 are currently spending at a rate of $116 billion
per year, up from $106.5 billion per year in spring 2001 according to studies
completed by Harris Interactive, a research and polling firm.

We generate revenue from two principal sources -- merchandising, and sponsorship
and advertising. From our catalogs and websites, we sell third-party branded
products in key Generation Y spending categories, including apparel, action
sports equipment and accessories directly to the youth market. We generate
sponsorship and advertising revenues largely from traditional, blue chip
advertisers that seek highly targeted, measurable and effective marketing
programs to reach Generation Y. Advertisers can reach Generation Y through
integrated marketing programs that include our catalogs, magazines, books,
websites, and display media boards, as well as through promotional events,
product sampling, college and high school newspaper advertising, customer
acquisition programs and other marketing services that we provide. For fiscal
2001, we generated merchandising, and sponsorship and advertising revenues of
$124.0 million and $41.6 million, respectively, increases of 62% and 188%,
respectively, versus fiscal 2000.

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

         -        Broad Access to Generation Y. Our collection of media and
                  marketing assets enables us to reach a significant portion of
                  the over 60 million Generation Y consumers by:

                  -        circulating over 42.0 million direct mail catalogs
                           annually;

                  -        producing magazines, college guides and books;

                  -        owning and operating over 8,200 display media boards
                           on college and high school campuses throughout the
                           United States;

                  -        placing advertising in over 6,000 college and high
                           schools newspapers nationwide; and

                  -        interacting with our registered online user base
                           that, as of January 31, 2002, exceeded 8.5 million
                           individuals, including over 2.8 million users who
                           subscribe to our targeted e-mail magazines.

         -        Comprehensive Generation Y Database. As of January 31, 2002,
                  our database contains information about more than 9.6 million
                  individuals, including approximately 2.5 million who have
                  purchased products directly from us. In addition to names and
                  addresses, our database contains a variety of valuable
                  information that may include age, purchasing history, stated
                  interests, on-line behavior, educational level and
                  socioeconomic factors. We continually refresh and grow our
                  database with information we gather through our media,
                  merchandising and marketing services programs, as well as
                  through acquisitions of companies that have database
                  information. We analyze this data in detail, enabling us to
                  improve response rates from our direct sales efforts and to
                  offer advertisers cost-effective ways of reaching highly
                  targeted audiences.

         -        Established Media Franchises. Our principal media franchises
                  are well known by Generation Y consumers and by advertisers
                  that target this market. Alloy, CCS and Dan's Comp are
                  recognized brands among Generation Y consumers. Each of these
                  multi-media brands targets a specific segment of the youth
                  market through catalogs, websites and related consumer
                  magazines. For advertisers, our portfolio of marketing
                  businesses includes established youth marketers such as CASS
                  Communications, 360 Youth, and Private Colleges &
                  Universities, which collectively have over 60 years of
                  experience in creating and implementing advertising and
                  marketing programs for the youth market.

         -        Strong Relationship with Advertisers and Marketing Partners.
                  We provide advertisers and marketing partners with highly
                  targeted, measurable and effective means to reach the
                  Generation Y audience. Our seasoned advertising sales force of
                  over 50 professionals has established strong relationships
                  with youth marketers. We currently have over 750 advertising
                  clients, including AT&T Wireless, Hasbro, Hershey, Eastman
                  Kodak, Nestle, Reebok, Procter & Gamble and Universal Studios.

OUR DIRECT MARKETING & CONTENT PROPERTIES

Our business integrates the following assets to deliver broad access to
Generation Y:

DIRECT MARKETING

CATALOGS

Each of our catalogs targets a particular segment of Generation Y and offers
products, promotions and advertisements of interest to its audience. The
combined circulation of our catalogs was approximately 42.0 million catalogs in
fiscal 2001.

ALLOY -- We introduced Alloy, our first catalog, in August 1997. Alloy catalogs
range from 48 to 96 pages and offer an assortment of apparel, accessories,
footwear and room furnishings for sale to Generation Y girls. We generally mail
at least ten versions of this catalog each fiscal year. Since 2000, we have
included advertising pages in our Alloy catalogs and currently allocate up to
twelve pages per catalog to our advertising clients and marketing partners.


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CCS -- Our CCS catalog, which targets Generation Y boys, ranges from 64 to 128
pages and offers an assortment of action sports equipment, such as skateboards
and snowboards, and related apparel, accessories and footwear. We generally mail
at least eight versions of this catalog throughout each fiscal year and allocate
up to ten pages per catalog to our advertising clients and marketing partners.
CCS also sponsors a team of skateboarders, which participates in events and
promotions nationally. We acquired CCS in July 2000.

DAN'S COMP -- Our Dan's Comp catalog, which also targets Generation Y boys,
focuses on the BMX bike market and offers BMX bikes, parts and safety equipment,
as well as related apparel, accessories and footwear. We plan to mail five to
eight Dan's Comp catalogs during fiscal 2002 and to introduce up to ten pages
per catalog for our advertising clients and marketing partners. Dan's Comp also
sponsors a BMX bike team, which participates in events and promotions
nationally. We acquired Dan's Comp in September 2001.

WEBSITES

Our websites offer Generation Y consumers a wide range of merchandise
specifically geared to their interests and tastes, and enable us to generate
information for our database. Advertisers also use our websites to deliver
interactive marketing campaigns targeting the Generation Y market.

ALLOY -- Our flagship Alloy website (www.alloy.com) provides a broad range of
products, community, and content for Generation Y girls. Through this website,
we offer the apparel items, outerwear, accessories, footwear, cosmetics and room
furnishings that are available in our Alloy catalogs as well as additional
products and special offers. We facilitate community activity among users
through a variety of free interactive services such as e-mail and real-time
chat. Additionally, we provide user-generated interactive content areas such as
topical message boards, opinion polls and surveys. Our Generation Y-focused
editorial staff also provides advice in areas of interest to Generation Y girls,
such as relationships and fashion, in a forum where users can express their
opinion. Our professional editorial staff aggregates and regularly updates
information from a variety of sources and develops an edited presentation of
compelling and relevant Generation Y-focused content on topics including music,
relationships, celebrities, horoscopes, gossip, fashion trends and current
events.

CCS -- Our CCS website (www.ccs.com) features products, content and community
for action sports enthusiasts. This website also offers content on a variety of
topics primarily related to skateboarding and snowboarding. We offer the same
action sports equipment and related accessories, apparel items and footwear that
are found in our CCS catalogs as well as additional products and special offers.

DAN'S COMP -- Our Dan's Comp website (www.danscomp.com) is a popular online
destination for BMX bike enthusiasts. We offer Generation Y consumers the same
BMX bike sports equipment and related accessories, apparel items and footwear
that we offer in our Dan's Comp catalogs as well as additional products and
special offers.

PRIVATE COLLEGES & UNIVERSITIES -- Complementing our published college and
university guides, our Private Colleges & Universities websites provide
information on colleges and universities to college-bound high school students.
Hundreds of colleges and universities advertise their programs and recruit
students via these websites. We acquired Private Colleges & Universities in
April 2001.

eSTUDENTLOAN -- Our eStudentLoan websites feature college scholarship and
financial aid database search engines. These websites complement our college
recruitment publications and websites to serve the college bound segment of
Generation Y. We acquired eStudentLoan in November 2001.

MEDIA, ADVERTISING & MARKETING SERVICES

Through our several media units, 360 Youth, Triple Dot, Y-Access and Target
Marketing, we provide various advertising and marketing service programs which
offer advertisers direct access to Generation Y. We own and operate 8,200
display media boards that are located in high traffic areas on college and high
school campuses. These one, two or three panel display media boards often
feature full color, backlit advertising as well as scrolling electronic
messaging. We also provide marketing services such as consulting, market
research, event production, and product sampling and customer acquisition
programs for advertisers looking to reach Generation Y. Through our newspaper
advertising unit, Cass Communications, we are able to connect advertisers with
college and high schools throughout the United States. We believe we reach over
17 million college and high school newspaper readers.

PRINT MEDIA

We reach Generation Y consumers through magazines, publications and books.

PRIVATE COLLEGES & UNIVERSITIES -- Through Private Colleges & Universities, we
publish over 30 editions of targeted college guides providing information about
private colleges and universities and the admissions process to college-bound
high school students, their parents, and high-school guidance counselors. Our
editions target students based on academic achievement, geography and special
interests such as science and medicine, among others. We distribute our
guidebooks to the homes of college-bound students across the United States.

STRENGTH MAGAZINE -- Strength, a monthly glossy consumer magazine, is a
lifestyle publication for action sports enthusiasts. Strength is a companion to
our CCS and Dan's Comp catalogs and websites. We acquired Strength in February
2001.

ALLOYGIRL MAGAZINE -- AlloyGirl is a glossy lifestyle magazine for Generation Y
girls. AlloyGirl is published quarterly and distributed to a select portion of
our Alloy database on a controlled circulation basis. AlloyGirl contains
articles on issues of interest to Generation Y girls in addition to promotions,
advertising and information about fashion, accessories and products.

CONTENT

ALLOY ENTERTAINMENT / 17TH STREET PRODUCTIONS -- Through Alloy Entertainment and
17th Street Productions, we develop youth entertainment properties including
books and concepts for television series and motion pictures. We believe we are
the largest packager of books for the teen market. Some of our properties
include Roswell, Sweet Valley High and Fearless. Alloy Entertainment grew out of
our acquisition of 17th Street Productions in January 2000.

MERCHANDISING

Our merchandising strategy is designed to minimize fashion risk and to
facilitate speed to market and product assortment flexibility. Our primary
objective is to reflect, not lead, Generation Y styles and tastes. We select
merchandise from what we believe are quality designers and producers, allowing
us to stay current with the tastes of


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the market rather than to predict future fashion trends. Our buyers and
merchandisers work closely with our many vendors to tailor products to our
specifications. Through this strategy, we are able to minimize design risk and
make final product selections only two to three months before the products are
brought to market, not the typical six to nine months for many apparel
retailers.

We have designed our operational processes to support our merchandising
strategy. Our buyers have years of experience working with Generation Y retail
and direct marketing companies. We believe our staff has a proven ability to
identify desirable products and ensure that our vendors meet specific guidelines
regarding product quality and production time. At present, we use primarily
domestic vendors who must have the ability to produce and ship products within
two to eight weeks. This speed to market gives us flexibility to incorporate the
latest trends into our product mix and to better serve the evolving tastes of
Generation Y.

Our merchandising strategy also enables us to control our inventory levels
closely. We typically purchase less than 50% of our initial sales estimates and
rely on quick re-order ability. Because we do not make aggressive initial
orders, we believe we are able to limit our risk of excess inventory.
Additionally, we use our websites to offer special product prices and
periodically mail various sales catalogs to our customers to sell slower moving
inventory.

Because Alloy, CCS and Dan's Comp are recognized and popular brands among
Generation Y consumers, our websites and catalogs are a valuable marketing tool
for our vendors. As a result, our vendors typically grant us online and catalog
exclusivity for products we select. We believe this exclusivity makes the
merchandise in the Alloy, CCS and Dan's Comp catalogs more attractive to our
target audience and protects us from direct price comparisons. Our merchandise
selection includes products from more than 500 vendors. Brands currently offered
through Alloy include nationally recognized names such as Vans, Roxy/Quiksilver
and Skechers, as well as smaller, niche labels, including Paris Blues, Free
People and Mudd. CCS carries merchandise and equipment from major action sports
brands such as World Industries, Osiris and Birdhouse. Dan's Comp merchandise
includes a complete line of BMX-style bicycles, parts, safety equipment, apparel
and accessories from brands including Huffy, Hoffman and Free Agent bikes, and
Etnies, Split and DC apparel and footwear.

ORDERING, FULFILLMENT AND CUSTOMER SERVICE

In order to take, fulfill and ship orders for our Alloy merchandise business, we
use a full-service, integrated call center and fulfillment center with trained
personnel. This call center and fulfillment center is provided by NewRoads,
Inc., a specialized third-party fulfillment services company. NewRoads has over
400,000 square feet of warehouse space and a 400-seat call center in
Martinsville, Virginia available to support our current activity as well as our
anticipated growth. We closely monitor our NewRoads relationship, in part by
having several of our employees working on site at the NewRoads facilities.

We process CCS orders through our own 100-seat call center and warehouse
facilities located in San Luis Obispo, California. We staff our CCS call center
and warehouse with our own employees. The CCS fulfillment center has
approximately 77,000 square feet of warehouse space. In order to be more
cost-efficient, we are in the process of transferring our CCS call center and
warehouse operations to NewRoads. We currently anticipate that on or about
May 1, 2002, NewRoads will handle the CCS call center activities at the current
San Luis Obispo, California location, and the CCS warehouse functions will be
transferred to NewRoads facilities located in Portland, Tennessee.

We process Dan's Comp orders through our own 23-seat call center and warehouse
facilities located in Mt. Vernon, Indiana. We staff our Dan's Comp call center
and warehouse with our own employees. The Dan's Comp fulfillment center has
approximately 30,000 square feet of warehouse space.

We believe that high levels of customer service and support are critical to the
value of our services and to retaining and expanding our customer base. We
routinely monitor the customer service calls at each of our call centers for
quality assurance purposes. Additionally, we review our call and fulfillment
centers' policies and distribution procedures on a regular basis. We also
continue to evaluate whether we should operate our own warehouses and call
centers, or whether we should contract these functions out to third parties as
we have done with our Alloy operations. We ship our goods by common carrier.

Alloy trained customer service representatives are available 24 hours a day, 7
days per week through multiple toll-free telephone numbers and CCS trained
customer service representatives are available from 8:00 a.m. to 1:00 a.m.
Eastern Standard Time, seven days per week. Our Dan's Comp customer service
representatives are available from 9:00 a.m. to 9:00 p.m. Eastern Standard Time,
Monday through Friday, and from 9:00 a.m. to 1:00 p.m. Eastern Standard Time on
Saturday. The representatives are able to guide customers through the order
process, monitor order progress and provide general information about our
products such as sizing advice and product features.


SALES & MARKETING SALESFORCE

Our advertising sales organization includes over 50 sales professionals who are
either account managers generally responsible for specific geographic regions,
or product specialists. Over 15 of our sales professionals have ten years or
more experience selling youth-specific advertising or marketing programs. Our
account managers and product specialists work closely together to cross-sell our
media assets and marketing capabilities to existing advertising customers and to
build relationships with new advertisers. Our account managers are trained and
motivated to sell the entire portfolio of our media and advertising services
including:

         -  advertising in our catalogs, magazines, books and websites;

         -  advertising in our college guides;

         -  advertising on our display media boards, and marketing
            programs such as on-campus product sampling, customer
            acquisition programs, and promotional events; and

         -  advertising in high school and college newspapers.

Our advertising sales organization has grown through a combination of external
hiring and our acquisitions of Private Colleges & Universities, CASS
Communications and 360 Youth, each of which had an experienced sales force and a
strong base of existing advertising customers.

Our advertisers come from a wide range of industries that target the Generation
Y audience including apparel, consumer goods and electronics, cosmetics,
entertainment, financial services, food and beverage, and others. Our
advertising revenue base is well diversified, with no single advertiser
representing more than 10% of our total sponsorship and advertising revenue in
any single historical period.

INFRASTRUCTURE, OPERATIONS AND TECHNOLOGY

Our operations are dependent 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 or similar events.


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Where appropriate, we have implemented disaster recovery programs for our
various businesses. Critical files are copied to backup tapes each night and
regularly stored at an off-site storage facility. Arrangements have also been
made for the availability of third-party "hot sites" as well as
telecommunications recovery capability. Our servers are powered by an
uninterruptible power supply to provide back-up power at the operations facility
within seconds of a power outage. Redundant internet connections and providers
provide similar protection for our online services. We have implemented these
various redundancies and backup measures in order to minimize the risk
associated with damage from fire, power loss, telecommunications failure,
break-ins, computer viruses and other events beyond our control.

We strive for no downtime in our online services. All critical components of the
system are redundant, which allows continuous service in case of unexpected
component failure, maintenance and upgrades.

Currently, we license commercially available technology whenever possible in
lieu of dedicating our financial and human resources to developing online
infrastructure solutions. We provide most services regarding maintenance and
operation of our websites internally, under the direction of our Chief
Technology Officer. As of April 1, 2002, Exodus, a Cable & Wireless Service, and
Equinix Inc., third-party providers in Sterling, Virginia and Ashburn, Virginia,
respectively, provide us with co-location and bandwidth (i.e., our internet
connection). Our infrastructure is scaleable allowing us to adjust quickly to
our rapidly-expanding user base.

COMPETITION

Competition for the attention of Generation Y consumers is considerable. Our
catalogs compete with other catalog retailers and direct marketers, some of
which may specifically target our customers. We compete with a variety of other
companies serving segments of the Generation Y market including various
mail-order and web-based retailers, promotions and marketing services firms,
youth-targeted traditional retailers either in their physical or online stores,
and online service providers that offer products of interest to Generation Y
consumers.

We compete for users and advertisers with many media companies, including
companies that attempt, as we do, to target Generation Y consumers. These
include the Generation Y-focused magazines such as Seventeen, YM, Teen and Teen
People; teen-focused television and cable channels such as the WB Network and
MTV; websites primarily focused on the Generation Y demographic group; and
online service providers with teen-specific channels, such as America Online.

Many of our current and potential competitors have longer operating histories,
larger customer or user bases and significantly greater financial, marketing and
other resources than we do. 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:

         -        The size and amount of detail in our database;

         -        Our relationships with advertisers and marketing partners;

         -        The consumer and media brands we have developed in the
                  Generation Y market;

         -        Our knowledge of the Generation Y audience and our ability
                  through our marketing franchises to analyze the market; and

         -        Our ability to deliver targeted Generation Y audiences to
                  advertisers through cost-effective, cross-media advertising
                  programs.

INTELLECTUAL PROPERTY

We have registered the Alloy name, among other trademarks, with the U.S. Patent
and Trademark Office. Applications for the registration of certain of our other
trademarks and service marks are currently pending. We also use trademarks,
trade names, logos and endorsements of our suppliers and partners with their
permission. We are not aware of any pending material conflicts concerning our
marks or our use of others' intellectual property.

GOVERNMENT REGULATION

We are subject, both directly and indirectly, to various laws and governmental
regulations relating to our business. The internet is rapidly evolving and there
are few laws or regulations directly applicable to online commerce and community
websites. Due to the increasing popularity and use of the internet, governmental
authorities in the United States and abroad may adopt laws and regulations to
govern internet activities. Laws with respect to online commerce may cover
issues such as pricing, distribution and characteristics and quality of products
and services. Laws with respect to community websites may cover content,
copyrights, libel, obscenity and personal privacy. Any new legislation or
regulation or the application of existing laws and regulations to the internet
could have a material and adverse effect on our business, results of operations
and financial condition.

Governments of other 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 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.

Our failure to qualify as a foreign corporation in a jurisdiction where we are
required to do so could subject us to taxes and penalties for the failure to
qualify. 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. For example, a French court has ruled that a U.S.
website must comply with French laws regarding content. We cannot assure you
that state or foreign governments will not charge us with violations of local
laws or that we might not unintentionally violate these laws in the future.

The U.S. Congress enacted the Children's Online Privacy Protection Act of 1998
or ("COPPA"). The Federal Trade Commission promulgated regulations implementing
COPPA on October 21, 1999, which became effective on April 21, 2000. The
principal COPPA requirements apply to websites, or those portions of websites,
directed to children under age 13. COPPA mandates that individually identifiable
information about minors under the age of 13 not be collected, used or displayed
without first obtaining informed parental consent that is verifiable in light of
present technology. As a part of our efforts to comply with the new
requirements, we have decided not to provide many of our services to children
under the age of 13. This will likely dissuade some percentage of our customers
from using our website, which may adversely affect our business. While we
believe that our website is compliant with COPPA, our efforts may not have been
successful. If this is the case, we may face litigation with the Federal Trade
Commission or individuals or face a civil penalty, which would adversely affect
our business.

A number of government authorities both in the United States and abroad as well
as private parties are increasing their focus on privacy issues and the use of
personal information. The Federal Trade Commission and attorneys general in
several states have investigated the use of personal information by some
internet companies. In particular, an attorney general may examine such privacy
policies to assure the policies overtly and explicitly inform users of the
manner in which the information they


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provide will be used and disclosed by the company. As a result, we review our
privacy policies on a regular basis and we believe we are in compliance with
federal and state laws. However, our business could be adversely affected if new
regulations or decisions regarding the use of personal information are made, or
if government authorities or private parties challenge our privacy practices.

The European Union Directive on the Protection of Personal Data may affect our
ability to make our websites available in Europe if we do not afford adequate
privacy to European users. Similar legislation was recently passed in Canada,
Australia and Japan and may have a similar effect. The Canadian and Japanese
laws will be implemented in stages over the next two years, while the Australian
Amendment (Privacy Sector) Act 2000 became effective in December 2001, with an
additional 12 months extended to small businesses. Legislation governing privacy
of personal data provided to internet companies is in various stages of passage
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.

EMPLOYEES

As of January 31, 2002, we had 948 full-time employees, of whom 29 were senior
management; 110 worked in sales, marketing and sales support; 37 worked in
finance; 440 worked in warehouse/fulfillment/customer service; and 332 worked in
other management and personnel. None of our employees is covered by a collective
bargaining agreement. We consider relations with our employees to be good.

FINANCIAL INFORMATION ABOUT SEGMENTS

Financial information about our segments is summarized in Note 16 to
Consolidated Financial Statements presented in Item 8 of this Report on Form
10-K.

ITEM 2.  PROPERTIES.

Our principal office is located at 151 West 26th Street, New York, New York
10001, where we lease approximately 20,000 square feet of space. We also lease
an additional 7,000 square feet in New York City which houses a photo studio. In
addition, we lease approximately 16,000 square feet in Evanston, Illinois and
approximately 7,400 square feet of office space in Los Angeles, California, both
for the local office advertising and sales offices of Alloy and Cass
Communications. In San Luis Obispo, California, Phase Three, which does business
as CCS, leases a 150,000 square foot warehouse, along with approximately 20,000
square feet for the call center and corporate offices. Dan's Comp leases
approximately 40,000 square feet in Mt. Vernon, Indiana for general office, call
center and warehouse purposes. 360 Youth subleases approximately 43,000 square
feet in Cranbury, New Jersey for general office and warehouse space.

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 us as
a defendant along with James K. Johnson, Matthew C. Diamond, BancBoston
Robertson Stephens, Volpe Brown Whelan & Company, Dain Rauscher Wessels, and
Ladenburg Thalmann & Co., Inc., the underwriters on our initial public offering.
The complaint purportedly is filed on behalf of persons who purchased our common
stock between May 14, 1999 and December 6, 2000, and alleges violations of
Sections 11, 12(a)(2) and 15 of the Securities Act, and Section 10(b) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated
thereunder.

Specifically, the complaint alleges that, in connection with our initial public
offering, we and the other defendants failed to disclose "excessive commissions"
purportedly solicited by and paid to the underwriter defendants in exchange for
allocating shares of our common stock to preferred customers and alleged
agreements among the underwriter defendants and preferred customers tying the
allocation of our IPO shares to agreements to make additional aftermarket
purchases at pre-determined prices. Plaintiffs claim that the failure to
disclose these alleged arrangements made our prospectus incorporated in our
registration statement for our IPO materially false and misleading. Plaintiffs
seek unspecified damages. We believe that the allegations are without merit and
intend to defend vigorously against the plaintiffs' claims.

On or about April 19, 2002, plaintiffs filed amended complaints against us, the
individual defendants and the underwriters. The amended complaints assert
violations of Section 10(b) of the Exchange Act and mirror allegations asserted
against other issuers sued by plaintiffs.

We are involved in additional legal proceedings which have arisen in the
ordinary course of business. We believe that there are no claims or litigation
pending, the outcome of which could have a material adverse effect on our
financial condition or operating results.

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

No matter was submitted during the fourth quarter of the fiscal year covered by
this report to a vote of our security holders.


                                       5
<PAGE>
                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

MARKET INFORMATION

Our common stock has traded on The Nasdaq National Market under the symbol
"ALOY" since our initial public offering in May 1999. The last reported sale
price for our common stock on April 30, 2002 was $12.65 per share. The table
below sets forth the high and low sale prices for our common stock during the
periods indicated.

<TABLE>
<CAPTION>
                                                                            COMMON STOCK PRICE
                                                                            ------------------
                                                                             HIGH           LOW
                                                                             ----           ---
<S>                                                                         <C>            <C>
FISCAL 2000 (ENDED JANUARY 31, 2001)
First Quarter.............................................................  $20.25         $7.88
Second Quarter............................................................   15.12         10.00
Third Quarter.............................................................   11.38          5.75
Fourth Quarter............................................................    9.00          6.50
FISCAL 2001 (ENDED JANUARY 31, 2002)
First Quarter.............................................................  $13.50         $7.22
Second Quarter............................................................   17.44          8.94
Third Quarter.............................................................   17.95          9.25
Fourth Quarter............................................................   23.95         11.58
FISCAL 2002 (ENDING JANUARY 31, 2003)
First Quarter ............................................................  $21.38        $10.55
</TABLE>

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

SHAREHOLDERS

As of January 31, 2002, there were approximately 159 holders of record of our
common stock, and approximately 6,293 beneficial owners of our common stock.

DIVIDENDS

We have never declared or paid cash dividends on our capital stock. 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. In addition, even if we wanted to pay dividends on our common stock, we
would require the consent of the holders of our Series B convertible preferred
stock for any dividends declared or paid prior to December 15, 2002.

UNREGISTERED SALES OF SECURITIES

On January 28, 2002, we issued and sold to Fletcher International, Ltd., a
private investment entity, 1,367,366 shares of our common stock, at a purchase
price of $21.94 per share, for an aggregate purchase price of $30,000,000, and
issued a warrant (the "Warrant") to purchase up to 888,788 shares of our common
stock, in each case subject to adjustment under specified circumstances. The
Warrant is exercisable in whole or in part at any time on or prior to January
28, 2012 at an exercise price of $21.94 per share, subject to adjustment. Each
of the purchase price for our common stock and the exercise price under the
Warrant was equal to approximately 111% of the closing price of our common stock
on January 25, 2002.

The securities issued in the foregoing transaction(s) were offered and sold in
reliance upon exemptions from the Securities Act of 1933 ("Securities Act") and
registration requirements set forth in Section 4(2) of the Securities Act, and
any regulations promulgated thereunder, relating to sales by an issuer not
involving any public offering. No underwriters were involved in the foregoing
sales of securities.

ITEM 6.

SELECTED FINANCIAL DATA.

The following selected financial data is derived from our consolidated financial
statements and notes thereto. Selected financial data should be read in
conjunction with our Financial Statements and the corresponding Notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and other financial information included elsewhere in this report on
Form 10-K.

<TABLE>
<CAPTION>
                                                                                   Year Ended January 31,
                                                                                   ----------------------

                                                                        (in thousands, except share and per share data)
                                                              1998          1999           2000            2001           2002
                                                              ----          ----           ----            ----           ----
<S>                                                      <C>            <C>            <C>             <C>             <C>
STATEMENTS OF OPERATIONS DATA (3):
Net merchandise revenues ..............................  $     1,985    $    11,243    $     30,952    $     76,736    $    124,052
Sponsorship and other revenues ........................           --            125           2,912          14,452          41,570
                                                         -----------    -----------    ------------    ------------    ------------

Total revenues ........................................        1,985         11,368          33,864          91,188         165,622
Cost of goods sold ....................................        1,050          5,486          13,765          37,757          68,858
                                                         -----------    -----------    ------------    ------------    ------------

Gross profit ..........................................          935          5,882          20,099          53,431          96,764
Operating expenses:
Selling and marketing .................................        2,152         10,324          30,520          60,814          81,829
General and administrative ............................          682          1,683           5,423          10,659          13,516
Amortization of goodwill and other intangible assets...           --             --             332           8,573          18,316
                                                         -----------    -----------    ------------    ------------    ------------

Total operating expenses ..............................        2,834         12,007          36,275          80,046         113,661
                                                         -----------    -----------    ------------    ------------    ------------
</TABLE>


                                       6
<PAGE>
<TABLE>
<S>                                                      <C>            <C>            <C>             <C>             <C>
Loss from operations ..................................       (1,899)        (6,125)        (16,176)        (26,615)        (16,897)
Interest income (expense), net ........................           34           (239)          1,542           1,119             935
Realized (loss) gain on marketable securities and
investments ...........................................           --             --              --          (4,193)            658
Provision for income taxes ............................           --             --              --              --            (296)
Charge for early retirement of debt ...................           --             --            (235)             --              --

Net loss ..............................................  $    (1,865)   $    (6,364)   $    (14,869)   $    (29,689)   $    (15,600)
                                                         ===========    ===========    ============    ============    ============
Non-cash charge attributable to beneficial
conversion feature of preferred stock issued (1) ......           --             --              --              --           6,745
Preferred stock dividends and accretion of discount ...           --              7              13              --           3,013
Net loss attributable to common shareholders ..........       (1,865)        (6,371)        (14,882)        (29,689)        (25,358)
                                                         ===========    ===========    ============    ============    ============
Basic and diluted net loss attributable to common
shareholders per common share before
extraordinary item (2) ................................  $     (0.33)   $     (0.75)   $      (1.15)   $      (1.61)   $      (1.02)
Extraordinary charge for early retirement of debt (2) .  $      0.00    $      0.00    $      (0.02)   $       0.00    $       0.00
Basic and diluted net loss attributable to common
shareholders per common share (2) .....................  $     (0.33)   $     (0.75)   $      (1.17)   $      (1.61)   $      (1.02)
                                                         ===========    ===========    ============    ============    ============

Weighted average basic and diluted common shares
outstanding: ..........................................    5,617,577      8,479,727      12,718,318      18,460,042      24,967,678
                                                         ===========    ===========    ============    ============    ============
</TABLE>

<TABLE>
<CAPTION>
                                                                                      January 31,
                                                                                      -----------
                                                                                     (in thousands)

                                                        1998             1999             2000              2001              2002
                                                        ----             ----             ----              ----              ----
<S>                                                    <C>             <C>               <C>              <C>               <C>
BALANCE SHEET DATA (3):
Cash and cash equivalents ....................         $2,321          $ 2,983           $12,702          $  9,338          $ 61,618
Working capital ..............................          2,451            5,266            30,179            25,400            65,430
Total assets .................................          3,166            7,407            57,668           106,908           310,207
Promissory notes, net ........................             --            3,945                --                --                --
Capital lease obligation, less current portion             --               40                --               103               358
Convertible redeemable preferred stock, net ..             --            4,836                --                --            15,046
Total shareholders' equity (deficit) .........          2,479           (3,046)           45,208            88,282           249,734
</TABLE>

(1) See Note 9 to the Financial Statements for a description of the beneficial
conversion feature of Series A and Series B Convertible Preferred Stock. The net
loss attributable to common shareholders reflects the intrinsic value of the
realization of a contingent beneficial conversion feature of preferred stock
issued.

(2) See Note 13 to the Financial Statements for an explanation of the
determination of the number of common shares used in computing the amount of
basic and diluted net loss per common share and net loss attributable to common
shareholders per common share.

(3) See Note 3 to the Financial Statements for a description of the effect of
our acquisitions on the comparability of our selected financial information for
the fiscal years ended January 31, 2001 and January 31, 2002.


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

The following discussion of our financial condition and results of operation
should be read in conjunction with the Financial Statements and the related
Notes included elsewhere in this report on Form 10-K. 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
under "Risk Factors That May Affect Future Results" and elsewhere in this
report.

OVERVIEW

We are a media, direct marketing and marketing services company targeting
Generation Y, the more than 60 million boys and girls in the United States
between the ages of 10 and 24. Our business integrates direct mail catalogs,
print media, websites, on-campus marketing programs and promotional events, and
features a portfolio of brands that are well known among Generation Y consumers
and advertisers. We reach a significant portion of Generation Y consumers
through our various media assets, direct marketing activities and marketing
services programs, and, as a result, we are able to offer advertisers targeted
access to the youth market.

We were incorporated in January 1996, launched our Alloy website in August 1996
and began generating meaningful revenues in August 1997 following the
distribution of our first Alloy catalog. Since then, we have grown rapidly, both
organically and through the completion of strategic acquisitions. We generate
revenue from two principal sources -- merchandising, and sponsorship and
advertising.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A") discusses our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, we evaluate our estimates and
judgments, including those related to customer incentives, product returns, bad
debts, inventories, investments, intangible assets, income taxes, and
contingencies and litigation. We base our estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.

In December 2001, the SEC requested that all registrants list their three to
five most "critical accounting policies" in MD&A. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements. We believe, however, the following critical
accounting policies, among others, affect our more significant judgments and
estimates used in the preparation of our consolidated financial statements.


                                       7
<PAGE>
Revenue Recognition

Merchandise revenues are recognized at the time the products are shipped to
customers net of an allowance for sales returns, which is determined in
accordance with our return policy and based on historical experience and
forecasted trends, and net of any promotional price discounts. We are subject
to seasonal fluctuations in our merchandise sales and results of operations.
We expect its net sales and operating results generally to be lower in the
first half of each fiscal year, as compared to the second half of each
fiscal year.

In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus with
respect to Issue No. 00-10, "Accounting for Shipping and Handling Revenues and
Costs." The purpose of this issue discussion was to clarify the classification
of shipping and handling revenues and costs. The consensus reached was that all
shipping and handling billed to customers is revenue. We adopted the provisions
of this pronouncement in the third quarter of fiscal 2000, and have presented
its consolidated statements of operations in accordance with this issue.
Furthermore, EITF Issue No. 00-10 requires that if shipping costs or handling
costs are significant and are not included in cost of sales, these costs and the
line items which include them on the consolidated statements of operations
should be disclosed. We include these costs in selling and marketing expenses in
its consolidated statements of operations. These costs were $3.9 million, $7.7
million and $11.8 million for the years ended January 31, 2000, 2001 and 2002,
respectively.


                                       8
<PAGE>
Sponsorship revenues consist primarily of advertising provided for third parties
in our media properties. Revenue under these arrangements is recognized as the
contracted advertising is delivered pursuant to the terms of each arrangement,
and when any of our other obligations are performed, provided that
collectability is deemed probable, as determined by us. Delivery of advertising
is completed either in the form of the display of an "impression", or over the
economic life of a print catalog for printed advertisements in this medium.
Associated advertising costs are recognized as incurred, and any direct-response
advertising costs are recorded over the economic life of each catalog offering,
in accordance with the American Institute of Certified Public Accountants
Statement of Position 93-7, "Reporting on Advertising Costs." Billings recorded
in advance of advertising delivery are deferred until the impressions are
delivered.

Other revenues consist of book development/publishing revenue and other service
contracts related to certain of the businesses acquired since 1999. The revenues
and related expenses earned and incurred in connection with publishing
activities are recognized upon publication of such property. Any amounts
received prior to publication are treated as advances, and classified as a
current liability. Costs paid prior to publication are deferred and classified
as other current assets in the consolidated balance sheets. Contract revenues
are recognized upon the delivery of the contracted services and when no
significant Company performance obligation remains. Billings recorded in advance
of provision of services are deferred until the services are provided. In the
case of our newspaper advertising placement service, revenue is reported net of
amounts paid to suppliers in accordance with Emerging Issues Task Force Issue
No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an agent." The
consensus in this issue requires reporting of revenue on a net basis when a
company acts as an agent or a broker, and not as a principal, and does not
assume the risk and rewards of ownership of goods.

Catalog costs

Catalog costs consist of catalog production and mailing costs. Catalog costs are
capitalized and charged to expense over the expected future revenue stream,
which is principally three to four months from the date the catalogs are mailed.
Catalog costs are included within selling and marketing expenses in the
accompanying consolidated statements of operations.

Goodwill and Intangible Assets

Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired. Goodwill relating to acquisitions completed prior to
June 30, 2001 was being amortized on a straight-line basis over lives ranging
from three to five years. Pursuant to SFAS 142, there was no goodwill
amortization recorded for all acquisitions completed after June 30, 2001.
Effective February 1, 2002, and in accordance with SFAS 142, goodwill will cease
to be amortized. As of January 31, 2002, our intangible and other assets consist
of trademarks, mailing lists, noncompetition agreements, websites and marketing
rights. Trademarks currently have indefinite lives; however, the other
identified intangible assets are amortized over periods ranging from three to
five years. These assets were recorded pursuant to our business acquisitions
during fiscal 2001.

RESULTS OF OPERATIONS

The following table sets forth the statement of operations data for the periods
indicated as a percentage of revenues:

<TABLE>
<CAPTION>
                                                                               Year ended January 31,
                                                                               ----------------------

                                                                        2000             2001             2002
                                                                        ----             ----             ----
<S>                                                                    <C>              <C>              <C>
STATEMENTS OF OPERATIONS DATA
Net merchandise revenues ....................................           91.4%            84.2%            74.9%
Sponsorship and other revenues ..............................            8.6             15.8             25.1

Total revenues ..............................................          100.0            100.0            100.0
Cost of goods sold ..........................................           40.6             41.4             41.6

Gross profit ................................................           59.4             58.6             58.4
Operating expenses:
Selling and marketing .......................................           90.1             66.7             49.4
General and administrative ..................................           16.0             11.7              8.2
Amortization of goodwill and other intangible assets ........            1.0              9.4             11.0

Total operating expenses ....................................          107.1             87.8             68.6

Loss from operations ........................................          (47.7)           (29.2)           (10.2)
Interest income, net ........................................            4.5              1.2              0.6
Realized (loss) gain on marketable securities and
  investments ...............................................             --             (4.6)             0.4
Provision for income taxes ..................................             --               --             (0.2)
Charge for early retirement of debt .........................           (0.7)              --               --
Net loss ....................................................          (43.9)           (32.6)            (9.4)
Non-cash charge attributable to beneficial conversion
  feature of preferred stock issued .........................             --               --              4.1
Preferred stock dividends and accretion of discount .........             --               --              1.8
Net loss attributable to common shareholders ................          (43.9)%          (32.6)%          (15.3)%
</TABLE>

FISCAL YEARS ENDED JANUARY 31, 2000 ("FISCAL 1999"), JANUARY 31, 2001 ("FISCAL
2000") AND JANUARY 31, 2002 ("FISCAL 2001")


Revenues

Merchandise Revenues. Net merchandise revenues increased 147.9% from $31.0
million for fiscal 1999 to $76.7 million for fiscal 2000, and increased 61.7%
from $76.7 for fiscal 2000 to $124.1 million for fiscal 2001. The increase in
merchandise revenues in fiscal 2001 was due primarily to the increased size of
our Generation Y database to which we marketed our merchandise offerings and our
expanded merchandise offerings, which were enhanced by the inclusion of
merchandise sales from our CCS catalog and website for the full fiscal 2001 year
versus from July 2000 in fiscal 2000, and the inclusion of merchandise sales
from our Dan's Comp catalog and website from late September 2001 when the Dan's
Comp acquisition closed. The increase from fiscal 1999 to fiscal 2000 was due to
similar factors which included merchandise sales from our CCS catalog and
website beginning in July 2000 in fiscal 2000.

Sponsorship and Other Revenues. Sponsorship and other revenues increased 187.6%
from $14.5 million for fiscal 2000, to $41.6 million for fiscal 2001 due
primarily to the selling efforts of our expanded in-house advertising sales
force. Increased website traffic at our websites, increased total catalog
circulation, and magazine property development provided more advertising
inventory to sell in fiscal 2001 relative to fiscal 2000. Our advertising and
sponsorship sales efforts were further enhanced in fiscal 2001 by the sales
forces and services provided by Private Colleges & Universities, acquired in
April 2001; CASS Communications, acquired in


                                       9
<PAGE>
August 2001; and 360 Youth, acquired in November 2001. Sponsorship and other
revenues increased 396.3% from $2.9 million in fiscal 1999 to $14.5 million in
fiscal 2000 due to the full year of sales force efforts in fiscal 2000 versus
only six months of effort in fiscal 1999 as this unit commenced activity in July
1999, along with the increased traffic to our websites and expanded catalog
circulation in fiscal 2000.

Cost of Goods Sold

Cost of goods sold consists of the cost of the merchandise sold by us plus the
freight cost to deliver the merchandise to the warehouse, together with the
direct costs attributable to the sponsorship and advertising programs we provide
and the publications we develop and produce. Our cost of goods sold increased
174.3% from $13.8 million for fiscal 1999 to $37.8 million for fiscal 2000, and
82.4% to $68.9 million in fiscal 2001. The increase in cost of goods sold in
fiscal 2001 as compared to fiscal 2000, and fiscal 2000 as compared to fiscal
1999 was due primarily to the increase in merchandise sales to our growing
customer base.

Our gross profit as a percentage of total revenues decreased from 59.4% for
fiscal 1999 to 58.6% for fiscal 2000 due to the inclusion of lower margin CCS
merchandise sales from July 2000 when our CCS acquisition closed, offset by an
increased overall percentage of higher margin sponsorship and other revenues
generated in fiscal 2000. In fiscal 2001, our gross profit as a percentage of
total revenues decreased to 58.4% from 58.6% in fiscal 2000 due to the full year
inclusion of lower margin CCS merchandise sales and the lower margin Dan's Comp
merchandise sales from September 2001 when this acquisition closed, offset by an
increased overall percentage of higher margin sponsorship and other revenues
generated in fiscal 2001.

Operating Expenses

Selling and Marketing. Selling and marketing expenses consist primarily of
catalog production and mailing costs; our call center and fulfillment operations
expenses; freight costs in shipping to our merchandise customers; salaries of
our sales and marketing personnel; marketing costs; and expenses related to the
development, maintenance and marketing of our websites. These selling and
marketing expenses increased 34.6% from $60.8 million for fiscal 2000 to $81.8
million for fiscal 2001, due to the increased costs incurred in marketing,
selling and shipping to our expanded database in greater volume; the hiring of
additional sales and marketing personnel; and increased spending on website
development and maintenance. These selling and marketing expenses increased
99.3% from $30.5 million for fiscal 1999 to $60.8 million for fiscal 2000, due
to the increased costs of enlarged catalog circulation, fulfilling an increased
number of merchandise orders; more extensive website promotion and development;
and the hiring of additional sales and marketing personnel. As a percentage of
total revenues, our selling and marketing expenses decreased from 66.7% for
fiscal 2000 to 49.4% for fiscal 2001, after declining from 90.1% for fiscal 1999
to 66.7% in fiscal 2000. The decrease from fiscal 2000 to fiscal 2001 resulted
primarily from our more targeted merchandise marketing to our enlarged
Generation Y database, reduced general advertising and marketing activity, and
greater sales force efficiency in selling sponsorship and advertising services
packages. The decrease from fiscal 1999 to fiscal 2000 was due primarily to more
targeted merchandise marketing to more productive names in our Generation Y
database, fulfillment efficiencies associated with higher order volumes, and
reduced general advertising and marketing activity. Fulfillment expenses rose
102.7% from $6.7 million for fiscal 1999 to $13.6 million for fiscal 2000 and
56.9% to $21.3 million for fiscal 2001, but as a percentage of total revenues
fell from 19.7% for fiscal 1999 to 14.9% for fiscal 2000, and to 12.9% for
fiscal 2001 as increased scale and improved forecasting have generated
fulfillment efficiencies.

General and Administrative. General and administrative expenses consist
primarily of salaries and related costs for our executive, administrative,
finance and management personnel, as well as support services and professional
service fees. These expenses increased 96.6% from $5.4 million for fiscal 1999
to $10.7 million for fiscal 2000, and 26.8% to $13.5 million for fiscal 2001.
The increase in general and administrative expenses from fiscal 1999 to fiscal
2000 and from fiscal 2000 to fiscal 2001 was driven by an increase in
compensation expense for additional personnel to handle our growing business,
together with expenses incurred as a result of becoming a public company after
our initial public offering in May 1999, such as professional fees, insurance
premiums and public relations costs. As a percentage of total revenues, our
general and administrative expenses decreased from 16.0% for fiscal 1999 to
11.7% for fiscal 2000 to 8.2% for fiscal 2001 as we have spread our overhead
expenses across an enlarged revenue base. We expect general and administrative
expenses to grow as we hire additional personnel and incur additional expenses
related to the growth of our business and our operations.

Amortization of Goodwill and Other Intangible Assets. Amortization of goodwill
and other intangible assets was approximately $18.3 million for fiscal 2001 as
compared to $8.6 million for fiscal 2000 and $332,000 for fiscal 1999. These
costs resulted from our acquisition activities, which commenced in fiscal 1999.
All of our acquisitions have been accounted for under the purchase method of
accounting. As further discussed in Recent Accounting Pronouncements below, the
Financial Accounting Standards Board ("FASB") has adopted statements in July
2001 regarding business combinations and intangible assets. The statements
eliminated goodwill amortization for acquisitions completed after June 2001 and
eliminate amortization of all goodwill and require an annual impairment review
of goodwill based on fair value commencing in our fiscal year 2002. Accordingly,
future periods will be impacted by these statements for the elimination of
amortization and potential impairments of goodwill to be recognized.

Loss from Operations

As described above, we continue to invest heavily to build our consumer brands,
grow and market to our customer database, enhance and attract visitors to our
websites, increase the number of our employees to support a growing operation,
and make strategic acquisitions. For these reasons, our loss from operations
increased 64.5%, from $16.2 million for fiscal 1999 to $26.6 million for fiscal
2000, while the loss decreased 36.5% in fiscal 2001 to $16.9 million as we
generated greater efficiencies in our direct marketing operations and benefited
from increased scale in our sponsorship activities.

Interest Income, Net

Interest income net of expense includes income from our cash and cash
equivalents and from investments and expenses related to our financing
obligations. For fiscal 1999, fiscal 2000 and fiscal 2001, we generated net
interest income of $1.5 million, $1.1 million and $935,000, respectively, due to
the investment of proceeds raised in our initial public offering and our
subsequent issuances of common and preferred stock.

Realized (Loss) Gain on Marketable Securities and Investments and Charge for
Early Retirement of Debt

In fiscal 2001, we unwound our collars on 600,000 shares of Liberty Digital
(LDIG) common stock and sold 628,000 shares of LDIG. The series of transactions
resulted in a gain of $658,000. In fiscal 2000, we sold 209,435 shares of
Liberty Digital common stock resulting in a loss on sale of approximately $3.2
million. We also wrote off a minority investment in a private company in fiscal
2000 resulting in a loss on investment of $1.0 million. As a result of the early
retirement of our outstanding promissory notes upon the closing of our initial
public offering in May 1999, we incurred a one-time extraordinary charge of
$235,000.

Income Tax Expense

In fiscal 2001, we were subject to income tax expense of $296,000 due to
operating income generated at the state level.


SELECTED UNAUDITED QUARTERLY RESULTS OF OPERATIONS


                                       10
<PAGE>
The following table sets forth unaudited quarterly statements of operations data
for each of the eight quarters ended January 31, 2002. In the opinion of
management, the unaudited financial results include all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of our
results of operations for those periods. The quarterly data should be read in
conjunction with the Financial Statements and the related Notes appearing
elsewhere in this report. The results of operations for any quarter are not
necessarily indicative of the results of operations for any future period.


                                       11
<PAGE>
<TABLE>
<CAPTION>
                                              Fiscal Quarter Ended (Unaudited)
                                              --------------------------------
                                      (in thousands, except share and per share data)

                                         Apr. 30,          Jul. 31,        Oct. 31,
                                           2000              2000            2000
                                           ----              ----            ----
<S>                                   <C>              <C>              <C>
Net merchandise revenues              $      6,141     $      9,739     $     24,271
Sponsorship and other
revenues                                     2,209            2,571            3,788
                                      ------------     ------------     ------------
Total revenues                               8,350           12,310           28,059
Cost of goods sold                           3,001            4,462           12,351
Gross profit                                 5,349            7,848           15,708
Operating expenses:
Selling and marketing                        9,304           11,181           19,294
General and
administrative                               1,972            2,746            2,995
Amortization of goodwill
and other intangible assets                    811            1,204            3,250
                                      ------------     ------------     ------------
Total operating
expenses                                    12,087           15,131           25,539
                                      ------------     ------------     ------------
(Loss) income from operations               (6,738)          (7,283)          (9,831)
Interest income, net                           433              386              150
Realized (loss) gain on marketable
securities and investments                      --               --               --
                                      ------------     ------------     ------------
(Loss) income before
 income taxes                               (6,305)          (6,897)          (9,681)

Provision for income taxes                      --               --               --
                                      ------------     ------------     ------------
Net (loss) income                           (6,305)          (6,897)          (9,681)
Non-cash charge attributable to
beneficial conversion feature
of preferred stock issued                       --               --               --
Preferred stock dividend
and accretion                                   --               --               --
                                      ------------     ------------     ------------
Net (loss) income attributable
to common shareholders                $     (6,305)    $     (6,897)    $     (9,681)
Basic (loss) earnings
attributable to common
shareholders per share                $      (0.42)    $      (0.38)    $      (0.48)
Fully diluted (loss) earnings
attributable to common
shareholders per share                $      (0.42)    $      (0.38)    $      (0.48)

Weighted average basic
common shares
outstanding                             15,160,546       17,958,137       20,270,050
                                      ============     ============     ============
Weighted average diluted
common shares outstanding               15,160,546       17,958,137       20,270,050
                                      ============     ============     ============
</TABLE>

<TABLE>
<CAPTION>
                                                            Fiscal Quarter Ended (Unaudited)
                                                            --------------------------------
                                                      (in thousands, except share and per share data)

                                         Jan. 31,         Apr. 30          Jul. 31       Oct. 31         Jan. 31
                                           2001             2001             2001          2001            2002
                                           ----             ----             ----          ----            ----
<S>                                   <C>              <C>              <C>              <C>          <C>
Net merchandise revenues              $     36,585     $     23,733     $     21,780     $ 31,761     $    46,778
Sponsorship and other
revenues                                     5,884            4,508            6,955       12,702          17,405
                                      ------------     ------------     ------------     --------     -----------
Total revenues                              42,469           28,241           28,735       44,463          64,183
Cost of goods sold                          17,943           12,363           12,650       17,861          25,984
Gross profit                                24,526           15,878           16,085       26,602          38,199
Operating expenses:
Selling and marketing                       21,035           17,483           15,405       21,484          27,457
General and
administrative                               2,946            2,949            3,341        3,221           4,005
Amortization of goodwill
and other intangible assets                  3,308            3,741            4,613        4,709           5,253
                                      ------------     ------------     ------------     --------     -----------
Total operating
expenses                                    27,289           24,173           23,359       29,414          36,715
                                      ------------     ------------     ------------     --------     -----------
(Loss) income from operations               (2,763)          (8,295)          (7,274)      (2,812)          1,484
Interest income, net                           150              203              286          223             223
Realized (loss) gain on marketable
securities and investments                  (4,193)             658               --           --              --
                                      ------------     ------------     ------------     --------     -----------
(Loss) income before
 income taxes                               (6,806)          (7,434)          (6,988)      (2,589)          1,707

Provision for income taxes                      --               --               --           75             221
                                      ------------     ------------     ------------     --------     -----------
Net (loss) income                           (6,806)          (7,434)          (6,988)      (2,664)          1,486
Non-cash charge attributable to
beneficial conversion feature                   --            2,769            3,976           --              --
of preferred stock issued
Preferred stock dividend
and accretion                                   --              125              368        1,927             593
                                      ------------     ------------     ------------     --------     -----------
Net (loss) income attributable
  to common shareholders              $     (6,806)    $    (10,328)    $    (11,332)    $ (4,591)    $       893
Basic (loss) earnings
  attributable to common
  shareholders per share              $      (0.33)    $      (0.49)    $      (0.51)    $  (0.18)    $      0.03
Fully diluted (loss) earnings
  attributable to common
  shareholders per share              $      (0.33)    $      (0.49)    $      (0.51)    $  (0.18)    $      0.02

Weighted average basic
  common shares outstanding             20,386,684       21,044,563       22,254,923     24,991,646   31,451,651
                                      ============     ============     ============     ==========   ==========
Weighted average diluted
  common shares outstanding             20,386,684       21,044,563       22,259,923     24,991,646   36,398,649
                                      ============     ============     ============     ==========   ==========
</TABLE>


                                       12
<PAGE>
<TABLE>
<CAPTION>
                                                                      Percentage of Total Revenues
                                                                      ----------------------------
<S>                                     <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net merchandise revenues                 73.6%      79.1%      86.5%      86.1%      84.0%      75.8%      71.4%      72.9%
Sponsorship and other
revenues                                 26.4       20.9       13.5       13.9       16.0       24.2       28.6       27.1
                                        -----      -----      -----      -----      -----      -----      -----      -----

Total revenues                          100.0      100.0      100.0      100.0      100.0      100.0      100.0      100.0
Cost of goods sold                       35.9       36.2       44.0       42.2       43.8       44.0       40.2       40.5
                                        -----      -----      -----      -----      -----      -----      -----      -----

Gross profit                             64.1       63.8       56.0       57.8       56.2       56.0       59.8       59.5
Operating expenses:
Selling and marketing                   111.5       90.9       68.7       49.6       61.9       53.6       48.3       42.8
General and
administrative                           23.6       22.3       10.7        6.9       10.4       11.6        7.2        6.2
Amortization of goodwill
and other intangible assets               9.7        9.8       11.6        7.8       13.3       16.1       10.6        8.2
                                        -----      -----      -----      -----      -----      -----      -----      -----

Total operating expenses                144.8      123.0       91.0       64.3       85.6       81.3       66.1       57.2
                                        -----      -----      -----      -----      -----      -----      -----      -----

(Loss) income from operations           (80.7)     (59.2)     (35.0)      (6.5)     (29.4)     (25.3)      (6.3)       2.3
Interest income, net                      5.2        3.1        0.5        0.4        0.7        1.0        0.5        0.3
Recognized (loss) gain on marketable
securities and investments                 --         --         --       (9.9)       2.4         --         --         --

(Loss) income before
income taxes                            (75.5)     (56.1)     (34.5)     (16.0)     (26.3)     (24.3)      (5.8)       2.6


Provision for income taxes                 --         --         --         --         --         --        0.2        0.3

Net (loss) income                       (75.5)     (56.1)     (34.5)     (16.0)     (26.3)     (24.3)      (6.0)       2.3
                                        =====      =====      =====      =====      =====      =====      =====      =====

Non-cash charge attributable to
beneficial conversion feature              --         --         --         --        9.8       13.8         --         --
Preferred stock dividends and
accretion                                  --         --         --         --        0.5        1.3        4.3        0.9
Net (loss) income attributable
to common shareholders                  (75.5)%    (56.1)%    (34.5)%    (16.0)%    (36.6)%    (39.4)%    (10.3)%      1.4%
                                        =====      =====      =====      =====      =====      =====      =====      =====
</TABLE>


                                       13
<PAGE>
Our revenues have been increasing on a quarter-over-quarter basis as a result of
the growth of our name database to which we market our merchandise offerings;
our broadening merchandise assortment; the increasing sales of sponsorships and
advertising on our websites and in our catalogs to companies seeking to market
to our Generation Y audience; and strategic acquisitions we have made. The
significant increase in sponsorship and other revenues recognized in the third
and fourth quarter of fiscal 2001 reflects the seasonal peak sales of this
business for back-to-school and holiday, together with the inclusion of CASS
Communications' revenues from August 2001 and 360 Youth's revenues from late
November 2001. Our gross profit as a percentage of total revenues has ranged
between approximately 56% and 64% with the higher percentages occurring in
quarters that have a relatively higher percentage of sponsorship and other
revenues. The level of our selling and marketing expenses is generally
correlated with our catalog circulation and merchandise selling cycle which
peaks in the third and fourth quarters of each fiscal year and troughs in the
first and second quarters. General and administrative expenses have been rising
as a result of increasing personnel, increasing operating costs of our growing
business and costs related to our being a public company. As a percentage of
revenues, our selling and marketing and general and administrative expenses tend
to decline in our fiscal third and fourth quarters due to seasonally higher
order volumes and order values relative to catalogs circulated, and the leverage
that we have on our fixed expense base when our revenues seasonally peak.

We expect our quarterly revenues, margins and results of operations to fluctuate
significantly in the future. In addition, the results of any quarter do not
indicate results that should be expected for a full fiscal year. If our
revenues, margins or operating results fall below the expectations of securities
analysts and investors in some future periods, then the price of our common
stock could decline.

SEASONALITY

Our historical revenues and operating results have varied significantly from
quarter to quarter due to seasonal fluctuations in consumer purchasing patterns.
Sales of apparel, accessories, footwear and action sports equipment through our
websites and catalogs have been higher in our third and fourth fiscal quarters
which contain the key back-to-school and holiday selling seasons, than in our
first and second fiscal quarters. We believe that advertising and sponsorship
sales will follow a similar pattern with higher revenues in the third and fourth
quarters as marketers more aggressively attempt to reach our Generation Y
audience during these major spending seasons.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations primarily through the sale of equity and debt
securities as we have generated negative cash flow from operations prior to
fiscal 2001. At January 31, 2002, we had approximately $76.7 million of cash,
cash equivalents and short-term investments. Our principal commitments at
January 31, 2002 consisted of accounts payable, accrued expenses and obligations
under operating and capital leases. In fiscal 2001, we raised approximately
$26.7 million in net proceeds from the sales of our Series A and Series B
Convertible Preferred Stock in February and June, respectively; in November
2001, we raised approximately $30.1 million from the sale in a private placement
of 2,575,000 shares of our common stock; and in January 2002, we raised
approximately $28.2 million of net proceeds from the sale in a private placement
of 1,367,366 shares of our common stock and a warrant exercisable for 888,788
shares of our common stock, subject to adjustment. Subsequently, in February
2002, we raised approximately $57.4 million, net of expenses and underwriters'
discounts, in an underwritten public offering of 4,000,000 shares of our common
stock.

Net cash provided by operating activities was $2.3 million for fiscal 2001 as a
result of more efficient database marketing, greater media sales force
productivity and general expense control, offset by growth in operating assets,
primarily accounts receivable from our sponsorship and advertising sales
activities. Net cash used in operating activities was $17.6 million and $12.1
million for fiscal 2000 and fiscal 1999, respectively. The principal use of cash
for each of these fiscal years was to fund our losses from operations and to
finance growth of non-cash working capital to support our growing business.

Reference is made to Note 14 of the consolidated financial statements wherein
all of our significant commercial commitments are discussed. We do not currently
have any debt instruments; all commitments consist of lease obligations and
standby letters of credit. As of January 31, 2002, there were no amounts
outstanding under our credit agreement. There were also no current commitments
for capital expenditures.

Cash used in investing activities was $48.1 million in fiscal 2001 due primarily
to the use of $45.8 million of cash to fund our acquisitions of Private Colleges
& Universities, CASS Communications, Dan's Comp, 360 Youth and eStudentLoan, and
$2.1 million of capital expenditures. Cash provided by investing activities of
$5.3 million in fiscal 2000 resulted from $22.2 million provided by net sales
and maturities of marketable securities, offset by $12.9 million used in
connection with business acquisitions, primarily to repay debt obligations of
the acquired CCS business, $3.0 million of capital expenditures and $1.0 million
invested in a private company. Cash used in investing activities in fiscal 1999
of $27.0 million resulted primarily from the investment of $20.9 million in
initial public offering proceeds in marketable securities, $3.9 million in
business acquisitions and $1.9 million in capital expenditures.

In fiscal 2001, net cash provided by financing activities totaled $98.1 million
primarily from the net proceeds raised in the issuance of our common stock in
two private placement transactions and of our Series A and Series B convertible
preferred stock, together with proceeds from employee stock option exercises. As
a result of the issuance of our Series A and Series B convertible preferred
stock, we recorded a beneficial conversion feature of $6.7 million and accretion
and dividends of $3.0 million in fiscal 2001 which together increased the net
loss attributable to common shareholders by $9.7 million in the year. In fiscal
2000, net cash provided by financing activities was $8.9 million primarily from
the net cash proceeds of our sale of 2,922,694 shares of our common stock to a
subsidiary of Liberty Digital. Cash provided by financing activities of $48.8
million in fiscal 1999 was primarily the result of our initial public offering
of 3,700,000 shares of our common stock offset by the repayment of $3.8 million
of promissory notes.

Our liquidity position as of January 31, 2002, consisted of $76.7 million of
cash, cash equivalents and short-term investments, and, as adjusted for the net
proceeds of our underwritten public offering of 4,000,000 shares of common stock
in February 2002, consisted of $134.1 million of cash, cash equivalents and
short-term investments. We expect that our liquidity position will meet our
anticipated cash needs for working capital and capital expenditures, excluding
acquisitions, for at least the next 24 months. If cash generated from operations
is insufficient to satisfy our cash needs, we may be required to raise
additional capital. If we raise additional funds through the issuance of equity
securities, you may experience significant dilution. Furthermore, additional
financing may not be available when we need it or, if available, financing may
not be on terms we consider favorable. 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 to respond to competitive pressures. Any
of these events could have a material and adverse effect on our business,
results of operations and financial condition.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued Statements of Financial Accounting Standards No.
141, "Business Combinations" ("FAS 141") and No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). These standards change the accounting for
business combinations by, among other things, prohibiting the prospective use of
pooling-of-interests accounting and requiring companies to stop amortizing
goodwill and certain intangible assets with an indefinite useful life created by
business combinations accounted for using the purchase method of accounting.
Instead, goodwill and intangible assets deemed to have an indefinite useful life
will be subject to an annual review for impairment. The new standards generally
will be effective for us in our first quarter of fiscal 2002 and for purchase
business combinations consummated after June 30, 2001. Upon adoption, we will
stop amortizing goodwill. Based on the current level of goodwill and its
associated amortization, this would reduce annual amortization expense by
approximately $18.8 million. Because goodwill amortization is nondeductible for
tax purposes, the impact of stopping goodwill amortization would be to increase
our annual net income by approximately $18.8 million. In addition, we are in the
process of evaluating certain intangible assets to determine whether they are
deemed to have an indefinite useful life. We expect that only acquired
trademarks
<PAGE>
and trade names have indefinite useful lives. As noted above, goodwill and
intangible assets deemed to have an indefinite useful life will be subject to an
annual review for impairment. An independent third party valuation report as of
January 31, 2002 indicated that there is no impairment of our goodwill or
intangible assets deemed to have an indefinite useful life. Accordingly, we do
not expect any impact upon adoption of FAS 142. If, however, we conclude that an
impairment charge for goodwill or intangible assets deemed to have an indefinite
useful life is necessary in a future period, any required charge would reflected
as an operating expense in the period such impairment is deemed to exist.

In August 2001, the FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This
statement supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," and the
accounting and reporting provisions of Accounting Principles Board Opinion No.
30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for the disposal of a segment of a business (as
previously defined in that Opinion. The provisions of this Statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those years. This statement
retains the requirements of FASB Statement No. 121 to recognize an impairment
loss only if the carrying amount of a long-lived asset is not recoverable from
its undiscounted cash flows and to measure such impairment as the difference
between the carrying amount and fair value of the asset. Goodwill is
specifically excluded from the provisions of this statement. The Statement
further provides guidance for cash flow estimations under certain situations.
Additionally, the Statement clarifies accounting for disposals other than by a
sale, as well as for long-lived assets held for sale. We are currently
evaluating the impact of the provisions of this Statement and will adopt the
required accounting and reporting as of February 1, 2002.

In July 2000, the EITF reached a consensus with respect to Issue No. 00-10,
"Accounting for Shipping and Handling Revenues and Costs." The purpose of this
issue discussion was to clarify the classification of shipping and handling
revenues and costs. The consensus reached was that all shipping and handling
billed to customers is revenue. We adopted the provisions of this pronouncement
in the third quarter of fiscal 2000, and have presented our consolidated
statements of operations in accordance with this issue. Furthermore, we
reclassified our consolidated statements of operations for the years ended
January 31, 1999 and 2000 to conform with this consensus as we previously netted
shipping and handling revenues with the related costs and included the residual
amount as selling and marketing expenses. The impact of this reclassification
resulted in an increase of net merchandise revenues of $1,158 and $2,698 for the
years ended January 31, 1999 and 2000, respectively, offset by an equivalent
increase in selling and marketing expenses for these periods. Furthermore, EITF
Issue No. 00-10 requires that if shipping costs or handling costs are
significant and are not included in cost of sales, these costs and the line
items which include them on the consolidated statements of operations should be
disclosed. We include these costs in selling and marketing expenses in our
consolidated statements of operations. These costs were $3,939, $7,699 and
$11,801 for the years ended January 31, 2000, 2001 and 2002, respectively.

The EITF is also discussing Issue No. 00-21, "Accounting for Revenue
Arrangements with Multiple Deliverables." This issue deals with the accounting
for contractual arrangements in which multiple revenue-generating activities
will be performed. The EITF is considering how to determine the units of
accounting in an arrangement and how to account for the components as well as
the direct costs incurred in connection with an arrangement. The key
consideration is the determination of objective measures of fair value. While
this issue was not applicable to our historical transactions, future results may
be impacted by applicable arrangements that are within the scope of this issue.
No final consensus has been reached with respect to these matters.
<PAGE>
              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-K may contain forward-looking statements that involve
risks and uncertainties, including statements regarding our current expectations
and beliefs regarding our future results or performance. Such statements are
subject to certain factors, risks and uncertainties that may cause actual
results, events and performance to differ materially from those referred to or
implied by such statements. In addition, actual future results may differ
materially from those anticipated, depending on a variety of factors, which
include, but are not limited to, achieving and maintaining profitability,
expanding and utilizing our database, our ability to build brand recognition,
and our ability to increase our advertising customers and programs. Information
with respect to important factors that should be considered is contained in the
"Risk Factors That May Affect Future Results" section below. You are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. We do not intend to update any of the
forward-looking statements to conform these statements to actual results or to
changes in management's expectations, except as required by law.


                   RISK FACTORS THAT MAY AFFECT FUTURE RESULTS


The following risk factors and other information included in this report should
be carefully considered. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us
or that we deem immaterial may also impair 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.

                          RISKS RELATED TO OUR BUSINESS

WE MAY NOT BE ABLE TO ACHIEVE OR MAINTAIN PROFITABILITY.

Since our inception in January 1996, we have incurred significant net losses. We
have never reported positive net income for a full fiscal year, and we may never
do so. As of January 31, 2002, we had an accumulated deficit of approximately
$75.3 million. Although we expect to generate positive net income in fiscal
2002, there is no assurance that we will do so.

OUR BUSINESS MAY NOT GROW IN THE FUTURE.

Since our inception, we have rapidly expanded our business, growing from
revenues of $2.0 million for fiscal 1997 to $165.6 million for fiscal 2001. Our
continued growth will depend to a significant degree on our ability to increase
revenues from our merchandising businesses, to maintain existing sponsorship and
advertising relationships and to develop new relationships, to integrate
acquisitions, and to maintain and enhance the reach and brand recognition of our
existing media franchises and 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 (i) the
continuing appeal of our media and marketing properties to Generation Y
consumers, (ii) the continued perception by participating advertisers and
sponsors that we offer an effective marketing channel for their products and
services, (iii) our ability to select products that appeal to our customer base
and to market such products effectively to our target audience, (iv) our ability
to attract, train and retain qualified employees and management and (v) our
ability to make additional strategic acquisitions. There can be no assurance
that we will be able to implement our growth strategy successfully.

WE MAY FAIL TO USE OUR GENERATION Y DATABASE AND OUR EXPERTISE IN MARKETING TO
GENERATION Y CONSUMERS SUCCESSFULLY, AND WE MAY NOT BE ABLE TO MAINTAIN THE
QUALITY AND SIZE OF OUR DATABASE.

The effective use of our Generation Y consumer database and our expertise in
marketing to Generation Y are important components of our business. If we fail
to capitalize on these assets, our business will be less successful. As
individuals in our database age beyond Generation Y, they may no longer be of
significant value to our business. We must therefore continuously obtain data on
new individuals in the Generation Y demographic in order to maintain and
increase the size and value of our database. If we fail to obtain sufficient new
names and information, our business could be adversely affected. Moreover, there
are other Generation Y-focused media businesses that possess similar information
about some segments of Generation Y. We compete for sponsorship and advertising
revenues based on the comprehensive nature of our database and our ability to
analyze and interpret the data in our database. Accordingly, if one or more of
our competitors were to create a database similar to ours, or if a competitor
were able to analyze its data more effectively than we can, our competitive
position, and therefore our business, could suffer.

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 of our Alloy, CCS and Dan's Comp catalogs and websites and our
related consumer magazines among our Generation Y target market, and the
prominence of our CASS Communications, 360 Youth and Private Colleges &
Universities brands and media franchises with advertisers are key components of
our business. If our consumer brands or their associated merchandise and
editorial content lose their appeal to Generation Y consumers, our business
could be adversely affected. The value of our consumer brands could also be
eroded by misjudgments in merchandise selection or by our failure to keep our
content current with the evolving preferences of our audience. These events
would likely also reduce sponsorship and advertising sales for our merchandise
and publishing businesses and may also adversely affect our marketing and
services businesses. Moreover, we anticipate that we will continue to increase
the number of Generation Y consumers we reach, through means which may include
broadening the intended audience of our existing consumer brands or creating or
acquiring new media franchises or related businesses. Misjudgments by us in this
regard could damage our existing or future brands. If any of these developments
occur, our business would suffer.

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, and may also
decline at other times. Accordingly, our revenues could decline during any
general economic downturn. In addition, our revenues have historically been
higher during the third and fourth fiscal quarters, coinciding with the start of
the school calendar and holiday season spending, than in the first half of our
fiscal year. Therefore, our results of operations in our third and fourth fiscal
quarters may not be indicative of our full fiscal year performance.

OUR INABILITY TO ACQUIRE SUITABLE BUSINESSES OR TO MANAGE THEIR INTEGRATION
COULD HARM OUR BUSINESS.

We expect 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. We could have difficulty in assimilating personnel and operations of
the businesses we have acquired and may have similar problems with future
acquisitions. These difficulties could disrupt our business, distract our
management and employees and increase our expenses. Furthermore, we may issue
additional equity securities, potentially on terms which could be dilutive to
our existing shareholders.
<PAGE>
WE MUST EFFECTIVELY MANAGE OUR VENDORS TO MINIMIZE INVENTORY RISK AND MAINTAIN
OUR MARGINS.

We seek to avoid maintaining high inventory levels in an effort to limit the
risk of outdated merchandise and inventory writedowns. If we underestimate
quantities demanded by our customers and our vendors cannot restock, then we may
disappoint customers who may then turn to our competitors. We require our
vendors to meet minimum restocking requirements, but if our vendors cannot meet
these requirements and we cannot find alternative vendors, we could be forced to
carry more inventory than we have in the past. Our risk of inventory writedowns
would increase if we were to hold large inventories of merchandise that prove to
be unpopular.

COMPETITION MAY ADVERSELY AFFECT OUR BUSINESS AND CAUSE OUR STOCK PRICE TO
DECLINE.

Because of the growing perception that Generation Y is an attractive demographic
for marketers, 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 will be
materially and adversely affected and our stock price will decline.

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.

We depend on third parties for important aspects of our business, including some
of our call center and fulfillment operations. We have limited control over
these third parties, and we are not their only client. To the extent some of our
inventory is held by these third parties, we also may face losses as a result of
inadequate security at these third-party facilities. 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.

WE DEPEND ON OUR KEY PERSONNEL TO OPERATE OUR BUSINESS, AND WE MAY NOT BE ABLE
TO HIRE ENOUGH ADDITIONAL MANAGEMENT AND OTHER PERSONNEL TO MANAGE OUR GROWTH.

Our performance is substantially dependent on the continued efforts of our
executive officers and other key employees. The loss of the services of any of
our executive officers could adversely affect our business. Additionally, we
must continue to attract, retain and motivate talented management and other
highly skilled employees to be successful. We may be unable to retain our key
employees or attract, assimilate and retain other highly qualified employees in
the future.

WE ARE VULNERABLE TO NEW TAX OBLIGATIONS THAT COULD BE IMPOSED ON CATALOG AND
ONLINE COMMERCE TRANSACTIONS.

We do not collect sales or other similar taxes for shipments of goods into most
states. However, various states or foreign countries may seek to impose sales
tax obligations on us for our catalog and online merchandise sales. Proposals
have been made at state and local levels that would impose additional taxes on
the sale of goods and services through catalogs and the internet. Those
proposals, if adopted, could substantially impair the growth of our
merchandising businesses by making direct sales comparatively less attractive to
consumers than traditional retail purchasing. Existing federal legislation
limits the ability of states to impose taxes on internet-based transactions
until November 2003. A number of states have attempted to impose sales taxes on
catalog sales from businesses such as ours. A successful assertion by one or
more states that we should have collected or should be collecting sales taxes on
the sale of products could have a material and adverse effect on our business.

WE COULD FACE LIABILITY OR OUR ABILITY TO CONDUCT BUSINESS COULD BE ADVERSELY
AFFECTED BY GOVERNMENT AND PRIVATE ACTIONS CONCERNING PERSONALLY IDENTIFIABLE
DATA, INCLUDING PRIVACY.

Our direct marketing and database businesses are subject to federal and state
regulations requiring that we maintain the confidentiality of the names and
personal information of our customers and the individuals included in our
database. 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 on our websites may adversely
affect our business. For example, a federal law 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 a civil penalty. 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.

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 or as a result of materials
posted by members on bulletin boards on our websites. Based on links we provide
to third-party websites, we could also be subjected to claims based upon online
content we do not control that is 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 third-party contractors
involve the storage and transmission of information, such as credit card
numbers, 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. These claims could result in
substantial costs and a diversion of our management's attention and resources.

RISKS RELATING TO OUR COMMON STOCK

OUR STOCK PRICE HAS BEEN VOLATILE, IS LIKELY TO CONTINUE TO BE VOLATILE, AND
COULD DECLINE SUBSTANTIALLY.
<PAGE>
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 National Market, 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.


WE ARE A DEFENDANT IN A CLASS ACTION SUIT AND DEFENDING THIS LITIGATION 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.
Defending against this litigation 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 this litigation, or settle on adverse terms,
our stock price may be adversely affected.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK.

As of the end of Fiscal 2001, we held a portfolio of $15.0 million in fixed
income marketable securities for which, due to the conservative nature of our
investments and relatively short duration, interest rate risk is mitigated. 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 which would require disclosure under
this item.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                                                            Page
                                                                                                      ----
<S>                                                                                                   <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                               F-1

FINANCIAL STATEMENTS:
  Consolidated Balance Sheets as of January 31, 2001 and 2002                                          F-2

  Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years
    Ended January 31, 2000, 2001 and 2002                                                              F-3

  Consolidated Statements of Changes in Shareholders' (Deficit) Equity and Other Comprehensive
    Income (Loss) for the Years Ended January 31, 2000, 2001 and 2002                                  F-4

  Consolidated Statements of Cash Flows for the Years Ended January 31, 2000, 2001 and 2002            F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                             F-6
</TABLE>
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Alloy, Inc.:

We have audited the accompanying consolidated balance sheets of Alloy, Inc. (a
Delaware corporation) and subsidiaries as of January 31, 2001 and 2002, and the
related consolidated statements of operations and comprehensive loss, statements
of changes in shareholders' equity and accumulated other comprehensive (loss)
income and cash flows for each of the three years in the period ended January
31, 2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
360 Youth, Inc. as of January 31, 2002 and for the period from November 27, 2001
through January 31, 2002, which statements reflect total assets and total
revenues of 2 percent and 3 percent in the fiscal year ended January 31, 2002 of
the related consolidated totals. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
the amounts included for this entity, is based solely on the report of the other
auditors.

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

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Alloy, Inc. and subsidiaries as of January 31, 2001
and 2002, and the results of their operations and their cash flows for each of
the three years in the period ended January 31, 2002 in conformity with
accounting principles generally accepted in the United States.


Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of valuation and qualifying
accounts is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.




                                      ARTHUR ANDERSEN LLP




New York, New York
March 13, 2002


                                      F-1
<PAGE>
ALLOY, INC.

CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                          January 31,
                                                                                                     ----------------------
                                             ASSETS                                                  2001              2002
                                             ------                                                  ----              ----
<S>                                                                                               <C>               <C>
CURRENT ASSETS:
   Cash and cash equivalents                                                                      $   9,338         $  61,618
   Marketable securities                                                                             16,064            15,049
   Accounts receivable, net of allowance for doubtful accounts of $1,456 and $2,143,
     respectively                                                                                     3,416            13,662
   Inventories, net                                                                                  13,200            16,400
   Prepaid catalog costs                                                                              1,330             1,786
   Other current assets                                                                                 575             1,984
                                                                                                  ---------         ---------
                  Total current assets                                                               43,923           110,499

Property and equipment, net                                                                           5,841             8,554
Goodwill, net                                                                                        55,963           178,474
Intangible and other assets, net                                                                      1,181            12,680
                                                                                                  ---------         ---------
                  Total assets                                                                    $ 106,908         $ 310,207
                                                                                                  =========         =========


                              LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                                               $   9,860         $  11,199
   Deferred revenues                                                                                  1,560            15,481
   Accrued expenses and other current liabilities                                                     7,103            18,389
                                                                                                  ---------         ---------
                  Total current liabilities                                                          18,523            45,069

Long-term liabilities                                                                                   103               358

Series B Redeemable Convertible Preferred Stock, $10,000 per share liquidation
   preference; $.01 par value; 3,000 shares designated; mandatorily redeemable
   on June 19, 2005; 0 and 1,765 shares issued and outstanding, respectively (Note 9)                    --            15,046

COMMITMENTS AND CONTINGENCIES (Note 14)

SHAREHOLDERS' EQUITY:
   Preferred stock; $.01 par value; 10,000,000 shares authorized of which 1,850,000 shares
     designated as Series A Redeemable Convertible Preferred Stock and 3,000 shares                      --                --
     designated as Series B Redeemable Convertible Preferred Stock authorized, 0 and 1,765
     shares issued and outstanding as Series B Redeemable Convertible Preferred Stock
     (above), respectively
   Common stock; $.01 par value; 50,000,000 shares authorized; 21,245,958 and 34,916,877
     shares issued and outstanding, respectively                                                        212               349
   Additional paid-in capital                                                                       140,864           324,719
   Accumulated deficit                                                                              (52,905)          (75,250)
   Deferred compensation                                                                               (728)              (31)
   Accumulated other comprehensive gain (loss)                                                          839               (53)
                                                                                                  ---------         ---------
                  Total shareholders' equity                                                         88,282           249,734
                                                                                                  ---------         ---------
                  Total liabilities and shareholders' equity                                      $ 106,908         $ 310,207
                                                                                                  =========         =========
</TABLE>


The accompanying notes are an integral part of these consolidated balance
sheets.


                                      F-2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
                                                                                        For the Years Ended January 31,
                                                                                        -------------------------------
                                                                               2000                2001                 2002
                                                                               ----                ----                 ----
<S>                                                                       <C>                  <C>                  <C>
REVENUES:
   Net merchandise revenues                                               $     30,952         $     76,736         $    124,052
   Sponsorship and other revenues                                                2,912               14,452               41,570
                                                                          ------------         ------------         ------------

                  Total revenue                                                 33,864               91,188              165,622

Cost of goods sold                                                              13,765               37,757               68,858
                                                                          ------------         ------------         ------------

Gross profit                                                                    20,099               53,431               96,764
                                                                          ------------         ------------         ------------

OPERATING EXPENSES:
   Selling and marketing                                                        30,520               60,814               81,829
   General and administrative                                                    5,423               10,659               13,516
   Amortization of goodwill and other intangible assets                            332                8,573               18,316
                                                                          ------------         ------------         ------------

                  Total operating expenses                                      36,275               80,046              113,661
                                                                          ------------         ------------         ------------

Loss from operations                                                           (16,176)             (26,615)             (16,897)

OTHER INCOME (EXPENSE):
   Interest income                                                               1,695                1,138                  943
   Interest expense                                                               (153)                 (19)                  (8)
   (Loss) gain on sale of investments                                               --               (4,193)                 658
                                                                          ------------         ------------         ------------

Net loss before income taxes and extraordinary item                            (14,634)             (29,689)             (15,304)

Provision for income taxes                                                          --                   --                  296


Net loss before extraordinary item                                             (14,634)             (29,689)             (15,600)

Charge for early retirement of debt (Note 15)                                     (235)                  --                   --
                                                                          ------------         ------------         ------------

Net loss                                                                       (14,869)             (29,689)             (15,600)

Unrealized (loss) gain on available-for-sale marketable securities                 (78)                 917                 (892)
                                                                          ------------         ------------         ------------
Comprehensive loss                                                        $    (14,947)        $    (28,772)        $    (16,492)

Net loss                                                                  $    (14,869)        $    (29,689)        $    (15,600)

Non-cash charge attributable to beneficial conversion feature
  of preferred stock issued                                                         --                   --                6,745
Preferred stock dividend and accretion of discount                                  13                   --                3,013
                                                                          ------------         ------------         ------------
Net loss attributable to common shareholders                              $    (14,882)        $    (29,689)        $    (25,358)
                                                                          ============         ============         ============

Net Loss per common share (Note 13):

   Basic and Diluted:
     Net loss per common share attributable to common shareholders
         before extraordinary item                                        $      (1.15)        $      (1.61)        $      (1.02)
     Extraordinary loss on early retirement of debt                              (0.02)                  --                   --
                                                                          ------------         ------------         ------------
Net loss per common share attributable to common shareholders             $      (1.17)        $      (1.61)        $      (1.02)
                                                                          ============         ============         ============

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 13):
   Basic and Diluted                                                        12,718,318           18,460,042           24,967,678
                                                                          ============         ============         ============
</TABLE>


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



                                      F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' (DEFICIT) EQUITY AND
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
                                                                            Common Stock        Additional     Accumulated
                                                                          Shares     Amount   Paid-In Capital    Deficit
                                                                          ------     ------   ---------------    -------
<S>                                                                     <C>          <C>      <C>              <C>
BALANCE, January 31, 1999                                                8,479,727    $ 85       $   5,441      $ (8,347)
   Proceeds from issuance of common stock in connection with an
     initial public offering, net of issuance costs                      3,700,000      37          50,112            --
   Issuance of common stock in connection with acquisitions                415,794       4           7,679            --
   Conversion of Series A Convertible Redeemable Preferred Stock         1,678,286      17           4,829            --
   Issuance of stock options to employees and consultants                       --      --             857            --
   Amortization of deferred compensation                                        --      --              --            --
   Issuance of common stock pursuant to the exercise of options and
     warrants and the employee stock purchase plan                         412,630       4              43            --
   Accretion of preferred stock issuance costs                                  --      --             (13)           --
   Net loss                                                                     --      --              --       (14,869)
   Unrealized loss on available-for-sale marketable securities                  --      --              --            --
                                                                        ----------    ----       ---------      --------

BALANCE, January 31, 2000                                               14,686,437     147          68,948       (23,216)
   Issuance of common stock in connection with acquisitions and
     exchange transaction                                                6,533,321      65          71,299            --
   Issuance of stock options to consultants                                     --      --             577            --
   Amortization of deferred compensation                                        --      --              --            --
   Issuance of common stock pursuant to the exercise of options and
     warrants and the employee stock purchase plan                          26,200      --              40            --
   Net loss                                                                     --      --              --       (29,689)
   Unrealized gain on available-for-sale marketable securities                  --      --              --            --
                                                                        ----------    ----       ---------      --------

BALANCE, January 31, 2001                                               21,245,958     212         140,864       (52,905)
   Issuance of common stock and warrants for acquisitions of             7,534,032      75          96,573            --
     businesses (Note 3)
   Cancellation of stock options issued to employees and consultants            --      --            (488)           --
   Amortization of deferred compensation                                        --      --              --            --
   Issuance of common stock pursuant to the exercise of options and
     warrants and the employee stock purchase plan                       1,273,296      13          11,454            --
   Impact of beneficial conversion feature in issuance of Series A
     and Series B Convertible Preferred Stock                                   --      --           6,745        (6,745)
   Issuance of warrants to holders of Series A and B Convertible                --      --           3,917            --
   Preferred Stock
   Issuance of common stock for conversion of Series A and Series B
     Convertible Preferred Stock                                           921,225       9          10,712            --
   Issuance of common stock and warrants in connection with private      3,942,366      39          57,956            --
   placements
   Accretion of discount and dividends on Series A and Series B
     Convertible Preferred Stock                                                --      --          (3,013)           --
   Net loss                                                                     --      --              --       (15,600)
   Unrealized loss on available-for-sale marketable securities                  --      --              --            --
                                                                        ----------    ----       ---------      --------

BALANCE, January 31, 2002                                               34,916,877    $349       $ 324,719      $(75,250)
                                                                        ==========    ====       =========      ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                                             Other
                                                                            Deferred     Comprehensive
                                                                          Compensation   (Loss) Income    Total
                                                                          ------------   -------------    -----
<S>                                                                       <C>            <C>              <C>
BALANCE, January 31, 1999                                                    $(225)         $  --      $  (3,046)
   Proceeds from issuance of common stock in connection with an
     initial public offering, net of issuance costs                             --             --         50,149
   Issuance of common stock in connection with acquisitions                     --             --          7,683
   Conversion of Series A Convertible Redeemable Preferred Stock                --             --          4,846
   Issuance of stock options to employees and consultants                     (857)            --             --
   Amortization of deferred compensation                                       489             --            489
   Issuance of common stock pursuant to the exercise of options and
     warrants and the employee stock purchase plan                              --             --             47
   Accretion of preferred stock issuance costs                                  --             --            (13)
   Net loss                                                                     --             --        (14,869)
   Unrealized loss on available-for-sale marketable securities                  --            (78)           (78)
                                                                             -----          -----      ---------

BALANCE, January 31, 2000                                                     (593)           (78)        45,208
   Issuance of common stock in connection with acquisitions and
     exchange transaction                                                       --             --         71,364
   Issuance of stock options to consultants                                   (577)            --             --
   Amortization of deferred compensation                                       442             --            442
   Issuance of common stock pursuant to the exercise of options and
     warrants and the employee stock purchase plan                              --             --             40
   Net loss                                                                     --             --        (29,689)
   Unrealized gain on available-for-sale marketable securities                  --            917            917
                                                                             -----          -----      ---------

BALANCE, January 31, 2001                                                     (728)           839         88,282
   Issuance of common stock and warrants for acquisitions of                    --             --         96,648
     businesses (Note 3)
   Cancellation of stock options issued to employees and consultants           488             --             --
   Amortization of deferred compensation                                       209             --            209
   Issuance of common stock pursuant to the exercise of options and
     warrants and the employee stock purchase plan                              --             --         11,467
   Impact of beneficial conversion feature in issuance of Series A
     and Series B Convertible Preferred Stock                                   --             --             --
   Issuance of warrants to holders of Series A and B Convertible                --             --          3,917
   Preferred Stock
   Issuance of common stock for conversion of Series A and Series B
     Convertible Preferred Stock                                                --             --         10,721
   Issuance of common stock and warrants in connection with private             --             --         57,995
   placements
   Accretion of discount and dividends on Series A and Series B
     Convertible Preferred Stock                                                --             --         (3,013)
   Net loss                                                                     --             --        (15,600)
   Unrealized loss on available-for-sale marketable securities                  --           (892)          (892)
                                                                             -----          -----      ---------

BALANCE, January 31, 2002                                                    $ (31)         $ (53)     $ 249,734
                                                                            =====          =====      =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.

                                      F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, except share data)


<TABLE>
<CAPTION>
                                                                                             For the Years Ended January 31,
                                                                                             -------------------------------
                                                                                         2000            2001              2002
                                                                                         ----            ----              ----
<S>                                                                                   <C>              <C>              <C>
OPERATING ACTIVITIES:
   Net loss                                                                           $(14,869)        $(29,689)        $(15,600)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Depreciation and amortization                                                         632            9,861           21,053
     Realized (gain) loss on marketable securities and investments                          --            4,193             (658)
     Loss on early retirement of debt                                                      235               --               --
     Compensation charge for issuance of options and common stock                          489              442              209
     Changes in operating assets and liabilities, net of businesses acquired:
       Accounts receivable, net                                                         (1,853)            (393)          (2,443)
       Inventories, net                                                                 (3,165)          (2,872)              94
       Prepaid catalog costs                                                              (585)            (160)            (456)
       Other assets                                                                     (1,276)             369              841
       Accounts payable and accrued expenses                                             8,306              668             (752)
                                                                                      --------         --------         --------
              Net cash (used in) provided by operating  activities                     (12,086)         (17,581)           2,288
                                                                                      --------         --------         --------

INVESTING ACTIVITIES:
   Purchase of marketable securities                                                   (20,908)         (25,261)         (28,299)
   Proceeds from sale of marketable securities                                              --           47,421           29,080
   Acquisitions of businesses, net of cash acquired                                     (3,949)         (12,884)         (45,760)
   Purchase of minority investment and other assets                                         --           (1,000)            (200)
   Purchase of mailing lists, domain names and marketing rights                           (250)              --             (883)
   Capital expenditures                                                                 (1,901)          (2,969)          (2,087)
                                                                                      --------         --------         --------
              Net cash (used in) provided by investing activities                      (27,008)           5,307          (48,149)
                                                                                      --------         --------         --------

FINANCING ACTIVITIES:
   Net proceeds from sale of common stock                                               50,149            9,218           60,127
   Net proceeds from sale of preferred stock                                             2,497               --           26,710
   Proceeds from exercise of options and warrants to purchase common stock
                                                                                            47               11           11,467
   Payments of principal promissory notes                                               (3,810)              --               --
   Payments of capitalized lease obligation                                                (70)            (319)            (163)
                                                                                      --------         --------         --------
              Net cash provided by financing activities                                 48,813            8,910           98,141
                                                                                      --------         --------         --------

Net increase (decrease) in cash and cash equivalents                                     9,719           (3,364)          52,280

CASH AND CASH EQUIVALENTS, beginning of year                                             2,983           12,702            9,338
                                                                                      --------         --------         --------

CASH AND CASH EQUIVALENTS, end of year                                                $ 12,702         $  9,338         $ 61,618
                                                                                      ========         ========         ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
     Interest                                                                         $    402         $     16         $      8
                                                                                      ========         ========         ========
     Income taxes                                                                     $      2         $     --         $    323
                                                                                      ========         ========         ========

NON-CASH INVESTING AND FINANCING ACTIVITIES:
   Issuance of common stock in connection with acquisitions (Note 3)                  $  7,683         $ 42,600         $ 96,648
                                                                                      ========         ========         ========
   Issuance of common stock in connection with exchange transaction (Note 4)          $     --         $ 19,530         $     --
                                                                                      ========         ========         ========
   Marketable securities received in connection with exchange transaction
     (Note 4)                                                                         $     --         $ 19,530         $     --
                                                                                      ========         ========         ========
   Conversion of preferred stock into common stock                                    $  4,846         $     --         $  8,903
                                                                                      ========         ========         ========
</TABLE>


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




                                      F-5
<PAGE>
ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

1.       BUSINESS

Alloy, Inc. ("Alloy") is a media, direct marketing and marketing services
company targeting Generation Y, the more than 60 million boys and girls in the
United States between the ages of 10 and 24. Alloy's business integrates direct
mail catalogs, print media, websites, on-campus marketing programs, and
promotional events, and features a portfolio of brands that are well known among
Generation Y consumers and advertisers. Alloy reaches a significant portion of
Generation Y consumers through its various media assets, direct marketing
activities and marketing services programs, and, as a result, Alloy is able to
offer advertisers targeted access to the youth market. Additionally, Alloy's
assets have enabled it to build a comprehensive database that includes detailed
information about more than 9.6 million Generation Y consumers.

Alloy generates revenue from two principal sources -- merchandising, and
sponsorship and advertising. From its catalogs and websites, Alloy sells
third-party branded products in key Generation Y spending categories,
including apparel, action sports equipment, and accessories directly to the
youth market. Alloy generates sponsorship and advertising revenues largely from
traditional, blue chip advertisers that seek highly targeted, measurable and
effective marketing programs to reach Generation Y. Advertisers can reach
Generation Y through integrated marketing programs that include our catalogs,
magazines, books, websites, and display media boards, as well as through
promotional events, product sampling, college and high school newspaper
advertising, customer acquisition programs and other marketing services that
Alloy provides. Alloy currently has two operating segments: direct marketing and
content. The direct marketing segment is comprised of catalog and website
operations, including its sponsorship activities, which are an integral part of
its direct marketing strategy. The content segment is currently comprised
primarily of book development and publishing activities, as well as various
media extensions and sales of book content. To date, revenues of Alloy's
content segment have not been significant. All reportable segment data pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
About Segments of an Enterprise" has been provided in Note 16.

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
(i.e., "fiscal 2001" refers to the fiscal year ending, January 31, 2002).

Principles of Consolidation

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

Revenue Recognition

Merchandise revenues are recognized at the time the products are shipped to
customers net of an allowance for sales returns, which is determined in
accordance with Alloy's return policy and based on historical experience and
forecasted trends, and net of any promotional price discounts. Alloy is subject
to seasonal fluctuations in its merchandise sales and results of operations.
Alloy expects its net sales and operating results generally to be lower in the
first half of each fiscal year, as compared to the second half of each fiscal
year.

In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus with
respect to Issue No. 00-10, "Accounting for Shipping and Handling Revenues and
Costs." The purpose of this issue discussion was to clarify the classification
of shipping and handling revenues and costs. The consensus reached was that all
shipping and handling billed to customers is revenue. Alloy adopted the
provisions of this pronouncement in the third quarter of fiscal 2000, and has
presented its consolidated statements of operations in accordance with this
issue. Furthermore, EITF Issue No. 00-10 requires that if shipping costs or
handling costs are significant and are not included in cost of sales, these
costs and the line items which include them on the consolidated statements of
operations should be disclosed. Alloy includes these costs in selling and
marketing expenses in its consolidated statements of operations. These costs
were $3,939, $7,699 and $11,801 for the years ended January 31, 2000, 2001 and
2002, respectively.

                                      F-6
<PAGE>
ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)



Sponsorship revenues consist primarily of advertising provided for third parties
in Alloy's media properties. Revenue under these arrangements is recognized
as the contracted advertising is delivered pursuant to the terms of each
arrangement, and when any other obligations of Alloy are performed, provided
that collectibility is deemed probable, as determined by Alloy. Delivery
of advertising is completed either in the form of the display of an
"impression", or over the economic life of a print catalog (see "Catalog Costs")
for printed advertisements in this medium. Associated advertising costs are
recognized as incurred, and any direct-response advertising costs are recorded
over the economic life of each catalog offering, in accordance with the American
Institute of Certified Public Accountants Statement of Position 93-7, "Reporting
on Advertising Costs." Billings recorded in advance of advertising delivery are
deferred until the impressions are delivered.

Other revenues consist of book development/publishing revenue and other service
contracts related to certain of the businesses acquired since 1999. The revenues
and related expenses earned and incurred in connection with publishing
activities are recognized upon publication of such property. Any amounts
received prior to publication are treated as advances, and classified as a
current liability. Costs paid prior to publication are deferred and classified
as other current assets in the consolidated balance sheets. Contract revenues
are recognized upon the delivery of the contracted services and when no
significant company performance obligation remains. Billings recorded in advance
of provision of services are deferred until the services are provided. In the
case of Alloy's newspaper advertising placement service, revenue is reported net
of amounts paid to suppliers in accordance with Emerging Issues Task Force Issue
No. 99-19, "Reporting Revenue Gross as a Principal versus Net as an Agent." The
consensus in this issue requires reporting of revenue on a net basis when a
company acts as an agent or a broker, and not as a principal, and does not
assume the risk and rewards of ownership of goods.

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 reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statements of cash flows, Alloy considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Alloy maintains cash balances in excess of federally insured
amounts with commercial banks.

Marketable Securities

Alloy accounts for investments in marketable securities in accordance with the
provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Accordingly, marketable securities are classified as
available-for-sale and are reported at fair value, with changes in fair value
recognized as a component of shareholders' equity within accumulated other
comprehensive (loss) income. Gains and losses on the disposition of securities
are recognized on the specific identification method in the period in which they
occur.

Credit Risk

Alloy performs credit card authorizations and check verifications of its
customers prior to shipment of merchandise. Credit risk is limited due to the
collection of payments in advance or at time of shipment and Alloy's large
number of diversified customers. Alloy performs periodic credit evaluations of
its other accounts receivable (sponsorship, book development and other
contracts). Credit losses have historically been consistent with management's
expectations.

Fair Value of Financial Instruments

The carrying amounts for cash and cash equivalents, accounts receivable,
accounts payable and obligations under capital leases approximate fair value due
to the short maturities of these instruments. Marketable securities, including
derivative financial instruments, are carried at their fair values in the
accompanying consolidated balance sheets. Alloy calculates the fair value of
financial instruments and includes this additional information in the notes to
financial statements when the fair value is different than the book value of
those financial instruments. When the fair value approximates book value, no
additional disclosure is made. 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.
<PAGE>
ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)



Inventories

Inventories, which consist of finished goods, are stated at the approximate of
lower of cost (first-in, first-out) or market value.

Catalog Costs

Catalog costs consist of catalog production and mailing costs. Catalog costs are
capitalized and charged to expense over the expected future revenue stream,
which is principally three to four months from the date the catalogs are mailed.
Deferred catalog costs as of January 31, 2001 and 2002 were approximately $1,330
and $1,786, respectively. Catalog costs expensed for the years ended January 31,
2000, 2001 and 2002 were approximately $11,560, $20,700 and $20,573
respectively, and are included within selling and marketing expenses in the
accompanying consolidated statements of operations.

Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the following estimated useful
lives:

  Computer equipment under capitalized leases        Life of the lease
  Leasehold improvements                             Life of the lease
  Computer software and equipment                    3 to 5 Years
  Machinery and equipment                            5 to 7 Years
  Office furniture and fixtures                      5 to 10 Years

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the
net assets acquired (Note 3). Total goodwill of $55,963 and $178,474 as of
January 31, 2001 and 2002, respectively, is stated net of accumulated
amortization of $8,904 and $26,646 as of January 31, 2001 and 2002,
respectively. Goodwill relating to acquisitions completed prior to June 30, 2001
was being amortized on a straight-line basis over lives ranging from three to
five years. Pursuant to SFAS 142, goodwill for acquisitions completed
after June 30, 2001 was not amortized. Effective February 1, 2002, and in
accordance with SFAS 142, all goodwill will cease to be amortized (see
discussion in Recently Issued Accounting Pronouncements).

Intangible Assets

As of January 31, 2002, Alloy's intangible and other assets consist of
trademarks, mailing lists, noncompetition agreements, websites and marketing
rights. Trademarks currently have indefinite lives; however, the other
identified intangible assets are amortized over periods ranging from three to
five years. These assets were recorded pursuant to Alloy's business acquisitions
during fiscal 2001, as discussed in Note 3. Amortization of other intangible
assets for the year ended January 31, 2002 was approximately $574.

Long-Lived Assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of," Alloy periodically reviews long-lived assets and identifiable
intangibles, including goodwill, 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 the fair value of the asset as
measured by the future net cash flows (on an undiscounted basis) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized would be measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. No
impairment adjustments were recorded during the three years ended January 31,
2002.

<PAGE>
ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)


Stock Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation," allows companies to
account for stock-based compensation either under the provisions of SFAS No. 123
or under the provisions of Accounting Principles Bulletin No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), but requires pro forma disclosure in
the footnotes to the financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. Alloy has elected to account for its stock-based
compensation in accordance with the provisions of APB 25 and has provided the
disclosures required under SFAS No. 123 in Note 11. Stock-based compensation to
non-employees is accounted for pursuant to SFAS No. 123.

Income Taxes

Alloy accounts for income taxes in accordance with SFAS No. 109, "Accounting for
Income Taxes." Under the asset and liability method of SFAS No. 109, 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 and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date.

Net Loss Per Share

Basic and diluted net loss per share are computed and presented in accordance
with SFAS No. 128, "Earnings per Share." Basic net loss per share was determined
by dividing net loss by the weighted-average number of common shares outstanding
during each period. Contingently issuable shares are excluded from the
calculation of basic net loss per share until the contingency related to the
shares is resolved. Diluted net loss per share of Alloy excludes the impact of
certain potentially dilutive securities because inclusion of these instruments
would be anti-dilutive, as a result of the net loss incurred. A reconciliation
of the net loss available for common shareholders and the number of shares used
in computing basic and diluted net loss per share is provided in Note 13.

Derivative Instruments and Hedging Activities

In July 2000, Alloy purchased put options and sold call options (referred to as
collars) on a total of 600,000 shares of Liberty Digital, Inc. ("LDIG") common
stock, representing a portion of LDIG common stock already owned by Alloy as
available-for-sale marketable securities. The options allowed Alloy to sell LDIG
common stock at various prices and were designated as a hedge against potential
declines in the fair value of LDIG common stock. The options expired on various
dates beginning January 2003 through July 2003. The net fair values of the
options were $9,297 on January 31, 2001 and they were classified as
available-for-sale marketable securities with a corresponding unrealized gain
included in accumulated other comprehensive income in the accompanying
consolidated balance sheet.

Alloy adopted the provisions of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and its related amendments in SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities",
as of February 1, 2001. These pronouncements require companies to reflect the
fair value of all derivative instruments, including those embedded in other
contracts, as assets or liabilities in an entity's balance sheet. Changes in
fair value of derivative instruments are generally reflected in earnings, with
the exception of certain hedging transactions, for which the change in fair
value may be accounted for as a component of other comprehensive income,
provided that certain criteria are met as specified in these pronouncements.

In connection with the adoption of SFAS No. 133 on February 1, 2001, Alloy
transferred 628,305 shares of Liberty Digital, Inc. common stock together with
the equity collars on 600,000 shares of Liberty Digital common stock that were
previously designated as fair value hedges and classified as available-for-sale,
to the classification of trading securities, pursuant to SFAS No. 133. The
impact of the transfer was to recognize earnings of $854 as of February 1, 2001,
representing the net unrealized holding gain for the securities as of February
1, 2001. In March 2001, Alloy sold its Liberty Digital shares and unwound the
collars, which generated a net loss on the sales of the securities of $196,
resulting in a total net gain for the year ended January 31, 2002 of $658. As of
January 31, 2002, Alloy does not have any freestanding derivative instruments,
or instruments with embedded derivative features.

Recently Issued Accounting Pronouncements

Business Combinations, Goodwill and Other Intangible Assets

In July 2001, the FASB issued Statements of Financial Accounting Standards No.
141, "Business Combinations" ("FAS 141") and No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). These standards change the accounting for
business combinations by, among other things, prohibiting the prospective use of
pooling-of-interests accounting and requiring companies to stop amortizing
goodwill and certain intangible assets with an indefinite useful life created by
business combinations accounted for using the purchase method of accounting.
Instead, goodwill and intangible assets deemed to have an indefinite useful life
will be subject to an annual review for impairment. The new standards generally
will be effective for Alloy in its first quarter of fiscal 2002 and for purchase
business combinations consummated after June 30, 2001. Upon adoption, Alloy will
stop amortizing goodwill. Based on the current levels of goodwill, this would
reduce annual amortization expense by approximately $18.8 million. Because
goodwill amortization is nondeductible for tax purposes, the impact of stopping
goodwill amortization would be to increase its annual net income by
approximately $18.8 million. In addition, Alloy is in the process of evaluating
certain intangible assets to determine whether they are deemed to have an
indefinite useful life. Alloy expects that only acquired trademarks and trade
names have indefinite useful lives. As noted above, goodwill and intangible
assets deemed to have an indefinite useful life will be subject to an annual
review for impairment. An independent third party valuation report as of January
31, 2002 indicated that there is no impairment of Alloy's goodwill or intangible
assets deemed to have an indefinite useful life. Accordingly, Alloy does not
expect any impact upon adoption of FAS 142. If, however, Alloy concludes that an
impairment charge for goodwill or intangible assets deemed to have an indefinite
useful life is necessary in a future period, any required charge would reflected
as an operating expense in the period such impairment is deemed to exist.

Long-Lived Assets

In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" and Accounting Principles Board Opinion No. 30 "Reporting
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". The Statement retains the fundamental provisions of SFAS No. 121
for recognition and measurement of impairment, but amends the accounting and
reporting standards for segments of a business to be disposed of. The provisions
of this statement are required to be adopted no later than fiscal years
beginning after December 31, 2001, with early adoption encouraged. Alloy is
currently evaluating the impact of the adoption of SFAS No. 144, which Alloy
expects will not be
<PAGE>

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

material.

3.   ACQUISITIONS

Alloy completed four acquisitions during fiscal 2000 and seven acquisitions
during fiscal 2001, all of which have been accounted for under the purchase
method of accounting. The results of operations of the acquired businesses are
included in the consolidated financial statements from the dates of acquisition.
The description of Alloy's business acquisitions is as follows:

Fiscal 2000

Kubic Marketing (CCS)

In July 2000, Alloy acquired all of the outstanding capital stock of Kubic
Marketing, Inc. ("Kubic"), a Delaware corporation with a principal place of
business in San Luis Obispo, California, through a tax-free merger. Kubic is the
holding company for its wholly-owned subsidiary, Phase Three, Inc. (which does
business as CCS), which is a mail order catalog and internet marketer of
skateboards, snowboards and related apparel, equipment and accessories in the
United States. In connection with the acquisition, Alloy issued to the former
shareholder of Kubic (i) 3,267,981 shares of Alloy's common stock, $.01 par
value per share, having a value of $40,000 (or $12.24 per share) on the date of
the acquisition, of which 544,962 shares were placed in escrow subject to the
terms of the related acquisition agreements, and (ii) a warrant to purchase
shares of Alloy's restricted common stock, $.01 par value per share, in an
aggregate amount, if any, as determined pursuant to the provisions of the
warrant. In addition, in connection with obtaining the consent to the
acquisition by certain of the lenders to Kubic and its shareholder's other
subsidiaries, Alloy paid $10,000 in cash from its existing cash reserves to such
lenders to retire certain debt obligations of Kubic. In fiscal 2001, all 544,962
shares in escrow were distributed to the former shareholders of Kubic and the
warrant expired worthless as the circumstances surrounding the potential
issuance of shares did not occur. Alloy recorded approximately $48,785 of
goodwill representing the net excess of purchase consideration over the fair
value of the net assets acquired; the valuable direct marketing franchise in the
youth market CCS had established, and the revenues and cash flows that Alloy
expects the business to generate over time. Goodwill was being amortized over a
period of five years through January 31, 2002. In connection with the adoption
of SFAS 142, amortization of goodwill will cease as of February 1, 2002.

Other Acquisitions

In December 2000, Alloy acquired the outstanding stock of Triple Dot
Communications, Inc. ("Triple Dot"), a Massachusetts corporation, having a place
of business in Boston, Massachusetts. Triple Dot is a marketing services company
that provides advice and marketing programs for companies trying to reach
teenagers. In addition, in January 2001, the Company acquired an affiliate of
Triple Dot, Y-Access LLC ("Y-Access"), a Massachusetts limited liability
company, having a place of business in Boston, Massachusetts. Y-Access is a
market research company that specializes in the Generation Y market. Pursuant to
the related acquisition agreements, the aggregate consideration paid was $2,600,
which consisted of 342,646 shares of Alloy's common stock, $.01 par value (or
$7.59 per share), of which a total of 51,398 shares were placed in escrow in
accordance with the terms of the related agreements. The excess of the purchase
price over the fair values of the net assets acquired was approximately $3,403
and has been recorded as goodwill and was being amortized on a straight-line
basis over a term of five years through January 31, 2002. In connection with the
adoption of SFAS 142, amortization of goodwill will cease as of February 1,
2002. In connection with an earn-out agreement, an additional 236,822 shares of
Alloy common stock have been issued to the former owners of Triple Dot and
Y-Access in fiscal 2001 resulting in an additional $3,747 in goodwill. A total
of 23,042 of these shares were placed in escrow in accordance with the terms of
the related agreements. Alloy expects the escrowed shares to be released in the
first half of its fiscal 2002 after the resolution of all acquisition-related
contingencies.

Fiscal 2001

Strength Magazine

On February 21, 2001, Alloy completed the acquisition of the Strength Magazine
assets from Rapid Service Company ("Rapid Service"), an Ohio corporation,
pursuant to which Alloy issued 99,909 shares of unregistered common stock to
Rapid Service, having a value of $1,180 (or $11.81 per share on the transaction
date). A total of 19,981 shares were placed in escrow in accordance with the
terms of the related agreements. Strength Magazine, operating out of Cincinnati,
Ohio, is a lifestyle magazine primarily for teenage boys focusing on
skateboarding and music. It is available via subscription and newsstands.
Strength Magazine provides Alloy with a recognized magazine property to
complement its boys direct marketing business and print-based advertising
inventory reaching the boys market. In connection with the acquisition, Alloy
has recorded approximately $1,404 of goodwill representing the net excess of
purchase price over the fair value of the net assets acquired; the value of the
consumer franchise Strength Magazine had established; and the revenues and cash
flows that we expect Strength Magazine to generate over time. The goodwill was
being amortized over a period of three years through January 31, 2002. In
connection with the adoption of SFAS 142, amortization of goodwill will cease.
The results of Strength Magazine's operations have been included in Alloy's
financial statements since February 21, 2001. Alloy expects the escrowed shares
to be released in the first half of its fiscal 2002 after the resolution of all
acquisition-related contingencies.

Private Colleges and Universities

On April 12, 2001, Alloy completed the acquisition of all the capital stock of
Landon Media Group, Inc. ("Landon"), a Massachusetts corporation with a
principal place of business in Westford, Massachusetts, in exchange for
1,314,348 shares of unregistered common stock, having a value of $9,800 (or
$7.45 per share on the transaction date), $5,000 in cash, four future quarterly
cash payments of $700 each, and contingently issuable warrants to purchase
additional shares pursuant to the warrants' terms. A total of 197,152 shares
were placed in escrow in accordance with the terms of the related agreements.
The warrants have expired because the circumstances surrounding the potential
issuance of shares did not occur. Landon's primary asset as of the effective
time of the acquisition was 100% of the issued and outstanding capital stock of
Carnegie Communications, Inc., a Delaware corporation, which Alloy has renamed
Private Colleges & Universities, Inc. ("PCU"). PCU produces publications and
websites that profile colleges and universities which are distributed to high
school students, parents and guidance counselors. PCU provides Alloy with a wide
range of advertising relationships with colleges and universities throughout the
United States, as well as publications and websites that reach and market to
prospective students. In connection with the acquisition, Alloy has recorded
approximately $20,954 of goodwill representing the net excess of purchase price
over the fair value of the net assets acquired; the revenues and cash flows that
Alloy expects PCU to generate over time; and the relationships with colleges and
universities that PCU had established. In addition, Alloy identified specific
intangible assets consisting of $300 representing trademarks, $110 representing
a non-competition agreement and $25 representing the website. With the exception
of trademarks, the intangible assets are being amortized over a period of three
years. The goodwill was being amortized over a period of five years through
January 31, 2002. In connection with the adoption of SFAS 142, amortization of
goodwill will cease as of February 1, 2002. The results of PCU's operations have
been included in Alloy's financial statements since April 12, 2001. Alloy
expects the escrowed shares to be released in the first half of its fiscal 2002
after the resolution of all acquisition-related contingencies.


<PAGE>
ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

CASS Communications

On August 2, 2001, Alloy completed the acquisition of all the capital stock of
CASS Communications, Inc. ("CASS"), an Illinois corporation with a principal
place of business in Evanston, Illinois, in exchange for 1,720,392 shares of
unregistered common stock, having a value of $23,122 (or $13.44 per share on the
announcement date), of which 258,059 shares were placed in escrow in accordance
with the terms of the related agreements; $9,700 in cash; additional shares of
Alloy common stock if CASS exceeds certain earnings targets over the 12-month
period following the acquisition; and a contingent Note, which will not be
payable, if at all, until four months after the effectiveness of the initial
registration for resale of the shares of Alloy common stock issued in the
acquisition, with the principal amount of the Note to be determined based on the
average closing prices of Alloy common stock over such four month period. The
maximum principal amount of the Note was $10,000, and the Note will have no
value if the closing price for Alloy common stock averages at least $11.28 per
share in each of the four months over such four-month period and thus no
additional purchase consideration was recognized. The Note matured without
value due to the average closing price of Alloy common stock during the four
month period. Founded in 1968, CASS' contracted media and promotional channels
include college and high school newspapers reaching over 21 million readers.
Additionally, CASS reaches over 6.5 million students on college and high school
campuses through its outdoor and display media assets, and provides marketers
with full service event production and promotion capability. CASS provides Alloy
with additional media assets to sell to its advertising clients and expands
Alloy's portfolio of advertising client relationships. CASS' strength in
enabling marketers to reach college students complements Alloy's reach into the
teenage audience. In connection with the acquisition, Alloy has recorded
approximately $36,180 of goodwill representing the net excess of purchase price
over the fair value of the net assets acquired; the revenues and cash flows that
we expect CASS to generate over time; and the relationships with advertisers and
college newspapers that CASS had developed over its 30 years of existence. In
addition, Alloy identified specific intangible assets consisting of $400
representing trademarks and $200 representing a non-competition agreement. The
non-competition agreement is being amortized over its three year term. The
results of CASS' operations have been included in Alloy's financial statements
since August 2, 2001. Alloy expects the escrowed shares to be released in the
second half of its fiscal 2002 after the resolution of all acquisition-related
contingencies.


Dan's Comp

On September 28, 2001 (the "Closing Date"), Alloy closed an acquisition of all
of the outstanding capital stock of Dan's Competition, Inc. ("Dan's"), an
Indiana corporation with a principal place of business in Mt. Vernon, Indiana in
exchange for 2,081,037 shares of unregistered common stock, having a value of
$25,680 (or $12.34 per share on the transaction date) of which 370,370 shares
were placed in escrow in accordance with the terms of the related agreements;
$11,000 in cash; and two contingent promissory notes (the "Notes"), which Notes
will be payable, if at all, commencing on the date which is thirteen months
after the Closing Date. The maximum aggregate principal amount of the Notes is
$12,000, which amount will be reduced over the twelve-month period beginning on
the date that is one month after the Closing Dated based on the average closing
prices of Alloy common stock and the proceeds of any sales of the shares issued
in the acquisition over such twelve month period. The Notes will have no value
if the aggregate sale proceeds from the sale of the shares issued in the
acquisition over such twelve-month period equal or exceed $12,000 or, if the
closing price for Alloy common stock, as determined in accordance with the terms
of the Notes, averages at least $8.10 per share for each of the twelve months
over such twelve month period. The Notes have no value as the aggregate sale
proceeds have exceeded $12,000. An additional 37,037 shares were issued in
connection with a final working capital determination. The resulting additional
purchase price of $721 ($19.47 per share) has been allocated to goodwill.
Incorporated in 1996, Dan's is a direct marketer to teenage boys and a
distribution brand in the action sports market. Through a convergence marketing
model that includes Dan's print catalog and website (www.danscomp.com), Dan's
has developed a database of Generation Y customers. Dan's sells a complete line
of BMX-style bicycles, parts, safety equipment, apparel and accessories from
brands including Huffy, Hoffman and Free Agent bikes and Etnies, Split and DC
apparel and footwear. In addition to CCS, Dan's provides Alloy with another
direct marketing franchise reaching the teen boys market. Alloy plans to manage
Dan's customer database and circulation plan and identify cross-selling
opportunities between Dan's name database and Alloy's name database. In
connection with the acquisition, Alloy has recorded approximately $28,201 of
goodwill representing the net excess of purchase price over the fair value of
the net assets acquired; the revenues and cash flows that Alloy expects Dan's to
generate over time; and the direct marketing franchise that Dan's had
established in the teen boys market. In addition, Alloy identified specific
intangible assets consisting of, $3,500 representing mailing lists, $1,600
representing trademarks, $800 representing a non-competition agreement and $50
representing the website. With the exception of trademarks, these intangible
assets are being amortized over periods ranging from three to five years. The
results of Dan's operations have been included in Alloy's financial statements
since September 28, 2001. Alloy expects the escrowed shares to be released in
the second half of its fiscal 2002 after the resolution of all
acquisition-related contingencies.


360 Youth

On November 26, 2001, Alloy acquired substantially all of the assets of the 360
Youth business of MarketSource Corporation, a Delaware corporation, in exchange
for 1,839,520 shares of unregistered common stock, having a value of $30,131 (or
$16.38 per share on the transaction date) of which 283,286 shares were placed in
escrow in accordance with the terms of the related agreements; $13,375 in cash;
and a warrant to purchase up to 100,000 shares of Alloy common stock. In
accordance with its terms the Warrant may be exercised with respect to 50,000
shares of Common Stock on or after November 26, 2002 and prior to November 26,
2007, and with respect to the remaining 50,000 shares of Common Stock, on or
after November 26, 2003 and prior to November 26, 2008. The fair value of the
warrants was established as $950 using the Black-Scholes option-pricing model
with the following assumptions: dividend yield of 0%, volatility of 50%,
risk-free interest rate of 4.61% and expected life of 6.5 years. Alloy also
agreed to issue up to an additional 1,545,197 shares of Alloy common stock if
360 Youth exceeds certain earnings targets over the 12-month period following
the acquisition. The 360 Youth business focuses on providing marketing and
promotional services targeted at teenagers and young adults, including acquiring
and placing advertising and other promotional materials as a sales
representative, agent or otherwise targeting the Generation Y market in all
forms of media, and developing, staging and promoting promotional events
targeted at the Generation Y market. In connection with the acquisition, Alloy
has recorded approximately $41,943 of goodwill representing the net excess of
purchase price over the fair value of the net assets acquired,; the revenues and
cash flows that Alloy expects 360 Youth to generate over time; and the skills,
capabilities and relationships that the 360 Youth sales force possesses. In
addition, Alloy identified specific intangible assets consisting of $1,400
representing trademarks, $1,300 representing a non-competition agreement and $10
representing the website. With the exception of trademarks, these intangible
assets are being amortized over a period of three years. The results of 360
Youth's operations have been included in Alloy's financial statements since
November 27, 2001. Alloy expects the escrowed shares to be released in the
second half of its fiscal 2002 after the resolution of all acquisition-related
contingencies.


Other Acquisitions

On November 1, 2001, Alloy completed the acquisition of all of the stock of
Target Marketing and Promotions, Inc.("Target Marketing"), a Massachusetts
corporation that provides market research and promotional activities and
services targeted at the Generation Y audience. To pay for the acquisition,
Alloy issued 204,967 shares of common stock of which 30,745 shares were placed
in escrow in accordance with the terms of the related agreements. In addition,
Alloy agreed to
<PAGE>

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

issue additional shares of common stock as an earn-out if Target Marketing's
earnings before interest and taxes for the four fiscal quarterly periods and two
annual periods beginning November 1, 2001 equal or exceed certain specified
targets, subject to an overall limit of $10 million in value of common stock,
with the stock valued as of the end of the period for which it is issued. In
connection with the acquisition, Alloy has recorded approximately $2,248 of
goodwill representing the net excess of purchase price over the fair value of
the net assets acquired; the revenues and cash flows that Alloy expects Target
Marketing to generate over time; and the capabilities and skills of Target
Marketing's employees. In addition, Alloy identified specific intangible assets
in connection with the acquisition consisting of $400 representing trademarks,
$200 representing a non-competition agreement and $10 representing the website.
With the exception of trademarks, these intangible assets are being amortized
over periods ranging from two to three years. The results of Target Marketing's
operations have been included in Alloy's financial statements since November 2,
2001. Alloy expects the escrowed shares to be released in the second half of its
fiscal 2002 after the resolution of all acquisition-related contingencies.


On November 26, 2001, Alloy acquired all the issued and outstanding stock of
eStudentLoan, Inc., ("eStudentLoan") a Delaware corporation, from Student
Advantage Inc. in exchange for $4,500 in cash. eStudentLoan provides college
students, prospective college students, graduate students and parents with an
online resource to gather information about student loans, financial aid and
scholarships. In connection with the acquisition, Alloy has recorded
approximately $4,028 of goodwill representing the net excess of purchase price
over the fair value of the net assets acquired,; the revenues and cash flows
that Alloy expects eStudentLoan to generate over time; and the valuable database
engine eStudentLoan provides to Alloy. In addition, Alloy identified specific
intangible assets consisting of $30 representing trademarks, $25 representing a
non-competition agreement and $500 representing the website. With the exception
of trademarks, these intangible assets will be amortized over a three year
period. The results of eStudentLoan's operations have been included in Alloy's
financial statements since November 27, 2001.


For all acquisitions that involve escrowed shares, the value of these shares has
been included in the initial purchase price allocation. Any subsequent changes
will be 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 above.

<PAGE>

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)


The following unaudited proforma information presents a summary of Alloy's
consolidated results of operations as if the acquisitions had taken place on
February 1, 2000:

<TABLE>
<CAPTION>
                                                                     Fiscal Year Ended January 31,
                                                                    --------------------------------
                                                                          2001             2002
                                                                    -------------     -------------
<S>                                                                 <C>               <C>
       Revenues                                                     $     163,772     $     201,154
       Net loss                                                           (38,028)          (14,625)
       Net loss attributable to common shareholders                       (38,028)          (24,382)

       Net loss per share - basic and diluted                            $ (1.41)          $ (0.51)
       Net loss per share attributable to common shareholders -
       basic and diluted                                                 $ (1.41)          $ (0.84)
</TABLE>


These unaudited proforma results have been prepared for comparative purposes
only and include adjustments for income taxes and additional amortization
expense as a result of goodwill and intangible assets. They do not purport to be
indicative of the results of operations that actually would have resulted had
the combinations occurred on February 1, 2000, or of future results of
operations of the consolidated entities.

4.       EXCHANGE TRANSACTION

On April 14, 2000, Alloy entered into a financial and strategic arrangement with
Liberty Digital, Inc. ("LDIG"), a subsidiary of Liberty Media Group, Inc.,
pursuant to which Alloy issued 2,922,694 shares of its common stock having a
fair value of $35,072, or $12 per share, to a subsidiary of LDIG in exchange for
$10,000 in cash and 837,740 shares of LDIG common stock having a fair value of
$19,530. Alloy subsequently collared 600,000 LDIG shares (see Note 2
"Derivative Instruments and Hedging Activities"). As of January 31, 2002, Alloy
holds no LDIG shares. Alloy's common shares represented 19.9% of the then issued
and outstanding common stock immediately prior to the transaction. Subsequent to
the transaction, LDIG had a 16.6% ownership interest in Alloy's issued and
outstanding common stock. As a result of subsequent issuances of Alloy common
stock, as of January 31, 2002, LDIG had an ownership interest in Alloy of 8.4%.
A representative of LDIG maintains a seat on Alloy's board of directors.

5.       MARKETABLE SECURITIES

Fair values of taxable auction securities, corporate debt securities and equity
securities are based upon quoted market prices. The following is a summary of
current available-for-sale marketable securities at January 31, 2001 and 2002,
respectively:

<TABLE>
<CAPTION>
                                                            Gross             Gross
                                                          Unrealized        Unrealized                         Estimated
                                                          Amortized          Holding          Holding            Fair
           January 31, 2001                                  Cost             Gains            Losses            Value
           -----------------------                        -----------       -----------      -----------       ----------
<S>                                                       <C>               <C>              <C>               <C>
           Corporate debt securities                      $       530       $    -           $    -            $      530
           Equity securities                                   14,695             9,297           (8,458)          15,534
                                                          -----------       -----------      -----------       ----------
                Total available-for-sale securities       $    15,225       $     9,297      $    (8,458)      $   16,064
                                                          ===========       ===========      ===========       ==========

           January 31, 2002

           Taxable auction securities                     $     2,000       $    -           $    -            $    2,000
           Corporate debt securities                           13,099            -                   (54)          13,045
           Equity securities                                        3                 1                -                4
                                                          -----------       -----------      -----------       ----------
                Total available-for-sale securities       $    15,102       $         1      $       (54)      $   15,049
                                                          ===========       ===========      ===========       ==========
</TABLE>

In the years ended January 31, 2001 and 2002, Alloy realized a loss of $3,193
and a gain of $658 on sales of marketable securities, respectively. As of
January 31, 2001 and 2002, all of the debt securities held by Alloy had
contractual maturities of less than one year.

6.   PROPERTY AND EQUIPMENT

At January 31, 2001 and 2002, property and equipment, net, consists of the
following:

<TABLE>
<CAPTION>
                                                                         2001            2002
                                                                    -----------      ----------
<S>                                                                 <C>              <C>
       Computer equipment under capitalized leases                    $     621       $     676
       Computer equipment                                                 5,289           9,116
       Machinery and equipment                                              698           2,940
       Office furniture and fixtures                                        617           1,386
       Leasehold improvements                                               977           1,496
                                                                    -----------      ----------
                                                                          8,202          15,614
       Less: accumulated depreciation and amortization                   (2,361)         (7,060)
                                                                    -----------      ----------
                                                                    $     5,841      $    8,554
                                                                    ===========      ==========
</TABLE>


<PAGE>

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

Depreciation and amortization expense related to property and equipment was
$192, $1,223 and $2,660 for the years ended January 31, 2000, 2001 and 2002,
respectively.

7.   ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

As of January 31, 2001 and 2002, accrued expenses and other current liabilities
consist of the following:

<TABLE>
<CAPTION>
                                                2001             2002
                                             ----------        ----------
<S>                                          <C>               <C>
       Compensation and benefits             $    1,320        $    2,525
       Accrued acquisition costs                    909             7,436
       Other                                      4,874             8,428
                                             ----------        ----------
                                             $    7,103        $   18,389
                                             ==========        ==========
</TABLE>


8.   CREDIT AGREEMENT

In October 2000, Alloy entered into a credit agreement (the "Credit Agreement")
with Royal Bank of Canada, Grand Cayman (North America No.1), (the "Lender").
The Credit Agreement lasts for a duration of three years from inception (expires
on October 19, 2003) and calls for the Lender to make available to Alloy
revolving credit loans and letters of credit in the aggregate principal amount
not to exceed $15,055, the proceeds of which would be used to finance the
working capital requirements of Alloy and its subsidiaries in the ordinary
course of business and for other general corporate purposes. This facility was
originally collateralized by marketable securities and related derivative put
options. As further discussed in Note 15, as a result of the settlement of the
put options and sale of the underlying securities, the facility limit was
reduced from $15,055 to $500.

There were no amounts outstanding at January 31, 2001 or 2002 under the Credit
Agreement.

9.   SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK

On February 16, 2001, the Board of Directors of Alloy authorized the designation
of a series of Alloy's $0.01 par value preferred stock consisting of 1,850,000
shares of the authorized unissued preferred stock as a Series A Convertible
Preferred Stock (the "Series A Preferred Stock"). The Series A Preferred Stock
has a par value of $0.01 per share with a liquidation preference of $9.50 per
share. The Series A Preferred Stock pays an annual dividend of 3%, payable in
additional shares of Series A Preferred Stock. In addition, the Series A
Preferred Stock is mandatorily redeemable on February 16, 2006 at a price of
$9.50 per share, plus accrued and unpaid cash dividends thereon. The Series A
Preferred Stock is convertible at the holder's option into common stock of Alloy
as is determined by dividing $9.50 by the initial conversion price of $11.40 and
multiplying by each share of Series A Preferred Stock to be converted. The
initial conversion price is subject to adjustment for stock splits, stock
dividends and combinations of common stock and other events as specified in the
related Certificate of Designation, Preferences and Rights of Series A
Convertible Preferred Stock of Alloy. At any time after February 15, 2003, if
the reported closing sales price of Alloy's common stock exceeds $25.00 per
share for a period of ten consecutive trading days, Alloy has the option to
require the holders of all, but not less than all, shares of the Series A
Preferred Stock to convert their shares into shares of Alloy common stock.

Also, on February 16, 2001, Alloy received an investment of $10,000 from St.
Paul Venture Capital VI, LLC ("SPVC VI") in exchange for 1,052,632 shares of
Alloy's Series A Preferred Stock, which are immediately convertible into 877,193
shares of Alloy common stock. In addition, SPVC VI received a warrant to
purchase 307,018 shares of Alloy common stock at an exercise price of $12.83 per
share. The fair value of the warrant issued in connection with the Series A
Preferred Stock was estimated as $1,475 using the Black-Scholes option-pricing
model with the following assumptions: dividend yield of 0%, volatility of 75%,
risk-free interest rate of 5.50% and expected life of two years. Based upon the
terms of this transaction, there was a beneficial conversion feature recognized
as of the date of the transaction in the amount of approximately $2,769 which
reduced earnings attributable to common shareholders in the year ended January
31, 2002. The beneficial conversion feature was recorded as a direct charge
against accumulated deficit, with a corresponding increase in additional paid-in
capital. As a result of warrants issued and the related expenses of the
transaction, there was a discount of $1,505 upon issuance of the Series A
Preferred Stock, which was being accreted over the five-year period prior to
mandatory redemption and reflected as a charge against additional paid-in
capital and a corresponding increase to the carrying value of the Series A
Preferred Stock. In addition, the accrued dividends on the Series A Preferred
Stock were also charged to additional paid-in capital, with a corresponding
increase in the carrying value of the Series A Preferred Stock. On October 25,
2001, SPVC VI converted 1,052,632 shares of Series A Preferred Stock into
877,193 shares of Alloy common stock. At this time, the remaining unamortized
discount of $1,297 was charged to additional paid-in capital, with a
corresponding increase to Series A Preferred Stock and the then carrying value
of $8,495 was converted into common stock and additional paid-in capital. The
additional accretion recorded upon conversion has been reflected as a reduction
of earnings attributable to common shareholders.

On June 20, 2001, the Board of Directors of Alloy authorized the designation of
a series of Alloy's $.01 par value preferred stock consisting of 3,000 shares of
the authorized unissued preferred stock as a Series B Convertible Preferred
Stock (the "Series B Preferred Stock"). The Series B Preferred Stock has a par
value of $.01 per share with a liquidation preference of $10,000 per share. The
Series B Preferred Stock pays an annual dividend of 5.5%, payable in either
additional shares of Series B Preferred Stock or cash, at Alloy's option. In
addition, the Series B Preferred Stock is mandatorily redeemable on June 19,
2005 at a price of $10,000 per share, plus accrued and unpaid cash dividends
thereon. The Series B Preferred Stock is convertible at the holder's option into
common stock of Alloy as is determined by dividing $10,000 by the initial
conversion price of $11.70 and multiplying by each share of Series B Preferred
Stock to be converted. The initial conversion price is subject to adjustment for
stock splits, stock dividends and combinations of common stock and other events
as specified in the related Certificate of Designation, Preferences and Rights
of Series B Convertible Preferred Stock of Alloy. At any time after June 20,
2002, if the reported closing sales price of Alloy's common stock exceeds $20.48
per share for a period of twenty consecutive trading days, Alloy has the option
to require the holders of all, but not less than all, shares of the Series B
Preferred Stock to convert their shares into shares of Alloy common stock.

Also, on June 20, 2001, Alloy received an investment of $18,150 from various
investors in exchange for 1,815 shares of Alloy's Series B Preferred Stock,
which are immediately convertible into 1,551,282 shares of Alloy common stock.
In addition, the Series B investors received warrants to purchase a total of
502,492 shares of Alloy common stock at an exercise price of $12.46 per share.
The fair value of the warrants issued in connection with the Series B Preferred
Stock was estimated as $2,442 using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 0%, volatility of 75%, risk-free
interest rate of 5.50% and expected life of two years. Based upon the terms of
this transaction, there was a beneficial conversion feature reflected as of the
date of the transaction in the amount of approximately $3,976, which reduced
earnings attributable to common shareholders in the year ended January 31, 2002.
Similar to the accounting treatment for the Series A Preferred Stock, the
beneficial conversion feature was recorded as a direct charge against
accumulated deficit, with a corresponding increase in additional paid-in
capital. As a result of the warrants issued and the related expenses of the
transaction, there was a discount of $3,890 upon issuance of the Series B
Preferred Stock, which is being accreted over the four-year period prior to
mandatory redemption and reflected as a charge against additional paid-in
capital and a corresponding increase to the carrying value of the Series B
Preferred Stock.
<PAGE>

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

On January 8, 2002, an investor converted 50 shares of Series B Preferred Stock
into 44,032 shares of Alloy common stock. The impact upon conversion was the
recognition of additional accretion of $92, which has been reflected as a
reduction of earnings attributable to common shareholders.

10.  PRIVATE PLACEMENT TRANSACTIONS

On November 1, 2001, Alloy entered into definitive purchase agreements to sell
2,575,000 shares of newly issued common stock, $.01 par value, in a private
placement to both new institutional investors and existing shareholders for an
aggregate purchase price of $32,188. Net proceeds from this private placement of
$30,013 may be used for acquisitions or general corporate purposes.

On January 25, 2002, Alloy entered into a definitive purchase agreement to sell
1,367,366 shares of newly issued common stock, $.01 par value, and warrants to
purchase a total of 888,788 shares of Alloy's common stock at an exercise price
of $21.94 per share in a private placement to an investor for an aggregate
purchase price of $30,000. Net proceeds from this private placement of
$27,982 may be used for acquisitions or general corporate purposes. The fair
value of the warrants issued in connection with this financing was estimated as
$8,212 using the Black-Scholes option-pricing model with the following
assumptions: dividend yield of 0%, volatility of 50%, risk-free interest rate of
5.29% and expected life of five years. In connection with this transaction,
Alloy and a company in which the investor had a minority investment entered into
a one year marketing services agreement in which Alloy will provide an
agreed-upon set of advertising and promotional services in exchange for a $3,000
fee determined on a fully-negotiated, arms-length basis.

11. STOCK-BASED COMPENSATION PLANS

Stock options:

During fiscal 1997, Alloy's Board of Directors adopted a Stock Option Plan (the
"Plan"). The Plan as restated, authorizes the granting of options, the exercise
of which would allow up to an aggregate of 4,000,000 shares of Alloy's common
stock to be acquired by the holders of the options. The number of shares under
the Plan authorized for the granting of options was raised to 8,000,000 pursuant
to a shareholder vote on July 21, 2000. The options can take the form of
Incentive Stock Options ("ISOs") or Non-qualified Stock Options ("NQSOs").
Options may be granted to employees, directors and consultants. ISOs and NQSOs
are granted in terms not to exceed ten years and become exercisable as set forth
when the option is granted. Options may be exercised in whole or in part.
Vesting terms of the options range from immediately vesting to a ratable vesting
period of nine years. The exercise price of the ISOs must be at least equal to
100% of the fair market price of Alloy common stock on the date of grant. In the
case of a plan participant who owns directly or by reason of the applicable
attribution rules in Section 424(d) of the United States Internal Revenue Code
of 1986, as amended, more than 10% of the total combined voting power of all
classes of stock of Alloy, the exercise price shall not be less than 110% of the
fair market value on the date of grant. ISOs must be exercised within five to
ten years from the date of grant depending on the participant's ownership in
Alloy. The exercise price of all NQSO's granted under the Plan shall be
determined by Alloy's Board of Directors at the time of grant. The Plan will
terminate on June 30, 2007.

Alloy applies APB 25 in accounting for options issued under the Plan and,
accordingly, recognizes compensation expense for the difference between the fair
value of the underlying common stock and the grant price of the option at the
date of grant. Alloy applies SFAS No. 123 to issuances of stock-based
compensation to non-employees and, accordingly, recognizes the fair value of the
stock options and warrants issued as compensation expense over the service
period or vesting period, whichever is shorter. The fair value assumptions used
for awards to non-employees are consistent with the assumptions listed for the
pro forma impact of awards to employees. The following summarizes the pro forma
impact on earnings of options granted to employees had they been accounted for
pursuant to the fair value method required by SFAS No. 123 for the years ended
January 31:

<TABLE>
<CAPTION>

                                                                    Year Ended January 31,
                                                       --------------------------------------------------
                                                             2000               2001              2002
                                                       ------------       ------------      ------------
<S>                                  <C>              <C>                <C>               <C>
     Net loss attributable to
       common shareholders:          As Reported       $    (14,882)      $    (29,689)     $    (25,358)
                                     Pro Forma         $    (17,389)      $    (36,439)     $    (35,505)

     Net loss attributable to
       common shareholders per
       share:                        As Reported         $    (1.17)       $     (1.61)      $     (1.02)
                                     Pro Forma           $    (1.37)       $     (1.97)      $     (1.42)
</TABLE>

The following is a summary of Alloy's stock option activity:

<TABLE>
<CAPTION>
                                                                      For the Years Ended January 31,
                                               ----------------------------------------------------------------------------------
                                                        2000                        2001                          2002
                                               -------------------------  --------------------------    -------------------------
                                                              Weighted                     Weighted                      Weighted
                                                               Average                     Average                       Average
                                                              Exercise                     Exercise                      Exercise
                                                 Shares         Price         Shares        Price          Shares         Price
                                               ------------   ---------    ----------      --------     ------------     --------
<S>                                            <C>            <C>          <C>            <C>           <C>             <C>
        Outstanding, beginning of year             389,553    $   0.67       2,064,427     $ 15.75         4,009,129     $ 13.69
        Options granted                          2,072,534       15.79       2,229,500       11.69         4,253,100       11.90
        Options exercised                         (381,660)       0.75         (18,048)       0.60          (939,634)      11.74
        Options canceled or expired                (16,000)      14.05        (266,750)      13.84        (1,306,447)      14.47
                                                ----------    --------      ----------     -------       -----------     -------
        Outstanding, end of year                 2,064,427    $  15.75       4,009,129     $ 13.69         6,016,148     $ 12.56
                                                ==========    ========      ==========     =======       ===========     =======
        Exercisable, end of year                    77,738    $  12.49         510,007     $ 14.87           520,574     $ 13.91
                                                ==========    ========      ==========     =======       ===========     =======
        Weighted-average fair value of
          options granted during the year       $    11.38         N/A      $     6.84         N/A       $      7.62         N/A
                                                ==========    ========      ==========     =======       ===========     =======
</TABLE>

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:

<PAGE>
ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                              For the Years Ended January 31
                                            -----------------------------------
                                            2000           2001          2002
                                            --------     --------       -------
<S>                                         <C>          <C>            <C>
       Risk-free interest rates              5.95%         5.97%          4.43%
       Expected lives                        6 years       5 years        5 years
       Expected volatility                  50%           75%            75%
       Expected dividend yields              --          --              --
</TABLE>


Summarized information about Alloy's stock options outstanding and exercisable
at January 31, 2002 is as follows:

<TABLE>
<CAPTION>
                                                  Outstanding                                  Exercisable
      ------------------------      --------------------------------------------        ---------------------------
                                                                        Average                            Average
               Exercise                                                 Exercise                           Exercise
             Price Range             Options        Average Life         Price              Options         Price
      ------------------------      -----------    -------------       ---------          ----------       --------
<S>                                 <C>            <C>                 <C>                <C>              <C>
       $  0.60                            9,860       7.0 Years        $   0.60                5,348       $  0.60
       $  6.50 - $9.75                1,979,025       9.0 Years        $   8.03              173,275       $  8.30
       $  9.80 - $14.70               2,356,250       9.4 Years        $  12.72               48,774       $ 12.75
       $  14.75 - $22.00              1,477,753       8.7 Years        $  16.89              293,177       $ 17.67
       $  22.50 - $26.25                193,260       7.1 Years        $  24.58               -             -
       -----------------              ---------       ---------        --------              -------       -------
       $  0.60 - $26.25               6,016,148       9.0 Years        $  12.56              520,574       $ 13.91
       =================              =========       =========        ========              =======       =======
</TABLE>

Warrants:

The following table summarizes all common stock and preferred stock warrant
activity:

<TABLE>
<CAPTION>
                                                                   For the Years Ended January 31
                                                          --------------------------------------------
                                                            2000             2001             2002
                                                           -------          -------         ---------
<S>                                                        <C>              <C>               <C>
       Outstanding, beginning of year                      517,261          478,858           473,180
          Warrants issued                                   -                -              1,808,298
          Warrants exercised                               (38,403)          (5,678)         (590,843)
                                                           -------          -------         ---------
       Outstanding, end of year                            478,858          473,180         1,690,635
                                                           =======          =======         =========
</TABLE>

The weighted average fair value of the warrants granted during fiscal 2001 was
estimated at $7.28 per warrant using the Black-Scholes option-pricing model. At
January 31, 2002, the unexercised warrants have a weighted average exercise
price of $17.60 per share and a weighted average remaining contractual term of
7.17 years.

Employee Stock Purchase Plan

In April 1999, Alloy adopted the 1999 Employee Stock Purchase Plan (the
"Employee Stock Plan"). The Employee Stock Plan allows eligible employees, as
defined in the Employee Stock Plan, to purchase Alloy's common stock pursuant to
section 423 of the Internal Revenue Code of 1986, as amended. A total of 500,000
shares of Alloy's common stock have been made available for sale under the
Employee Stock Plan, subject to certain capitalization adjustments specified in
the plan document. The Employee Stock Plan will terminate on April 16, 2009
unless terminated sooner by the Board of Directors. The Employee Stock Plan
allows for purchases of common stock under a series of six-month offering
periods commencing February 1 and August 1 of each year, the frequency of dates
and duration of which may be changed by the Board of Directors. Eligible
employees can elect to participate through payroll deductions between 1% and 10%
of compensation that will be credited to the participant's account. The terms of
the Employee Stock Plan provide for the granting of an option on the first day
of each six-month offering period ("Offering Date") to each eligible employee to
purchase Alloy's common stock on the last day of each six-month offering period
("Exercise Date") at a price equal to the lower of 85% of the fair market value
of a share of Alloy's common stock at the Offering Date or 85% of the fair
market value of a share of Alloy's common stock on the Exercise Date.

The number of shares under the option will be determined by dividing an eligible
employee's accumulated contributions prior to the Exercise Date and retained in
the participant's account as of the Exercise Date by the lower of 85% of the
fair market value of a share of Alloy's common stock on the Offering Date, or
85% of the fair market value of a share of Alloy's common stock on the Exercise
Date. Unless a participant withdraws from the Employee Stock Plan, his or her
option for the purchase of shares will be exercised automatically on the
Exercise Date of the relative six-month offering period.

Shares Reserved for Future Issuance:

    At January 31, 2002, shares reserved for future issuance are as follows:

<TABLE>
<S>                                                        <C>
       Preferred Stock                                     8,945,553
       Stock Option Plan                                   6,660,658
       Warrants                                            1,690,635
       Employee Stock Plan                                   476,593
                                                          ----------
                                                          17,773,439
                                                          ==========
</TABLE>

12.  INCOME TAXES

The components of the benefit (provision) for income taxes consist of the
following (amounts in thousands):

<TABLE>
<CAPTION>
                            2000            2001              2002
<S>                        <C>            <C>             <C>
Current:
     State                    --              --               296
                           ------         -------         --------
Deferred:
     State                     --             --                --
     Federal                   --             --                --
                           ------         -------         --------
                           $   --         $   --          $    296
                           ======         =======         ========
</TABLE>
<PAGE>

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)


The difference between the total expected tax expense (benefit) (using the
statutory rate of 34%) and tax expense for the years ended January 31, 2001 and
2002 is accounted for as follows:

<TABLE>
<CAPTION>
                                                            2000              2001             2002
                                                           ------           -------           -------
<S>                                                        <C>              <C>               <C>
       Computed expected tax expense (benefit)              (34%)             (34%)            (34%)
       State taxes, net of federal benefit                  (10%)             (10%)              --
       Non-deductible expenses                                --                --               34%
       Change in valuation allowance                         44%               44%               2%
                                                            ---               ---              ---
       Total expense (benefit)                                0%                0%               2%
                                                            ===               ===              ===
</TABLE>

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:

<TABLE>
<CAPTION>
                                                                  2001              2002
                                                              --------           --------
<S>                                                           <C>                <C>
Deferred tax assets:
   Accruals and reserves                                      $  2,521           $  4,715
   Deferred compensation                                           362                362
   Plant and equipment                                              --                315
   Other                                                         1,203              2,138
   Net operating loss and capital loss carryforwards            16,236             15,573
                                                              --------           --------
Gross deferred tax assets                                       20,322             23,103
Valuation allowance                                            (19,937)           (19,470)
                                                              --------           --------
              Total deferred tax assets                            385              3,633
                                                              --------           --------
Deferred tax liabilities:
   Plant and equipment                                            (303)                --
   Identifiable intangible assets                                   --             (3,381)
   Other                                                           (82)              (252)
                                                              --------           --------
              Total deferred tax liabilities                      (385)            (3,633)
                                                              --------           --------
   Net deferred tax assets (liabilities)                      $     --           $     --
                                                              ========           ========
</TABLE>

For federal income tax purposes, Alloy has unused net operating loss ("NOL")
carryforwards of $32,858 at January 31, 2002 expiring through 2022 and capital
loss carryforwards of $2,536 at January 31, 2002 expiring through January 31,
2005. 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 two such ownership changes since inception; however, the net operating
loss carryforwards are expected to be fully available by 2004. 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. Due to Alloy's operating losses, there is uncertainty
surrounding whether Alloy will ultimately realize its deferred tax assets.
Accordingly, these assets have been fully reserved. If the entire deferred tax
asset were realized, $1,580 would be allocated to equity with the remainder
reducing the income tax expense. This amount relates to the tax effect of the
employee stock option deduction.

13.  NET LOSS PER SHARE

The following table sets forth the computation of basic and diluted net loss
attributable to common shareholders per share:

<TABLE>
<CAPTION>
                                                                                       Year Ended January 31,
                                                                        ----------------------------------------------------
                                                                              2000               2001                 2002
                                                                        ------------        ------------       ------------
<S>                                                                     <C>                 <C>                <C>
NUMERATOR:
Net loss before extraordinary item                                      $    (14,634)       $    (29,689)      $    (15,600)
Charge for beneficial conversion of Series A and Series B
   Convertible Preferred Stock                                                    --                  --             (6,745)
Preferred stock dividends and accretion                                          (13)                 --             (3,013)
                                                                        ------------        ------------       ------------
Net loss attributable to common shareholders before extraordinary item
                                                                             (14,647)            (29,689)           (25,358)
Extraordinary loss                                                              (235)                 --                 --
                                                                        ------------        ------------       ------------
Net loss attributable to common shareholders                            $    (14,882)       $    (29,689)      $    (25,358)
                                                                        ============        ============       ============
DENOMINATOR:
Denominator for basic and diluted net loss attributable to common
  shareholders per share:
   Weighted average shares                                                12,718,318          18,460,042         24,967,678
                                                                        ============        ============       ============
Basic and diluted net loss attributable to common shareholders per
  share before extraordinary item                                       $      (1.15)       $      (1.61)      $      (1.02)
Extraordinary loss                                                             (0.02)                 --                 --
                                                                        ------------        ------------       ------------
Basic and diluted net loss attributable to common shareholders
  per share                                                             $      (1.17)       $      (1.61)      $      (1.02)
                                                                        ============        ============       ============
</TABLE>

<PAGE>

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

The calculation of diluted net loss per share excludes the following securities
that could potentially dilute basic earnings per share in the future because to
do so would have been antidilutive:

<TABLE>
<CAPTION>

                                                                                      January 31,
                                                                     ----------------------------------------------
                                                                       2000               2001               2002
                                                                      -------          ---------          ---------
<S>                                                                   <C>                <C>              <C>
Options to purchase common stock                                      142,539            141,459          1,068,846
Warrants to purchase common stock                                     308,463            250,248             59,645
Conversion of Convertible Preferred Stock                                  --                 --          1,576,822
Contingently issuable common shares pursuant to acquisitions           84,613            660,912          1,234,032
                                                                      -------          ---------          ---------
         Total                                                        535,615          1,052,619          3,939,345
                                                                      =======          =========          =========
</TABLE>


14.  COMMITMENTS AND CONTINGENCIES

Leases

Alloy leases office space and certain computer equipment under noncancellable
leases with various expiration dates through 2010. As of January 31, 2002,
future net minimum lease payments were as follows:

<TABLE>
<CAPTION>
                                             Capital         Operating
       Year ending January 31,                Lease            Lease
---------------------------------------      ------          ---------
<S>                                            <C>           <C>
2003                                           $436          $ 3,045
2004                                            326            2,718
2005                                             55            2,294
2006                                             --            1,946
2007                                             --            1,252
Thereafter                                       --            2,508
                                               ----          -------
Total minimum lease payments                   $817          $13,763
                                               ====          =======
</TABLE>


Rent expense was approximately $2,563, $962 and $88 for the years ended January
31, 2002, 2001 and 2000, respectively, under noncancellable operating leases.

Ordering, Fulfillment and Customer Service

On March 31, 2000, Alloy entered into an agreement with New Roads, Inc., a third
party service organization ("TPS") whereby the TPS provides Alloy with
comprehensive call center and order fulfillment services in support of the
direct marketing operations of the Alloy catalog and the www.alloy.com website.
All aspects relating to fulfillment of customer orders are handled by the TPS,
including receipt and processing of customer orders, shipment of merchandise to
customers and customer service. In consideration for performance of the services
provided by the TPS during the contract term, Alloy paid the TPS an initial
start-up fee and is charged a fixed fee per order processed plus a pass-through
of the variable costs, primarily labor, involved in order processing. The
agreement with the TPS expires in May 2003.

Sales Tax

Alloy does not collect sales or other similar taxes on shipments of goods into
most states. However, various states or foreign countries may seek to impose
sales tax obligations on Alloy. A number of proposals have been made at the
state and local levels that would impose additional taxes on the sale of goods
and services through the internet. In 1998, the U.S. Congress passed legislation
limiting for three years the ability of the states to impose taxes on
internet-based transactions. Subsequently, in 2001, the U.S. Congress extended
this limitation for two more years. Failure to renew this legislation could
result in the imposition by various states of taxes on e-commerce. A successful
assertion by one or more states that Alloy should have collected or be
collecting sales taxes on the sale of products could have a material effect on
Alloy's operations.

<PAGE>

ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

Litigation

In the normal course of business, Alloy is a party to various claims and/or
litigation. Management believes that the settlement of all such claims and/or
litigation considered in the aggregate will not have a material adverse effect
on Alloy's financial position and results of operations. Additionally, 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 Alloy
as a defendant along with James K. Johnson, Matthew C. Diamond, BancBoston
Robertson Stephens, Volpe Brown Whelan & Company, Dain Rauscher Wessels, and
Ladenburg Thalmann & Co., Inc., the underwriters on Alloy's initial public
offering. The complaint purportedly is filed on behalf of persons who purchased
our common stock between May 14, 1999 and December 6, 2000, and alleges
violations of Sections 11, 12(a)(2) and 15 of the Securities Act, and Section
10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5
promulgated thereunder.

Specifically, the complaint alleges that, in connection with Alloy's initial
public offering, Alloy and the other defendants failed to disclose "excessive
commissions" purportedly solicited by and paid to the underwriter defendants in
exchange for allocating shares of our common stock to preferred customers and
alleged agreements among the underwriter defendants and preferred customers
tying the allocation of our IPO shares to agreements to make additional
aftermarket purchases at pre-determined prices. Plaintiffs claim that the
failure to disclose these alleged arrangements made Alloy's prospectus
incorporated in Alloy's registration statement for its IPO materially false and
misleading. Plaintiffs seek unspecified damages. Alloy's believes that the
allegations are without merit and intends to defend vigorously against the
plaintiffs' claims.

On or about April 19, 2002, plaintiffs filed amended complaints against Alloy,
the individual defendants and the underwriters. The amended complaints assert
violations of Section 10(b) of the Exchange Act and mirror allegations asserted
against other issuers sued by plaintiffs.

Letters of Credit

As of January 31, 2002, Alloy had $563 in a standby letter of credit with a bank
for the purpose of securing a lease transaction relating to computer equipment.
The letter of credit was fully secured as of January 31, 2002 and matures in
2006. In addition, Alloy had a $750 guidance line, of which $118 was outstanding
as of January 31, 2002, for the purpose of securing an operating lease that
Alloy maintains.

15. EXTRAORDINARY ITEMS

In connection with Alloy's initial public offering in May 1999, Alloy redeemed
its outstanding promissory notes including accrued interest thereon for $4,212.
The extraordinary charge of $235 resulted from the full recognition of the
remaining unamortized deferred financing costs and unamortized discount on these
notes, which had an original maturity of May 2001.

16. SEGMENT REPORTING

Alloy has two operating segments: direct marketing and content, as described in
Note 1. Alloy's management reviews financial information related to these
operating segments and uses the measure of operating (loss) earnings before
goodwill amortization and extraordinary items to evaluate performance and
allocated resources. Interest income and interest expense are reviewed on a net
basis at the corporate level. Income taxes are centrally managed at the
corporate level and deferred income taxes are not allocated by segment. The
accounting policies of the segments are the same as those described in Note 2.
Reportable data for Alloy's operating segments were as follows for the years
ended January 31, 2000, 2001 and 2002:

<TABLE>
<CAPTION>
                                                                    Direct
                                                                   Marketing      Content        All Other      Consolidated
                                                                  ----------      -------        ---------      ------------
                                                                                        (Unaudited)
<S>                                                               <C>             <C>            <C>             <C>
RESULTS FOR THE FISCAL YEAR ENDED January 31, 2000:
   Revenue from external customers                                $  33,780        $    84        $     --        $  33,864
   Operating income before goodwill amortization and
     extraordinary item                                             (15,841)            (3)             --          (15,844)
   Goodwill amortization                                               (295)           (37)             --             (332)
   Interest income, net                                                  --             --           1,542            1,542
   (Loss) income before income taxes and extraordinary item
                                                                    (16,136)           (40)          1,542          (14,634)
   Extraordinary item                                                    --             --            (235)            (235)
   Net (loss) income                                                (16,136)           (40)          1,307          (14,869)
   Total depreciation and amortization                                  551             37              44              632
   Total assets                                                      15,823          8,172          33,673           57,668

RESULTS FOR THE FISCAL YEAR ENDED January 31, 2001:
   Revenue from external customers                                $  88,500        $ 2,688        $     --        $  91,188
   Operating income before goodwill amortization                    (17,969)           (73)             --          (18,042)
   Goodwill amortization                                             (7,099)        (1,474)             --           (8,573)
   Interest income, net                                                  --             --           1,119            1,119
   Realized loss on marketable securities and investments                --             --          (4,193)          (4,193)
   Loss before taxes                                                (25,068)        (1,547)         (3,074)         (29,689)
   Net loss                                                         (25,068)        (1,547)         (3,074)         (29,689)
   Total depreciation and amortization                                8,356          1,505              --            9,861
   Total assets                                                      75,002          6,504          25,402          106,908

RESULTS FOR THE FISCAL YEAR ENDED January 31, 2002:
   Revenue from external customers                                $ 161,925        $ 3,697        $     --        $ 165,622
</TABLE>

<PAGE>


ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share data)

<TABLE>
<S>                                                               <C>              <C>            <C>             <C>
   Operating income before amortization of goodwill and other
      intangible assets                                               1,598           (179)             --            1,419
   Amortization of goodwill and other intangible assets             (16,403)        (1,913)             --          (18,316)
   Interest income, net                                                  --             --             935              935
   Realized gain on marketable securities and investments                --             --             658              658
   (Loss) gain before taxes                                         (14,805)        (2,092)          1,593          (15,304)
   Provision for income taxes                                          (291)            (5)             --             (296)
   Net (loss) gain                                                  (15,096)        (2,097)          1,593          (15,600)
   Total depreciation and amortization                               19,111          1,942              --           21,053
   Total assets                                                     227,486          6,054          76,667          310,207
</TABLE>

17. QUARTERLY RESULTS (UNAUDITED)

The following table sets forth unaudited financial data for each of Alloy's last
eight fiscal quarters:

<TABLE>
<CAPTION>
                                       Year Ended January 31, 2001                         Year Ended January 31, 2002
                            --------------------------------------------------------------------------------------------------
                              First        Second       Third        Fourth        First        Second       Third     Fourth
                             Quarter      Quarter      Quarter       Quarter      Quarter      Quarter      Quarter    Quarter
                            --------------------------------------------------------------------------------------------------
<S>                         <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
  Net merchandise
     revenues               $  6,141     $  9,739     $ 24,271     $ 36,585     $ 23,733     $ 21,780     $ 31,761     $46,778
  Sponsorship and other
     revenues                  2,209        2,571        3,788        5,884        4,508        6,955       12,702      17,405
                            --------     --------     --------     --------     --------     --------     --------     -------
  Total revenues               8,350       12,310       28,059       42,469       28,241       28,735       44,463      64,183
  Cost of goods sold           3,001        4,462       12,351       17,943       12,363       12,650       17,861      25,984
                            --------     --------     --------     --------     --------     --------     --------     -------
  Gross profit                 5,349        7,848       15,708       24,526       15,878       16,085       26,602      38,199
  Operating expenses:
     Selling and               9,304       11,181       19,294       21,035       17,483       15,405       21,484      27,457
     marketing
     General and
      administrative           1,972        2,746        2,995        2,946        2,949        3,341        3,221       4,005
     Amortization of
      goodwill and
      other intangible
      assets                     811        1,204        3,250        3,308        3,741        4,613        4,709       5,253
                            --------     --------     --------     --------     --------     --------     --------     -------
  Total operating
     expenses                 12,087       15,131       25,539       27,289       24,173       23,359       29,414      36,715
  (Loss) income from
     Operations               (6,738)      (7,283)      (9,831)      (2,763)      (8,295)      (7,274)      (2,812)      1,484
  Interest income, net           433          386          150          150          203          286          223         223
  Realized (loss) gain
     on marketable
     securities and
     investments                  --           --           --       (4,193)         658           --           --          --
                            --------     --------     --------     --------     --------     --------     --------     -------
  Net (loss) income
     before income taxes      (6,305)      (6,897)      (9,681)      (6,806)      (7,434)      (6,988)      (2,589)      1,707
   Provision for income
     taxes                        --           --           --           --           --           --           75         221
                            --------     --------     --------     --------     --------     --------     --------     -------
   Net (loss) income          (6,305)      (6,897)      (9,681)      (6,806)      (7,434)      (6,988)      (2,664)      1,486
  Non-cash charge
     attributable to
     beneficial
     conversion feature of
     preferred stock issued       --           --           --           --        2,769        3,976           --          --
  Preferred stock
     dividends and
     accretion of
     discount                     --           --           --           --          125          368        1,927         593
                            --------     --------     --------     --------     --------     --------     --------     -------
  Net (loss) income
     attributable to
     common shareholders      (6,305)      (6,897)      (9,681)      (6,806)     (10,328)     (11,332)      (4,591)        893
                            ========     ========     ========     ========     ========     ========     ========     =======
  Basic net (Loss) Earnings
     attributable to common
     shareholders per Share $  (0.42)    $  (0.38)    $  (0.48)    $  (0.33)    $  (0.49)    $  (0.51)    $  (0.18)    $  0.03
  Fully Diluted net (Loss)
     Earnings attributable
     to common shareholders
     per Share              $  (0.42)    $  (0.38)    $  (0.48)    $  (0.33)    $  (0.49)    $  (0.51)    $  (0.18)    $  0.02
</TABLE>


18. SUBSEQUENT EVENT

On February 20, 2002, Alloy entered into a definitive purchase agreement with a
syndicate of underwriters to sell 4,000,000 shares of newly issued common stock
in a public offering to institutional investors for an aggregate purchase price
of $60,840. Net proceeds from this offering of approximately $57,480 may be used
for acquisitions or general corporate purposes.
<PAGE>


INDEX TO FINANCIAL STATEMENT SCHEDULE



Schedule II - Valuation and Qualifying Accounts                          S - 1


<PAGE>

                                                                     SCHEDULE II

ALLOY, INC.

VALUATION AND QUALIFYING ACCOUNTS
(amounts in 000s)

<TABLE>
<CAPTION>
                                                         Balance at
                                                        Beginning of      Charged to                         Balance at
                     Description                           Period          Expenses         Deductions      End of period
                     -----------                        ------------     ----------        -----------      -------------
<S>                                                     <C>              <C>               <C>              <C>
Allowance for doubtful accounts:
   January 31, 2000                                           12              162                2                172
   January 31, 2001                                          172            1,284               --              1,456
   January 31, 2002                                        1,456            1,464              777              2,143

Reserve for sales returns and allowances:
   January 31, 2000                                           57            4,984            4,532                509
   January 31, 2001                                          509            9,415            9,158                766
   January 31, 2002                                          766           13,553           13,366                953
</TABLE>


                                      S-1
<PAGE>


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

None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Information About Directors and Executive
Officers" in our definitive Proxy Statement for our 2002 Annual Meeting of
Shareholders.

ITEM 11.  EXECUTIVE COMPENSATION.

The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Executive Compensation" in our definitive
Proxy Statement for our 2002 Annual Meeting of Shareholders, except that the
sections in the definitive proxy statement entitled "Report of the Compensation
Committee on Executive Compensation," "Report of the Audit Committee" and the
"Performance Graph" shall not be deemed incorporated herein by reference to this
Annual Report on Form 10-K.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The response to this item is incorporated by reference from the discussion
responsive thereto under the caption "Information About Alloy Stock Ownership"
in our definitive Proxy Statement for our 2002 Annual Meeting of Shareholders.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The response to this item is incorporated by reference from the discussion
responsive thereto under the captions "Certain Relationships and Related Party
Transactions" in our definitive Proxy Statement for our 2002 Annual
Meeting of Shareholders.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(A)  FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS

       (1) Consolidated Financial Statements.

       See "Index to Financial Statements" at Item 8 to this Annual Report on
       Form 10-K.

       (2) Financial Statement Schedules.

       See "Index to Financial Statements" at Item 8 to this Annual Report on
       Form 10-K.

       (3)  Exhibits.

The following exhibits are filed with this report or incorporated by reference
as set forth below.

EXHIBIT
NUMBER            DESCRIPTION OF DOCUMENT

2.1     Asset Purchase Agreement dated as of December 1, 1999 by and among Alloy
Online, Inc., Alloy Acquisition Corporation and Celebrity Sightings, LLC
(incorporated by reference to Alloy's Current Report on Form 8-K dated December
21, 1999).

2.2     Agreement and Plan of Reorganization dated as of January 21, 2000, by
and between Alloy Online, Inc., Alloy Acquisition Sub, Inc., 17th Street
Acquisition Corp. and Leslie N. Morgenstein and Ann Brashares (incorporated by
reference to Alloy 's Current Report on Form 8-K dated August, 2, 2000).

2.3     Agreement and Plan of Reorganization dated as of July 17, 2000, by and
between Alloy Online, Inc., Alloy Acquisition Sub, Inc., Kubic Marketing, Inc.
and SWI Holdings LLC (incorporated by reference to Alloy's Current Report on
Form 8-K dated August 2, 2000).

2.4     Agreement and Plan of Merger dated as of April 11, 2001, by and between
Alloy Online, Inc., Landon Media Group, Inc., Carnegie Communications, Inc., and
the Shareholders of Landon Media Group, Inc. (incorporated by reference to
Alloy's Current Report on Form 8- K dated April 26, 2001).

2.5     Agreement and Plan of Reorganization, dated as of July 3, 2001, by and
among Alloy Online, Inc., CASS Communications, Inc. and Alan M. Weisman
(incorporated by reference to Exhibit 2.1 to Alloy's Current Report on Form 8-K
filed July 10, 2001).

2.6     First Amendment to Agreement and Plan of Reorganization, dated as of
August 1, 2001, by and among Alloy Online, Inc., CASS Communications, Inc. and
Alan M. Weisman (incorporated by reference to Alloy's Current Report on Form 8-K
filed August 14, 2001).

2.7     Agreement and Plan of Reorganization, dated as of September 28, 2001, by
and among Alloy, Inc., Alloy Acquisition Sub, Inc., Dan's Competition, Inc.,
Daniel E. Duckworth and Dianna J. Duckworth (incorporated by reference to
Alloy's Current Report on Form 8-K filed October 15, 2001).

2.8     Asset Purchase Agreement, dated as of November 26, 2001, by and between
Alloy, Inc., Alloy Acquisition Sub, Inc. and MarketSource Corporation
(incorporated by reference to Alloy's Current Report on Form 8-K filed December
11, 2001).
<PAGE>

3.1     Restated Certificate of Incorporation of Alloy Online, Inc.
(incorporated by reference into Alloy's Registration Statement on Form S-1
(Registration Number 333-74159)).

3.2     Certificate of Amendment of Certificate of Incorporation of Alloy
Online, Inc. (incorporated by reference into Alloy's Current Report on Form 8-K
dated August 13, 2001).

3.3     Certificate of Amendment of Restated Certificate of Incorporation of
Alloy Online, Inc. (incorporated by reference into Alloy's Current Report on
Form 8-K dated March 13, 2002).

3.4     Restated Bylaws (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333-74159)).

4.1     Form of Common Stock Certificate (incorporated by reference to Alloy's
Registration Statement on Form S-1 (Registration Number 333-74159)).

4.2     Warrant, dated as of November 26, 2001, issued by Alloy, Inc. to
MarketSource Corporation (incorporated by reference to Alloy's Current Report on
Form 8-K filed December 11, 2001).

4.3     Alloy, Inc. Warrant to Purchase Common Stock issued to Fletcher
International Ltd., dated as of January 28, 2002. (incorporated by reference to
Alloy's Current Report on Form 8-K/A filed February 1, 2002).

4.4     Form of Alloy Online, Inc. Warrant to Purchase Common Stock, dated as of
June 19, 2001, issued to each of the Purchasers (incorporated by reference to
Alloy's Current Report on Form 8-K filed June 20, 2001).

4.5     Demand Note, dated as of August 1, 2001, by and between Alloy Online,
Inc. and Alan M. Weisman (incorporated by reference to Alloy's Current Report on
Form 8-K filed August 14, 2001).

4.6     Demand Note, dated as of September 28, 2001, by and between Alloy, Inc.
and Daniel E. Duckworth (incorporated by reference to Alloy's Current Report on
Form 8-K filed October 15, 2001).

4.7     Demand Note, dated as of September 28, 2001, by and between Alloy, Inc.
and Dianna J. Duckworth (incorporated by reference to Alloy's Current Report on
Form 8-K filed October 15, 2001).

4.8     Warrant, dated as of April 11, 2001, to Purchase Shares of Common Stock,
Par Value $.01 Per Share, between Alloy and Owen E. Landon, Jr. (incorporated by
reference to Alloy's Current Report on Form 8-K filed April 26, 2001).

4.9     Warrants, each dated as of April 11, 2001, to Purchase Shares of Common
Stock, Par Value $.01 Per Share, among  Alloy and (i) Virginia B. Landon, (ii)
The Owen E. Landon Revocable Trust dated 5/7/79, (iii) The Owen E. Landon
Irrevocable Trust dated December 31, 1976 f/b/o Kimberly Marie Landon, (iv) The
Owen E. Landon Irrevocable Trust dated December 31, 1976 f/b/o Karen Louise
Landon, (v) The Owen E. Landon Irrevocable Trust dated December 31, 1976 f/b/o
Owen E. Landon III, (vi) The Owen E. Landon Irrevocable Trust dated December 31,
1976 f/b/o Mark Bond Landon and (vii) The Owen E. Landon Irrevocable Trust dated
December 31, 1976 f/b/o Susan Bond Landon (incorporated by reference to Alloy's
Current Report on Form 8-K filed April 26, 2001).

10.1    Lease Agreement between Alloy Online, Inc. and Abner Properties Company,
c/o Williams Real Estate Co., Inc., dated as of November 2, 1999 (incorporated
by reference to Alloy's 2000 Annual Report on form 10-K dated May 1, 2000).

10.2    First Lease Modification Agreement between Alloy Online, Inc. and Abner
Properties Company, c/o Williams Real Estate Co., Inc., dated December 18, 2000
(incorporated by reference to Alloy's 2001 Annual Report on form 10-K dated May
1, 2001).

10.3    Agreement of Lease between Irving Realty Co. and Daniel Weiss
Associates, Inc., dated as of May 8, 1996 (incorporated by reference to Alloy's
2000 Annual Report on form 10-K dated May 1, 2000).

10.4    Sublease Agreement between United Parcel Service and Central Coast
Surfboards dated May 15, 1996, as amended by the First Addendum to Sublease
Agreement dated October 1, 1998 (incorporated by reference to Alloy's 2001
Annual Report on form 10-K dated May 1, 2001).

10.5    Lease Agreement dated January 27, 1992 between Arthur Segal Trust, c/o
Patterson Realty and Central Coast Surfboards, as amended by the First Lease
Amendment dated April 29, 1994, and as further amended by the Second Lease
Amendment (undated), and as further amended by the Third Lease Amendment
(undated) (incorporated by reference to Alloy's 2001 Annual Report on form 10-K
dated May 1, 2001).

10.6    Termination of Fulfillment Services Agreement, Settlement Agreement and
Release of Claims between Online Direct, Inc. and Alloy Online, Inc. dated as of
April 14, 2000 (incorporated by reference to Alloy's 2000 Annual Report on Form
10-K dated May 1, 2000).

10.7    Services Agreement between Distribution Associates, Inc. and Alloy
Online, Inc. dated as of March 31, 2000 (incorporated by reference to Alloy's
2000 Annual Report on Form 10-K dated May 1, 2000).

10.8    Restated 1997 Employee, Director and Consultant Stock Option Plan
(incorporated by reference into Alloy's Registration Statement on Form S-8 dated
October 20, 2000 (Registration Number 333-74159)).

10.9    Employment Agreement dated April 19, 1999 between Matthew C. Diamond and
Alloy Online, Inc. (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333-74159)).

10.10   Employment Agreement dated April 19, 1999 between James K. Johnson, Jr.
and Alloy Online, Inc. (incorporated by reference into Alloy's Registration
<PAGE>

Statement on Form S-1 (Registration Number 333- 74159)).

10.11   Employment Agreement dated April 19, 1999 between Samuel A. Gradess and
Alloy Online, Inc. (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333-74159)).

10.12   Non-Competition and Confidentiality Agreement dated November 24, 1998
between Matthew C. Diamond and Alloy Online, Inc. (incorporated by reference
into Alloy's Registration Statement on Form S-1 (Registration Number
333-74159)).

10.13   Non-Competition and Confidentiality Agreement dated November 24, 1998
between James K. Johnson, Jr. and Alloy Online, Inc. (incorporated by reference
into Alloy's Registration Statement on Form S-1 (Registration Number
333-74159)).

10.14   Non-Competition and Confidentiality Agreement dated November 24, 1998
between Samuel A. Gradess and Alloy Online, Inc. (incorporated by reference into
Alloy's Registration Statement on Form S-1 (Registration Number 333-74159)).

10.15   Employment Letter dated February 22, 1999 between Neil Vogel and Alloy
Online, Inc. (incorporated by reference into Alloy's Registration Statement on
Form S-1 (Registration Number 333-74159)).

10.16   Non-Qualified Stock Option Agreement dated as of August 2, 1999 between
Neil Vogel and Alloy Online, Inc. (incorporated by reference into Alloy's 2000
Annual Report on Form 10-K dated May 1, 2000).

10.17   Non-Qualified Stock Option Agreement dated as of November 4, 1999
between Neil Vogel and Alloy Online, Inc. (incorporated by reference into
Alloy's 2000 Annual Report on Form 10-K dated May 1, 2000.)

10.18   Employment Offer Letter dated May 24, 2000 between Robert Bell and Alloy
Online, Inc. (incorporated by reference into Alloy's 2001 Annual Report on Form
10-K dated May 1, 2001).

10.19   Non-Competition and Confidentiality Agreement dated March 24, 2000
between Robert Bell and Alloy Online, Inc. (incorporated by reference into
Alloy's 2001 Annual Report on Form 10-K dated May 1, 2001).

10.20   Incentive Stock Option Agreement dated as of July 19, 2000 between Alloy
Online, Inc. and Robert Bell. (incorporated by reference into Alloy's 2001
Annual Report on Form 10-K dated May 1, 2001).

10.21   Non-Qualified Stock Option Agreement dated as of July 19, 2000 between
Alloy Online, Inc. and Robert Bell. (incorporated by reference into Alloy's 2001
Annual Report on Form 10-K dated May 1, 2001).

10.22   Flexible Standardized 401(k) Profit Sharing Plan Adoption Agreement
(incorporated by reference into Alloy's Registration Statement on Form S-1
(Registration Number 333-74159)).

10.23   1999 Employee Stock Purchase Plan (incorporated by reference into
Alloy's Registration Statement on Form S-1 (Registration Number 333-74159)).

10.24   Warrant to Purchase Shares of Common Stock of Alloy Online, Inc. dated
as of July 18, 2000 between Alloy Online, Inc. and SWI Holdings, LLC
(incorporated by reference to Alloy's Current Report on Form 8- K dated August
2, 2000).

10.25   Investment Representation and Lockup Agreement dated as of July 18,
2000, by and between Alloy Online, Inc. and SWI Holdings, LLC (incorporated by
reference to Alloy's Current Report on Form 8- K dated August 2, 2000).

10.26   Amendment to Loan and Security Agreement, dated as of July 18, 2000, by
and among Phase Three, Inc., the financial institutions party thereto and the
other parties named therein (incorporated by reference to Alloy's Current Report
on Form 8-K dated August 2, 2000).

10.27   Office Lease Agreement between 1800 Sherman Associates and Cass
Communications, Inc., dated July 31, 1993, including Storage Lease Amendment
dated September 30, 1998, and Second Amendment to Lease dated September 30, 1998
between Prentiss Properties Acquisition Partners, L.P. and Cass Communications,
Inc. (incorporated by reference to Alloy's Quarterly Report on Form 10-Q dated
September 14, 2001).

10.28   Sublease Agreement between Cass Communications, Inc. and Cass
Recruitment Media, Inc., dated August 1, 2001 (incorporated by reference to
Alloy's Quarterly Report on Form 10-Q dated September 14, 2001).

10.29   Storage Lease Agreement between 1800 Sherman Associates and Cass
Communications, Inc., dated April 21, 1994 (incorporated by reference to Alloy's
Quarterly Report on Form 10-Q dated September 14, 2001).

10.30   Consent to and Assignment of Lease and Storage Lease, as amended and
supplemented by and between 1800 Sherman Associates and Cass Communications,
Inc., between Prentiss Properties Acquisition Partners, L.P., dated as of July
31, 2001 (incorporated by reference to Alloy's Quarterly Report on Form 10-Q
dated September 14, 2001).

10.31   Standard Office Lease between Arden Realty Finance Partnership, L.P. and
Cass Communications, Inc., dated as of September 11, 1998 (incorporated by
reference to Alloy's Quarterly Report on Form 10-Q dated September 14, 2001).

10.32   Lease between Empire State Building Company and Cass Communications,
Inc., dated as of November 23, 1999 (incorporated by reference to Alloy's
Quarterly Report on Form 10-Q dated September 14, 2001).

10.33   Lease Agreement by and between Bike Land, LLC and Dan's Competition,
Inc., dated September 28, 2001 (incorporated by reference to Alloy's Quarterly
Report on Form 10-Q dated December 17, 2001).

10.34   Lease Agreement by and between Bikeland, LLC and Dan's Competition,
Inc., dated September 28, 2001 (incorporated by reference to Alloy's Quarterly
Report on Form 10-Q dated December 17, 2001).

10.35   Second Lease Modification Agreement between Alloy, Inc. and Abner
Properties Company, c/o Williams Real Estate Co., Inc., dated as of January 28,
2002.
<PAGE>

10.36   Assignment and Assumption of Lease between Alloy, Inc. and Goldfarb &
Abrandt dated as of February 1, 2002.

10.37   Sublease Agreement between Alloy Acquisition Sub, Inc. and MarketSource,
Inc., dated as of November 26, 2001.

10.38   Sublease Agreement between Alloy Acquisition Sub, Inc. and MarketSource,
Inc., dated as of November 26, 2001.

10.39   Fourth Lease Amendment between the Arthur Segal Trust and Phase Three,
Inc., dated May 23, 2001.

10.40   First Amendment to Standard Office Lease, dated as of November 1, 2001,
by and between Arden Realty Finance Partnership, L.P. and Alloy, Inc.

10.41   Services Agreement, dated February 9, 1999, between OneSoft Corporation
and the Registrant (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333-74159)).

21.1    Subsidiaries of Alloy, Inc. as of January 31, 2002.

23.1    Consent of Arthur Andersen LLP.

99.1    Letter from Alloy, Inc. to the Commission, dated May 1, 2002, regarding
Arthur Andersen LLP.

99.2    Investment Representation and Lockup Agreement, dated as of September
28, 2001, by and among Alloy, Inc., Daniel E. Duckworth and Dianna J. Duckworth
(incorporated by reference to Alloy's Current Report on Form 8-K filed October
15, 2001).

99.3    Investment Representation and Lockup Agreement, dated as of November 26,
2001, by and between Alloy, Inc. and MarketSource Corporation (incorporated by
reference to Alloy's Current Report on Form 8-K filed December 11, 2001).

99.4    Agreement, dated as of January 25, 2002 between Alloy, Inc. and Fletcher
International, Ltd. (incorporated by reference to Alloy's Current Report on Form
8-K filed January 29, 2002)

99.5    Securities Purchase Agreement by and among Alloy Online, Inc, BayStar
Capital, L.P., BayStar International, Ltd., Lambros, L.P., Crosslink Crossover
Fund III, L.P., Offshore Crosslink Crossover Fund III Unit Trust, Bayview
Partners, the Peter M. Graham Money Purchase Plan and Trust and Elyssa
Kellerman, dated as of June 19, 2001 (incorporated by reference to Alloy's
Current Report on Form 8-K filed June 20, 2001).

99.6    Registration Rights Agreement, dated as of June 19, 2001, by and among
Alloy Online, Inc, BayStar Capital, L.P., BayStar International, Ltd., Lambros,
L.P., Crosslink Crossover Fund III, L.P., Offshore Crosslink Crossover Fund III
Unit Trust, Bayview Partners, the Peter M. Graham Money Purchase Plan and Trust
and Elyssa Kellerman (incorporated by reference to Alloy's Current Report on
Form 8-K filed June 20, 2001).

99.7    Investment Representation and Lockup Agreement, dated as of August 1,
2001, by and among Alloy Online, Inc. and Alan M. Weisman (incorporated by
reference to Alloy's Current Report on Form 8-K filed August 14, 2001).

99.8    Investment Representation and Lockup Agreement, dated as of April 11,
2001 by and between Alloy and each of the Shareholders of Landon Media Group,
Inc. (incorporated by reference to Alloy's Current Report on Form 8-K filed
April 26, 2001).


 (B)  REPORTS ON FORM 8-K:

Current Report on Form 8-K, filed on November 6, 2001;

Current Report on Form 8-K, filed on November 13, 2001;

Current Report on Form 8-K/A, filed on December 11, 2001;

Current Report on Form 8-K, filed on December 11, 2001;

Current Report on Form 8-K/A, filed on January 25, 2002;

Current Report on Form 8-K, filed on January 29, 2002; and

Current Report on form 8-K, filed on January 29, 2002.

<PAGE>

                                   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.

Date:    May 1, 2002                     Alloy, Inc.

                                         By: /s/ Matthew C. Diamond
                                             ----------------------------------
                                                 Matthew C. Diamond
                                                 Chairman of the Board and Chief
                                                 Executive Officer

<TABLE>
<CAPTION>
SIGNATURE                                   TITLE                                 DATE
<S>                                      <C>                                   <C>
/s/ Matthew C. Diamond                   Chief Executive Officer               May 1, 2002
-----------------------------            (Principal Executive Officer)
Matthew C. Diamond                       and Chairman

/s/ Samuel A. Gradess                    Chief Financial Officer               May 1, 2002
----------------------------             Chief (Principal Financial and
Samuel A. Gradess                        Accounting Officer) and
                                         Director


/s/ James K. Johnson, Jr.                Chief Operating Officer and           May 1, 2002
-----------------------------            Director
James K. Johnson, Jr.

/s/ Peter M. Graham                      Director                              May 1, 2002
-----------------------------
Peter M. Graham

/s/ David Yarnell                        Director                              May 1, 2002
-----------------------------
David Yarnell

/s/ Edward A. Monnier                    Director                              May 1, 2002
-----------------------------
Edward A. Monnier
</TABLE>
<PAGE>

                                    EXHIBIT INDEX

                               DESCRIPTION OF DOCUMENT


EXHIBIT
NUMBER            DESCRIPTION OF DOCUMENT

2.1     Asset Purchase Agreement dated as of December 1, 1999 by and among Alloy
Online, Inc., Alloy Acquisition Corporation and Celebrity Sightings, LLC
(incorporated by reference to Alloy's Current Report on Form 8-K dated December
21, 1999).

2.2     Agreement and Plan of Reorganization dated as of January 21, 2000, by
and between Alloy Online, Inc., Alloy Acquisition Sub, Inc., 17th Street
Acquisition Corp. and Leslie N. Morgenstein and Ann Brashares (incorporated by
reference to Alloy 's Current Report on Form 8-K dated August, 2, 2000).

2.3     Agreement and Plan of Reorganization dated as of July 17, 2000, by and
between Alloy Online, Inc., Alloy Acquisition Sub, Inc., Kubic Marketing, Inc.
and SWI Holdings LLC (incorporated by reference to Alloy's Current Report on
Form 8-K dated August 2, 2000).

2.4     Agreement and Plan of Merger dated as of April 11, 2001, by and between
Alloy Online, Inc., Landon Media Group, Inc., Carnegie Communications, Inc., and
the Shareholders of Landon Media Group, Inc. (incorporated by reference to
Alloy's Current Report on Form 8- K dated April 26, 2001).

2.5     Agreement and Plan of Reorganization, dated as of July 3, 2001, by and
among Alloy Online, Inc., CASS Communications, Inc. and Alan M. Weisman
(incorporated by reference to Exhibit 2.1 to Alloy's Current Report on Form 8-K
filed July 10, 2001).

2.6     First Amendment to Agreement and Plan of Reorganization, dated as of
August 1, 2001, by and among Alloy Online, Inc., CASS Communications, Inc. and
Alan M. Weisman (incorporated by reference to Alloy's Current Report on Form 8-K
filed August 14, 2001).

2.7     Agreement and Plan of Reorganization, dated as of September 28, 2001, by
and among Alloy, Inc., Alloy Acquisition Sub, Inc., Dan's Competition, Inc.,
Daniel E. Duckworth and Dianna J. Duckworth (incorporated by reference to
Alloy's Current Report on Form 8-K filed October 15, 2001).

2.8     Asset Purchase Agreement, dated as of November 26, 2001, by and between
Alloy, Inc., Alloy Acquisition Sub, Inc. and MarketSource Corporation
(incorporated by reference to Alloy's Current Report on Form 8-K filed December
11, 2001).

3.1     Restated Certificate of Incorporation of Alloy Online, Inc.
(incorporated by reference into Alloy's Registration Statement on Form S-1
(Registration Number 333-74159)).

3.2     Certificate of Amendment of Certificate of Incorporation of Alloy
Online, Inc. (incorporated by reference into Alloy 's Current Report on Form 8-K
dated August 13, 2001).

3.3     Certificate of Amendment of Restated Certificate of Incorporation of
Alloy Online, Inc. (incorporated by reference into Alloy's Current Report on
Form 8-K dated March 13, 2002).

3.4     Restated Bylaws (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333-74159)).

4.1     Form of Common Stock Certificate (incorporated by reference to Alloy's
Registration Statement on Form S-1 (Registration Number 333-74159)).

4.2     Warrant, dated as of November 26, 2001, issued by Alloy, Inc. to
MarketSource Corporation (incorporated by reference to Alloy's Current Report on
Form 8-K filed December 11, 2001).

4.3     Alloy, Inc. Warrant to Purchase Common Stock issued to Fletcher
International Ltd., dated as of January 28, 2002. (incorporated by reference to
Alloy's Current Report on Form 8-K/A filed February 1, 2002).

4.4     Form of Alloy Online, Inc. Warrant to Purchase Common Stock, dated as of
June 19, 2001, issued to each of the Purchasers (incorporated by reference to
Alloy's Current Report on Form 8-K filed June 20, 2001).

4.5     Demand Note, dated as of August 1, 2001, by and between Alloy Online,
Inc. and Alan M. Weisman (incorporated by reference to Alloy's Current Report on
Form 8-K filed August 14, 2001).

4.6     Demand Note, dated as of September 28, 2001, by and between Alloy, Inc.
and Daniel E. Duckworth (incorporated by reference to Alloy's Current Report on
Form 8-K filed October 15, 2001).

4.7     Demand Note, dated as of September 28, 2001, by and between Alloy, Inc.
and Dianna J. Duckworth (incorporated by reference to Alloy's Current Report on
Form 8-K filed October 15, 2001).

4.8     Warrant, dated as of April 11, 2001, to Purchase Shares of Common Stock,
Par Value $.01 Per Share, between Alloy and Owen E. Landon, Jr. (incorporated by
reference to Alloy's Current Report on Form 8-K filed April 26, 2001).

4.9     Warrants, each dated as of April 11, 2001, to Purchase Shares of Common
Stock, Par Value $.01 Per Share, among Alloy and (i) Virginia B. Landon, (ii)
The Owen E. Landon Revocable Trust dated 5/7/79, (iii) The Owen E. Landon
Irrevocable Trust dated December 31, 1976 f/b/o Kimberly Marie Landon, (iv) The
Owen E. Landon Irrevocable Trust dated December 31, 1976 f/b/o Karen Louise
Landon, (v) The Owen E. Landon Irrevocable Trust dated December 31, 1976 f/b/o
Owen E. Landon III, (vi) The Owen E. Landon Irrevocable Trust dated December 31,
1976 f/b/o Mark Bond Landon and (vii) The Owen E. Landon Irrevocable Trust dated
December 31, 1976 f/b/o Susan Bond Landon (incorporated by reference to Alloy's
Current Report on Form 8-K filed April 26, 2001).

10.1    Lease Agreement between Alloy Online, Inc. and Abner Properties Company,
c/o Williams Real Estate Co., Inc., dated as of November 2, 1999 (incorporated
by reference to Alloy's 2000 Annual Report on form 10-K dated May 1, 2000).
<PAGE>


10.2    First Lease Modification Agreement between Alloy Online, Inc. and Abner
Properties Company, c/o Williams Real Estate Co., Inc., dated December 18, 2000
(incorporated by reference to Alloy's 2001 Annual Report on form 10-K dated May
1, 2001).

10.3    Agreement of Lease between Irving Realty Co. and Daniel Weiss
Associates, Inc., dated as of May 8, 1996 (incorporated by reference to Alloy's
2000 Annual Report on form 10-K dated May 1, 2000).

10.4    Sublease Agreement between United Parcel Service and Central Coast
Surfboards dated May 15, 1996, as amended by the First Addendum to Sublease
Agreement dated October 1, 1998 (incorporated by reference to Alloy's 2001
Annual Report on form 10-K dated May 1, 2001).

10.5    Lease Agreement dated January 27, 1992 between Arthur Segal Trust, c/o
Patterson Realty and Central Coast Surfboards, as amended by the First Lease
Amendment dated April 29, 1994, and as further amended by the Second Lease
Amendment (undated), and as further amended by the Third Lease Amendment
(undated) (incorporated by reference to Alloy's 2001 Annual Report on form 10-K
dated May 1, 2001).

10.6    Termination of Fulfillment Services Agreement, Settlement Agreement and
Release of Claims between Online Direct, Inc. and Alloy Online, Inc. dated as of
April 14, 2000 (incorporated by reference to Alloy's 2000 Annual Report on Form
10-K dated May 1, 2000).

10.7    Services Agreement between Distribution Associates, Inc. and Alloy
Online, Inc. dated as of March 31, 2000 (incorporated by reference to Alloy's
2000 Annual Report on Form 10-K dated May 1, 2000).

10.8    Restated 1997 Employee, Director and Consultant Stock Option Plan
(incorporated by reference into Alloy's Registration Statement on Form S-8 dated
October 20, 2000 (Registration Number 333-74159)).

10.9    Employment Agreement dated April 19, 1999 between Matthew C. Diamond and
Alloy Online, Inc. (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333-74159)).

10.10   Employment Agreement dated April 19, 1999 between James K. Johnson, Jr.
and Alloy Online, Inc. (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333- 74159)).

10.11   Employment Agreement dated April 19, 1999 between Samuel A. Gradess and
Alloy Online, Inc. (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333-74159)).

10.12   Non-Competition and Confidentiality Agreement dated November 24, 1998
between Matthew C. Diamond and Alloy Online, Inc. (incorporated by reference
into Alloy's Registration Statement on Form S-1 (Registration Number
333-74159)).

10.13   Non-Competition and Confidentiality Agreement dated November 24, 1998
between James K. Johnson, Jr. and Alloy Online, Inc. (incorporated by reference
into Alloy's Registration Statement on Form S-1 (Registration Number
333-74159)).

10.14   Non-Competition and Confidentiality Agreement dated November 24, 1998
between Samuel A. Gradess and Alloy Online, Inc. (incorporated by reference into
Alloy's Registration Statement on Form S-1 (Registration Number 333-74159)).

10.15   Employment Letter dated February 22, 1999 between Neil Vogel and Alloy
Online, Inc. (incorporated by reference into Alloy's Registration Statement on
Form S-1 (Registration Number 333-74159)).

10.16   Non-Qualified Stock Option Agreement dated as of August 2, 1999 between
Neil Vogel and Alloy Online, Inc. (incorporated by reference into Alloy's 2000
Annual Report on Form 10-K dated May 1, 2000).

10.17   Non-Qualified Stock Option Agreement dated as of November 4, 1999
between Neil Vogel and Alloy Online, Inc. (incorporated by reference into
Alloy's 2000 Annual Report on Form 10-K dated May 1, 2000.)

10.18   Employment Offer Letter dated May 24, 2000 between Robert Bell and Alloy
Online, Inc. (incorporated by reference into Alloy's 2001 Annual Report on Form
10-K dated May 1, 2001).

10.19   Non-Competition and Confidentiality Agreement dated March 24, 2000
between Robert Bell and Alloy Online, Inc. (incorporated by reference into
Alloy's 2001 Annual Report on Form 10-K dated May 1, 2001).

10.20   Incentive Stock Option Agreement dated as of July 19, 2000 between Alloy
Online, Inc. and Robert Bell. (incorporated by reference into Alloy's 2001
Annual Report on Form 10-K dated May, 2001).

10.21   Non-Qualified Stock Option Agreement dated as of July 19, 2000 between
Alloy Online, Inc. and Robert Bell. (incorporated by reference into Alloy's 2001
Annual Report on Form 10-K dated May 1, 2001).

10.22   Flexible Standardized 401(k) Profit Sharing Plan Adoption Agreement
(incorporated by reference into Alloy's Registration Statement on Form S-1
(Registration Number 333-74159)).

10.23   1999 Employee Stock Purchase Plan (incorporated by reference into
Alloy's Registration Statement on Form S-1 (Registration Number 333-74159)).

10.24   Warrant to Purchase Shares of Common Stock of Alloy Online, Inc. dated
as of July 18, 2000 between Alloy Online, Inc. and SWI Holdings, LLC
(incorporated by reference to Alloy's Current Report on Form 8- K dated August
2, 2000).

10.25   Investment Representation and Lockup Agreement dated as of July 18,
2000, by and between Alloy Online, Inc. and SWI Holdings, LLC (incorporated by
<PAGE>
reference to Alloy's Current Report on Form 8- K dated August 2, 2000).

10.26 Amendment to Loan and Security Agreement, dated as of July 18, 2000, by
and among Phase Three, Inc., the financial institutions party thereto and the
other parties named therein (incorporated by reference to Alloy's Current Report
on Form 8-K dated August 2, 2000).

10.27   Office Lease Agreement between 1800 Sherman Associates and Cass
Communications, Inc., dated July 31, 1993, including Storage Lease Amendment
dated September 30, 1998, and Second Amendment to Lease dated September 30, 1998
between Prentiss Properties Acquisition Partners, L.P. and Cass Communications,
Inc. (incorporated by reference to Alloy's Quarterly Report on Form 10-Q dated
September 14, 2001).

10.28   Sublease Agreement between Cass Communications, Inc. and Cass
Recruitment Media, Inc., dated August 1, 2001 (incorporated by reference to
Alloy's Quarterly Report on Form 10-Q dated September 14, 2001).

10.29   Storage Lease Agreement between 1800 Sherman Associates and Cass
Communications, Inc., dated April 21, 1994 (incorporated by reference to Alloy's
Quarterly Report on Form 10-Q dated September 14, 2001).

10.30   Consent to and Assignment of Lease and Storage Lease, as amended and
supplemented by and between 1800 Sherman Associates and Cass Communications,
Inc., between Prentiss Properties Acquisition Partners, L.P., dated as of July
31, 2001 (incorporated by reference to Alloy's Quarterly Report on Form 10-Q
dated September 14, 2001).

10.31   Standard Office Lease between Arden Realty Finance Partnership, L.P. and
Cass Communications, Inc., dated as of September 11, 1998 (incorporated by
reference to Alloy's Quarterly Report on Form 10-Q dated September 14, 2001).

10.32   Lease between Empire State Building Company and Cass Communications,
Inc., dated as of November 23, 1999 (incorporated by reference to Alloy's
Quarterly Report on Form 10-Q dated September 14, 2001).

10.33   Lease Agreement by and between Bike Land, LLC and Dan's Competition,
Inc., dated September 28, 2001 (incorporated by reference to Alloy's Quarterly
Report on Form 10-Q dated December 17, 2001).

10.34   Lease Agreement by and between Bikeland, LLC and Dan's Competition,
Inc., dated September 28, 2001 (incorporated by reference to Alloy's Quarterly
Report on Form 10-Q dated December 17, 2001).

10.35   Second Lease Modification Agreement between Alloy, Inc. and Abner
Properties Company, c/o Williams Real Estate Co., Inc., dated as of January 28,
2002.

10.36   Assignment and Assumption of Lease between Alloy, Inc. and Goldfarb &
Abrandt dated as of February 1, 2002.

10.37   Sublease Agreement between Alloy Acquisition Sub, Inc. and MarketSource,
Inc., dated as of November 26, 2001.

10.38   Sublease Agreement between Alloy Acquisition Sub, Inc. and MarketSource,
Inc., dated as of November 26, 2001.

10.39   Fourth Lease Amendment between the Arthur Segal Trust and Phase Three,
Inc., dated May 23, 2001.

10.40   First Amendment to Standard Office Lease, dated as of November 1, 2001,
by and between Arden Realty Finance Partnership, L.P. and Alloy, Inc.

10.41   Services Agreement, dated February 9, 1999, between OneSoft Corporation
and the Registrant (incorporated by reference into Alloy's Registration
Statement on Form S-1 (Registration Number 333-74159)).

21.1    Subsidiaries of Alloy, Inc. as of January 31, 2002.

23.1    Consent of Arthur Andersen LLP.

99.1    Letter from Alloy, Inc. to the Commission, dated May 1, 2002,
regarding Arthur Andersen LLP.

99.2    Investment Representation and Lockup Agreement, dated as of September
28, 2001, by and among Alloy, Inc., Daniel E. Duckworth and Dianna J. Duckworth
(incorporated by reference to Alloy's Current Report on Form 8-K filed October
15, 2001).

99.3    Investment Representation and Lockup Agreement, dated as of November 26,
2001, by and between Alloy, Inc. and MarketSource Corporation (incorporated by
reference to Alloy's Current Report on Form 8-K filed December 11, 2001).

99.4    Agreement, dated as of January 25, 2002 between Alloy, Inc. and Fletcher
International, Ltd. (incorporated by reference to Alloy's Current Report on Form
8-K filed January 29, 2002)

99.5    Securities Purchase Agreement by and among Alloy Online, Inc, BayStar
Capital, L.P., BayStar International, Ltd., Lambros, L.P., Crosslink Crossover
Fund III, L.P., Offshore Crosslink Crossover Fund III Unit Trust, Bayview
Partners, the Peter M. Graham Money Purchase Plan and Trust and Elyssa
Kellerman, dated as of June 19, 2001 (incorporated by reference to Alloy's
Current Report on Form 8-K filed June 20, 2001).

99.6    Registration Rights Agreement, dated as of June 19, 2001, by and among
Alloy Online, Inc, BayStar Capital, L.P., BayStar International, Ltd., Lambros,
L.P., Crosslink Crossover Fund III, L.P., Offshore Crosslink Crossover Fund III
Unit Trust, Bayview Partners, the Peter M. Graham Money Purchase Plan and Trust
and Elyssa Kellerman (incorporated by reference to Alloy's Current Report on
Form 8-K filed June 20, 2001).

99.7    Investment Representation and Lockup Agreement, dated as of August 1,
2001, by and among Alloy Online, Inc. and Alan M. Weisman (incorporated by
reference to Alloy's Current Report on Form 8-K filed August 14, 2001).

99.8    Investment Representation and Lockup Agreement, dated as of April 11,
2001 by and between Alloy and each of the Shareholders of Landon Media Group,
Inc. (incorporated by reference to Alloy's Current Report on Form 8-K filed
April 26, 2001).
<PAGE>


(B)  REPORTS ON FORM 8-K:

Current Report on Form 8-K, filed on November 6, 2001;

Current Report on Form 8-K, filed on November 13, 2001;

Current Report on Form 8-K/A, filed on December 11, 200;

Current Report on Form 8-K, filed on December 11, 2001;

Current Report on Form 8-K/A, filed on January 25, 2002;

Current Report on Form 8-K, filed on January 29, 2002; and

Current Report on form 8-K, filed on January 29, 2002.