##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





Form 10-K







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

For the fiscal year ended January 31, 2010

OR



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

For the transition period from              to
            .

Commission file number: 000-26023





Alloy, Inc.

Exact name of registrant as specified in charter







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

151 WEST 26TH STREET, 11TH FLOOR

NEW YORK, NY 10001

(Address of principal executive office)

(212) 244-4307

(Registrants telephone number, including area code)





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



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

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

Preferred Stock Purchase Rights





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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No   ̈

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

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



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

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

The aggregate market value, based upon the closing sale price of the shares as reported by The NASDAQ Stock Market LLC, of voting and
non-voting common equity held by non-affiliates as of July 31, 2009 was $75,797,563 (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 as of March 31, 2010 was
12,611,548.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information in the registrants definitive proxy statement for its 2010 Annual Meeting of Stockholders, which is expected to
be filed with the Securities and Exchange Commission within 120 days of the registrants fiscal year end, is incorporated by reference into Part III of this Report.









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INDEX



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                              |  | Page
|           |  | PART I                                                                                                       |  |     
|           |  |                                                                                                             
|Item 1.    |  | Business                                                                                                     |  | 1   
|           |  |                                                                                                             
|Item 1A.   |  | Risk Factors                                                                                                 |  | 11  
|           |  |                                                                                                             
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 17  
|           |  |                                                                                                             
|Item 2.    |  | Properties                                                                                                   |  | 18  
|           |  |                                                                                                             
|Item 3.    |  | Legal Proceedings                                                                                            |  | 18  
|           |  |                                                                                                             
|Item 4.    |  | Reserved                                                                                                     |  | 19  
|           |  |                                                                                                             
|           |  | PART II                                                                                                      |  |     
|           |  |                                                                                                             
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 20  
|           |  |                                                                                                             
|Item 6.    |  | Selected Financial Data                                                                                      |  | 23  
|           |  |                                                                                                             
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                        |  | 24  
|           |  |                                                                                                             
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 40  
|           |  |                                                                                                             
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 41  
|           |  |                                                                                                             
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 75  
|           |  |                                                                                                             
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 75  
|           |  |                                                                                                             
|Item 9B.   |  | Other Information                                                                                            |  | 78  
|           |  |                                                                                                             
|           |  | PART III                                                                                                     |  |     
|           |  |                                                                                                             
|Item 10.   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 79  
|           |  |                                                                                                             
|Item 11.   |  | Executive Compensation                                                                                       |  | 79  
|           |  |                                                                                                             
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters               |  | 79  
|           |  |                                                                                                             
|Item 13.   |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 79  
|           |  |                                                                                                             
|Item 14.   |  | Principal Accountant Fees and Services                                                                       |  | 79  
|           |  |                                                                                                             
|           |  | PART IV                                                                                                      |  |     
|           |  |                                                                                                             
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                   |  | 80  
|           | 
|SIGNATURES |  | 85                                                                                                          



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PART I

Unless the context otherwise requires, references to Alloy, Company, Registrant, we,
our, and us in this Annual Report on Form 10-K refers to Alloy, Inc. and our subsidiaries. In this document, fiscal 2009 refers to the fiscal year ended January 31, 2010, fiscal 2008 refers to the
fiscal year ended January 31, 2009 and fiscal 2007 refers to the fiscal year ended January 31, 2008.



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

Overview

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

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

We are a leading media company primarily focused on the youth and young adult market. Our media and marketing assets provide us with a
deep understanding of the youth market and give us a significant reach to targeted consumers. According to United States Census projections, as of January 2010, about 18% of the United States population is 12 to 24 years old. Teen and college
students comprise the majority of this demographic and represent powerful consumer groups accounting for $85 billion (as is indicated in the TRU 2010 Report) and $74 billion (as reported in Harris Interactives 2009 Alloy College
Explorer) respectively, in annual discretionary spending power in 2009.

We were incorporated in January 1996 and launched
our www.alloy.com website in August 1997.

Current Business Developments

On January 20, 2010, we terminated our credit agreement with Bank of America (the Credit Facility) in an effort to reduce
corporate costs. There were no penalties or termination fees payable in connection with the termination of the Credit Facility. At the time of the cancellation, we had no outstanding borrowing under the Credit Facility.

On December 18, 2009, we acquired the operating assets of Pixel Bridge Inc. (Pixel Bridge) for cash of approximately
$0.3 million. Pixel Bridge is a digital agency focused on strategy, creative services and web development. We may be required to pay contingent payments based on revenue through January 31, 2011. The maximum potential contingent payment is $1.2
million. The initial earn out of $0.3 million, which was measured on revenue for the fourth quarter of fiscal 2009, was earned by Pixel Bridge and has been appropriately accrued



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in our consolidated financial statements. We do not expect Pixel Bridge to earn the second earn out provision that will be measured on revenue for the fiscal year ending January 31, 2011.
Pixel Bridge is part of the Companys AMP division of its Promotion segment.

On July 1, 2009, we acquired the
operating assets of Rock Coast Media, Inc. (Rock Coast Media), which provides online marketing services, including search engine and social media optimization, media planning and buying and site usage analysis. We acquired Rock Coast
Medias assets, receiving net cash of approximately $0.3 million, subject to a nominal working capital adjustment. We may be required to pay contingent payments based on Rock Coast Media generating operating income at or above established
thresholds over the next three years. The maximum potential contingent payment is $3.6 million. We applied reasonable revenue growth projections and certain profitability assumptions and has concluded that, based upon the provisions of the asset
acquisition agreement, a contingent payment of approximately $1.4 million would most likely be earned over the course of the agreement, and as a result have accrued this amount in our consolidated financial statements. Rock Coast Media is part of
the Companys AMP division of its Promotion segment.

Our Segments

We have three reportable operating segments, as follows:



| |  |  | Promotionincludes our AMP, OCM and sampling divisions;
| | - |  | -------------------------------------------------------



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



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

PROMOTION

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



| |  | Alloy Marketing and Promotions, or AMP, is a full-service promotional marketing agency focused on creating on experiential and digital solutions
for clients, which are founded in consumer research and have measurable business outcomes. Alloy Access is our multi-cultural marketing agency and is included with our AMP business. AMP clients represent a wide array of industries, such as
health and beauty, technology, wireless, consumer packaged goods, healthcare, retail, travel and tourism and entertainment.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

MEDIA

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

Alloy Digital

Alloy Digital is our Interactive business and includes our websites that are designed
to be an effective advertising medium for youth and young adult-focused marketers. We reach a high concentration of youth and



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young adults online through integrated social platforms with measurable results. The TEEN.com network is home to Alloy Media + Marketings websites and a growing list of third party owned
websites who target the coveted youth audience. The network provides brand marketers display and integrated advertising programs to reach highest high concentration of teens online in a narrowly targeted and highly scalable way. In fiscal 2009, our
Teen.com network was ranked as the #1 community for teens as measured by comScore Media Metrix. The number of unique visitors varies each month depending on various factors, including the distribution of various related merchandise catalogs and
other print publications which drive consumers to these websites as well as the websites overall popularity. Our marketing data shows that our websites are a popular destination for teens and college students seeking social networking,
entertainment, and popular culture content.

TEEN.com/TV or Alloy TV, is our premium digital entertainment network delivering
original, short-form video programming tailored expressly for the youth and young adult audience. In fiscal 2009, we produced Haute & Bothered, an advertiser sponsored web series. In fiscal 2010, we are producing a sequel to this series. We
expect this network to continue to build widely populated environments that appeal to evolving youth and young adults preferences, while also offering marketers highly targeted and effective channels to connect with that audience.

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



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



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

In
addition to the above websites, our Alloy Digital business also has access to other Alloy owned websites used in our other businesses, including our Alloy Entertainment, Alloy Education and Channel One businesses.

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

Alloy Entertainment

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



| |  |  | Alloy Entertainment produced 35 new books during fiscal 2009 and currently has over one thousand titles in its library. Its books are published in more
than 34 languages around the world and 14 of Alloy Entertainments books reached the New York Times Childrens Paperback bestseller list during fiscal 2009. Alloy Entertainment maintains longstanding relationships with Americas
leading publishing houses, including Random House, Little Brown, HarperCollins, Hyperion, Scholastic, Simon & Schuster and Penguin Putnam. Some of our properties include The Sisterhood of the Traveling Pants, Gossip Girl,
The Vampire Diaries, The A-List, The Clique, and The Luxe.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Basic and cable television networks may acquire from Alloy Entertainment the right to develop television shows based on Alloy Entertainment books, such
as Gossip Girl and The Vampire Diaries (both on The CW Television Network). Gossip Girlis in its third season and has been renewed for a fourth. The Vampire Diaries premiered in September 2009 as The CWs biggest
premiere in its history and the series has been renewed for a second season. Initial ten episode orders have been made for Pretty Little Liars and Huge at ABC Family. Several other series and made-for-television movies are in
development at The CW Television Network, NBC, Nickelodeon and ABC Family.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | Alloy Entertainment works with Alloy Digital to produce original content web series that we distribute through our owned and third party network. For
example, in fiscal 2009, we produced Private based on the Alloy Entertainment book series.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Channel
One

Channel One News is the leading television news network for teens, reaching nearly six million young people in
middle schools and high schools nationwide. The daily broadcast is delivered during the school year as a 12 minute program which includes two minutes of advertising and/or public service announcements. The content of the broadcast as well as
supplementary educational resources are designed to inform, educate, and inspire teens while connecting them with important current events and the world around them. Channel One News has covered fast-breaking global events from regions such as
Haiti, Chile, Mexico, North Korea, Afghanistan, Sri Lanka, Germany and Qatar. Through its partnership with CBS News Productions, Channel One News draws on the vast resources of CBS News, ensuring worldwide coverage from a teen perspective. The
website www.channelone.com features in-depth news and breaking stories, games, music, contests, advice, volunteering guides and interactive opportunities for voting, feedback and user generated content submissions.

Alloy Education

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

Specialty Print Publications

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



| |  |  | Private Colleges & UniversitiesWith 37 editions reaching over 1.6 million homes per year, the Private Colleges &
Universities magazine series has been a leading recruitment media for higher education since 1985. Our international edition, American Colleges & Universities, reaches over 2,300 schools and organizations in over 175 countries
throughout six continents. Our editions target students based on academic achievement, geography and special interests and provide them, their parents and high-school guidance counselors with information about private colleges and universities and
the admissions process. New editions include a magazine for students looking to transfer, a Catholic Colleges edition, and for 2010, the launch of Public Colleges and Universities magazine with an in-home circulation of 100,000.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Careers and CollegesOur Careers and Colleges publication offers unique advertising opportunities. Careers and Colleges magazine is
an award-winning publication reaching approximately three million students and distributed to 500,000 homes in the Summer and more than 10,000 high schools in the Spring and Fall each year. Directed to students and guidance professionals, the
topical issues address getting into and paying for college, career opportunities, life after high school, and transitioning to college life.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Minority NurseWith an annual distribution of 180,000, this magazine provides employers with access to the career-minded individuals they
want to attract and hire, with additional exposure on MinorityNurse.com.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Websites

We also have several websites targeting college-bound high school students, high-tech college students and minority
students, as well as practicing professionals in nursing and allied health fields, which offer valuable information for persons interested in these subject areas as well as unique advertising opportunities for clients, including:



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



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



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



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



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

Direct Marketing

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

Display Media Boards / Retail Display Networks

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



| |  |  | Our In-School network offers third-party advertisers access to approximately 41,000 display media boards located throughout the United States. The
display media boards often feature full-color, backlit advertising and scrolling electronic messaging. The boards may contain one, two, or three advertising panels, which increase the number of advertising opportunities to approximately 75,000.
These display media boards are located throughout the United States in more than 840 college and university campuses, 6,800 high schools, 2,200 middle schools, and 5,000 elementary schools.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Frontline is our in store display network, which markets a unique combination of display and high impact advertising through a nationwide network of
more than 7,900 outlets comprising grocery, pharmacy and other high volume stores. Our unique combination of display and high-impact advertising gives marketers a dramatic presence at the checkout or a specific location of any store. Our consumer
trial program brings products out of lightly-shopped aisles to the most highly-trafficked areas. Our products include Frontlights, Frontloader, Pharmacy Display Network, and Healthy Living Center that provide advertising and merchandising, brand
awareness building, and health information within a store.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

PLACEMENT

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

Our Sales Organization

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



| |  |  | our digital network;
| | - |  | --------------------



| |  |  | our custom publications;
| | - |  | ------------------------



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



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



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



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

Our clients come from a wide range of industries seeking to target persons principally youth and young
adults, including consumer goods and electronics, health and beauty, entertainment, financial services, colleges and universities, government, and food and beverage.

Our Infrastructure, Operations and Technology

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

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



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

We currently license commercially available technology and services whenever possible instead of dedicating our financial and human
resources to developing proprietary online infrastructure solutions. We provide most services related to maintenance and operation of our websites internally, under the direction of our Chief Technology Officer. We utilize a third party for our
principal co-location servers and is located in Ashburn, Virginia. They provide us with co-location, power and access to a number of bandwidth providers for our Internet connections. Our infrastructure is scalable, which allows us to adjust quickly
as our user base expands and business needs change.

Competition

Competition for the attention of our targeted consumers is considerable. We compete with a variety of companies, both large and small,
serving segments of the market we target, including various promotion and marketing services firms, youth and young adult targeted traditional marketers, basic cable and broadcast television networks, radio, online and print media, and online
service providers. Our competitors may offer other forms of media and approaches to marketing in markets that we do not have access to or compete directly with our properties in overlapping markets.

In our Promotion segment, our AMP Agency business competes with other promotional and digital agencies and niche vertical suppliers
particularly in the social and search space as well as full service media planning and buying agencies, such as GMR Marketing, EURO RSCG and Mr. Youth. Our OCM business competes with big box retailers such as Target and Wal-mart, and other
online retailers.

In our Media segment, other companies that target youth and young adult consumers and/or offer alternative
media choices attracting this audience include focused magazines, such as Seventeen and Teen Vogue; teen-focused television and cable channels, such as MTV; websites primarily focused on the youth demographic group; and online service
providers and social networking sites with a teen audience, such as Facebook.com, MySpace.com and America Online; and media board competitors, such as Clear Channel Communications.

In our Placement segment, we compete with other companies that place national ads in college and military newspapers. In the
multicultural market, we primarily compete with other Hispanic and African American placement agencies.

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

We believe that our principal competitive advantages are:



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



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



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



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



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

Seasonality

Our
revenues have historically been higher during the last half of our fiscal year, coinciding with the start of school and holiday season spending, than in the first half of our fiscal year. In addition, certain of our product offerings, such as
in-school display media boards and educational programming, are perceived to be less valuable to advertisers when school is not in session, such as during the summer months and between semester breaks. In fiscal 2009, approximately 30%
of our revenue was realized in our third fiscal quarter and approximately 53% in the last half of the fiscal year. The majority of our operating income is earned in conjunction with our revenue.

Intellectual Property

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

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

Government Regulation

We are subject to various federal and state law and regulation relating to our Internet based business. The regulation currently focuses
on data collection, privacy, social networking, user generated content, information security and online behavioral marketing. Because of the increasing popularity of the Internet and the growth of online services, there are regular initiatives at
both the federal and state level to expand the scope of regulation as problems and perceived problems arise and develop. Although much of the regulation is well founded, it does have an impact on how we conduct our business and may have an impact on
our financial results if we are limited in our business activities or there are additional costs associated with compliance. We do not believe there to be any specific environmental regulation that will have a material impact on our business
operations or financial results.

In the United States, the Federal Trade Commission, or the FTC, enforces rules and
regulations enacted pursuant to the Childrens Online Privacy Protection Act of 1998, or COPPA, imposing restrictions on the ability of online services to collect information from minors under the age of 13. During 2009, the FTC actively
enforced COPPA through civil penalties and consent orders. As a part of our efforts to comply with these requirements, we do not knowingly collect online personally identifiable information from any person under 13 years of age and have
implemented age screening mechanisms on certain of our websites in an effort to prohibit persons under the age of 13 from registering. The restrictions are likely to dissuade some percentage of our potential customers from using such websites, which
may adversely affect our business. If it turns out that one or more of our websites is not COPPA compliant, we may face enforcement actions by the FTC, complaints to the FTC by individuals, or face a civil penalty, any of which could adversely
affect our reputation and business. Laws on the state level protecting the identity of personal information of children online have been enacted or are under consideration. For example, Michigan and Utah have established registries where parents



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and others may register instant messenger IDs, mobile text messaging and fax numbers in addition to e-mail addresses to prevent certain types of messages from reaching children in those states.
Such laws could have an adverse impact on how we will be able to conduct our business in the future and may limit access to an important segment of the target markets our clients seek.

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

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

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



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Social networking websites are under increased scrutiny. Legislation has been introduced on
the state and federal level that could regulate social networking websites. Some of the proposed rules call for more stringent age-verification techniques, attempt to mandate data retention or data destruction by Internet providers, and impose civil
and/or criminal penalties on owners or operators of social networking websites. For example, the United States Congress may consider once again the Deleting Online Predators Act which, if enacted in the form introduced in 2007, would require certain
schools and libraries to protect minors from online predators in the absence of parental supervision when using commercial networking websites and chatrooms. Such law could potentially limit user access to our websites. Similar bills to ban or
restrict access to social networking sites are also being introduced and considered on the state level. Dozens of state attorneys general in late 2008 and early 2009 have served subpoenas on certain social networking sites relating to known
predators and if any such actions become more widespread, similar actions could potentially have an adverse effect on our reputation or our business.

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

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

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

Employees

As of January 31, 2010, we had 602 full-time employees, including a sales and marketing force of approximately 103 persons. During
fiscal 2009, we employed approximately 858 part-time/temporary employees who primarily worked for us in connection with our promotional and marketing events.

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

Access to
SEC Reports

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



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

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

Risks Related to Our Businesses

Changes in advertising and credit markets could cause our revenues and operating results to decline significantly

We derive substantial revenues from the sale of advertising through a variety of platforms. Challenging economic conditions in 2008 and
2009 resulted in a slowdown of the economy which continues into 2010. As a result, our customers may experience budgetary restrictions and modify their spending behavior, resulting in the softening of demand for our media, advertising and
entertainment assets and accordingly, possibly lower revenues. The current economic conditions also may delay or wholly negate the ability of our customers to pay for products and services they have purchased or may cause customers to seek early
termination of their agreements with us. As a result, reserves for uncertain accounts and write-offs of accounts receivable may increase. In addition, current conditions in the credit markets, if they persist, may limit our ability to carry out our
share repurchase program or pursue other opportunities, and our expenses could increase if volatility in the credit and insurance markets results in an increase in interest rates on bank financings or prices on insurance products. Our results of
operations may be negatively affected as a result of all or some of the above factors.

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

Since
our inception in January 1996, we have incurred significant net losses and, as of January 31, 2010, we have an accumulated deficit of approximately $321.5 million. We have not historically been profitable and were not profitable for fiscal
2009, fiscal 2007 or fiscal 2006. The only recent year that we were profitable was fiscal 2008. We cannot provide any assurances that we will not incur similar losses in the future. Even if we were to become profitable, we may not be able to sustain
or increase profitability on a quarterly or annual basis. Our failure to achieve and sustain profitability may negatively impact the market price of our common stock.

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

As of January 31, 2010, we had net operating loss (NOL) carryforwards of approximately $32.6 million to offset future
taxable income, which expire in various years through 2027, if not utilized. The deferred tax asset representing the benefit of these NOLs has been offset completely by a valuation allowance due to our history of operating losses and the uncertainty
of future taxable income. A lack of future earnings would adversely affect our ability to utilize these NOLs. In addition, under the provisions of the Internal Revenue Code, substantial changes in our ownership may limit the amount of NOLs that can
be utilized annually in the future to offset taxable income. Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382, imposes limitations on a companys ability to use NOLs if a company experiences a
more-than-50-percent ownership change over a three-year testing period. We have experienced such ownership changes in the past, but it is possible that a change in our ownership may occur in the future. If we are limited in our ability to use our
NOLs in future years in which we have taxable income, we will pay more taxes currently than if we were able to utilize our NOLs.



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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 our third and fourth fiscal quarters, coinciding with the start of the school year and holiday season spending, than in the first half of our fiscal year. Therefore, our results of operations in any
given quarter may not be indicative of our full fiscal year performance.

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

We are required to perform impairment tests on
our identifiable intangible assets with indefinite lives, including goodwill, annually or at any time when certain events occur, which could impact the value of our business segments. Our determination of whether an impairment has occurred is based
on a comparison of the assets fair market values with the assets carrying values. Significant and unanticipated changes could require a provision for impairment that could substantially affect our reported earnings in a period of such
change. As a result of our annual impairment reviews, we were required to record special charges of approximately $5.0 million, $0.1 million, and $72.0 million for fiscal 2009, fiscal 2008, and fiscal 2007, respectively.

Additionally, we are required to recognize an impairment loss when circumstances indicate that the carrying value of long-lived tangible
and intangible assets with finite lives may not be recoverable. Managements policy in determining whether an impairment indicator exists, (a triggering event), comprises measurable operating performance criteria as well as qualitative
measures. If a determination is made that a long-lived assets carrying value is not recoverable over its estimated useful life, the asset is written down to at least its estimated fair value. The determination of fair value of long-lived
assets is generally based on estimated expected discounted future cash flows, which is generally measured by discounting expected future cash flows identifiable with the long-lived asset at our weighted-average cost of capital. Pursuant to the
guidance issued by the Financial Accounting Standards Board (FASB), we perform an analysis of the recoverability of certain long-lived assets and have had to record an asset impairment charge in some periods. As a result of our analysis
in fiscal 2007, we reduced our long-lived assets by $0.8 million. We had no impairment charges in fiscal 2009 and fiscal 2008.

We may
not be able to recoup any investments in Channel One and we may incur significant losses.

When we acquired the assets
of Channel One, the Channel One business had incurred significant losses due to a substantial reduction in revenue and a high cost structure. To date, our Channel One strategy has included spending a significant amount of capital on changing Channel
Ones infrastructure and transforming the business. During fiscal 2009 and 2008, we spent approximately $1.4 million and $5.0 million, respectively, in upgrading Channel Ones digital infrastructure and adding new schools. We may continue
to make significant future investment in the business to continue our digital upgrade. We may not generate a return on such investments and in which case, we would have a substantial loss in the business.

We may not have access to necessary capital as a result of the cancellation of our Credit Facility.

In the past we have maintained bank credit facilities to provide access to working capital, if needed, on an expeditious basis. We
voluntarily terminated the secured credit facility with Bank of America, N.A. in January 2010, and we do not currently have any such lines of credit or similar credit facilities, either on a secured or unsecured basis. If our operations should
require prompt access to credit, management would have to identify various credit sources and seek to enter into negotiations for credit if available. There can be no assurance that credit would be available to the Company in the amounts required or
that if credit were available it would be accessible on a timely basis for our operations or on terms acceptable to management. The absence of credit, if needed, may have an adverse impact on the operations and financial condition of the Company.



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Our business may not grow in the future.

Since our inception, we have rapidly expanded our business, growing our gross revenue from approximately $2.0 million for fiscal 1997 to
approximately $205.1 million for fiscal 2009. Our continued growth will depend to a significant degree on our ability to maintain existing sponsorship and advertising relationships and develop new relationships, to identify and integrate
successfully acquisitions, and to maintain and enhance the reach and brand recognition of our existing media franchises and any new media franchises that we create or acquire. Our ability to implement our growth strategy will also depend on a number
of other factors, many of which are or may be beyond our control, including the continuing appeal of our media and marketing properties to consumers, the continued perception by participating advertisers and sponsors that we offer an effective
marketing channel for their products and services, our ability to attract, train and retain qualified employees and management and our ability to make additional strategic acquisitions. There can be no assurance that we will be able to implement our
growth strategy successfully.

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

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

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

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

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

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



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

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

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

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

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

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

We may be required to collect sales tax.

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

Risks Related to Our Intellectual Property

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

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



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

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

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

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

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

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

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

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

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

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



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Risks Relating to Government Regulations and Litigation

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

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

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

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

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

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

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

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

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



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

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

Risks Relating to Our Common Stock

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

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

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



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



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



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



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



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

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

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

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



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

Not applicable.



17



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##### Table of Contents

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

We do not own any real property. The following table sets forth information regarding facilities leased as of January 31, 2010 that
we believe to be important to our operations. We believe our facilities are well maintained, in good operating condition and generally suitable and adequate to meet our current needs. We believe that if additional or alternative space is needed in
the future, such space will be available on commercially reasonable terms as needed.



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



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

Other

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

Litigation

On or
about November 5, 2001, a putative class action complaint was filed in the United States District Court for the Southern District of New York naming as defendants Alloy, specified company officers and investment banks, including James K.
Johnson, Jr., Matthew C. Diamond, BancBoston Robertson Stephens, Volpe Brown Whelan and Company, Dain Rauscher Wessel and Ladenburg Thalmann & Co., Inc. The complaint purportedly was filed on behalf of persons purchasing the Companys
stock between May 14, 1999 and December 6, 2000, and alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. On April 19, 2002, the
plaintiffs amended the complaint to assert violations of Section 10(b) of the Exchange Act. The claims mirror allegations asserted against scores of other issuers. Pursuant to an omnibus agreement negotiated with representatives of the
plaintiffs counsel, Messrs. Diamond and Johnson were dismissed from the litigation without prejudice. By opinion and order dated February 19, 2003, the District Court denied in part and granted in part a global motion to dismiss filed on
behalf of all issuers. With respect to Alloy, the Court dismissed the Section 10(b) claim and let the plaintiffs proceed on the Section 11 claim. In June 2004, as a result of a mediation, a settlement agreement was executed on behalf of
the issuers (including Alloy), insurers and plaintiffs and submitted to the Court. While final approval of the settlement was pending, on December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the District Courts class
certification order with respect to nine focus group cases and remanded the matter for further consideration. On June 25, 2007, as a result of the Second Circuits decision, the settlement agreement was terminated. On August 14, 2007,
plaintiffs filed second amended complaints against nine focus group issuers. By opinion and order dated March 26, 2008, the District Court denied in part and granted in part motions to dismiss the amended complaints. Specifically, the District
Court dismissed claims brought under Section 11 of the Securities Act by those plaintiffs who sold their securities for a price in excess of the initial



18



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##### Table of Contents

offering price and claims brought by plaintiffs who purchased securities outside of the previously certified class period and denied the remainder of the motions. After many months of
negotiation, on April 2, 2009, the representative class plaintiffs and the defendants filed a Notice of Motion for Preliminary Approval of Settlement accompanied by a global Stipulation and Agreement of Settlement. The proposed Settlement
provides that all claims against the issuers and underwriters will be dismissed with prejudice in exchange for the aggregate payment of $586 million. Under the terms of the proposed Settlement, neither the Company nor Messrs. Johnson or Diamond are
required to pay any portion of the $586 million payment. The proposed Settlement is subject to numerous contingencies, including, but not limited to, preliminary Court approval, certification of a settlement class and final approval after providing
members of the plaintiff class with notice. On or about June 10, 2009, the Court granted Plaintiffs motion for an order: (i) preliminarily approving the proposed stipulation; (ii) certifying the Settlement classes for the
purposes of the proposed stipulation only; (iii) approving the form and program of class notice described in the stipulation; and (iv) scheduling a hearing before the Court to determine whether the proposed stipulation should be finally
approved. On October 5, 2009, the Court granted final approval of the settlement. Various members of the plaintiff class have filed notices of appeal seeking to challenge the terms of the settlement. At this point, there can be no assurance
that the settlement will be affirmed.

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



|Item 4. | Reserved
|------- | --------



19



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##### Table of Contents

PART II



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

Market Information

Stockholders

As of March 31, 2010, our shares outstanding were 16,654,462 and there were approximately 103 holders of record
of our common stock. In addition to the record holders, as of February 1, 2010, there were approximately 2,142 beneficial holders of our stock.

Our common stock has traded on The NASDAQ Global Market of The NASDAQ Stock Market LLC under the symbol ALOY since our
initial public offering in May 1999. The last reported sale price for our common stock on March 31, 2010 was $8.20 per share. The table below sets forth the high and low sale prices for our common stock during the periods indicated.



|                                                 |  |                    |      |     |   |     
|------------------------------------------------ |  | ------------------ | ---- | --- | - | ----
|                                                 |  | Common Stock Price
|                                                 |  | High               |      | Low
|Fiscal 2009 (Fiscal year ended January 31, 2010) |  |                    |      |     |   |     
|First Quarter                                    |  | $                  | 4.99 |     | $ | 3.30
|Second Quarter                                   |  |                    | 7.00 |     |   | 4.55
|Third Quarter                                    |  |                    | 7.35 |     |   | 6.30
|Fourth Quarter                                   |  |                    | 8.25 |     |   | 6.30
|                                                 | 
|                                                 |  | Common Stock Price
|                                                 |  | High               |      | Low
|Fiscal 2008 (Fiscal year ended January 31, 2009) |  |                    |      |     |   |     
|First Quarter                                    |  | $                  | 8.24 |     | $ | 6.10
|Second Quarter                                   |  |                    | 8.60 |     |   | 6.20
|Third Quarter                                    |  |                    | 7.90 |     |   | 4.64
|Fourth Quarter                                   |  |                    | 5.00 |     |   | 3.19

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

Dividends

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

Unregistered
Sales of Securities

Not applicable.



20



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##### Table of Contents

PERFORMANCE GRAPH

The following graph compares the annual cumulative total stockholder return (assuming reinvestment of dividends) from investing $100 on
January 31, 2005 and plotted at the end of each of our subsequent fiscal years (January 31, 2006, 2007, 2008, 2009 and 2010), in each of (a) our common stock, (b) the Russell 2000 Index and (c) the NASDAQ Composite Index. We have
not paid any cash dividends on our common stock and no such dividends are included in the representation of our performance. The stock price performance on the graph below is not necessarily indicative of future price performance. The graph lines
merely connect quarter-end dates and do not reflect fluctuations between those dates.



LOGO



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

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



21



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##### Table of Contents

The following table assumes $100 invested on January 31, 2005 in our common stock, the
Russell 2000 Index and the NASDAQ Composite Index, including reinvestment of dividends, for each fiscal year through the fiscal year ended January 31, 2010.



|                           |  |         |  |         |  |         |  |         |  |         |  |        
|-------------------------- |  | ------- |  | ------- |  | ------- |  | ------- |  | ------- |  | -------
|Company/Index/Market       |  | 1/31/05 |  | 1/31/06 |  | 1/31/07 |  | 1/31/08 |  | 1/31/09 |  | 1/31/10
|ALLOY, INC.                |  | 100.00  |  | 45.63   |  | 48.19   |  | 31.66   |  | 20.22   |  | 31.34  
|NASDAQ STOCK MARKET (U.S.) |  | 100.00  |  | 111.69  |  | 122.94  |  | 117.70  |  | 72.63   |  | 105.78 
|RUSSELL 2000               |  | 100.00  |  | 118.89  |  | 131.31  |  | 118.45  |  | 74.81   |  | 107.04 

Issuer Purchases of Equity
Securities

(Amounts in thousands, except per share amounts)

On January 29, 2003, we adopted a stock repurchase program authorizing the repurchase of our common stock from time to time in the
open market at prevailing market prices or in privately negotiated transactions. In December 2009, the board of directors authorized an additional $3,300 for use in the repurchase of the Companys stock.

The following table provides information with respect to purchases by the Company of shares of its common stock during the fourth quarter
of fiscal 2009:



|              |  |                                |     |  |                            |      |                                                                              |     |                                                                                      |   |      
|------------- |  | ------------------------------ | --- |  | -------------------------- | ---- | ---------------------------------------------------------------------------- | --- | ------------------------------------------------------------------------------------ | - | -----
|              |  | Total Numberof SharesPurchased |     |  | Average PricePaid perShare |      | Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms |     | Approximate DollarValue of Shares thatMay Yet bePurchased
Underthe Plans or Programs
|Month of:     |  |                                |     |  |                            |      |                                                                              |     |                                                                                      |   |      
|November 2009 |  | 50                             | (1) |  | $                          | 6.75 |                                                                              | 50  |                                                                                      | $ | 1,687
|December 2009 |  | 10                             | (2) |  | $                          | 6.88 |                                                                              |    |                                                                                      |   | 1,687
|              |  | 300                            | (1) |  | $                          | 6.65 |                                                                              | 300 |                                                                                      |   | 3,005
|January 2010  |  |                               |     |  |                            |      |                                                                              |    |                                                                                      |   | 3,005
|              |  |                                |     |  |                            |      |                                                                              |     |                                                                                      |   |      
|Total         |  | 360                            |     |  |                            |      |                                                                              | 350 |                                                                                      | $ | 3,005
|              |  |                                |     |  |                            |      |                                                                              |     |                                                                                      |   |      



|(1) | In November 2009, we purchased 50 shares in the open market at an average price of $6.75. In December 2009, we repurchased 300 shares in a privately negotiated
transaction at an average price of $6.65.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represent shares of common stock surrendered to the Company by employees to satisfy their tax withholding obligations upon the vesting of their restricted stock, valued
at the closing price of the common stock as reported by The NASDAQ Stock Market on the date of the surrender.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



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##### Table of Contents

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

The following table sets forth consolidated financial data with respect to the Company for each of the five years in the period ended
January 31, 2010. The selected financial data for each of the five years in the period ended January 31, 2010 have been derived from the consolidated financial statements of the Company. The foregoing consolidated financial statements and
the information below should be read in conjunction with our audited financial statements (and notes thereon) and Managements Discussion and Analysis of Financial Condition and Results of Operations, and other financial information
included elsewhere in this Annual Report on Form 10-K.

(Amounts in thousands, except per share amounts)



|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|--------------------------------------------------- |  | ----------------------------- | ------- | - | ------- | - | ------- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | -
|                                                    |  | Fiscal year ended January 31, |        
|                                                    |  | 2010(1)                       |         |   | 2009(2) |   | 2008(3) |  |   | 2007(4) |   |  | 2006 |        
|CONSOLIDATED STATEMENTS OF OPERATIONS DATA:         |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Total revenue                                       |  | $                             | 205,098 |   |         | $ | 216,926 |  | $ | 199,096 |   |  | $    | 196,104 |   |  | $ | 195,324 |  
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Operating income
(loss)(5)                          |  |                               | (2,379  | ) |         |   | 10,776  |  |   | (70,065 | ) |  |      | 12,686  |   |  |   | (24,248 | )
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) from continuing operations            |  |                               | (4,883  | ) |         |   | 10,435  |  |   | (70,072 | ) |  |      | (7,233  | ) |  |   | (27,983 | )
|Loss from discontinued
operations(6)                |  |                               |        |   |         |   |        |  |   |        |   |  |      |        |   |  |   | (7,525  | )
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Income (loss) before extraordinary item             |  |                               | (4,883  | ) |         |   | 10,435  |  |   | (70,072 | ) |  |      | (7,233  | ) |  |   | (35,508 | )
|Extraordinary
gain(7)                               |  |                               |        |   |         |   |        |  |   | 5,680   |   |  |      |        |   |  |   |        |  
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                   |  |                               | (4,883  | ) |         |   | 10,435  |  |   | (64,392 | ) |  |      | (7,233  | ) |  |   | (35,508 | )
|Preferred stock dividends and accretion of discount |  |                               |        |   |         |   |        |  |   |        |   |  |      |        |   |  |   | (620    | )
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Net income (loss)                                   |  | $                             | (4,883  | ) |         | $ | 10,435  |  | $ | (64,392 | ) |  | $    | (7,233  | ) |  | $ | (36,128 | )
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Basic net earnings (loss) per share:                |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Continuing operations                               |  | $                             | (0.42   | ) |         | $ | 0.78    |  | $ | (5.24   | ) |  | $    | (0.58   | ) |  | $ | (2.41   | )
|Discontinued operations                             |  |                               |        |   |         |   |        |  |   |        |   |  |      |        |   |  |   | (0.65   | )
|Extraordinary gain                                  |  |                               |        |   |         |   |        |  |   | 0.43    |   |  |      |        |   |  |   |        |  
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Basic net earnings (loss) per share                 |  | $                             | (0.42   | ) |         | $ | 0.78    |  | $ | (4.82   | ) |  | $    | (0.58   | ) |  | $ | (3.06   | )
|Weighted average basic shares outstanding           |  |                               | 11,526  |   |         |   | 13,329  |  |   | 13,362  |   |  |      | 12,541  |   |  |   | 11,598  |  
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Diluted net earnings per share:                     |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Continuing operations                               |  | $                             | (0.42   | ) |         | $ | 0.78    |  | $ | (5.24   | ) |  | $    | (0.58   | ) |  | $ | (2.41   | )
|Discontinued operations                             |  |                               |        |   |         |   |        |  |   |        |   |  |      |        |   |  |   | (0.65   | )
|Extraordinary gain                                  |  |                               |        |   |         |   |        |  |   | 0.43    |   |  |      |        |   |  |   |        |  
|                                                    |  |                               |         |   |         |   |         |  |   |         |   |  |      |         |   |  |   |         |  
|Diluted net earnings per share                      |  | $                             | (0.42   | ) |         | $ | 0.78    |  | $ | (4.82   | ) |  | $    | (0.58   | ) |  | $ | (3.06   | )
|Weighted average diluted shares outstanding         |  |                               | 11,526  |   |         |   | 13,414  |  |   | 13,362  |   |  |      | 12,541  |   |  |   | 11,598  |  



|(1) | Results for fiscal 2009 include the operations of Rock Coast Media which was acquired on July 1, 2009 and Pixel Bridge which was acquired on December 18,
2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Results for fiscal 2008 include the operations of Fulgent which was acquired on August 1, 2008 and TAKKLE which was acquired on January 26, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Results for fiscal 2007 include the operations of Channel One and Frontline from their dates of acquisition. Both entities were acquired on April 20, 2007.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Results for fiscal 2006 include the operations of Sconex from the time it was acquired in March 2006. As a result of adopting the guidance issued by the FASB, loss from
continuing operations before income taxes for fiscal 2006 was $1,556 greater than if the Company had continued to account for the share-based compensation under APB 25.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23



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##### Table of Contents

|(5) | In the fourth quarter of fiscal 2008, we sold our CCS domain name and related assets for cash, recognizing a gain of $5,800. Special charges were recorded for each
fiscal year as a result of our annual goodwill and intangible impairment analysis. These charges are more fully discussed in Note 8 to our consolidated financial statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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



|                                 |  |                |         |         |   |         |  |      |         |      |   |         |  |   |        
|-------------------------------- |  | -------------- | ------- | ------- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                 |  | At January 31,
|                                 |  | 2010           |         | 2009(1) |   | 2008    |  | 2007 |         | 2006
|CONSOLIDATED BALANCE SHEET DATA: |  |                |         |         |   |         |  |      |         |      |   |         |  |   |        
|Cash and cash equivalents        |  | $              | 26,178  |         | $ | 32,116  |  | $    | 12,270  |      | $ | 6,366   |  | $ | 39,631 
|Marketable securities            |  |                |        |         |   |        |  |      | 9,030   |      |   | 21,145  |  |   | 1,200  
|                                 |  |                |         |         |   |         |  |      |         |      |   |         |  |   |        
|Working
capital(2)               |  |                | 23,170  |         |   | 28,676  |  |      | 28,935  |      |   | 33,457  |  |   | 45,852 
|                                 |  |                |         |         |   |         |  |      |         |      |   |         |  |   |        
|Total assets                     |  |                | 158,138 |         |   | 160,719 |  |      | 148,416 |      |   | 196,566 |  |   | 219,488
|Senior convertible debentures    |  |                |        |         |   |        |  |      | 1,397   |      |   | 1,397   |  |   | 69,300 
|Total stockholders equity       |  | $              | 103,414 |         | $ | 110,467 |  | $    | 103,331 |      | $ | 162,671 |  | $ | 105,184

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



|(1) | During the third quarter of fiscal 2008, we reclassified our entire auction rate securities portfolio to long-term assets as we did not believe the securities will be
liquidated.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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

(Amounts in thousands, except per share)

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

Executive Summary

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

Each of our businesses falls in one of three operating segmentsPromotion, Media and Placement. The Promotion segment is comprised
of businesses whose products and services are promotional in nature and includes our AMP, OCM and sampling divisions. The Media segment is comprised of company-owned and represented media assets, including our digital, display board, database,
specialty print, educational programming and entertainment businesses. The Placement segment is made up of our businesses that aggregate and market



24



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##### Table of Contents

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

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

We have historically expanded our Media segment through
acquisitions and internally generated growth. We intend to continue to expand our Media segment as we believe this segment provides the greatest opportunity to increase long-term profitability and shareholder value. For example, in our Alloy Digital
business, we continue to expand our online network, to deliver original, short-form video programming to increase our attractiveness to advertisers. Also, in our Alloy Entertainment business, we are working to monetize our library of book titles
through television, motion picture, and short-form video programming. In our Promotion and Placement segments, we plan to continue to try to maximize profitability through cost management, not necessarily growth. However, with respect to all
segments, we continually review our strategy and consider possible acquisition and divestiture opportunities.

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



| |  |  | Broad Access. We are able to reach a significant portion of targeted consumers by: (i) producing a wide range of college guides, books and
recruitment publications; (ii) owning and operating over 41,000 display media boards on college and high school campuses throughout the United States; (iii) placing advertising in over 3,000 college and high school newspapers;
(iv) distributing educational programming to approximately 8,000 secondary schools in the United States; (v) maintaining and expanding our ability to execute large scale promotional service programs; and (vi) utilizing our national
in-store advertising and display network comprising approximately 7,900 grocery and other high volume stores.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



25



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##### Table of Contents

Results of Operations and Financial Condition

The principal components of our expenses are cost of goods or services, which includes placement, production and distribution costs
(including advertising placement fees, catalog and signage fees, temporary help and production costs), operating expenses (including personnel costs, commissions, promotions and bad debt expenses), general and administrative expenses, depreciation
and amortization and special charges.

The Promotion segment has considerable variable costs. As a result, an increase or
decrease in revenue will typically result in segment operating income increasing or decreasing by a similar percentage.

The
Media segment has relatively low variable costs. As a result, in a period of rising revenue, segment operating income will typically increase at a rate that exceeds the increase in revenue. Conversely, in a period of declining revenue, segment
operating income will typically decrease at a rate that exceeds the decrease in revenue.

The Placement segment has a
combination of variable and fixed costs. As a result, an increase in revenue will typically result in segment operating income increasing in relation to the increase in revenue. As well, a decrease in revenue will typically result in segment
operating income decreasing by a greater percentage due to the segments fixed costs.

The Corporate segment has
primarily fixed costs, but these may increase or decrease depending upon the amount of stock compensation, professional fees, medical benefits and other variable expenses.



|                              |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  
|----------------------------- |  | ---------------------------------- | ------ | ----- | - | --------- |  | - | --------- | - |  | ----- | ------- | - |  | - | ------- | -
|                              |  | Fiscal year ended January 31, 2010 |       
|                              |  | Promotion                          |        | Media |   | Placement |  |   | Corporate |   |  | Total |        
|Revenues:                     |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  
|Services revenue              |  | $                                  | 43,323 |       | $ | 85,127    |  | $ | 39,127    |   |  |       |        |   |  | $ | 167,577 |  
|Product revenue               |  |                                    | 37,521 |       |   |          |  |   |          |   |  |       |        |   |  |   | 37,521  |  
|                              |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total revenue                 |  | $                                  | 80,844 |       | $ | 85,127    |  | $ | 39,127    |   |  |       |        |   |  | $ | 205,098 |  
|                              |  |                                    |        |       |  
|Cost of goods sold:           |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  
|Cost of goods soldservices   |  | $                                  | 24,205 |       | $ | 23,300    |  | $ | 29,376    |   |  |       |        |   |  | $ | 76,881  |  
|Cost of goods soldproduct    |  |                                    | 10,541 |       |   |          |  |   |          |   |  |       |        |   |  |   | 10,541  |  
|                              |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total cost of goods sold      |  | $                                  | 34,746 |       | $ | 23,300    |  | $ | 29,376    |   |  |       |        |   |  | $ | 87,422  |  
|                              |  |                                    |        |       |  
|Expenses:                     |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  
|Operating                     |  | $                                  | 33,792 |       | $ | 44,476    |  | $ | 6,211     |   |  | $     | 2,418   |   |  | $ | 86,897  |  
|General and administrative    |  |                                    | 4,311  |       |   | 2,533     |  |   | 2,068     |   |  |       | 11,960  |   |  |   | 20,872  |  
|Depreciation and amortization |  |                                    | 1,024  |       |   | 5,338     |  |   | 25        |   |  |       | 905     |   |  |   | 7,292   |  
|Special charges               |  |                                    |       |       |   |          |  |   | 4,994     |   |  |       |        |   |  |   | 4,994   |  
|                              |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  
|Total expenses                |  | $                                  | 39,127 |       | $ | 52,347    |  | $ | 13,298    |   |  | $     | 15,283  |   |  | $ | 120,055 |  
|                              |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  
|Operating income (loss)       |  | $                                  | 6,971  |       | $ | 9,480     |  | $ | (3,547    | ) |  | $     | (15,283 | ) |  | $ | (2,379  | )
|                              |  |                                    |        |       |   |           |  |   |           |   |  |       |         |   |  |   |         |  



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

Revenue

Revenue in fiscal 2009 was $205,098, a decrease of $11,828 or 5.5%, from fiscal 2008 revenue of $216,926. This decrease was primarily due
to decreases in revenue in our Placement segment of $13,095, and our Promotion segment of $2,672, offset by an increase in our Media segment of $3,939.

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



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##### Table of Contents

Promotion

Promotion segment revenue in fiscal 2009 was $80,844, a decrease of $2,672, or 3.2%, from fiscal 2008 revenue of $83,516. This decrease
was primarily due to decreases in revenue in our sampling ($4,500) and OCM ($3,100) businesses, partially offset by increased revenue in AMP ($4,900).

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

Media

Media
segment revenue in fiscal 2009 was $85,127, an increase of $3,939 or 4.9% from fiscal 2008 revenue of $81,188. This increase was primarily due to revenue increases in our display board ($2,600), digital ($1,400), entertainment ($700) and Channel One
($1,600) businesses, partially offset by decreases in our education business ($1,500) and our print and nightlife businesses ($900).

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

Placement

Placement segment revenue in fiscal 2009 was $39,127, a decrease of $13,095 or 25.1% from fiscal 2008 revenue of $52,222. The decrease was
primarily due to decreases in college, multicultural, and general market newspaper revenue ($15,000), partially offset by increases in broadcast revenue ($1,500) and military newspaper revenue ($500).

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

Cost of Goods Sold

Promotion

Promotion segment cost of goods sold in fiscal 2009 was $34,746, an increase of $1,765 or 5.4% from fiscal 2008 cost
of goods sold of $32,981. This increase was primarily due to higher production costs ($3,300), partially offset by lower temporary labor ($1,700).

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

Media

Media segment cost of goods sold in fiscal 2009 was $23,300, a decrease of $1,119 or 4.6% from fiscal 2008 cost of goods sold of $24,419.
This decrease was primarily due to decreases in production costs ($1,700) such as printing and licenses, and payroll and temporary labor ($310). The decreases in cost of goods sold were offset by an increase in store commissions ($970).



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##### Table of Contents

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

Placement

Placement segment cost of goods sold expense in fiscal 2009 was $29,376, a decrease of $8,885, or 23.2% from fiscal 2008 cost of goods
sold of $38,261. The decrease is primarily due to a decrease in marketing fees ($8,880).

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

Operating Expenses

Promotion

Promotion segment operating expenses in fiscal 2009 were $33,792, a decrease of $3,243 or 8.8% from fiscal 2008
operating expenses of $37,035. The decrease was primarily due to decreases in general operating expenses ($3,400), and facilities costs ($790), offset by higher printing, mailing, and postage costs ($1,100).

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

Media

Media
segment operating expenses in fiscal 2009 were $44,476, a decrease of $540 or 1.2% from fiscal 2008 operating expenses of $45,016. The decrease was primarily due to decreases in payroll ($2,400), maintenance ($1,400), consulting ($500), stock based
compensation ($250), and bad debt expense ($170). The decreases were offset by increases in general corporate costs ($3,800) and facilities costs ($380).

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

Placement

Placement segment operating expenses in fiscal 2009 were $6,211, a decrease of $1,130 or 15.4% from fiscal 2008 operating expenses of
$7,341. The decrease was primarily due to decreases in payroll ($450), bad debt expense ($350) and general corporate costs ($330).

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

Corporate

The
Corporate segment operating expenses in fiscal 2009 were $2,418, an increase of $1,492 from fiscal 2008 operating expenses of $926. The increase is primarily due to information technology costs ($850), payroll ($375), and general corporate costs
($320).



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##### Table of Contents

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

General and
Administrative

Promotion

Promotion segment general and administrative expenses in fiscal 2009 were $4,311, a decrease of $560 or 11.5% as compared to fiscal 2008
general and administrative expenses of $4,871. The decrease was primarily due to lower general corporate costs ($480) and payroll-related expenses ($60).

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

Media

Media
segment general and administrative expenses in fiscal 2009 were $2,533, an increase of $1,036 or 69.2% as compared to fiscal 2008 general and administrative expenses of $1,497. The increase is primarily due to increases in general corporate costs.

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

Placement

Placement segment general and administrative expenses in fiscal 2009 were $2,068, a decrease of $234 or 10.2% as compared to fiscal 2008
general and administrative expenses of $2,302. The decrease was primarily due to decreases in general corporate costs.

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

Corporate

The Corporate segment general and administrative expenses in fiscal 2009 were $11,960, an increase of $1,376 or 13.0%
from fiscal 2008 general administrative expenses of $10,584. The increase was primarily due to increases in medical benefits expense ($1,100), and stock based compensation ($1,640), offset by decreases in general corporate and professional fees
($1,400) and payroll related costs ($200).

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

Depreciation and Amortization

Promotion

Promotion segment depreciation and amortization in fiscal 2009 was $1,024, an increase of $118 or 13.0% as compared to fiscal 2008
depreciation and amortization of $906. The increase was primarily due to the amortization of intangibles in connection with our acquisitions.



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##### Table of Contents

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

Media

Media segment depreciation and amortization in fiscal 2009 was $5,338, an increase of $788 or 17.3 %, as compared to fiscal 2008
depreciation and amortization of $4,550. The increase was primarily due to the amortization of mailing lists and fixed assets related to additions for our Channel One and Frontline businesses.

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

Placement

Placement segment depreciation and amortization in fiscal 2009 was $25, which was consistent with fiscal 2008 depreciation and
amortization of $32.

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

Corporate

The Corporate segment depreciation and amortization in fiscal 2009 was $905, which was consistent with fiscal 2008 depreciation and
amortization of $941.

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

Special Charges

In
fiscal 2009, we recorded special charges of $4,994. These special charges related to a goodwill and intangible asset impairments in our Placement segment.

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

In fiscal 2007, we recorded special charges of $71,628. These special charges related to goodwill impairment in our Media segment in the
amount of $48,052 and our Placement segment in the amount of $22,783. In addition, we recorded an impairment related to its trademarks and long-lived assets in our Media segment totaling $120 and $673, respectively.

Gain on Sale of Operating Asset

In fiscal 2008, we sold our CCS domain name and related assets for cash, recognizing a gain of $5,800. The gain was recorded in our Media
segment. No such gains were recorded in either fiscal 2009 or fiscal 2007.



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##### Table of Contents

Operating Income (Loss)

Promotion

The
Promotion segment operating income in fiscal 2009 was $6,971, a decrease of $752, or 9.7% as compared to operating income of $7,723 in fiscal 2008. Operating income in fiscal 2009 decreased due to lower revenues and higher production and postage
expenses, partially offset by lower stock compensation expense.

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

Media

The Media
segment operating income in fiscal 2009 operating income was $9,480, a decrease of $1,986, or 17.3% as compared to operating income of $11,466 for fiscal 2008. Operating income in fiscal 2009 decreased primarily due to lower special charges and
higher depreciation and amortization, partially offset by increases in profitability and lower stock compensation expense.

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

Placement

The
Placement segment operating loss in fiscal 2009 was $3,547 as compared to operating income of $4,186 in fiscal 2008. The operating loss in fiscal 2009 was primarily due to special charges related to goodwill and intangible asset impairment charges
in the amount of $4,994, lower revenue and a higher cost structure.

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

Corporate

The
Corporate segment operating loss in fiscal 2009 was $15,283, an increase of $2,684, or 21.3%, from $12,599 in fiscal 2008. The increase in operating loss for fiscal 2009 as compared to fiscal 2008 was primarily due to increases in employee medical
benefits and information technology costs, and higher stock compensation expense.

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

Net Interest Expense

Interest expense in fiscal 2009 was $16, a decrease of $140 as compared with fiscal 2008 interest expense of $156.



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##### Table of Contents

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

Extraordinary Gain

During fiscal 2007, we recognized an extraordinary gain of $5,680, net of alternative minimum tax of $120. Based upon an analysis of our
tax provision and the fact that we did not have a federal tax liability we were required to recognize our extraordinary gain net of tax. The extraordinary gain was related to our acquisition of Channel One and was a result of our estimated
liabilities at the time of acquisition being lower than we estimated when they were ultimately settled. We did not recognize any extraordinary gains in fiscal 2009 and fiscal 2008.

Income Taxes

Income tax
expense in fiscal 2009 increased $2,026, to $2,510, at an effective rate of 106.0%, from income tax expense of $484 in fiscal 2008. The increase in income tax expense in fiscal 2009 was primarily due to state income tax of $400 and the recognition
of a $2,700 deferred tax expense related to tax deductible goodwill for a prior acquisition as a result of a book/tax basis difference. The income tax recorded was offset by a tax benefit of $590 due to the expiration of certain state and local tax
statutes and recoverable alternative minimum tax that was previously paid.

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

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

Liquidity and Capital Resources

Cash from Operations

Cash provided by operating activities was $7,248 for fiscal 2009. Factors contributing to our cash provided by operations were net loss of
$4,883, noncash items totaling $20,634 which included impairment charges, depreciation and amortization, and stock based compensation expense, offset by changes in working capital of $8,503, mainly attributable to a decrease in accrued expenses.

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

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

Investing Activities

Cash used in investing activities was $5,752 in fiscal 2009 as compared to cash provided by investing activities of $6,198 for fiscal 2008
and cash used in investing activities of $5,698 for fiscal 2007.



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Capital expenditures were $3,551, $7,313 and $17,087 for fiscal 2009, fiscal 2008, and
fiscal 2007, respectively. Capital expenditures for fiscal 2009 and 2008 were primarily for general operating purposes. Capital expenditures for fiscal 2007 were for a combination of general operating purposes as well as providing a digital upgrade
to Channel One existing infrastructure.

Purchases of mailing lists, domain names and marketing rights totaled $944, $1,537
and $1,737 for fiscal 2009, fiscal 2008 and fiscal 2007, respectively.

In fiscal 2009, we paid $1,500 of contingent
consideration related to a prior acquisition.

In fiscal 2008, our net acquisitions resulted in a source of cash of $1,518
primarily as a result of the Fulgent acquisition. In fiscal 2007, our net acquisitions resulted in a source of cash of $1,011 primarily as a result of the Channel One acquisition.

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

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

Financing Activities

Cash used in financing activities was $7,434 for fiscal 2009, as a result of repurchases of our common stock.

Cash used in financing activities was $12,737 for fiscal 2008. The use of cash was primarily due to $7,498 in stock repurchases, debt
conversion of $1,255 and pay down of our existing line of credit of $4,000.

Cash provided by financing activities was $3,721
for fiscal 2007. Cash provided by stock option exercises were $638, offset by repurchases of our common stock of $917. During the third quarter of fiscal 2007, we received an advance of $4,000 pursuant to our then existing credit facility.

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

If our current sources of liquidity and cash generated from our operations are insufficient to satisfy our cash needs, we may be required
to enter into a new credit facility or raise additional capital. If we raise additional funds through the issuance of equity securities, our stockholders may experience significant dilution. Alternatively, or in addition to equity related funding,
we may seek various short term and term credit facilities, such as those that we have had in the past, with one or more institutional lenders. If financing is not available for working capital and for investment, we may have to adjust our operations
and restrict our product development and enhancement as well as curtail acquisitions of products and services that expand our offerings. There is no assurance that we will be able to obtain financing when needed, or on terms that are acceptable to
management. A lack of financing in sufficient amounts to our requirements could adversely effect our growth and ability 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.

As of January 31, 2010, our unused repurchase authorization for our common stock was
approximately $3,005.

During fiscal 2008, Alloy liquidated $7,730 of its auction rate securities portfolio. We have been
unable to obtain third party pricing for the remaining balance. As a result, we were required to independently value these



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securities and as result recorded an impairment charge of $148 against the remaining balance. At January 31, 2010, our auction rates securities balance was $1,052. We do not believe that we
will be able to liquidate the securities within the next twelve months and consider these assets long-term in nature.

Contractual
Obligations

The following table presents our significant contractual obligations as of January 31, 2010:



|                                                  |  |                        |        |                 |   |           |  |           |        |                  |   |       |  |   |      
|------------------------------------------------- |  | ---------------------- | ------ | --------------- | - | --------- |  | --------- | ------ | ---------------- | - | ----- |  | - | -----
|                                                  |  | Payments Due By Period
|                                                  |  | Total                  |        | Less than1 Year |   | 1-3 Years |  | 3-5 Years |        | More than5 Years
|Contractual Obligations                           |  |                        |        |                 |   |           |  |           |        |                  |   |       |  |   |      
|Operating lease
obligations(a)                    |  |                        | 14,902 |                 |   | 3,498     |  |           | 6,490  |                  |   | 2,789 |  |   | 2,125
|Capital lease obligations (including
interest)(b) |  |                        | 17     |                 |   | 15        |  |           | 2      |                  |   |      |  |   |     
|Purchase
obligations(c)                           |  |                        | 29,377 |                 |   | 22,348    |  |           | 6,784  |                  |   | 245   |  |   |     
|Other(d)                                          |  |                        | 818    |                 |   |          |  |           | 818    |                  |   |      |  |   |     
|                                                  |  |                        |        |                 |   |           |  |           |        |                  |   |       |  |   |      
|Total                                             |  | $                      | 45,114 |                 | $ | 25,861    |  | $         | 14,094 |                  | $ | 3,034 |  | $ | 2,125
|                                                  |  |                        |        |                 |   |           |  |           |        |                  |   |       |  |   |      



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

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

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

|(d) | Our liability for uncertain tax provisions.
|--- | -------------------------------------------

Off-Balance Sheet Arrangements

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

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses
during the reporting period. We evaluate the estimates on an on-going basis, including, but not limited to, those related to bad debts, asset impairments, income taxes, stock compensation expenses and litigation. We base the estimates on historical
experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different assumptions and conditions.

Revenue Recognition

Promotion, Media, and Placement segment revenue is generated as a result of the media and marketing services we provide
through these segments, including advertising in Company owned or represented media properties, execution of marketing events, or shipment of products. Revenues for these services are recognized, net of the commissions and agency fees, when the
underlying advertisement is published, broadcast or otherwise delivered pursuant to the terms of each arrangement. Delivery of advertising in other media forms is completed either in the form of the display of an impression or based upon the
provision of contracted services in connection with the marketing event or program. In-catalog print advertising revenues are recognized in the



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month that the catalog is mailed. The revenues earned in connection with publishing activities are recognized upon publication of such property. Contract revenue is recognized upon the delivery
of the contracted services and when no significant Company performance obligation remains. Service revenue is recognized as the contracted services are rendered. Product revenue from our college-focused specialty marketing business, OCM, is
recognized at the time products are shipped to customers, net of any promotional price discounts and an allowance for sales returns. Revenues from our sampling business are earned when the products are shipped to venue locations.

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

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

Accounts Receivable and Allowance for Doubtful Accounts

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

Operating Leases

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

Fixed Assets

Certain direct costs incurred for website development are capitalized in accordance with FASB guidance, and are amortized on a
straight-line basis over the estimated useful life of 3 years.

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



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



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Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill is not amortized and is tested for impairment annually or at the time of a triggering event in accordance with FASB Accounting
Standards Codification Topic 350-20. The test for impairment is performed at the reporting unit level. We make this determination one level below an operating segment (referred to as a component). A component of an operating segment is a reporting
unit if the component has discreet financial information available and management regularly reviews the operating results of the component. When a reporting units carrying value exceeds its fair value, the amount of the impairment loss must be
measured. The measurement of impairment is calculated by determining the implied fair value of a reporting units goodwill. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all other assets
and liabilities of that unit based upon relative fair values. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities is the implied fair value of goodwill. The goodwill impairment is measured as the
excess of the carrying value of goodwill over its implied fair value. Our policy is to perform its annual goodwill impairment test as of the last day of each fiscal year, i.e. January 31(Valuation Date).

In fiscal 2009, we performed our goodwill impairment test as of November 30, 2009, an interim date, as a result of our forecasted
decline in revenue and profitability in the fourth quarter of fiscal 2009. At the time, the forecasted fourth quarter results would have significantly impacted our expected annual operating results, which caused us to analyze the potential impact on
or annual impairment test. We applied accounting guidance as prescribed by the FASB specifically related to the impairment of indefinite lived assets, and concluded that that the forecasted decline in revenues and profitability constituted a
triggering event requiring us to perform our impairment testing at an interim date of November 30, 2009.

We
used a combination of the income approach and the market approach to test for goodwill impairment as of the valuation date. Each approach was assigned equal weight when valuing each of the reporting units. We considered the relative strengths and
weaknesses inherent in the methodologies utilized in each approach and consulted with a third party valuation specialist to assist in determining the appropriate weighting.

The income approach is based upon discounted future cash flow that is generated by each respective reporting unit that utilizes estimates
in annual revenue growth, earnings before interest, taxes depreciation and amortization (EBITDA), EBITDA margin and long-term growth for determining terminal value. These estimates consider all pertinent factors related to each
respective reporting units industry, as well as general overall economic conditions.

The market approach calculates
fair value based upon market multiples realized in actual arms length transactions. Information related to market transactions can be obtained from a variety of sources including, but not limited to: Factset Research Systems, Hoovers and the Edgar
Filings for comparable companies.

The income approach uses a discounted cash flow model for each reporting unit. The
projected financial results are created from managements critical assumptions and estimates. Annual revenue growth is primarily driven by managements revenue growth projections based upon current and historical financial information as
well as expected market conditions. Management projected EBITDA for each reporting unit. The revenue, EBITDA together with assumptions for working capital, depreciation and capital expenditures were used to calculate the cash flow generated by the
reporting unit. The terminal value was calculated using a Gordon Growth model and EBITDA exit multiple. The Gordon Growth Model is based on an expected long-term growth and discount rate for the reporting units. The value of the terminal value was
also calculated based on an EBITDA exit multiple. Terminal value EBITDA multiples ranged from 4.5 to 5.0 for each reporting unit at November 30, 2009. Discount rates ranged from 15.5% to 17.5% for each reporting unit at November 30, 2009.
These discount rates utilized in the income approach were based on a weighted average cost of capital utilizing market and empirical inputs. We reviewed the original assumptions at January 31, 2010 to ensure consistency with the interim report
and no changes were deemed necessary.



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Impairment of Long-Lived Assets

In accordance with the guidance issued by the FASB, long-lived assets such as fixed assets, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the assets. We did not have any impairment charges for fiscal 2009 and fiscal 2008. The average useful life of our purchased intangibles subject to amortization is 3.4 years.

Valuation of Stock Options and Warrants

For purposes of computing the value of stock options and warrants, various valuation methods and assumptions can be used. The selection of
a different valuation method or use of different assumptions may result in a value that is significantly different from that computed by us. For the calculation of stock-based compensation expense in accordance with guidance issued by the FASB, we
utilize the Black-Scholes method to determine the fair value of stock options.

Recently Adopted Accounting Pronouncements

Variable Interest Entities

In June 2009, the FASB issued changes to require an enterprise to perform an analysis to determine whether the enterprises variable
interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach
previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur
such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entitys economic performance;
and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. The guidance became effective on February 1, 2010. The
adoption of the guidance did not have an impact on our consolidated financial statements.

Codification of GAAP

In June 2009, the FASB issued guidance to establish the Accounting Standards Codification TM (Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, the FASB will issue Accounting Standards
Updates (ASU). ASUs will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. The guidance became effective for the period ending
October 31, 2009. The adoption of the guidance did not have an impact on our consolidated financial statements.

Subsequent Events

On July 31, 2009, we adopted changes issued by the FASB that establishes general standards of accounting for and
disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the guidance sets forth the period after the balance sheet date during



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which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. We have
evaluated subsequent events through the date the financial statements were issued.

Business Combinations

We adopted the changes issued by the FASB that requires the acquiring entity in a business combination to recognize all (and only) the
assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose additional information needed
to evaluate and understand the nature and financial effect of the business combination.

We also adopted the changes issued by
the FASB which requires assets and liabilities assumed in a business combination that arise from contingencies be recognized on the acquisition date at fair value if it is more likely than not that they meet the definition of an asset or liability;
and requires that contingent consideration arrangements of the target assumed by the acquirer be initially measured at fair value.

The guidance is effective for our acquisitions occurring on or after February 1, 2009. We applied these new provisions to two
acquisitions that occurred during the year, Rock Coast Media, Inc. and Pixel Bridge, Inc. These acquisitions are more fully disclosed in Note 5 in our consolidated financial statements.

Noncontrolling Interests

In December 2007, the FASB issued changes to establish accounting and reporting standards for all entities that prepare consolidated
financial statements that have outstanding noncontrolling interests, sometimes called minority interest. These standards require that ownership interests in subsidiaries held by outside parties be clearly identified, labeled and presented in equity
separate from the parents equity; the amount of net income attributable to the parent and the noncontrolling interest be separately presented on the consolidated statement of operations; accounting standards applied to changes in a
parents interest be consistently applied; fair value measurement upon deconsolidation of a non-controlling interest be used; and the interests of the noncontrolling owners be already identified and distinguished. The adoption of this guidance
had no impact on our consolidated financial statements.

Intangible Assets

In April 2008, the FASB adopted changes to require companies estimating the useful life of a recognized intangible asset to consider their
historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for entity-specific factors. The
guidance is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to intangible assets whether acquired before or after the effective date. We adopted the guidance on February 1, 2009. The adoption
had no impact on our consolidated financial statements.

Hierarchy of Generally Accepted Accounting Principles (GAAP)

In May 2008, the FASB issued changes to identify the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP (the GAAP hierarchy). The guidance is effective 60 days following the SECs approval of the Public Company
Accounting Oversight Board amendments to AU section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Management is currently evaluating the guidance and assessing the impact, if any, on our
consolidated financial statements.



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Recently Issued Accounting Pronouncement

Revenue Recognition

In September 2009, the FASB issued new revenue recognition guidance on multiple deliverable arrangements. It updates the existing
multiple-element revenue arrangements guidance currently included under the Accounting Standards Codification (ASC) 605-25. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and
reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) requires the use of the relative selling price method to allocate the entire arrangement
consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after fiscal 2011, with early adoption permitted provided
that the revised guidance is retroactively applied to the beginning of the year of adoption. Management is currently evaluating the impact of adopting this guidance on our consolidated financial statements.

Inflation

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

Forward-Looking Statements

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

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

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



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

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

Credit concerns
in the capital markets have significantly reduced our ability to liquidate auction rate securities, and as a result we have reclassified these securities to long-term assets. As of January 31, 2010, we held auction rate securities with a fair
value of approximately $1,052. These securities are interest-bearing debt obligations of third parties. During fiscal 2009 we were able to liquidate $100 of our portfolio.



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

ALLOY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|Report of Independent Registered Public Accounting Firm                                              |  | 42  
|Consolidated Balance Sheets at January 31, 2010 and 2009                                             |  | 43  
|Consolidated Statements of Operations for the years ended January 31, 2010, 2009 and
2008            |  | 44  
|Consolidated Statements of Stockholders Equity for the years ended January 
31, 2010, 2009 and 2008 |  | 45  
|Consolidated Statements of Cash Flows for the years ended January 31, 2010, 2009 and
2008            |  | 46  
|Notes to Consolidated Financial Statements                                                           |  | 47  



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Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Alloy, Inc.

New York, New York

We have audited the accompanying consolidated balance sheets of Alloy, Inc. as of January 31, 2010 and 2009 and the related
consolidated statements of operations, stockholders equity, and cash flows for each of the three years in the period ended January 31, 2010. In connection with our audits of the financial statements, we have also audited the financial
statement schedule included in Part IV, Item 15 of the Companys Form 10K. These consolidated financial statements and schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion, the
consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alloy, Inc. at January 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years
in the period ended January 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

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

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the Companys internal control over financial reporting as of January 31, 2010, based on criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated April 12, 2010 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

New York, New York

April 12, 2010



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ALLOY, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)



|                                                                                                                 |  |             |          |   |      |   |          |  
|---------------------------------------------------------------------------------------------------------------- |  | ----------- | -------- | - | ---- | - | -------- | -
|                                                                                                                 |  | January 31, |         
|                                                                                                                 |  | 2010        |          |   | 2009 |  
|ASSETS                                                                                                           |  |             |          |   |      |   |          |  
|Current assets:                                                                                                  |  |             |          |   |      |   |          |  
|Cash and cash equivalents                                                                                        |  | $           | 26,178   |   |      | $ | 32,116   |  
|Accounts receivable, net of allowance for doubtful accounts of $851 and $1,757, respectively                     |  |             | 30,759   |   |      |   | 29,693   |  
|Unbilled accounts receivable                                                                                     |  |             | 5,989    |   |      |   | 6,341    |  
|Inventory                                                                                                        |  |             | 3,478    |   |      |   | 3,163    |  
|Other current assets                                                                                             |  |             | 5,710    |   |      |   | 5,122    |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total current assets                                                                                             |  |             | 72,114   |   |      |   | 76,435   |  
|Fixed assets, net                                                                                                |  |             | 22,119   |   |      |   | 23,180   |  
|Goodwill                                                                                                         |  |             | 55,297   |   |      |   | 50,335   |  
|Intangible assets, net                                                                                           |  |             | 6,951    |   |      |   | 9,065    |  
|Other assets                                                                                                     |  |             | 1,657    |   |      |   | 1,704    |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total assets                                                                                                     |  | $           | 158,138  |   |      | $ | 160,719  |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                             |  |             |          |   |      |   |          |  
|Current liabilities:                                                                                             |  |             |          |   |      |   |          |  
|Accounts payable                                                                                                 |  | $           | 11,036   |   |      | $ | 14,255   |  
|Deferred revenue                                                                                                 |  |             | 11,050   |   |      |   | 15,822   |  
|Accrued expenses and other current liabilities                                                                   |  |             | 26,858   |   |      |   | 17,682   |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total current liabilities                                                                                        |  |             | 48,944   |   |      |   | 47,759   |  
|Deferred tax liability                                                                                           |  |             | 2,668    |   |      |   |         |  
|Other long-term liabilities                                                                                      |  |             | 3,112    |   |      |   | 2,493    |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total liabilities                                                                                                |  |             | 54,724   |   |      |   | 50,252   |  
|Stockholders equity:                                                                                            |  |             |          |   |      |   |          |  
|Common stock; $.01 par value: authorized 200,000 shares; issued and outstanding: 16,600 and 15,582, respectively |  |             | 165      |   |      |   | 155      |  
|Additional paid-in capital                                                                                       |  |             | 454,896  |   |      |   | 449,602  |  
|Accumulated deficit                                                                                              |  |             | (321,546 | ) |      |   | (316,663 | )
|                                                                                                                 |  |             |          |   |      |   |          |  
|                                                                                                                 |  |             | 133,515  |   |      |   | 133,094  |  
|Less treasury stock, at cost: 3,963 and 2,699 shares, respectively                                               |  |             | (30,101  | ) |      |   | (22,627  | )
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total stockholders equity                                                                                       |  |             | 103,414  |   |      |   | 110,467  |  
|                                                                                                                 |  |             |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                       |  | $           | 158,138  |   |      | $ | 160,719  |  
|                                                                                                                 |  |             |          |   |      |   |          |  

See accompanying notes to consolidated financial statements



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ALLOY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)



|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|--------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                        |  | Fiscal Year Ended January 31, |        
|                                        |  | 2010                          |         |   | 2009 |   |         | 2008 | 
|Revenues:                               |  |                               |         |   |      |   |         |      |  |   |         |  
|Services revenue                        |  | $                             | 167,577 |   |      | $ | 176,350 |      |  | $ | 159,129 |  
|Product revenue                         |  |                               | 37,521  |   |      |   | 40,576  |      |  |   | 39,967  |  
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Total revenue                           |  | $                             | 205,098 |   |      | $ | 216,926 |      |  | $ | 199,096 |  
|                                        |  |                               |        
|Costs of revenue:                       |  |                               |         |   |      |   |         |      |  |   |         |  
|Costs of services                       |  |                               | 76,881  |   |      |   | 84,192  |      |  |   | 84,268  |  
|Costs of products sold                  |  |                               | 10,541  |   |      |   | 11,469  |      |  |   | 11,679  |  
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Total costs of revenue:                 |  |                               | 87,422  |   |      |   | 95,661  |      |  |   | 95,947  |  
|                                        |  |                               |        
|Expenses:                               |  |                               |         |   |      |   |         |      |  |   |         |  
|Operating                               |  |                               | 86,897  |   |      |   | 90,318  |      |  |   | 77,012  |  
|General and administrative              |  |                               | 20,872  |   |      |   | 19,254  |      |  |   | 19,494  |  
|Depreciation and amortization**         |  |                               | 7,292   |   |      |   | 6,429   |      |  |   | 5,080   |  
|Special charges                         |  |                               | 4,994   |   |      |   | 288     |      |  |   | 71,628  |  
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Total expenses                          |  |                               | 120,055 |   |      |   | 116,289 |      |  |   | 173,214 |  
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Gain on sale of operating assets        |  |                               |        |   |      |   | 5,800   |      |  |   |        |  
|                                        |  |                               |        
|Operating (loss) income                 |  |                               | (2,379  | ) |      |   | 10,776  |      |  |   | (70,065 | )
|Interest expense                        |  |                               | (16     | ) |      |   | (156    | )    |  |   | (154    | )
|Interest income                         |  |                               | 31      |   |      |   | 317     |      |  |   | 1,122   |  
|Other items, net                        |  |                               | (9      | ) |      |   | (18     | )    |  |   | (494    | )
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes       |  |                               | (2,373  | ) |      |   | 10,919  |      |  |   | (69,591 | )
|Income taxes                            |  |                               | (2,510  | ) |      |   | (484    | )    |  |   | (481    | )
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Income (loss) before extraordinary item |  |                               | (4,883  | ) |      |   | 10,435  |      |  |   | (70,072 | )
|Extraordinary gain (net of tax)         |  |                               |        |   |      |   |        |      |  |   | 5,680   |  
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                       |  | $                             | (4,883  | ) |      | $ | 10,435  |      |  | $ | (64,392 | )
|                                        |  |                               |        
|Basic net earnings loss per share:      |  |                               |         |   |      |   |         |      |  |   |         |  
|Loss before extraordinary item          |  | $                             | (0.42   | ) |      | $ | 0.78    |      |  | $ | (5.24   | )
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Extraordinary gain                      |  | $                             |        |   |      | $ |        |      |  | $ | 0.43    |  
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Basic net earnings loss per share       |  | $                             | (0.42   | ) |      | $ | 0.78    |      |  | $ | (4.82   | )
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Diluted net earnings loss per share:    |  |                               |         |   |      |   |         |      |  |   |         |  
|Loss before extraordinary item          |  | $                             | (0.42   | ) |      | $ | 0.78    |      |  | $ | (5.24   | )
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Extraordinary gain                      |  | $                             |        |   |      | $ |        |      |  | $ | 0.43    |  
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  
|Diluted net earnings loss per share     |  | $                             | (0.42   | ) |      | $ | 0.78    |      |  | $ | (4.82   | )
|                                        |  |                               |         |   |      |   |         |      |  |   |         |  



|** | Includes amortization of intangibles of $2,867, $2,073 and $1,739 for the year ended January 31, 2010, 2009, and 2008, respectively.
|-- | ------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements



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ALLOY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands)



|                                     |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|------------------------------------ |  | ------------ |  | ------ | --- | ------------------------- | - | ------- | -------------------------- |  | ------ | -------------- | - |  | ------ | - |  | -- | ------ | - |  | - | ------- | -
|                                     |  |              |  |        |     | AdditionalPaid-in
Capital |   |         | AccumulatedIncome(Deficit) |  |        | Treasury Stock |   |  | Total  |  
|                                     |  | Common Stock |  |        |     |                          
|                                     |  | Shares       |  | Amount |     |                           |   | Shares  |                            |  | Amount |                |  
|Balance at January 31, 2007          |  | 14,698       |  | $      | 147 |                           | $ | 438,428 |                            |  | ($     | 261,692        | ) |  | (1,151 | ) |  | ($ | 14,212 | ) |  | $ | 162,671 |  
|Adoption of FIN 48                   |  |             |  |        |    |                           |   |        |                            |  |        | (1,014         | ) |  |       |   |  |    |       |   |  |   | (1,014  | )
|Net loss                             |  |             |  |        |    |                           |   |        |                            |  |        | (64,392        | ) |  |       |   |  |    |       |   |  |   | (64,392 | )
|Issuance of common stock for:        |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|Acquisitions                         |  | 150          |  |        | 1   |                           |   | 1,810   |                            |  |        |               |   |  |       |   |  |    |       |   |  |   | 1,811   |  
|Sconex Earnout                       |  | 68           |  |        | 1   |                           |   | 788     |                            |  |        |               |   |  |       |   |  |    |       |   |  |   | 789     |  
|Stock option plans                   |  | 77           |  |        | 1   |                           |   | 637     |                            |  |        |               |   |  |       |   |  |    |       |   |  |   | 638     |  
|Restricted grants                    |  | 319          |  |        | 2   |                           |   | (2      | )                          |  |        |               |   |  |       |   |  |    |       |   |  |   |        |  
|Sconex shares subject to restriction |  | 65           |  |        |    |                           |   |        |                            |  |        |               |   |  |       |   |  |    |       |   |  |   |        |  
|Purchase of treasury stock           |  |             |  |        |    |                           |   |        |                            |  |        |               |   |  | (92    | ) |  |    | (917   | ) |  |   | (917    | )
|Stock option based compensation      |  |              |  |        |     |                           |   | 3,745   |                            |  |        |               |   |  |       |   |  |    |       |   |  |   | 3,745   |  
|                                     |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|Balance at January 31, 2008          |  | 15,377       |  | $      | 152 |                           | $ | 445,406 |                            |  | ($     | 327,098        | ) |  | (1,243 | ) |  | ($ | 15,129 | ) |  | $ | 103,331 |  
|                                     |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|Net income                           |  |              |  |        |     |                           |   |         |                            |  |        | 10,435         |   |  |        |   |  |    |        |   |  |   | 10,435  |  
|Issuance of common stock for:        |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|Stock option plans                   |  | 3            |  |        |    |                           |   | 16      |                            |  |        |               |   |  |       |   |  |    |       |   |  |   | 16      |  
|Restricted grants                    |  | 202          |  |        | 3   |                           |   | (3      | )                          |  |        |               |   |  |       |   |  |    |       |   |  |   |        |  
|Conversion of debentures             |  |             |  |        |    |                           |   | 142     |                            |  |        |               |   |  |       |   |  |    |       |   |  |   | 142     |  
|Purchase of treasury stock           |  |             |  |        |    |                           |   |        |                            |  |        |               |   |  | (1,456 | ) |  |    | (7,498 | ) |  |   | (7,498  | )
|Stock option based compensation      |  |              |  |        |     |                           |   | 4,041   |                            |  |        |                |   |  |        |   |  |    |        |   |  |   | 4,041   |  
|                                     |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|Balance at January 31, 2009          |  | 15,582       |  | $      | 155 |                           | $ | 449,602 |                            |  | ($     | 316,663        | ) |  | (2,699 | ) |  | ($ | 22,627 | ) |  | $ | 110,467 |  
|                                     |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|Net loss                             |  |             |  |        |    |                           |   |        |                            |  |        | (4,883         | ) |  |       |   |  |    |       |   |  |   | (4,883  | )
|Issuance of common stock for:        |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|Stock option plans                   |  | 6            |  |        |    |                           |   | 40      |                            |  |        |               |   |  |       |   |  |    |       |   |  |   | 40      |  
|Restricted grants                    |  | 1,012        |  |        | 10  |                           |   | (10     | )                          |  |        |               |   |  |       |   |  |    |       |   |  |   |        |  
|Purchase of treasury stock           |  |             |  |        |    |                           |   |        |                            |  |        |               |   |  | (1,264 | ) |  |    | (7,474 | ) |  |   | (7,474  | )
|Stock option based compensation      |  |             |  |        |    |                           |   | 5,264   |                            |  |        |               |   |  |       |   |  |    |       |   |  |   | 5,264   |  
|                                     |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  
|Balance at January 31, 2010          |  | 16,600       |  | $      | 165 |                           | $ | 454,896 |                            |  | ($     | 321,546        | ) |  | (3,963 | ) |  | ($ | 30,101 | ) |  | $ | 103,414 |  
|                                     |  |              |  |        |     |                           |   |         |                            |  |        |                |   |  |        |   |  |    |        |   |  |   |         |  



See accompanying notes to consolidated
financial statements



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ALLOY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ------ | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                           |  | Fiscal Year Ended January 31, |       
|                                                                                                           |  | 2010                          |        |   | 2009 |   |         | 2008 | 
|Cash Flows from Operating Activities                                                                       |  |                               |        |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                                          |  | $                             | (4,883 | ) |      | $ | 10,435  |      |  | $ | (64,392 | )
|Adjustments to reconcile net income to net cash provided by operating activities:                          |  |                               |        |   |      |   |         |      |  |   |         |  
|Extraordinary gain                                                                                         |  |                               |       |   |      |   |        |      |  |   | (5,680  | )
|Gain (loss) on sale of assets                                                                              |  |                               | 215    |   |      |   | (5,800  | )    |  |   |        |  
|Deferred income taxes                                                                                      |  |                               | 2,668  |   |      |   |        |      |  |   |        |  
|Depreciation and amortization of fixed assets                                                              |  |                               | 4,425  |   |      |   | 4,356   |      |  |   | 3,341   |  
|Amortization of intangible assets                                                                          |  |                               | 2,867  |   |      |   | 2,073   |      |  |   | 1,739   |  
|Loss on disposition of fixed assets                                                                        |  |                               |       |   |      |   |        |      |  |   | 575     |  
|Impairment charges attributable to goodwill, indefinite-lived assets and long-lived assets and investments |  |                               | 4,994  |   |      |   | 288     |      |  |   | 71,628  |  
|Provision for losses on accounts receivable                                                                |  |                               | 201    |   |      |   | 450     |      |  |   | (375    | )
|Compensation charge for restricted stock and issuance of options                                           |  |                               | 5,264  |   |      |   | 4,041   |      |  |   | 3,745   |  
|Changes in operating assets and liabilities:                                                               |  |                               |        |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                                        |  |                               | (236   | ) |      |   | 8,398   |      |  |   | (4,650  | )
|Inventory and other assets                                                                                 |  |                               | (856   | ) |      |   | (100    | )    |  |   | 587     |  
|Accounts payable, accrued expenses, and other                                                              |  |                               | (7,411 | ) |      |   | 2,244   |      |  |   | 1,363   |  
|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                                  |  |                               | 7,248  |   |      |   | 26,385  |      |  |   | 7,881   |  
|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  
|Cash Flows from Investing Activities                                                                       |  |                               |        |   |      |   |         |      |  |   |         |  
|Capital expenditures                                                                                       |  |                               | (3,551 | ) |      |   | (7,313  | )    |  |   | (17,087 | )
|Acquisitions, net of cash acquired                                                                         |  |                               | 25     |   |      |   | 1,518   |      |  |   | 1,011   |  
|Contingent consideration payment related to prior acquisitions                                             |  |                               | (1,500 | ) |      |   |        |      |  |   |        |  
|Purchases of marketable securities                                                                         |  |                               |       |   |      |   |        |      |  |   | (20,675 | )
|Proceeds from the sales and maturity of marketable securities                                              |  |                               |       |   |      |   | 7,730   |      |  |   | 32,790  |  
|Purchase of domain name / mailing list / marketing rights                                                  |  |                               | (944   | ) |      |   | (1,537  | )    |  |   | (1,737  | )
|Net proceeds on sale of operating assets                                                                   |  |                               | 218    |   |      |   | 5,800   |      |  |   |        |  
|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) investing activities                                                        |  |                               | (5,752 | ) |      |   | 6,198   |      |  |   | (5,698  | )
|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  
|Cash Flows from Financing Activities                                                                       |  |                               |        |   |      |   |         |      |  |   |         |  
|Proceeds from line of credit                                                                               |  |                               |       |   |      |   |        |      |  |   | 4,000   |  
|Issuance of common stock                                                                                   |  |                               | 40     |   |      |   | 16      |      |  |   | 638     |  
|Repurchase of common stock                                                                                 |  |                               | (7,474 | ) |      |   | (7,498  | )    |  |   | (917    | )
|Debt conversion                                                                                            |  |                               |       |   |      |   | (1,255  | )    |  |   |        |  
|Payment of bank loan payable                                                                               |  |                               |       |   |      |   | (4,000  | )    |  |   |        |  
|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  
|Net cash provided by (used in) financing activities                                                        |  |                               | (7,434 | ) |      |   | (12,737 | )    |  |   | 3,721   |  
|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  
|Net change in cash and cash equivalents                                                                    |  |                               | (5,938 | ) |      |   | 19,846  |      |  |   | 5,904   |  
|Cash and cash equivalents:                                                                                 |  |                               |        |   |      |   |         |      |  |   |         |  
|Beginning of period                                                                                        |  |                               | 32,116 |   |      |   | 12,270  |      |  |   | 6,366   |  
|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  
|End of period                                                                                              |  | $                             | 26,178 |   |      | $ | 32,116  |      |  | $ | 12,270  |  
|                                                                                                           |  |                               |        |   |      |   |         |      |  |   |         |  

See accompanying notes to consolidated financial statements



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)



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

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

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



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

Fiscal Year

Alloys fiscal year ends on January 31. All references herein to a particular fiscal year refer to the year ended
January 31 following the particular year (e.g., fiscal 2009 refers to the fiscal year ended January 31, 2010).

Principles of Consolidation

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

Revenue Recognition

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



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



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

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

Critical Accounting Estimates

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

Cash and Cash Equivalents

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

Marketable Securities

Alloy has evaluated its investment policies and determined that all of its investment securities are to be classified as
available-for-sale. Available-for-sale securities are reported at fair value. Realized gains and losses and declines in value judged to be other-than-temporary are recognized on the specific identification method in the period in which they occur.

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

Accounts Receivable and Allowance for Doubtful Accounts

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



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



Unbilled Accounts Receivable

Unbilled accounts receivable are a normal part of the Companys business. Generally, Placement segment receivables and Media segment
display board receivables are invoiced in the month following the receipt of the proof-of-performance documentation. At January 31, 2010 and 2009, accounts receivable included approximately $5,989 and $6,341, respectively, of unbilled
receivables.

Operating Leases

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

Concentration of Credit Risk

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

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

The Company owns auction rate securities with a book value of $1,052 which is not material to the Companys overall financial
position.

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

Fair Value of Financial Instruments

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

On an ongoing basis, Alloy evaluates its investment in debt
and equity securities to determine if a decline in fair value is other-than-temporary. When a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded and a new cost basis in the investment is established. The
Company performed a review of its total portfolio at January 31, 2009 and evaluated the portfolio for other then temporary impairment. The Company concluded that the portfolio was impaired by $148. The Company did not have any impairment for
the year ended January 31, 2010.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



Fixed Assets

Certain direct costs incurred for website development are capitalized in accordance with the Financial Accounting Standards Board
(FASB) guidance, and are amortized on a straight-line basis over the estimated useful life of 3 years.

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



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

Inventory

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

Goodwill and Other Indefinite-Lived Intangible Assets

Goodwill is not amortized and is tested for impairment annually or at the time of a triggering event in accordance with FASB Accounting
Standards Codification Topic 350-20. The test for impairment is performed at the reporting unit level. The Company makes this determination one level below an operating segment (referred to as a component). A component of an operating segment is a
reporting unit if the component has discreet financial information available and management regularly reviews the operating results of the component. When a reporting units carrying value exceeds its fair value, the amount of the impairment
loss must be measured. The measurement of impairment is calculated by determining the implied fair value of a reporting units goodwill. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all
other assets and liabilities of that unit based upon relative fair values. The excess of the fair value of the reporting unit over the amount assigned to its assets and liabilities is the implied fair value of goodwill. The goodwill impairment is
measured as the excess of the carrying value of goodwill over its implied fair value. The Companys policy is to perform its annual goodwill impairment test as of the last day of each fiscal year, i.e. January 31 (Valuation
Date).

In fiscal 2009, the Company performed its goodwill impairment test as of November 30, 2009, an
interim date, as a result of its forecasted decline in revenue and profitability in the fourth quarter of fiscal 2009. At the time, the forecasted fourth quarter results would have significantly impacted its expected annual operating results, which
caused the Company to analyze the potential impact on or annual impairment test. The Company



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



applied accounting guidance as prescribed by the FASB specifically related to the impairment of indefinite lived assets, and concluded that that the forecasted decline in revenues and
profitability constituted a triggering event requiring the Company to perform its impairment testing at an interim date of November 30, 2009.

The Company used a combination of the income approach and the market approach to test for goodwill impairment as of the Valuation Date.
Each approach was assigned equal weight when valuing each of the reporting units. The Company considered the relative strengths and weaknesses inherent in the methodologies utilized in each approach and consulted with a third party valuation
specialist to assist in determining the appropriate weighting.

The income approach is based upon discounted future cash flow
that is generated by each respective reporting unit that utilizes estimates in annual revenue growth, earnings before interest, taxes depreciation and amortization (EBITDA), EBITDA margin and long-term growth for determining terminal
value. These estimates consider all pertinent factors related to each respective reporting units industry, as well as general overall economic conditions.

The market approach calculates fair value based upon market multiples realized in actual arms length transactions. Information related to
market transactions can be obtained from a variety of sources including, but not limited to: Factset Research Systems, Hoovers and the Edgar Filings for comparable companies.

The income approach uses a discounted cash flow model for each reporting unit. The projected financial results are created from
managements critical assumptions and estimates. Annual revenue growth is primarily driven by managements revenue growth projections based upon current and historical financial information as well as expected market conditions. Management
projected EBITDA for each reporting unit. The revenue, EBITDA together with assumptions for working capital, depreciation and capital expenditures were used to calculate the cash flow generated by the reporting unit. The terminal value was
calculated using a Gordon Growth model and EBITDA exit multiple. The Gordon Growth Model is based on an expected long-term growth and discount rate for the reporting units. The value of the terminal value was also calculated based on an EBITDA exit
multiple. Terminal value EBITDA multiples ranged from 4.5 to 5.0 for each reporting unit at November 30, 2009. Discount rates ranged from 15.5% to 17.5% for each reporting unit at November 30, 2009. These discount rates utilized in the
income approach were based on a weighted average cost of capital utilizing market and empirical inputs. The Company reviewed its original assumptions at January 31, 2010 to ensure consistency with its interim report and no changes were deemed
necessary.

Impairment of Long-Lived Assets

In accordance with the guidance issued by the FASB, long-lived assets such as fixed assets, and purchased intangibles subject to
amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the assets. The Company did not have any impairment charges in fiscal 2009 and fiscal 2008. The average useful life of the Companys purchased intangibles subject to amortization is 3.4 years.

Valuation of Stock Options and Warrants

For purposes of computing the value of stock options and warrants, various valuation methods and assumptions can be used. The selection of
a different valuation method or use of different assumptions may result



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



in a value that is significantly different from that computed by the Company. For the calculation of stock-based compensation expense in accordance with guidance issued by the FASB, we utilize
the Black-Scholes method to determine the fair value of stock options.

Income Taxes

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

Net Earnings (Loss) Per Share

Basic income (loss) per common share is computed by dividing the net income (loss) attributable to common stockholders by the weighted
average number of shares of common stock outstanding during each period.

Diluted earnings per share is calculated by dividing
net earnings by the weighted average number of shares of common stock outstanding and all dilutive potential common shares that were outstanding during the period. The Company excludes outstanding stock options, and warrants to purchase common
stock, and common stock subject to repurchase or which has been issued, but has not vested, from the calculation of diluted earnings per common share in cases where the inclusion of such securities would be antidilutive.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



The following table sets forth the computation of basic and diluted earnings (loss) per
share for fiscal 2009, 2008 and 2007:



|                                                          |  |                               |        |   |      |   |        |  |   |         |  
|--------------------------------------------------------- |  | ----------------------------- | ------ | - | ---- | - | ------ |  | - | ------- | -
|                                                          |  | Fiscal year ended January 31, |       
|                                                          |  | 2010                          |        |   | 2009 |   | 2008   | 
|Basic                                                     |  |                               |        |   |      |   |        |  |   |         |  
|Numerator:                                                |  |                               |        |   |      |   |        |  |   |         |  
|Income (loss) before extraordinary item                   |  | $                             | (4,883 | ) |      | $ | 10,435 |  | $ | (70,072 | )
|Extraordinary gain (See Note 6)                           |  |                               |       |   |      |   |       |  |   | 5,680   |  
|                                                          |  |                               |        |   |      |   |        |  |   |         |  
|Income (loss)                                             |  | $                             | (4,883 | ) |      | $ | 10,435 |  | $ | (64,392 | )
|Denominator:                                              |  |                               |        |   |      |   |        |  |   |         |  
|Weighted-average common shares                            |  |                               | 11,526 |   |      |   | 13,329 |  |   | 13,362  |  
|                                                          |  |                               |        |   |      |   |        |  |   |         |  
|Weighted-average basic shares outstanding                 |  |                               | 11,526 |   |      |   | 13,329 |  |   | 13,362  |  
|Earnings (loss) per basic share before extraordinary item |  | $                             | (0.42  | ) |      | $ | 0.78   |  | $ | (5.24   | )
|Extraordinary item per share                              |  |                               |       |   |      |   |       |  |   | 0.43    |  
|                                                          |  |                               |        |   |      |   |        |  |   |         |  
|Earnings (loss) per basic share                           |  | $                             | (0.42  | ) |      | $ | 0.78   |  | $ | (4.82   | )
|                                                          |  |                               |        |   |      |   |        |  |   |         |  
|Diluted                                                   |  |                               |        |   |      |   |        |  |   |         |  
|Numerator:                                                |  |                               |        |   |      |   |        |  |   |         |  
|Income (loss) before extraordinary item                   |  | $                             | (4,883 | ) |      | $ | 10,435 |  | $ | (70,072 | )
|Extraordinary gain (See Note 6)                           |  |                               |       |   |      |   |       |  |   | 5,680   |  
|                                                          |  |                               |        |   |      |   |        |  |   |         |  
|Income (loss)                                             |  | $                             | (4,883 | ) |      | $ | 10,435 |  | $ | (64,392 | )
|Denominator:                                              |  |                               |        |   |      |   |        |  |   |         |  
|Weighted-average common shares                            |  |                               | 11,526 |   |      |   | 13,329 |  |   | 13,362  |  
|Weighted-average common shares subject to repurchase      |  |                               |       |   |      |   | 85     |  |   |        |  
|                                                          |  |                               |        |   |      |   |        |  |   |         |  
|Weighted-average diluted shares outstanding               |  |                               | 11,526 |   |      |   | 13,414 |  |   | 13,362  |  
|Earnings per diluted share before extraordinary item      |  | $                             | (0.42  | ) |      | $ | 0.78   |  | $ | (5.24   | )
|Extraordinary item per share                              |  |                               |       |   |      |   |       |  |   | 0.43    |  
|                                                          |  |                               |        |   |      |   |        |  |   |         |  
|Earnings per diluted share                                |  | $                             | (0.42  | ) |      | $ | 0.78   |  | $ | (4.82   | )
|                                                          |  |                               |        |   |      |   |        |  |   |         |  

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

Recently Adopted Accounting Pronouncements

Variable Interest Entities

In June 2009, the FASB issued changes to require an enterprise to perform an analysis to determine whether the enterprises variable
interest or interests give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach
previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur
such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entitys economic performance;
and to require enhanced disclosures that will



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. The guidance became effective for the Company on
February 1, 2010. The adoption of the guidance did not have an impact on the Companys consolidated financial statements.

Codification of GAAP

In June 2009, the FASB issued guidance to establish the Accounting Standards Codification TM (Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, the FASB will issue Accounting Standards
Updates (ASU). ASUs will not be authoritative in their own right as they will only serve to update the Codification. The issuance of SFAS 168 and the Codification does not change GAAP. The guidance became effective for the Company for
the period ending October 31, 2009. The adoption of the guidance did not have an impact on the Companys consolidated financial statements.

Subsequent Events

On July 31, 2009, the Company adopted changes issued by the FASB that establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, the guidance sets forth the period after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company has evaluated subsequent events through the date the financial statements were issued.

Business Combinations

The Company adopted the changes issued by the FASB that requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose additional
information needed to evaluate and understand the nature and financial effect of the business combination.

The Company also
adopted the changes issued by the FASB which requires assets and liabilities assumed in a business combination that arise from contingencies be recognized on the acquisition date at fair value if it is more likely than not that they meet the
definition of an asset or liability; and requires that contingent consideration arrangements of the target assumed by the acquirer be initially measured at fair value.

The guidance is effective for the Companys acquisitions occurring on or after February 1, 2009. The Company applied these new
provisions to two acquisitions that occurred during the year, Rock Coast Media, Inc. and Pixel Bridge, Inc. These acquisitions are more fully disclosed in Note 5 in our Consolidated Financial Statements.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



Noncontrolling Interests

In December 2007, the FASB issued changes to establish accounting and reporting standards for all entities that prepare consolidated
financial statements that have outstanding noncontrolling interests, sometimes called minority interest. These standards require that ownership interests in subsidiaries held by outside parties be clearly identified, labeled and presented in equity
separate from the parents equity; the amount of net income attributable to the parent and the noncontrolling interest be separately presented on the consolidated statement of income; accounting standards applied to changes in a parents
interest be consistently applied; fair value measurement upon deconsolidation of a non-controlling interest be used; and the interests of the noncontrolling owners be already identified and distinguished. The adoption of this guidance had no impact
on the Companys consolidated financial statements.

Intangible Assets

In April 2008, the FASB adopted changes to require companies estimating the useful life of a recognized intangible asset to consider their
historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for entity-specific factors. The
guidance is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively to intangible assets whether acquired before or after the effective date. The Company adopted the guidance on February 1, 2009. The
adoption had no impact on the Companys consolidated financial statements.

Hierarchy of Generally Accepted Accounting Principles
(GAAP)

In May 2008, the FASB issued changes to identify the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP (the GAAP hierarchy). The guidance is effective 60 days following the SECs approval
of the Public Company Accounting Oversight Board amendments to AU section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Management is currently evaluating the guidance and assessing the
impact, if any, on the Companys consolidated financial statements.

Recently Issued Accounting Pronouncements

Revenue Recognition

In September 2009, the FASB issued new revenue recognition guidance on multiple deliverable arrangements. It updates the existing
multiple-element revenue arrangements guidance currently included under the Accounting Standards Codification (ASC) 605-25. The revised guidance primarily provides two significant changes: 1) eliminates the need for objective and
reliable evidence of the fair value for the undelivered element in order for a delivered item to be treated as a separate unit of accounting, and 2) requires the use of the relative selling price method to allocate the entire arrangement
consideration. In addition, the guidance also expands the disclosure requirements for revenue recognition. ASU 2009-13 will be effective for the first annual reporting period beginning on or after fiscal 2011, with early adoption permitted provided
that the revised guidance is retroactively applied to the beginning of the year of adoption. Management is currently evaluating the impact of adopting this guidance on the Companys consolidated financial statements.

Reclassifications

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



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



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

Stock
Options

As more fully described in Note 12, the Company has granted stock options to employees, directors, and
consultants under various stock incentive plans. Stock option expense for fiscal 2009 and fiscal 2008 was $1,411 and $1,591, respectively, of which $962 and $1,202, respectively, was included in operating costs in the Consolidated Statement of
Operations and $449 and $389, respectively, was included in general and administrative expenses in the Consolidated Statement of Operations.

On August 3, 2009, the Companys Board of Directors approved the issuance of approximately 234 stock options each to the CEO
and COO for a total of 468 options. The options have an exercise price of $6.35 and vest ratably over a three year period on each of March 30, 2010, 2011 and 2012. During the fiscal year ending January 31, 2010 (fiscal 2009),
the Company recorded $341 of compensation expense related to these stock option awards.

As of January 31, 2010, the
total unrecognized stock option compensation expense in the aggregate was $2,080. The unrecognized stock option compensation expense is expected to be recognized over a weighted average period of 1.64 years. At January 31, 2010, the
weighted-average remaining contractual term of the outstanding options and fully vested exercisable options was 6.1 and 4.2 years, respectively. The aggregate intrinsic value of the fully vested exercisable in-the-money shares at
January 31, 2010 was approximately $175.

The following is a summary of Alloys stock option activity for fiscal
2009, fiscal 2008 and fiscal 2007:



|                                          |  |                               |   |      |                              |       |         |       |   |                              |   |         |  |       |                              |  |   |      
|----------------------------------------- |  | ----------------------------- | - | ---- | ---------------------------- | ----- | ------- | ----- | - | ---------------------------- | - | ------- |  | ----- | ---------------------------- |  | - | -----
|                                          |  | Fiscal year ended January 31,
|                                          |  | 2010                          |   | 2009 |                              | 2008 
|                                          |  | Options                       |   |      | WeightedAverageExercisePrice |       | Options |       |   | WeightedAverageExercisePrice |   | Options |  |       | WeightedAverageExercisePrice
|Outstanding, beginning of year            |  | 2,290                         |   |      | $                            | 11.76 |         | 1,778 |   |                              | $ | 13.15   |  | 1,693 |                              |  | $ | 13.15
|Options granted                           |  | 471                           |   |      |                              | 6.34  |         | 564   |   |                              |   | 7.36    |  | 309   |                              |  |   | 11.43
|Options exercised                         |  | (6                            | ) |      |                              | 6.66  |         | (3    | ) |                              |   | 6.12    |  | (77   | )                            |  |   | 8.21 
|Options forfeited or expired              |  | (485                          | ) |      |                              | 14.75 |         | (49   | ) |                              |   | 11.88   |  | (147  | )                            |  |   | 12.18
|                                          |  |                               |   |      |                              |       |         |       |   |                              |   |         |  |       |                              |  |   |      
|Outstanding, end of year                  |  | 2,270                         |   |      | $                            | 10.21 |         | 2,290 |   |                              | $ | 11.76   |  | 1,778 |                              |  | $ | 13.15
|                                          |  |                               |   |      |                              |       |         |       |   |                              |   |         |  |       |                              |  |   |      
|Fully vested and exercisable, end of year |  | 1,287                         |   |      | $                            | 12.23 |         | 1,285 |   |                              | $ | 13.88   |  | 1,077 |                              |  | $ | 14.61
|                                          |  |                               |   |      |                              |       |         |       |   |                              |   |         |  |       |                              |  |   |      
|Available for future grants               |  | 1,683                         |   |      |                              |       |         |       |   |                              |   |         |  |       |                              |  |   |      
|                                          |  |                               |   |      |                              |       |         |       |   |                              |   |         |  |       |                              |  |   |      

The total intrinsic value of options exercised during fiscal 2009, fiscal 2008, and fiscal 2007
was $7, $3, and $279, respectively. The total fair value of stock options that vested during fiscal 2009, fiscal 2008, and fiscal 2007 was approximately $1,222, $1,635, and $1,443, respectively.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



The weighted-average fair value of each option as of the grant date was $2.77, $3.02,
and $5.06 for fiscal 2009, fiscal 2008 and fiscal 2007, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:



|                               |  |                               |   |  |            |   |  |            |  
|------------------------------ |  | ----------------------------- | - |  | ---------- | - |  | ---------- | -
|                               |  | Fiscal year ended January 31, |  
|                               |  | 2010                          |   |  | 2009       |   |  | 2008       |  
|Risk-free interest
rates(a)    |  | 2.57                          | % |  | 1.75       | % |  | 4.66       | %
|Expected term of the
option(b) |  | 4.50 years                    |   |  | 4.50 years |   |  | 4.50 years |  
|Expected
volatility(c)         |  | 47.3                          | % |  | 51.6       | % |  | 56.7       | %
|Expected dividend yields       |  |                              |   |  |           |   |  |           |  



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

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

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

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

Summarized information about Alloys stock options outstanding and exercisable at January 31, 2010 is as follows:



|                    |  |             |  |             |  |                      |       |         |       |                      |   |      
|------------------- |  | ----------- |  | ----------- |  | -------------------- | ----- | ------- | ----- | -------------------- | - | -----
|                    |  | Outstanding |  | Exercisable
|Exercise PriceRange |  | Options     |  | AverageLife |  | AverageExercisePrice |       | Options |       | AverageExercisePrice
|$  4.07  $10.50    |  | 1,296       |  | 7.63 years  |  | $                    | 7.15  |         | 468   |                      | $ | 7.75 
|$10.51  $21.00     |  | 886         |  | 4.28 years  |  |                      | 13.19 |         | 730   |                      |   | 13.54
|$21.01  $32.24     |  | 88          |  | 1.59 years  |  |                      | 25.10 |         | 89    |                      |   | 25.10
|                    |  |             |  |             |  |                      |       |         |       |                      |   |      
|$  4.07  $32.24    |  | 2,270       |  | 6.09 years  |  | $                    | 10.21 |         | 1,287 |                      | $ | 12.23
|                    |  |             |  |             |  |                      |       |         |       |                      |   |      

Restricted Stock

As more fully described in Note 12, the Company has awarded restricted shares of common stock to directors and certain employees.
Restricted stock expense for fiscal 2009, fiscal 2008, and fiscal 2007 was $3,853, $2,447, and $2,070, respectively, of which $1,018, $1,188, and $1,085, respectively, was included in operating costs in the Statement of Operations and $2,835,
$1,259, and $985, respectively, was included in general and administrative expenses in the Statement of Operations. The majority of these awards have restrictions tied to continuing employment and vest over periods of up to seven years. The cost of
these awards is calculated based upon the fair market value on the date of grant, net of estimated forfeitures and is expensed ratably over the vesting period. During fiscal 2009, the Company awarded 1,011 restricted shares with a weighted average
life of three years and a fair market value of $5,756.

Of the 1,011 total restricted shares awarded during fiscal 2009,
approximately 224 shares were issued each to the CEO and COO on August 3, 2009. Of the 224 shares awarded to each individual, 48 of each award were immediately vested. The remaining 176 awarded to each will vest ratably over a three year period
on each of



57



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



March 30, 2010, 2011 and 2012. During the fiscal 2009, the Company recorded approximately $1,240 of compensation expense related to these restricted stock awards, of which $610 of
compensation expense related to the shares that vested immediately.

Unearned compensation expense related to restricted stock
grants at January 31, 2010 was $5,520. The expense is expected to be recognized over a weighted-average period of approximately 2.1 years.

The following is a summary of restricted stock activity for fiscal 2009, 2008 and 2007:



|                       |  |             |   |             |                                      |             |        |      |   |                                      |   |        |  |     |                                      |  |   |      
|---------------------- |  | ----------- | - | ----------- | ------------------------------------ | ----------- | ------ | ---- | - | ------------------------------------ | - | ------ |  | --- | ------------------------------------ |  | - | -----
|                       |  | Fiscal 2009 |   | Fiscal 2008 |                                      | Fiscal 2007
|                       |  | Shares      |   |             | Weighted-AverageFair Value Per Share |             | Shares |      |   | Weighted-AverageFair Value Per Share |   | Shares |  |     | Weighted-AverageFair Value Per Share
|Unvested at February 1 |  | 563         |   |             | $                                    | 9.97        |        | 589  |   |                                      | $ | 11.46  |  | 319 |                                      |  | $ | 12.75
|Granted                |  | 1,011       |   |             |                                      | 5.69        |        | 202  |   |                                      |   | 7.34   |  | 324 |                                      |  |   | 10.17
|Vested                 |  | (310        | ) |             |                                      | 9.08        |        | (206 | ) |                                      |   | 11.54  |  | (34 | )                                    |  |   | 11.28
|Forfeited              |  | (17         | ) |             |                                      | 5.87        |        | (22  | ) |                                      |   | 10.81  |  | (20 | )                                    |  |   | 11.34
|                       |  |             |   |             |                                      |             |        |      |   |                                      |   |        |  |     |                                      |  |   |      
|Unvested at January 31 |  | 1,247       |   |             | $                                    | 6.78        |        | 563  |   |                                      | $ | 9.97   |  | 589 |                                      |  | $ | 11.46
|                       |  |             |   |             |                                      |             |        |      |   |                                      |   |        |  |     |                                      |  |   |      

During fiscal 2009, employees surrendered to the
Company approximately 105 shares of common stock to satisfy tax-withholding obligations in connection with the vesting of their restricted stock.

Warrants

The
following table summarizes all warrant activity:



|                               |  |                               |  |      |   |  |      |  
|------------------------------ |  | ----------------------------- |  | ---- | - |  | ---- | -
|                               |  | Fiscal year ended January 31, | 
|                               |  | 2010                          |  | 2009 |   |  | 2008 |  
|Outstanding, beginning of year |  | 255                           |  | 267  |   |  | 280  |  
|Warrants issued                |  |                              |  |     |   |  |     |  
|Warrants exercised             |  |                              |  |     |   |  |     |  
|Warrants canceled or expired   |  |                              |  | (12  | ) |  | (13  | )
|                               |  |                               |  |      |   |  |      |  
|Outstanding, end of year       |  | 255                           |  | 255  |   |  | 267  |  
|                               |  |                               |  |      |   |  |      |  

At January 31, 2010, there were warrants to purchase 255 shares of our common stock outstanding and
exercisable with an average exercise price of $76.52 per share and a weighted average contractual term of 1.98 years.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



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



|                                               |  |             |         |   |      |   |         |  
|---------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | -
|                                               |  | January 31, |        
|                                               |  | 2010        |         |   | 2009 |  
|Fixed assets, at cost                          |  |             |         |   |      |   |         |  
|Computer equipment and software                |  | $           | 12,879  |   |      | $ | 12,004  |  
|Machinery and equipment                        |  |             | 31,852  |   |      |   | 29,656  |  
|Office furniture and fixtures                  |  |             | 2,420   |   |      |   | 2,379   |  
|Leasehold improvements                         |  |             | 2,895   |   |      |   | 2,827   |  
|                                               |  |             |         |   |      |   |         |  
|                                               |  |             | 50,046  |   |      |   | 46,866  |  
|Accumulated depreciation and amortization      |  |             | (27,927 | ) |      |   | (23,686 | )
|                                               |  |             |         |   |      |   |         |  
|                                               |  | $           | 22,119  |   |      | $ | 23,180  |  
|                                               |  |             |         |   |      |   |         |  
|Accrued expenses and other current liabilities |  |             |         |   |      |   |         |  
|Accrued acquisition costs                      |  | $           | 6,605   |   |      | $ | 296     |  
|Accrued compensation and sales commissions     |  |             | 7,279   |   |      |   | 6,121   |  
|Program
accrual(1)                             |  |             | 5,927   |   |      |   | 4,791   |  
|Promotions
accrual(2)                          |  |             | 1,274   |   |      |   | 630     |  
|Other                                          |  |             | 5,773   |   |      |   | 5,844   |  
|                                               |  |             |         |   |      |   |         |  
|                                               |  | $           | 26,858  |   |      | $ | 17,682  |  
|                                               |  |             |         |   |      |   |         |  



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

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



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

Alloy
completed acquisitions during each of the fiscal years 2009, 2008 and 2007, respectively. All of the acquisitions have been accounted for under the purchase method of accounting. The assets acquired and liabilities assumed were recorded at estimated
fair values as determined by Alloys management based on available information and on assumptions as to future operations. The results of operations of the acquired businesses are included in the consolidated financial statements from the dates
of acquisition.

The purchase price allocations for fiscal 2009 acquisitions were accounted for under the new guidance issued
by the FASB and adopted by the Company on February 1, 2009. The most significant change under the new rules is that the Company must apply its best estimates based upon assumptions and profitability projections to record the expected liability
for contingent consideration. The liability, if recorded, becomes part of the Companys purchase price allocation as of the date of the acquisition. These allocations for fiscal 2009 acquisitions are subject to revision based on the final
determination of the fair value of the assets acquired and liabilities assumed as of the recognition date. Any changes subsequent to the Companys final revision are recorded as income or expense dependent upon the nature of the revision.



59



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



A description of certain Alloys acquisitions and their impact in fiscal 2009, 2008
and 2007 is as follows:

Fiscal 2009 Acquisitions

Pixel Bridge, Inc.

On
December 18, 2009, the Company acquired the operating assets of Pixel Bridge Inc. (Pixel Bridge) for cash of $250. Pixel Bridge is a digital agency focused on strategy, creative services and web development.

We may be required to pay contingent payments based on revenue through January 31, 2011. The maximum potential contingent payment is
$1,200. The initial earn out of $300, which was measured on revenue for the fourth quarter of fiscal 2009, was earned by Pixel Bridge and has been appropriately accrued in our consolidated financial statements. We do not expect Pixel Bridge to earn
the second earn out provision that will be measured on revenue for the fiscal year ending January 31, 2011.

In
conjunction with the acquisition, the Company has made a preliminary allocation of purchase price and estimated customer lists to have a fair value of $568 with a three year useful life.

The results of operations of Pixel Bridge, since the date of acquisition have been included in the accompanying consolidated financial
statements. Pixel Bridge is part of the Companys AMP division of its Promotion segment. The acquisition was not considered significant and, as such, pro forma information is not required. Acquisition costs were expensed as incurred and were
not material.

Rock Coast Media, Inc.

On July 1, 2009, the Company acquired the operating assets of Rock Coast Media, Inc. (Rock Coast Media), which provides
online marketing services, including search engine and social media optimization, media planning and buying and site usage analysis.

The Company acquired Rock Coast Medias assets, receiving net cash of $275, subject to a nominal working capital adjustment.

In accordance with the acquisition agreement, the Company may be required to pay contingent payments based on the operating
performance of Rock Coast Media over the next three years. The maximum potential contingent payment is $3,600.

Management
applied reasonable revenue growth projections and certain profitability assumptions and has concluded that, based upon the provisions of the asset acquisition agreement, a contingent payment of approximately $1,351 would most likely be earned over
the course of the agreement, and as a result, the Company recorded the net present value of the potential contingent payment as a liability in the amount of $1,312, of which $305 was recorded as a short-term liability and $1,007 was recorded as a
long-term liability.

In conjunction with the acquisition, the Company has made a preliminary allocation of purchase price and
estimated goodwill with a fair value of $485; non-competition agreements with a fair value of $300 and a useful life of four years; and customer lists with a fair value of $627 and a useful life of three years.

The results of operations of Rock Coast Media, since the date of acquisition have been included in the accompanying consolidated
financial statements. Rock Coast Media is a part of the Companys AMP division of its Promotion segment. The acquisition was not considered significant and, as such, pro forma information is not required. Acquisition costs were expensed as
incurred during the quarter ended July 31, 2009, and were not material.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



Fiscal 2008 Acquisitions

Fulgent Media Group, Inc.

On August 1, 2008, the Company acquired the operating assets of Fulgent Media Group, Inc. (Fulgent), a full-service media
agency which provides media, advertising, research and consulting services. The Company paid cash of $596 to acquire Fulgents assets, subject to a working capital adjustment. The Company also agreed to pay an additional potential earn-out
payment of up to approximately $8,000 based on the EBITDA performance of Fulgent over the next three and one-half years. The earn-out payment is payable annually in cash or a combination of cash and shares of Company common stock, with the maximum
number of shares issuable representing 30% of the earn-out amount. The Company recorded $832 in earnouts for fiscal 2009, of which $227 has been paid. These earnouts have been recorded as goodwill.

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

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

gURL.com

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

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

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

TAKKLE.com

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

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

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



61



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



Fiscal 2007 Acquisitions

Frontline Marketing

On
April 20, 2007, the Company acquired the operating assets of Frontline Marketing, Inc. (Frontline), a national in-store advertising and display network, comprising displays located in approximately 7,900 grocery stores, and certain
assets related thereto from Frontlines shareholders. The Company paid $5,986, including transaction costs, to acquire such assets, of which $1,811 was paid by the issuance of 150 shares of its common stock, subject to a working capital
adjustment. The Company also agreed to pay an additional potential earn-out payment of up to $7,200 based on the EBITDA performance of the acquired assets over the next three years. The earn-out payment is payable at the Companys option in
cash or a combination of cash and shares of its common stock, with the maximum number of shares issuable being 50% of the earn-out amount. Frontline is a part of the Companys Media segment. The Company recorded $7,200 as an earnout for fiscal
2009, of which $1,500 has been paid. This earnout has been recorded as goodwill.

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

Channel One

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

Channel Ones programming is delivered daily during the school year, via satellite, and reaches millions of students. The results of
Channel Ones operations since the date of acquisition have been included in the accompanying consolidated financial statements. During the third and fourth quarter of fiscal 2007, the Company recognized an extraordinary gain of $5,680 (net of
taxes), which is discussed in Note 6. Channel One is a part of the Companys Media segment.



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

Gain
on Sale of Operating Asset

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



62



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



Extraordinary Gain

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



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

Goodwill

A
summary of the Companys goodwill balance at the Valuation Date by operating segment is as follows:



|               |  |                                                    |       
|-------------- |  | -------------------------------------------------- | ------
|               |  | Goodwill Balance atNovember 30, 2009(in thousands)
|Promotion      |  | $                                                  | 28,000
|Media          |  |                                                    | 18,976
|Placement      |  |                                                    | 3,955 
|               |  |                                                    |       
|Total Goodwill |  | $                                                  | 50,931
|               |  |                                                    |       

The percentage by which estimated fair value exceeded
carrying value for each of the Companys reporting units was as follows:



|                  |  |                                         |        |                                   |   |                                                         |  |       |     
|----------------- |  | --------------------------------------- | ------ | --------------------------------- | - | ------------------------------------------------------- |  | ----- | ----
|                  |  | Estimated Fair Valueat November 30,2009 |        | Carrying Value atNovember 30,2009 |   | Percentage of by whichfair value exceededcarrying value | 
|Promotion Non-OCM |  | $                                       | 25,000 |                                   | $ | 8,432                                                   |  | 196.5 | %   
|OCM               |  |                                         | 30,000 |                                   |   | 16,637                                                  |  | 80.3  |     
|Media             |  |                                         | 91,000 |                                   |   | 42,468                                                  |  | 114.3 |     
|Placement         |  |                                         | 9,000  |                                   |   | 10,767                                                  |  | (19.6 | )(1)



|(1) | The Placement reporting unit failed Step I requiring a Step II analysis, the results of which are described in the table below.
|--- | -------------------------------------------------------------------------------------------------------------------------------

The changes in the carrying amount of goodwill for the fiscal years ended January 31, 2010 and January 31, 2009 are as follows:



|                                                                          |  |                               |         |   |      |   |         |  
|------------------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                                          |  | Fiscal year ended January 31, |        
|                                                                          |  | 2010                          |         |   | 2009 |  
|Gross balance, beginning of year                                          |  | $                             | 61,952  |   |      | $ | 61,728  |  
|Goodwill acquired during the year                                         |  |                               | 484     |   |      |   |        |  
|Net adjustments to purchase price of prior
acquisitions(1)                |  |                               | 7,917   |   |      |   | 224     |  
|Impairment of
goodwill(2)                                                 |  |                               | (3,439  | ) |      |   |        |  
|                                                                          |  |                               |         |   |      |   |         |  
|Gross balance, end of the year                                            |  |                               | 66,914  |   |      |   | 61,952  |  
|Accumulated goodwill amortization, prior to the adoption of FASB guidance |  |                               | (11,617 | ) |      |   | (11,617 | )
|                                                                          |  |                               |         |   |      |   |         |  
|Net balance, end of year                                                  |  | $                             | 55,297  |   |      | $ | 50,335  |  
|                                                                          |  |                               |         |   |      |   |         |  



|(1) | In fiscal 2009, the Company recorded contingent payments related to the Frontline acquisition of $7,200 and the Fulgent acquisition of $800. In fiscal 2008, the Company
recorded contingent earn-out payments in the amount of $224.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



|(2) | During the fourth quarter of fiscal 2009, Alloy reviewed its goodwill for impairment, using a discounted cash flow model and a review of general market conditions
impacting Alloy to determine its market value of its reporting units with assigned goodwill. As a result, Alloy recorded an impairment charge totaling $3,439 related to its Placement reporting unit. These charges are included in Alloys
Consolidated Statement of Operations as special charges.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Intangible Assets Related to Businesses Acquired

The acquired intangible assets as of January 31, 2010 and January 31, 2009 are as follows:



|                                    |  |                               |        |                         |   |        |  |                     |       |                         |   |        |  |   |       |  |   |      
|----------------------------------- |  | ----------------------------- | ------ | ----------------------- | - | ------ |  | ------------------- | ----- | ----------------------- | - | ------ |  | - | ----- |  | - | -----
|                                    |  | Fiscal year ended January 31,
|                                    |  | 2010                          |        | 2009                   
|                                    |  | GrossCarryingAmount           |        | AccumulatedAmortization |   | Net    |  | GrossCarryingAmount |       | AccumulatedAmortization |   | Net   
|Amortizable intangible assets:      |  |                               |        |                         |   |        |  |                     |       |                         |   |        |  |   |       |  |   |      
|Client relationships                |  | $                             | 8,109  |                         | $ | 6,096  |  | $                   | 2,013 |                         | $ | 7,210  |  | $ | 5,265 |  | $ | 1,945
|Noncompetition agreements           |  |                               | 2,288  |                         |   | 1,709  |  |                     | 579   |                         |   | 1,988  |  |   | 1,493 |  |   | 495  
|Websites                            |  |                               | 1,893  |                         |   | 1,069  |  |                     | 824   |                         |   | 1,837  |  |   | 620   |  |   | 1,217
|Mailing lists                       |  |                               | 4,463  |                         |   | 2,682  |  |                     | 1,781 |                         |   | 3,575  |  |   | 1,534 |  |   | 2,041
|Marketing Rights                    |  |                               | 175    |                         |   | 131    |  |                     | 44    |                         |   | 175    |  |   | 73    |  |   | 102  
|                                    |  |                               |        |                         |   |        |  |                     |       |                         |   |        |  |   |       |  |   |      
|                                    |  |                               | 16,928 |                         |   | 11,687 |  |                     | 5,241 |                         |   | 14,785 |  |   | 8,985 |  |   | 5,800
|Indefinite-lived intangible assets: |  |                               |        |                         |   |        |  |                     |       |                         |   |        |  |   |       |  |   |      
|Trademarks(1)                       |  |                               | 1,710  |                         |   |       |  |                     | 1,710 |                         |   | 3,265  |  |   |      |  |   | 3,265
|                                    |  |                               |        |                         |   |        |  |                     |       |                         |   |        |  |   |       |  |   |      
|Total intangible assets             |  | $                             | 18,638 |                         | $ | 11,687 |  | $                   | 6,951 |                         | $ | 18,050 |  | $ | 8,985 |  | $ | 9,065
|                                    |  |                               |        |                         |   |        |  |                     |       |                         |   |        |  |   |       |  |   |      



|(1) | During the fourth quarters of fiscal 2009 and fiscal 2008, respectively, Alloy reviewed its indefinite-lived assets. Estimates of the indefinite-lived assets value were
determined using the income approach. As a result of its review, a $1,555 and $140 impairment charge was recorded, respectively, for fiscal 2009 and fiscal 2008. These impairment charges are included in the special charges line item of the
Consolidated Statements of Operations.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amortization expense related to fiscal 2009, fiscal 2008 and fiscal
2007 was approximately $2,867, $2,073, and $1,739, respectively. The estimated remaining amortization expense for each of the next five fiscal years through the fiscal year ending January 31, 2015 is approximately $2,864, $1,694, $506, $85 and
$13, respectively.



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

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



|                         |  |                                    |   |       |   |           |  |           |       |       |   |   |  |   |      
|------------------------ |  | ---------------------------------- | - | ----- | - | --------- |  | --------- | ----- | ----- | - | - |  | - | -----
|                         |  | Fiscal year ended January 31, 2010
|                         |  | Promotion                          |   | Media |   | Placement |  | Corporate |       | Total
|Impairment of trademarks |  | $                                  |  |       | $ |          |  | $         | 1,555 |       | $ |  |  | $ | 1,555
|Impairment of goodwill   |  |                                    |  |       |   |          |  |           | 3,439 |       |   |  |  |   | 3,439
|                         |  |                                    |   |       |   |           |  |           |       |       |   |   |  |   |      
|Total special charges    |  | $                                  |  |       | $ |          |  | $         | 4,994 |       | $ |  |  | $ | 4,994
|                         |  |                                    |   |       |   |           |  |           |       |       |   |   |  |   |      



64



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



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



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

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

Convertible Debenture Conversions

From August 30, 2006 through December 7, 2006, Alloy entered into agreements with certain holders of its Debentures, pursuant to
which such holders converted approximately $67,903 face amount of their Debentures, in accordance with their terms, into approximately 2,026 shares of Alloy common stock and 4,054 shares of dELiA*s, Inc. common stock.

In July 2008, Alloy entered into an agreement with a holder of its Debentures, pursuant to which such holder agreed to convert
approximately $1,382 face amount of their Debentures, through a combination of cash paid by the Company and 83 shares of dELiA*s, Inc. common stock. The cash paid by the Company related to the face amount of the Debentures totaled $1,240. Alloy also
paid the holder a cash premium for agreeing to convert their Debentures. Accordingly, the Company recorded an expense during the second quarter of fiscal 2008 of approximately $79 related to this conversion. The Companys additional paid-in
capital also increased by $142 as a result of the conversion, which was determined by using the closing price of the dELiA*s Inc. shares.

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



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

Common Stock
TransactionsStock Repurchase Program

All transactions have been recorded as treasury stock in the Companys
consolidated financial statements.

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



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



In December 2008, the Board of Directors authorized an additional $7,000 for use in the
repurchase of the Companys stock. During fiscal 2008, the Company repurchased 1,388 shares for approximately $6,990 under this plan.

In December 2009, the Board of Directors authorized an additional $3,300 for use in the repurchase of the Companys stock. During
fiscal 2009, the Company repurchased 1,155 shares for approximately $6,872 under this plan. At January 31, 2010, the Company had an unused authorization of approximately $3,005.



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

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



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

Stock Options

Alloys shareholders approved the Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (the Stock
Plan) in June 2007. The Stock Plan authorizes the grant of up to 2,000 shares of the Companys common stock for the issuance of stock options, restricted and unrestricted stock awards and other stock-based awards to employees,
directors and consultants of the Company. All of the Companys then-existing stock incentive plans, which in the aggregate as of June 18, 2007 had approximately 1,300 shares available for issuance, were terminated, resulting in a net
increase of approximately 700 shares. However, outstanding options, the exercise of which would allow an aggregate of 504 and 277 shares of Alloys common stock to be acquired by the holders of such options, were issued in fiscal 2006 and
fiscal 2007, respectively, and remain outstanding under the terminated plans.

In June 2009, Alloys shareholders
approved amendments to the Stock Plan. The Stock Plan was renamed the Amended and Restated Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (the Amended and Restated Plan). Among other things, the Amended and
Restated Plan.(i) increase the total number of available shares from 2,000 to 4,000; (ii) delete the limitation that no more than 1,000 shares may be granted as stock grants or other stock-based awards that are deemed full value awards
(Full Value Awards); and (iii) remove the limitation that no more than 150 shares may be granted to any one recipient during any given fiscal year and replace it with the limitation that no more than 350 options to purchase our
common stock may be issued to any recipient during any given fiscal year. Generally shares of common stock reserved for awards under



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



both the Stock Plan and the Amended and Restated Plan that are forfeited or are canceled will be added back to the share reserve available for future awards, but shares of common stock tendered
in payment for an award or shares of common stock withheld for taxes will not be available again for grant. The Amended and Restated Plan is the only plan pursuant to which we issue equity based awards to our employees, directors and consultants.
Pursuant to the terms of the Amended and Restated Plan, as of January 31, 2010, we have approximately 1,683 total shares available for issuance, all of which will be available for issuance as stock options, stock grants or other stock-based
awards.

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

Restricted Stock

In fiscal 2009, fiscal 2008, and fiscal 2007, Alloys Board of Directors authorized the issuance of 1,011, 202 and 324, shares
of common stock, respectively, as restricted stock under our stock-based compensation plans. The shares issued are subject to restrictions on transfer, rights of repurchase by the Company and certain other conditions. During the restriction period,
plan participants are entitled to vote and receive dividends on such shares. Upon authorization of the shares, deferred compensation expense equivalent to the market value of the shares on the respective dates of grant is charged to
stockholders equity and is then amortized to compensation expense over the vesting periods. Refer to Note 3 for additional information regarding restricted stock.



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

The
components of net income tax expense consist of the following for fiscal 2009, fiscal 2008, and fiscal 2007:



|                       |  |                               |       |   |      |   |      |  |   |    
|---------------------- |  | ----------------------------- | ----- | - | ---- | - | ---- |  | - | ---
|                       |  | Fiscal year ended January 31,
|                       |  | 2010                          |       |   | 2009 |   | 2008
|Current:               |  |                               |       |   |      |   |      |  |   |    
|State                  |  | $                             | 422   |   |      | $ | 419  |  | $ | 481
|Federal                |  |                               | (580  | ) |      |   | 65   |  |   |   
|                       |  |                               |       |   |      |   |      |  |   |    
|Total current          |  |                               | (158  | ) |      |   | 484  |  |   | 481
|                       |  |                               |       |   |      |   |      |  |   |    
|Deferred:              |  |                               |       |   |      |   |      |  |   |    
|State                  |  |                               | 400   |   |      |   |     |  |   |   
|Federal                |  |                               | 2,268 |   |      |   |     |  |   |   
|                       |  |                               |       |   |      |   |      |  |   |    
|Total deferred         |  |                               | 2,668 |   |      |   |     |  |   |   
|                       |  |                               |       |   |      |   |      |  |   |    
|Net income tax expense |  | $                             | 2,510 |   |      | $ | 484  |  | $ | 481
|                       |  |                               |       |   |      |   |      |  |   |    



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



For fiscal 2009, fiscal 2008 and fiscal 2007, the difference between the total expected
tax benefit or expense using the statutory rates of 34%, 34% and 34%, respectively, and tax expense (benefit) is as follows:



|                                        |  |                               |    |  |       |   |  |       |   
|--------------------------------------- |  | ----------------------------- | -- |  | ----- | - |  | ----- | --
|                                        |  | Fiscal year ended January 31, |   
|                                        |  | 2010                          |    |  | 2009  |   |  | 2008  |   
|Computed expected tax (benefit) expense |  | (34.0                         | )% |  | 34.0  | % |  | (34.0 | )%
|State taxes, net of federal benefit     |  | 11.8                          |    |  | 2.5   |   |  | 0.4   |   
|Goodwill impairment                     |  | 71.7                          |    |  |      |   |  | 18.4  |   
|ISO stock-based compensation expense    |  | 9.2                           |    |  | 3.7   |   |  | 0.7   |   
|Non-deductible expenses                 |  | 6.3                           |    |  | 1.6   |   |  | 0.2   |   
|FIN 48 de-recognition                   |  | (18.4                         | )  |  |      |   |  |      |   
|Change in valuation allowance           |  | 58.0                          |    |  | (38.2 | ) |  | 14.4  |   
|All other individually less than 5%     |  | 1.4                           |    |  | 0.8   |   |  | 0.6   |   
|                                        |  |                               |    |  |       |   |  |       |   
|Total effective tax rate                |  | 106.0                         | %  |  | 4.4   | % |  | 0.7   | % 
|                                        |  |                               |    |  |       |   |  |       |   

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



|                                                  |  |             |         |   |      |   |         |  
|------------------------------------------------- |  | ----------- | ------- | - | ---- | - | ------- | -
|                                                  |  | January 31, |        
|                                                  |  | 2010        |         |   | 2009 |  
|Deferred tax assets:                              |  |             |         |   |      |   |         |  
|Accruals and reserves                             |  | $           | 1,672   |   |      | $ | 2,880   |  
|Other                                             |  |             |        |   |      |   | 144     |  
|Deferred compensation                             |  |             | 2,483   |   |      |   | 1,297   |  
|Identifiable intangible assets                    |  |             | 2,639   |   |      |   | 1,850   |  
|Goodwill                                          |  |             | 6,944   |   |      |   | 6,946   |  
|Net operating loss and capital loss carryforwards |  |             | 12,867  |   |      |   | 7,551   |  
|                                                  |  |             |         |   |      |   |         |  
|Gross deferred tax assets                         |  |             | 26,605  |   |      |   | 20,668  |  
|Valuation allowance                               |  |             | (22,566 | ) |      |   | (17,564 | )
|                                                  |  |             |         |   |      |   |         |  
|Total deferred tax assets                         |  |             | 4,039   |   |      |   | 3,104   |  
|                                                  |  |             |         |   |      |   |         |  
|Deferred tax liabilities:                         |  |             |         |   |      |   |         |  
|Plant and Equipment                               |  |             | (3,980  | ) |      |   | (3,104  | )
|Other                                             |  |             | (59     | ) |      |   |        |  
|Goodwill                                          |  |             | (2,668  | ) |      |   |        |  
|                                                  |  |             |         |   |      |   |         |  
|Total deferred tax liabilities                    |  |             | (6,707  | ) |      |   | (3,104  | )
|                                                  |  |             |         |   |      |   |         |  
|Net deferred tax liabilities                      |  | $           | (2,668  | ) |      | $ |        |  
|                                                  |  |             |         |   |      |   |         |  

As a result of certain realization requirements of the guidance issued by the FASB, certain deferred tax
assets that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting are excluded from the total deferred tax assets. As of January 31, 2010, approximately $1,670 of the
federal net operating loss carryforwards are related to the exercise of employee stock options, and the Company will record a tax benefit of approximately of $568 through capital in excess of par value if such losses are realized.

For federal income tax purposes, Alloy has unused NOL carryforwards of approximately $32,577 at January 31, 2010 that will expire at
various dates through 2029.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



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

The Company has fully reserved for the net deferred tax assets at January 31, 2010 and 2009. In fiscal 2009, the Company increased
its valuation allowance to fully reserve for deferred tax assets related to goodwill where a corresponding deferred tax liability exists. As a result, the valuation allowance increased by $5,002 during fiscal 2009 and decreased by $5,014 during
fiscal 2008.

Accounting for Uncertainty in Income Taxes

As a result of the Companys implementation of the guidance regarding accounting for uncertainty in income taxes issued by the
FASB, during the first quarter of fiscal 2007, the total amount of gross tax benefits, excluding the offsetting full valuation allowance, that became unrecognized, was approximately $7,136. No accrued interest or penalties resulted from such
unrecognized tax benefits. As of January 31, 2010, the total amount of gross unrecognized tax benefits was $1,379, and accrued interest and penalties on such unrecognized tax benefits were $0. The following is a tabular reconciliation of the
total amounts of unrecognized tax benefits for fiscal 2009:



|                                          |  |             |        |  
|----------------------------------------- |  | ----------- | ------ | -
|                                          |  | Fiscal 2009 |       
|Beginning of year balance                 |  | $           | 8,397  |  
|Increases in prior period tax positions   |  |             | 216    |  
|Decreases in prior period tax positions   |  |             |       |  
|Increases in current period tax positions |  |             |       |  
|Settlements                               |  |             |       |  
|Lapse of statute of limitations           |  |             | (6,416 | )
|                                          |  |             |        |  
|End of year balance                       |  | $           | 2,197  |  
|                                          |  |             |        |  

For fiscal 2009, the Companys income tax provision included $216 of expense related to uncertain tax
positions, including $110 related to interest and penalties. The net unrecognized tax benefits, that if recognized, would impact the effective tax rate as of January 31, 2010 is $817 due to the effect of the full net deferred tax asset
valuation allowance.

At this time, the Company believes that it is reasonably possible that approximately $0 of the estimated
unrecognized tax benefits as of January 31, 2010 will be recognized within the next twelve months based on the expiration of statutory review periods.

The Company is currently undergoing a state income tax audit for the tax years ending January 31, 2005 through January 31,
2008. The Company believes that the results of the current or any prospective audits will not have a material effect on its financial position or results of operations.



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



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

On
August 15, 2007, the Company entered into a credit agreement with Bank of America, N.A, which was further amended and restated on April 9, 2009 (the Credit Facility).

On January 13, 2010, the Company gave notice to Bank of America of its intent to terminate the Credit Facility effective as of January
20, 2010. No penalties or termination fees were payable by the Company in connection with the termination of the Credit Facility. The Company filed a Form 8-K announcing its decision.



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

Leases

Alloy
leases office space, warehouse space and certain office equipment under noncancellable leases with various expiration dates through 2015. As of January 31, 2010, future net minimum lease payments were as follows:



|                               |  |               |    |                 |   |       
|------------------------------ |  | ------------- | -- | --------------- | - | ------
|Fiscal year ending January 31, |  | CapitalLeases |    | OperatingLeases
|2011                           |  | $             | 15 |                 | $ | 3,498 
|2012                           |  |               | 2  |                 |   | 3,426 
|2013                           |  |               |   |                 |   | 3,064 
|2014                           |  |               |   |                 |   | 1,945 
|2015                           |  |               |   |                 |   | 844   
|Thereafter                     |  |               |   |                 |   | 2,125 
|                               |  |               |    |                 |   |       
|Total minimum lease payments   |  | $             | 17 |                 | $ | 14,902
|                               |  |               |    |                 |   |       
|Imputed interest               |  |               | 1  |                 |   |       
|                               |  |               |    |                 |   |       
|Capital lease obligations      |  | $             | 16 |                 |   |       
|                               |  |               |    |                 |   |       

Rent expense was approximately $4,456, $4,161 and $4,202 for fiscal 2009, 2008, and 2007,
respectively, under noncancellable operating leases.

Other

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

Litigation

On or about November 5, 2001, a putative class action complaint was filed in the United States District Court for the Southern
District of New York naming as defendants Alloy, specified company officers and investment banks, including James K. Johnson, Jr., Matthew C. Diamond, BancBoston Robertson Stephens, Volpe Brown Whelan and Company, Dain Rauscher Wessel and Ladenburg
Thalmann & Co., Inc. The complaint purportedly was filed on behalf of persons purchasing the Companys stock between May 14, 1999 and December 6, 2000, and alleged violations of Sections 11, 12(a)(2) and 15 of the Securities
Act, Section 10(b) of



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



the Exchange Act and Rule 10b-5 promulgated thereunder. On April 19, 2002, the plaintiffs amended the complaint to assert violations of Section 10(b) of the Exchange Act. The claims
mirror allegations asserted against scores of other issuers. Pursuant to an omnibus agreement negotiated with representatives of the plaintiffs counsel, Messrs. Diamond and Johnson were dismissed from the litigation without prejudice. By
opinion and order dated February 19, 2003, the District Court denied in part and granted in part a global motion to dismiss filed on behalf of all issuers. With respect to Alloy, the Court dismissed the Section 10(b) claim and let the
plaintiffs proceed on the Section 11 claim. In June 2004, as a result of a mediation, a settlement agreement was executed on behalf of the issuers (including Alloy), insurers and plaintiffs and submitted to the Court. While final approval of
the settlement was pending, on December 5, 2006, the U.S. Court of Appeals for the Second Circuit vacated the District Courts class certification order with respect to nine focus group cases and remanded the matter for further
consideration. On June 25, 2007, as a result of the Second Circuits decision, the settlement agreement was terminated. On August 14, 2007, plaintiffs filed second amended complaints against nine focus group issuers. By opinion and
order dated March 26, 2008, the District Court denied in part and granted in part motions to dismiss the amended complaints. Specifically, the District Court dismissed claims brought under Section 11 of the Securities Act by those
plaintiffs who sold their securities for a price in excess of the initial offering price and claims brought by plaintiffs who purchased securities outside of the previously certified class period and denied the remainder of the motions. After many
months of negotiation, on April 2, 2009, the representative class plaintiffs and the defendants filed a Notice of Motion for Preliminary Approval of Settlement accompanied by a global Stipulation and Agreement of Settlement. The proposed
Settlement provides that all claims against the issuers and underwriters will be dismissed with prejudice in exchange for the aggregate payment of $586 million. Under the terms of the proposed Settlement, neither the Company nor Messrs. Johnson or
Diamond are required to pay any portion of the $586 million payment. The proposed Settlement is subject to numerous contingencies, including, but not limited to, preliminary Court approval, certification of a settlement class and final approval
after providing members of the plaintiff class with notice. On or about June 10, 2009, the Court granted Plaintiffs motion for an order: (i) preliminarily approving the proposed stipulation; (ii) certifying the Settlement
classes for the purposes of the proposed stipulation only; (iii) approving the form and program of class notice described in the stipulation; and (iv) scheduling a hearing before the Court to determine whether the proposed stipulation
should be finally approved. On October 5, 2009, the Court granted final approval of the settlement. Various members of the plaintiff class have filed notices of appeal seeking to challenge the terms of the settlement. At this point, there can
be no assurance that the settlement will be affirmed.

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



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

Supplemental information on cash flows is summarized as follows:



|                                                                      |  |                               |     |      |   |      |  |   |      
|--------------------------------------------------------------------- |  | ----------------------------- | --- | ---- | - | ---- |  | - | -----
|                                                                      |  | Fiscal year ended January 31,
|                                                                      |  | 2010                          |     | 2009 |   | 2008
|Cash paid for:                                                        |  |                               |     |      |   |      |  |   |      
|Interest                                                              |  | $                             |    |      | $ | 74   |  | $ | 75   
|Income taxes                                                          |  |                               | 415 |      |   | 351  |  |   | 734  
|                                                                      |  |                               |    
|Non-cash investing and financing activities:                          |  |                               |     |      |   |      |  |   |      
|Issuance of common stock and warrants in connection with acquisitions |  |                               |    |      |   |     |  |   | 1,811
|Issuance of common stock pursuant to Sconex earn-out agreement        |  |                               |    |      |   |     |  |   | 788  
|Issuance of restricted stock pursuant to Sconex earn-out agreement    |  |                               |    |      |   |     |  |   | 109  



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



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

The
guidance issued by the FASB establishes standards for reporting information about operating segments. This standard requires segmentation based on internal organization and reporting of revenue and operating income based upon internal accounting
methods. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or CODM, in deciding how to allocate resources and in
assessing performance.

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

Alloys management reviews financial information related to these reportable segments and uses the measure of income from operations
to evaluate performance and allocated resources. Reportable data for Alloys segments were as follows as of and for the fiscal years ended January 31, 2010, 2009, and 2008:



|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|----------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                    |  | Fiscal year ended January 31, |        
|                                    |  | 2010                          |         |   | 2009 |   |         | 2008 | 
|Revenue:                            |  |                               |         |   |      |   |         |      |  |   |         |  
|Promotion                           |  | $                             | 80,844  |   |      | $ | 83,516  |      |  | $ | 83,405  |  
|Media                               |  |                               | 85,127  |   |      |   | 81,188  |      |  |   | 62,780  |  
|Placement                           |  |                               | 39,127  |   |      |   | 52,222  |      |  |   | 52,911  |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Total revenue                       |  | $                             | 205,098 |   |      | $ | 216,926 |      |  | $ | 199,096 |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Operating income (loss):            |  |                               |         |   |      |   |         |      |  |   |         |  
|Promotion                           |  | $                             | 6,971   |   |      | $ | 7,723   |      |  | $ | 9,228   |  
|Media                               |  |                               | 9,480   |   |      |   | 11,466  |      |  |   | (49,462 | )
|Placement                           |  |                               | (3,547  | ) |      |   | 4,186   |      |  |   | (17,889 | )
|Corporate                           |  |                               | (15,283 | ) |      |   | (12,599 | )    |  |   | (11,942 | )
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Total operating income (loss)       |  |                               | (2,379  | ) |      |   | 10,776  |      |  |   | (70,065 | )
|Interest expense, net               |  |                               | 15      |   |      |   | 161     |      |  |   | 968     |  
|Other items, net                    |  |                               | (9      | ) |      |   | (18     | )    |  |   | (494    | )
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes   |  | $                             | (2,373  | ) |      | $ | 10,919  |      |  | $ | (69,591 | )
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization:      |  |                               |         |   |      |   |         |      |  |   |         |  
|Promotion                           |  | $                             | 1,024   |   |      | $ | 906     |      |  | $ | 904     |  
|Media                               |  |                               | 5,338   |   |      |   | 4,550   |      |  |   | 3,310   |  
|Placement                           |  |                               | 25      |   |      |   | 32      |      |  |   | 33      |  
|Corporate                           |  |                               | 905     |   |      |   | 941     |      |  |   | 833     |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Total depreciation and amortization |  | $                             | 7,292   |   |      | $ | 6,429   |      |  | $ | 5,080   |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Stock-based compensation:           |  |                               |         |   |      |   |         |      |  |   |         |  
|Promotion                           |  | $                             | 517     |   |      | $ | 652     |      |  | $ | 632     |  
|Media                               |  |                               | 1,319   |   |      |   | 1,575   |      |  |   | 1,619   |  
|Placement                           |  |                               | 164     |   |      |   | 193     |      |  |   | 159     |  
|Corporate                           |  |                               | 3,264   |   |      |   | 1,621   |      |  |   | 1,335   |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  
|Total stock-based compensation      |  | $                             | 5,264   |   |      | $ | 4,041   |      |  | $ | 3,745   |  
|                                    |  |                               |         |   |      |   |         |      |  |   |         |  



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



|                |  |                |         |      |   |         |  |   |        
|--------------- |  | -------------- | ------- | ---- | - | ------- |  | - | -------
|                |  | At January 31,
|                |  | 2010           |         | 2009 |   | 2008   
|Total assets:   |  |                |         |      |   |         |  |   |        
|Promotion       |  | $              | 35,949  |      | $ | 34,045  |  | $ | 34,478 
|Media           |  |                | 77,909  |      |   | 70,332  |  |   | 64,750 
|Placement       |  |                | 11,085  |      |   | 17,711  |  |   | 21,262 
|Corporate       |  |                | 33,195  |      |   | 38,631  |  |   | 27,926 
|                |  |                |         |      |   |         |  |   |        
|Total assets    |  | $              | 158,138 |      | $ | 160,719 |  | $ | 148,416
|                |  |                |         |      |   |         |  |   |        
|Total goodwill: |  |                |         |      |   |         |  |   |        
|Promotion       |  | $              | 24,826  |      | $ | 23,509  |  | $ | 23,414 
|Media           |  |                | 29,955  |      |   | 22,871  |  |   | 22,742 
|Placement       |  |                | 516     |      |   | 3,955   |  |   | 3,955  
|                |  |                |         |      |   |         |  |   |        
|Total goodwill  |  | $              | 55,297  |      | $ | 50,335  |  | $ | 50,111 
|                |  |                |         |      |   |         |  |   |        



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

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



|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|--------------------------------- |  | ---------------------------------- | ------ | - | ------------- | - | ------ | ------------ |  | - | ---------------- | - |  | -------------- | ------ | - |  | - | ------- | -
|                                  |  | Fiscal year ended January 31, 2010 |       
|                                  |  | FirstQuarter                       |        |   | SecondQuarter |   |        | ThirdQuarter |  |   | FourthQuarter(1) |   |  | Full YearTotal |       
|Revenue                           |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Promotion                         |  | $                                  | 15,066 |   |               | $ | 27,155 |              |  | $ | 24,002           |   |  | $              | 14,621 |   |  | $ | 80,844  |  
|Media                             |  |                                    | 18,462 |   |               |   | 20,167 |              |  |   | 24,580           |   |  |                | 21,918 |   |  |   | 85,127  |  
|Placement                         |  |                                    | 9,450  |   |               |   | 6,900  |              |  |   | 13,349           |   |  |                | 9,428  |   |  |   | 39,127  |  
|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Total revenue                     |  | $                                  | 42,978 |   |               | $ | 54,222 |              |  | $ | 61,931           |   |  | $              | 45,967 |   |  | $ | 205,098 |  
|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Operating income (loss)           |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Promotion                         |  | $                                  | (200   | ) |               | $ | 3,557  |              |  | $ | 2,933            |   |  | $              | 681    |   |  | $ | 6,971   |  
|Media                             |  |                                    | 869    |   |               |   | 2,132  |              |  |   | 4,986            |   |  |                | 1,493  |   |  |   | 9,480   |  
|Placement                         |  |                                    | 233    |   |               |   | 14     |              |  |   | 1,047            |   |  |                | (4,841 | ) |  |   | (3,547  | )
|Corporate                         |  |                                    | (3,471 | ) |               |   | (3,658 | )            |  |   | (4,355           | ) |  |                | (3,799 | ) |  |   | (15,283 | )
|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Total operating income (loss)     |  | $                                  | (2,569 | ) |               | $ | 2,045  |              |  | $ | 4,611            |   |  | $              | (6,466 | ) |  | $ | (2,379  | )
|                                  |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Income (loss)                     |  | $                                  | (2,723 | ) |               | $ | 1,954  |              |  | $ | 4,945            |   |  | $              | (9,059 | ) |  | $ | (4,883  | )
|Net income (loss)                 |  | $                                  | (2,723 | ) |               | $ | 1,954  |              |  | $ | 4,945            |   |  | $              | (9,059 | ) |  | $ | (4,883  | )
|Net income (loss) per share from: |  |                                    |        |   |               |   |        |              |  |   |                  |   |  |                |        |   |  |   |         |  
|Basic                             |  | $                                  | (0.22  | ) |               | $ | 0.15   |              |  | $ | 0.38             |   |  | $              | (0.80  | ) |  | $ | (0.42   | )
|Diluted                           |  | $                                  | (0.22  | ) |               | $ | 0.15   |              |  | $ | 0.38             |   |  | $              | (0.80  | ) |  | $ | (0.42   | )



|(1) | During the fourth quarter of fiscal 2009, the Company recorded impairment charges of $4,994 in its Placement segment related to its goodwill and intangibles. These
charges are more fully discussed in Note 8. In addition, the Company recorded $2,668 of income tax expense related to differences between book and tax basis of net assets acquired in a prior year acquisition.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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ALLOY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

(In thousands, except per share amounts)



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



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

|(2) | During the fourth quarter of fiscal 2008, the Company recorded a $5,800 gain on the sale of operating assets related to the sale of its CCS domain name and related
assets. This is more fully discussed in Note 6.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

None.



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

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Annual Report on Form 10-K. Based upon such evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that, as of the end of such period, January 31, 2010, the Companys disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we
file or submit under the Exchange Act is made known to management, including our Chief Executive Officer and Chief Financial Officer, and that such information is recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms.

In designing and evaluating our disclosure controls and procedures, our management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. As such, we believe the Companys controls and procedures are effective at a reasonable assurance level.

Evaluation of Disclosure Controls and Procedures

Subsequent to our original evaluation in connection with the originally-filed quarterly report on Form 10-Q for the quarter ended
October 31, 2009, we determined through an internal review that certain errors occurred in conjunction with our third quarter revenue recognition processes that resulted in material adjustments to our reported third quarter results. As a
result, we have concluded that our disclosure controls and procedures were not effective as of the end of the third quarter of 2009.

Our management believes that the errors giving rise to the restatement occurred because of the misinterpretation of certain revenue
recognition accounting guidelines and a calculation error that was not detected in the related review and approval process. This control deficiency resulted in adjustments to the October 31, 2009 unaudited consolidated financial statements.
Accordingly, management has concluded that this control deficiency constituted a material weakness.

The Company has already
remediated this material weakness in internal control over financial reporting by increasing the level of detail in our review of revenue recognition guidelines within the context of our customer contracts and increasing the level of detail in our
review of complex calculations included in our financial statements.

Managements Annual Report on Internal Control Over Financial
Reporting

Managements Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control
system was designed to provide reasonable assurance to the Companys management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed,
have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial



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

Our management assessed the effectiveness of the Companys internal control over financial reporting as of January 31, 2010. In
making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in

Internal ControlIntegrated Framework. Based on our assessment, we believe that, as of January 31, 2010, the Companys internal
control over financial reporting is effective based on those criteria. Our independent registered public accounting firm has issued an audit report on the effectiveness of the Companys internal control over financial reporting as of
January 31, 2010. This report appears below.

April 12, 2010



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Attestation Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Alloy,
Inc.

New York, New York

We have audited Alloy Inc.s internal control over financial reporting as of January 31, 2010, based on criteria established in
Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Alloy Inc.s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Managements Report on Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the companys internal control over financial reporting based on our audit.

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

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

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

In our opinion, Alloy, Inc. maintained, in all material respects, effective internal control over financial
reporting as of January 31, 2010, based on the COSO criteria.

We also have audited, in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Alloy, Inc. as of January 31, 2010 and 2009, and the related consolidated statements of operations, stockholders equity, and
cash flows for each of the three years in the period ended January 31, 2010 and our report dated April 12, 2010 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

New York, New York

April 12, 2010



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Changes in Internal Control Over Financial Reporting

During the quarter ended January 31, 2010, the Company remediated a material weakness in internal control over financial reporting by
increasing the level of detail in our review of revenue recognition guidelines within the context of our customer contracts and increasing the level of detail in our review of complex calculations included in our financial statements.



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

Not applicable.



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PART III



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

The response to this item is incorporated by reference from the discussion responsive thereto under the captions Management
Compliance with Section 16(a) of the Securities Exchange Act of 1934, Code of Business Conduct and Ethics, and Corporate Governance Matters in our definitive Proxy Statement for our 2010 Annual Meeting of
Stockholders, which is expected to be filed with the SEC within 120 days after the end of fiscal 2009.



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

The response to this item is incorporated by reference from the discussion responsive thereto under the caption Executive
Compensation, Compensation Committee Interlocks and Insider Participation, and Compensation Committee Report in our definitive proxy statement for our 2010 Annual Meeting of Stockholders, which is expected to be filed
with the SEC within 120 days after the end of fiscal 2009.



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

The response to this item is incorporated by reference from the discussion responsive thereto under the captions Information About
Alloy Security Ownership and Equity Compensation Plan Information in our definitive proxy statement for our 2010 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of
fiscal 2009.



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

The response to this item is incorporated by reference from the discussion responsive thereto under the captions Certain
Relationships and Related Transactions and Corporate Governance Matters in our definitive proxy statement for our 2010 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of
fiscal 2009.



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

The response to this item is incorporated by reference from the discussion responsive thereto under the caption Independent Public
Accountants in our definitive proxy statement for our 2010 Annual Meeting of Stockholders, which is expected to be filed with the SEC within 120 days after the end of fiscal 2009.



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PART IV



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

(1) Consolidated Financial Statements.

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

(2) Financial Statement Schedules.

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



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SCHEDULE II

ALLOY, INC.

VALUATION AND QUALIFYING ACCOUNTS



|                                             |  |                              |        |           |   |       |                  |  |   |                         |   |  |   |       
|-------------------------------------------- |  | ---------------------------- | ------ | --------- | - | ----- | ---------------- |  | - | ----------------------- | - |  | - | ------
|Description                                  |  | Balance atBeginning ofPeriod |        | Additions |   |       | Usage/Deductions |  |   | Balance atEnd of Period
|Allowance for doubtful accounts:             |  |                              |        |           |   |       |                  |  |   |                         |   |  |   |       
|January 31, 2010                             |  | $                            | 1,757  |           | $ | 201   |                  |  | $ | (1,107                  | ) |  | $ | 851   
|January 31, 2009                             |  |                              | 1,971  |           |   | 450   |                  |  |   | (664                    | ) |  |   | 1,757 
|January 31, 2008                             |  |                              | 2,680  |           |   | (267  | )                |  |   | 442                     |   |  |   | 1,971 
|Valuation allowance for deferred tax assets: |  |                              |        |           |   |       |                  |  |   |                         |   |  |   |       
|January 31, 2010                             |  |                              | 17,564 |           |   | 5,002 |                  |  |   |                        |   |  |   | 22,566
|January 31, 2009                             |  |                              | 22,578 |           |   |      |                  |  |   | (5,014                  | ) |  |   | 17,564
|January 31, 2008                             |  |                              | 15,368 |           |   | 7,210 |                  |  |   |                        |   |  |   | 22,578



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EXHIBIT INDEX



|             |  |                                                                                                                                                                                                                                                                     
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHBITNUMBER |  |                                                                                                                                                                                                                                                                     
|3.1          |  | Restated Certificate of Incorporation of Alloy, Inc., as amended (incorporated by reference to Alloys 2005 Annual Report on Form 10-K filed May 1, 2006).                                                                                                          
|             | 
|3.2          |  | Amended and Restated Bylaws of Alloy, Inc. (incorporated by reference to Alloys Current Report on Form 8-K/A filed October 18, 2007).                                                                                                                              
|             | 
|4.1          |  | Form of Common Stock Certificate (incorporated by reference to Alloys Registration Statement on Form S-1 filed March 10, 1999 (Registration Number
333-74159)).                                                                                                    
|             | 
|4.2          |  | Warrant to Purchase Common Stock, dated as of January 28, 2002, issued by Alloy, Inc. to Fletcher International Ltd. (incorporated by reference to Alloys Current Report on
Form 8-K/A filed February 1, 2002).                                                    
|             | 
|4.3          |  | Stockholder Rights Agreement, dated as of April 14, 2003, between Alloy, Inc. and American Stock Transfer and Trust Company (incorporated by reference to Alloys Current Report
of Form 8-K filed April 14, 2003).                                                 
|             | 
|10.1        |  | Alloy, Inc. Amended and Restated 1997 Employee, Director and Consultant Stock Option and Stock Incentive Plan (incorporated by reference to Alloys 2002 Annual Report on Form
10-K filed May 1, 2003).                                                             
|             | 
|10.1.1      |  | First Amendment to Alloy, Inc. Amended and Restated 1997 Employee, Director and Consultant Stock Option and Stock Incentive Plan (incorporated by reference to Alloys Proxy
Statement on Schedule 14A filed on June 2, 2003).                                      
|             | 
|10.1.2      |  | Second Amendment to Alloy, Inc. Amended and Restated 1997 Employee, Director and Consultant Stock Option and Stock Incentive Plan (incorporated by reference to Alloys
Registration Statement on Form S-8 filed October 17, 2003 (Registration Number 333-109788)).
|             | 
|10.1.3      |  | Third Amendment to Alloy, Inc. Amended and Restated 1997 Employee, Director and Consultant Stock Option and Stock Incentive Plan (incorporated by reference to Alloys Quarterly
Report on Form 10-Q, filed on December 10, 2004).                                  
|             | 
|10.2        |  | Amended and Restated Alloy, Inc. 2002 Incentive and Non-Qualified Stock Option Plan (incorporated by reference to Alloys 2002 Annual Report on Form 10-K filed May 1, 2003).                                                                                       
|             | 
|10.2.1      |  | First Amendment to Amended and Restated Alloy, Inc. 2002 Incentive and Non-Qualified Stock Option Plan (incorporated by reference to Alloys Registration Statement on Form S-8
filed June 23, 2003 (Registration Number 333-106382)).                              
|             | 
|10.3        |  | Amended and Restated Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (incorporated by reference to Alloys Proxy Statement on Schedule 14A filed on May
28, 2009).                                                                          
|             | 
|10.4        |  | 1999 Employee Stock Purchase Plan (incorporated by reference to Amendment No. 2 to Alloys Registration Statement on Form S-1/ A filed April 22, 1999 (Registration Number
333-74159)).                                                                             
|             | 
|10.5        |  | iTurf Inc. 1999 Amended and Restated Stock Incentive Plan (incorporated by reference to Amendment No. 2 to the iTurf Inc. registration statement on Form S-1/ A filed April 6, 1999
(Registration No. 333-71123)).                                                  
|             | 
|10.5.1      |  | First Amendment to iTurf Inc. Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Alloys Registration Statement on Form S-8 filed October 17, 2003
(Registration Number 333-109788)).                                                     
|             | 
|10.6        |  | Non-Standardized 401(k) Profit Sharing Plan and Trust Adoption Agreement.                                                                                                                                                                                           



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|             |  |                                                                                                                                                                                                                                                                                                        
|------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHBITNUMBER |  |                                                                                                                                                                                                                                                                                                        
|10.7        |  | Form of Nonqualified Stock Option Agreement for Restated 1997 Employee, Director and Consultant Stock Option Plan (incorporated by reference to Alloys Annual Report on Form
10-K filed April 18, 2005).                                                                                              
|             | 
|10.8        |  | Form of Nonqualified Stock Option Agreement for Amended and Restated 2002 Incentive and Non-Qualified Option Plan (incorporated by reference to Alloys Annual Report on Form
10-K filed April 18, 2005).                                                                                              
|             | 
|10.9        |  | Form of Incentive Stock Option Agreement for Restated 1997 Employee, Director and Consultant Stock Option Plan (incorporated by reference to Alloys Annual Report on Form 10-K
filed April 18, 2005).                                                                                                 
|             | 
|10.10       |  | Form of Nonqualified Stock Option Agreement for iTurf Inc. Amended and Restated 1999 Stock Incentive Plan.                                                                                                                                                                                             
|             | 
|10.11       |  | Form of Incentive Stock Option Agreement for iTurf Inc. Amendment and Restated 1999 Stock Incentive Plan.                                                                                                                                                                                              
|             | 
|10.12       |  | Form of Restricted Stock Agreement(1) (incorporated by reference to Alloys Annual Report on Form 10-K filed April 18, 2005).                                                                                                                                                                          
|             | 
|10.13       |  | Form of Restricted Stock Agreement(2) (incorporated by reference to Alloys Annual Report on Form 10-K filed April 18, 2005).                                                                                                                                                                          
|             | 
|10.14       |  | Form of Stock Option Grant Notice and Stock Option Agreement for Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (includes accelerated vesting) (incorporated
by reference to Alloys Quarterly Report on Form 10-Q, filed on September 10, 2007).                             
|             | 
|10.15       |  | Form of Stock Option Grant Notice and Stock Option Agreement for Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (without accelerated vesting) (incorporated
by reference to Alloys Quarterly Report on Form 10-Q, filed on September 10, 2007).                              
|             | 
|10.16       |  | Form of Restricted Stock Grant Notice and Restricted Stock Agreement for Alloy, Inc. 2007 Employee, Director and Consultant Stock Incentive Plan (includes accelerated lapsing of
repurchase rights) (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on September 10, 2007).
|             | 
|10.17       |  | Employment Agreement, dated December 6, 2007, between Matthew C. Diamond and Alloy, Inc. (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December
7, 2007).                                                                                                              
|             | 
|10.18       |  | Non-Competition and Confidentiality Agreement dated November 24, 1998 between Matthew C. Diamond and Alloy Online, Inc. (incorporated by reference to Alloys Registration
Statement on Form S-1 filed March 10, 1999 (Registration Number 333-74159)).                                                
|             | 
|10.19       |  | Employment Agreement, dated December 6, 2007, between James K. Johnson, Jr. and Alloy, Inc. (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on
December 7, 2007).                                                                                                           
|             | 
|10.20       |  | Non-Competition and Confidentiality Agreement dated November 24, 1998 between James K. Johnson, Jr. and Alloy Online, Inc. (incorporated by reference to Alloys Registration
Statement on Form S-1 filed March 10, 1999 (Registration Number 333-74159)).                                             
|             | 
|10.21       |  | Employment Offer Letter dated March 13, 2000 between Joseph D. Frehe and Alloy Online, Inc. (incorporated by reference to Alloys 2007 Annual Report on Form 10-K filed April
15, 2008).                                                                                                               
|             | 
|10.22       |  | Non-Competition and Confidentiality Agreement dated February 21, 2001 between Joseph D. Frehe and Alloy Online, Inc. (incorporated by reference to Alloys 2007 Annual
Report on Form 10-K filed April 15, 2008).                                                                                      



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##### Table of Contents

|             |  |                                                                                                                                                                                                         
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHBITNUMBER |  |                                                                                                                                                                                                         
|10.23       |  | Revision to Offer Letter, dated December 6, 2007, between Joseph D. Frehe and Alloy, Inc. (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December
7, 2007).              
|             | 
|10.24       |  | Employment Offer Letter dated February 21, 2001 between Gina DiGioia and Alloy Online, Inc. (incorporated by reference to Alloys 2005 Annual Report on Form 10-K filed May 1,
2006).                   
|             | 
|10.25       |  | Non-Competition and Confidentiality Agreement dated March 13, 2000 between Gina DiGioia and Alloy Online, Inc. (incorporated by reference to Alloys 2005 Annual Report on
Form 10-K filed May 1, 2006).
|             | 
|10.26       |  | Revision to Offer Letter, dated December 6, 2007, between Gina R. DiGioia and Alloy, Inc. (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December
7, 2007).              
|             | 
|10.27       |  | Employment Offer Letter dated May 24, 2000 between Robert Bell and Alloy Online, Inc. (incorporated by reference to Alloys 2000 Annual Report on Form 10-K filed May 1, 2001).                         
|             | 
|10.28       |  | Non-Competition and Confidentiality Agreement dated March 24, 2000 between Robert Bell and Alloy Online, Inc. (incorporated by reference to Alloys 2000 Annual Report on Form
10-K filed May 1, 2001). 
|             | 
|10.29       |  | 2007 Alloy, Inc. Executive Incentive Bonus Plan (incorporated by reference to Alloys Quarterly Report on Form 10-Q, filed on December 7, 2007).                                                        
|             | 
|10.30*      |  | Alloy, Inc. Outside Director Compensation Arrangements for fiscal year ending January 31, 2011.                                                                                                         
|             | 
|10.31*      |  | Alloy, Inc. Compensation Arrangements for Named Executive Officers for fiscal year ending January 31, 2011.                                                                                             
|             | 
|21.1*        |  | Subsidiaries of Alloy, Inc.                                                                                                                                                                             
|             | 
|23.1*        |  | Consent of BDO Seidman, LLP.                                                                                                                                                                            
|             | 
|31.1*        |  | Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                    
|             | 
|31.2*        |  | Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                    
|             | 
|32.1*        |  | Certification of Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                    
|             | 
|32.2*        |  | Certification of Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                    



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

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



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##### Table of Contents

SIGNATURES

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



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

Date: April 12, 2010

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



|                                                   |  |                                                                      |  |               
|-------------------------------------------------- |  | -------------------------------------------------------------------- |  | --------------
|Signature                                          |  | Title                                                                |  | Date          
|                                                   |  |                                                                     
|/s/    MATTHEW C.
DIAMOND Matthew C. Diamond       |  | Chief Executive Officer and Chairman (Principal Executive Officer)   |  | April 12, 2010
|                                                   |  |                                                                     
|/s/    JOSEPH D.
FREHE Joseph D. Frehe             |  | Chief Financial Officer (Principal Financial and Accounting Officer) |  | April 12, 2010
|                                                   |  |                                                                     
|/s/    JAMES K. JOHNSON,
JR. James K. Johnson, Jr. |  | Director and Chief Operating Officer                                 |  | April 12, 2010
|                                                   |  |                                                                     
|/s/    ANTHONY N.
FIORE Anthony N. Fiore           |  | Director                                                             |  | April 12, 2010
|                                                   |  |                                                                     
|/s/    SAMUEL A.
GRADESS Samuel A. Gradess         |  | Director                                                             |  | April 12, 2010
|                                                   |  |                                                                     
|/s/    PETER M.
GRAHAM Peter M. Graham             |  | Director                                                             |  | April 12, 2010
|                                                   |  |                                                                     
|/s/    JEFFREY
HOLLENDER Jeffrey Hollender         |  | Director                                                             |  | April 12, 2010
|                                                   |  |                                                                     
|/s/    EDWARD A.
MONNIER Edward A. Monnier         |  | Director                                                             |  | April 12, 2010
|                                                   |  |                                                                     
|/s/    RICHARD E.
PERLMAN Richard E. Perlman       |  | Director                                                             |  | April 12, 2010



85